10-K 1 a2213190z10-k.htm FORM 10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K


ý

 

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012

OR

o

 

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.: 0-51952



ALLIANCE HOLDINGS GP, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
  03-0573898
(IRS EMPLOYER
IDENTIFICATION NO.)

1717 SOUTH BOULDER AVENUE, SUITE 400, TULSA, OKLAHOMA 74119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(918) 295-1415
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

         Securities registered pursuant to Section 12(b) of the Act: Common Units representing limited partner interests

Title of Each Class   Name of Each Exchange On Which Registered
Common Units   The NASDAQ Stock Market LLC

         Securities registered pursuant to Section 12(g) of the Act: None



         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ýYes    o No

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. oYes    ý No

         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. ýYes    o No

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

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

Large Accelerated Filer ý   Accelerated Filer o   Non-Accelerated Filer o   Smaller Reporting Company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes    ý No

         The aggregate value of the common units held by non-affiliates of the registrant (treating all executive officers, individuals who comprise a group under Rule 13d-5(b) of the Securities Exchange Act of 1934 and directors of the registrant, for this purpose, as if they may be affiliates of the registrant) was approximately $644,735,254 as of June 29, 2012, the last business day of the registrant's most recently completed second fiscal quarter, based on the reported closing price of the common units as reported on the NASDAQ Stock Market LLC on such date.

         As of March 1, 2013, 59,863,000 common units were outstanding.

         DOCUMENTS INCORPORATED BY REFERENCE: None

   


Table of Contents


TABLE OF CONTENTS

 
   
  Page  

PART I

       

Item 1.

 

Business

    1  

Item 1A.

 

Risk Factors

    23  

Item 1B.

 

Unresolved Staff Comments

    46  

Item 2.

 

Properties

    46  

Item 3.

 

Legal Proceedings

    49  

Item 4.

 

Mine Safety Disclosures

    49  

PART II

       

Item 5.

 

Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities

    50  

Item 6.

 

Selected Financial Data

    50  

Item 7.

 

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

    53  

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

    83  

Item 8.

 

Financial Statements and Supplementary Data

    86  

Item 9.

 

Changes in and Disagreements with Accountant on Accounting and Financial Disclosure

    131  

Item 9A.

 

Controls and Procedures

    131  

Item 9B.

 

Other Information

    134  

PART III

       

Item 10.

 

Directors, Executive Officers and Corporate Governance of the General Partner

    135  

Item 11.

 

Executive Compensation

    141  

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters

    158  

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

    161  

Item 14.

 

Principal Accountant Fees and Services

    164  

PART IV

       

Item 15.

 

Exhibits and Financial Statement Schedules

    165  

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FORWARD-LOOKING STATEMENTS

        Certain statements and information in this Annual Report on Form 10-K may constitute "forward-looking statements." These statements are based on our beliefs as well as assumptions made by, and information currently available to, us. When used in this document, the words "anticipate," "believe," "continue," "estimate," "expect," "forecast," "may," "project," "will," and similar expressions identify forward-looking statements. Without limiting the foregoing, all statements relating to our future outlook, anticipated capital expenditures, future cash flows and borrowings and sources of funding are forward-looking statements. These statements reflect our current views with respect to future events and are subject to numerous assumptions that we believe are reasonable, but are open to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements. Among the factors that could cause actual results to differ from those in the forward-looking statements are:

    changes in competition in coal markets and the ARLP Partnership's ability to respond to such changes;
    changes in coal prices, which could affect the ARLP Partnership's operating results and cash flows;
    risks associated with the ARLP Partnership's expansion of its operations and properties;
    legislation, regulations, and court decisions and interpretations thereof, including those relating to the environment, mining, miner health and safety and health care;
    deregulation of the electric utility industry or the effects of any adverse change in the coal industry, electric utility industry, or general economic conditions;
    dependence on significant customer contracts, including renewing customer contracts upon expiration of existing contracts;
    changing global economic conditions or in industries in which the ARLP Partnership's customers operate;
    liquidity constraints, including those resulting from any future unavailability of financing;
    customer bankruptcies, cancellations or breaches to existing contracts, or other failures to perform;
    customer delays, failure to take coal under contracts or defaults in making payments;
    adjustments made in price, volume or terms to existing coal supply agreements;
    fluctuations in coal demand, prices and availability;
    the ARLP Partnership's productivity levels and margins earned on its coal sales;
    unexpected changes in raw material costs;
    unexpected changes in the availability of skilled labor;
    the ARLP Partnership's ability to maintain satisfactory relations with its employees;
    any unanticipated increases in labor costs, adverse changes in work rules, or unexpected cash payments or projections associated with post-mine reclamation and workers' compensation claims;
    any unanticipated increases in transportation costs and risk of transportation delays or interruptions;
    unexpected operational interruptions due to geologic, permitting, labor, weather-related or other factors;
    risks associated with major mine-related accidents, such as mine fires, or interruptions;
    results of litigation, including claims not yet asserted;
    difficulty maintaining the ARLP Partnership's surety bonds for mine reclamation as well as workers' compensation and black lung benefits;
    difficulty in making accurate assumptions and projections regarding pension, black lung benefits and other post-retirement benefit liabilities;
    coal market's share of electricity generation, including as a result of environmental concerns related to coal mining and combustion and the cost and perceived benefits of other sources of electricity, such as natural gas, nuclear energy and renewable fuels;
    uncertainties in estimating and replacing the ARLP Partnership's coal reserves;
    a loss or reduction of benefits from certain tax deductions and credits;

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    difficulty obtaining commercial property insurance, and risks associated with the ARLP Partnership's participation (excluding any applicable deductible) in the commercial insurance property program;
    difficulty in making accurate assumptions and projections regarding future revenues and costs associated with equity investments in companies we do not control; and
    other factors, including those discussed in "Item 1A. Risk Factors" and "Item 3. Legal Proceedings."

        If one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may differ materially from those described in any forward-looking statement. When considering forward-looking statements, you should also keep in mind the risk factors described in "Item 1A.Risk Factors" below. The risk factors could also cause our actual results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

        You should consider the information above when reading any forward-looking statements contained in this Annual Report on Form 10-K; other reports filed by us with the U.S. Securities and Exchange Commission ("SEC"); our press releases; our website http://www.ahgp.com; and written or oral statements made by us or any of our officers or other authorized persons acting on our behalf.

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Significant Relationships Referenced in this Annual Report

    References to "we", "us", "our" or "AHGP" mean Alliance Holdings GP, L.P., individually as the parent company, and not on a consolidated basis.
    References to "AHGP Partnership" mean the business and operations of Alliance Holdings GP, L.P., the parent company, as well as its consolidated subsidiaries, which includes Alliance Resource Management GP, LLC and Alliance Resource Partners, L.P. and its consolidated subsidiaries.
    References to "AGP" mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P., also referred to as our general partner.
    References to "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, the managing general partner of Alliance Resource Partners, L.P.
    References to "SGP" mean Alliance Resource GP, LLC, the special general partner of Alliance Resource Partners, L.P.
    References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.
    References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for operations of Alliance Resource Operating Partners, L.P.


PART I

ITEM 1.    BUSINESS

General

        We are a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol "AHGP." We own, directly and indirectly, 100% of the members' interest in MGP, the managing general partner of ARLP. We completed our initial public offering ("IPO") in May 2006.

        Currently, our only cash-generating assets are our ownership interests in ARLP, which consist of the following:

    a 1.98% general partner interest in ARLP, which we hold through our 100% ownership interest in MGP;
    the incentive distribution rights ("IDRs") in ARLP;
    15,544,169 common units of ARLP, representing approximately 42.2% of the common units of ARLP as of December 31, 2012; and
    a 0.001% managing interest in Alliance Coal, which we hold through our 100% ownership interest in MGP.

        We are owned 100% by our limited partners. Our general partner, AGP, has a non-economic interest in us and is owned by Joseph W. Craft III, the Chairman, President and Chief Executive Officer of AGP as well as the President and Chief Executive Officer and a Director of MGP.

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        The following diagram depicts our organization and ownership as of December 31, 2012:

GRAPHIC

(1)
The units held by SGP and most of the units held by the Management Group (some of whom are current or former members of management) are subject to a transfer restrictions agreement that, subject to a number of exceptions (including certain transfers by Mr. Craft in which the other parties to the agreement are entitled or required to participate), prohibits the transfer of such units unless approved by a majority of the disinterested members of the board of directors of AGP ("Board of Directors") pursuant to certain procedures set forth in the agreement or as otherwise provided in the agreement. Certain provisions of the transfer restrictions agreement may cause the parties to it to comprise a group under Rule 13d-5(b) of the Securities Exchange Act of 1934 ("Exchange Act").

        Our primary business objective is to increase our cash distributions to our unitholders by actively assisting ARLP in executing its business strategy. ARLP's business strategy is to create sustainable, capital-efficient growth in available cash to maximize its distributions to its unitholders.

        The ARLP Partnership is a diversified producer and marketer of coal primarily to major United States ("U.S.") utilities and industrial users. The ARLP Partnership began mining operations in 1971 and, since then, has grown through acquisitions and internal development to become the third-largest coal producer in the eastern U.S. At December 31, 2012, the ARLP Partnership had approximately 919.5 million tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia. Approximately 204.9 million tons of those reserves are leased to White Oak Resources LLC ("White Oak"). For more information on White Oak, please read "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions." In 2012, the ARLP Partnership sold a record

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35.2 million tons of coal and produced a record 34.8 million tons of coal, of which 3.8% was low-sulfur coal, 18.8% was medium-sulfur coal and 77.4% was high-sulfur coal. In 2012, the ARLP Partnership sold 93.1% of its total tons to electric utilities, of which 98.7% was sold to utility plants with installed pollution control devices. These devices, also known as scrubbers, eliminate substantially all emissions of sulfur dioxide. The ARLP Partnership classifies low-sulfur coal as coal with a sulfur content of less than 1%, medium-sulfur coal as coal with a sulfur content of 1% to 2%, and high-sulfur coal as coal with a sulfur content of greater than 2%.

        The ARLP Partnership operates eleven underground mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. The ARLP Partnership also is constructing a new mine in southern Indiana, operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana and is purchasing and funding development of coal reserves, constructing surface facilities and making equity investments in White Oak's new mining complex in southern Illinois. The ARLP Partnership's mining activities are conducted in three geographic regions commonly referred to in the coal industry as the Illinois Basin, Central Appalachian and Northern Appalachian regions. The ARLP Partnership has grown historically, and expects to grow in the future, primarily through expansion of its operations by adding and developing mines and coal reserves in these regions.

        Our internet address is http://www.ahgp.com, and we make available free of charge on our website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and Forms 3, 4 and 5 for our Section 16 filers (and amendments and exhibits, such as press releases, to such filings) as soon as reasonably practicable after we electronically file with or furnish such material to the SEC. Information on our website or any other website is not incorporated by reference into this report and does not constitute a part of this report.

        We file or furnish annual, quarterly and current reports, proxy statements and other documents with the SEC under the Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

Mining Operations

        The ARLP Partnership produces a diverse range of steam coals with varying sulfur and heat contents, which enables it to satisfy the broad range of specifications required by its customers. The following chart summarizes the ARLP Partnership's coal production by region for the last five years.

 
  Year Ended December 31,  
Regions
  2012   2011   2010   2009   2008  
 
  (tons in millions)
 

Illinois Basin

    28.4     25.5     23.7     20.7     20.3  

Central Appalachian

    1.9     2.5     2.3     2.6     3.2  

Northern Appalachian

    4.5     2.8     2.9     2.5     2.9  
                       

Total

    34.8     30.8     28.9     25.8     26.4  
                       

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        The following map shows the location of the ARLP Partnership's mining complexes and projects:

GRAPHIC

    Illinois Basin Operations

        The ARLP Partnership's Illinois Basin mining operations are located in western Kentucky, southern Illinois and southern Indiana. As of February 1, 2013, the ARLP Partnership had 3,002 employees, and it operates seven mining complexes in the Illinois Basin.

        Dotiki Complex.    The ARLP Partnership's subsidiary, Webster County Coal, LLC ("Webster County Coal"), operates Dotiki, which is an underground mining complex located near the city of Providence in Webster County, Kentucky. The complex was opened in 1966, and the ARLP Partnership purchased the mine in 1971. The Dotiki complex utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. In connection with transitioning its mining operations from the No. 9 and the No. 11 seams, where it has historically operated, to the No. 13 seam, Dotiki constructed a new preparation plant that became operational in early 2012 and has throughput capacity of 1,800 tons of raw coal per hour. Coal from the Dotiki complex is shipped via the CSX Transportation, Inc. ("CSX") and Paducah & Louisville Railway, Inc. ("PAL") railroads and by truck on U.S. and state highways directly to customers or to various transloading facilities, including the ARLP Partnership's Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") transloading facility, for barge deliveries.

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        Warrior Complex.    The ARLP Partnership's subsidiary, Warrior Coal, LLC ("Warrior"), operates an underground mining complex located near the city of Madisonville in Hopkins County, Kentucky. The Warrior complex was opened in 1985, and the ARLP Partnership acquired it in February 2003. Warrior utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. Warrior completed construction of a new preparation plant in the first quarter of 2009, which has throughput capacity of 1,200 tons of raw coal per hour. Warrior's production can be shipped via the CSX and PAL railroads and by truck on U.S. and state highways directly to customers or to various transloading facilities, including the Mt. Vernon transloading facility, for barge deliveries. In 2011, Warrior acquired the Richland No. 9 Mine ("Richland") located near the Warrior complex. Production from Richland, which began in January 2012, is processed through Warrior's preparation plant, and is expected to be exhausted in 2014.

        Pattiki Complex.    The ARLP Partnership's subsidiary, White County Coal, LLC ("White County Coal"), operates Pattiki, an underground mining complex located near the city of Carmi in White County, Illinois. The ARLP Partnership began construction of the complex in 1980 and has operated it since its inception. The Pattiki complex utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. The preparation plant has throughput capacity of 1,000 tons of raw coal per hour. Coal from the Pattiki complex is shipped via the Evansville Western Railway, Inc. ("EVW") railroad directly, or via connection with the CSX railroad, to customers or to various transloading facilities, including the Mt. Vernon transloading facility, for barge deliveries.

        Hopkins Complex.    The Hopkins complex, which the ARLP Partnership acquired in January 1998, is located near the city of Madisonville in Hopkins County, Kentucky. The ARLP Partnership's subsidiary, Hopkins County Coal, LLC ("Hopkins County Coal") operates the Elk Creek underground mine using continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. Coal produced from the Elk Creek mine is processed and shipped through Hopkins County Coal's preparation plant, which has throughput capacity of 1,200 tons of raw coal per hour. Elk Creek's production can be shipped via the CSX and PAL railroads and by truck on U.S. and state highways directly to customers or to various transloading facilities, including the Mt. Vernon transloading facility, for barge deliveries.

        Gibson Complex.    The ARLP Partnership's subsidiary, Gibson County Coal, LLC ("Gibson County Coal"), operates the Gibson North mine, an underground mine located near the city of Princeton in Gibson County, Indiana. The Gibson North mine began production in November 2000 and utilizes continuous mining units employing room-and-pillar mining techniques to produce medium-sulfur coal. The Gibson North mine's preparation plant, which is leased from an affiliate, has throughput capacity of 700 tons of raw coal per hour. Production from the Gibson North mine is either shipped by truck on U.S. and state highways or transported by rail on the CSX and Norfolk Southern Railway Company ("NS") railroads directly to customers or to various transloading facilities, including our Mt. Vernon transloading facility, for barge deliveries.

        Gibson County Coal is constructing the Gibson South mine, also located near the city of Princeton in Gibson County, Indiana. The Gibson South mine will be an underground mine and will utilize continuous mining units employing room-and-pillar mining techniques to produce medium-sulfur coal. The Gibson South mine's preparation plant will have throughput capacity of 1,800 tons of raw coal per hour. Production from Gibson South mine will be shipped by truck on U.S. and state highways or transported by rail from the Gibson North rail loadout facility directly to customers or to various transloading facilities, including the ARLP Partnership's Mt. Vernon transloading facility, for barge delivery. Construction of the mine began in 2011, and the ARLP Partnership expects production to begin in the fourth quarter of 2014 and annual production to reach approximately 3.0 to 3.5 million tons in 2015 and approximately 5.2 million tons beginning in 2016. Capital expenditures required to develop the Gibson South mine are estimated to be in the range of approximately $200.0 million to $210.0 million, of which approximately $47.5 million has been incurred as of December 31, 2012. These amounts exclude capitalized interest and capitalized mine

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development costs associated with incidental production. (For more information about mine development costs, please read "Mine Development Costs" under "Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies.")

        River View Complex.    In April 2006, the ARLP Partnership acquired River View Coal, LLC ("River View"), which controlled coal reserves located in Union County, Kentucky, from Alliance Resource Holdings, Inc. ("ARH"). In July 2007, the ARLP Partnership began construction of an underground mining complex to access the reserves. Production began in August 2009. River View utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. River View's preparation plant has throughput capacity of 1,800 tons of raw coal per hour. Coal produced from the River View mine is transported by overland belt to a barge loading facility on the Ohio River.

        Sebree Mining Complex.    On April 2, 2012, the ARLP Partnership acquired substantially all of Green River Collieries, LLC's assets related to its coal mining business and operations located in Webster and Hopkins Counties, Kentucky, including the Onton mine. The Onton mine is operated by the ARLP Partnership's subsidiary, Sebree Mining, LLC ("Sebree Mining"). Sebree Mining utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. The Onton mine's preparation plant, which is leased from a third-party, has throughput capacity of 750 tons of raw coal per hour. Coal from the Sebree Mining complex is transported by overland belt to a barge loading facility on the Green River for shipment to customers, or is shipped via truck on U.S. and state highways directly to customers.

        Sebree Mining is in the process of permitting undeveloped reserves in Webster County, Kentucky, which the ARLP Partnership refers to as the "Sebree Reserves", and related property for future development. The ARLP Partnership controls these reserves through its subsidiaries, Alliance Resource Properties, LLC ("Alliance Resource Properties") and ARP Sebree, LLC.

    Central Appalachian Operations

        The ARLP Partnership's Central Appalachian mining operations are located in eastern Kentucky. As of February 1, 2013, the ARLP Partnership had 477 employees, and it operates two mining complexes in Central Appalachia.

        Pontiki Complex.    The Pontiki complex is located near the city of Inez in Martin County, Kentucky. The ARLP Partnership constructed the mine in 1977. The ARLP Partnership's subsidiary, Pontiki Coal, LLC ("Pontiki"), owns the mining complex and controls the reserves, and its subsidiary, Excel Mining, LLC ("Excel"), conducts all mining operations. The underground operation utilizes continuous mining units employing room-and-pillar mining techniques to produce low- and medium-sulfur coal. The preparation plant has throughput capacity of 900 tons of raw coal per hour. Coal produced from the mine is shipped via the NS railroad directly to customers or to various transloading facilities on the Ohio River for barge deliveries, or by truck via U.S. and state highways directly to customers or to various docks on the Big Sandy River for barge deliveries. The complex was idled on August 29, 2012 following a closure order affecting the surface facilities by the Mine Safety and Health Administration ("MSHA"). Operations resumed on November 25, 2012.

        MC Mining Complex.    The MC Mining complex is located near the city of Pikeville in Pike County, Kentucky. The ARLP Partnership acquired the mine in 1989. The ARLP Partnership's subsidiary, MC Mining, LLC ("MC Mining"), owns the mining complex and controls the reserves, and Excel conducts all mining operations. The underground operation utilizes continuous mining units employing room-and-pillar mining techniques to produce low-sulfur coal. In 2011, Excel began development mining in a new area containing in excess of 10.0 million saleable tons of coal, to which all mining will be transitioned by the end of 2013. The preparation plant has throughput capacity of 1,000 tons of raw coal per hour. Substantially all of the coal produced at MC Mining in 2012 met or exceeded the compliance

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requirements of Phase II of the Federal Clean Air Act ("CAA") (see "—Regulation and Laws—Air Emissions" below). Coal produced from the mine is shipped via the CSX railroad directly to customers or to various transloading facilities on the Ohio River for barge deliveries, or by truck via U.S. and state highways directly to customers or to various docks on the Big Sandy River for barge deliveries.

    Northern Appalachian Operations

        The ARLP Partnership's Northern Appalachian mining operations are located in Maryland and West Virginia. As of February 1, 2013, the ARLP Partnership had 612 employees, and it operates two mining complexes in Northern Appalachia. The ARLP Partnership also controls undeveloped reserves in West Virginia and Pennsylvania.

        Mettiki Complex.    The Mettiki Complex comprises the Mountain View mine located in Tucker County, West Virginia operated by the ARLP Partnership's subsidiary Mettiki Coal (WV), LLC ("Mettiki (WV)") and a preparation plant located near the city of Oakland in Garrett County, Maryland operated by the ARLP Partnership's subsidiary Mettiki Coal, LLC ("Mettiki (MD)"). In addition, production from the Mountain View mine can be supplemented with production from a smaller-scale mine operated by a third-party on property in Maryland controlled by another of the ARLP Partnership's subsidiaries, Backbone Mountain, LLC. Mettiki (WV) began continuous miner development of the Mountain View mine in July 2005 and began longwall mining in November 2006. The Mountain View mine produces medium-sulfur coal which is transported by truck either to the Mettiki (MD) preparation plant for processing or directly to the coal blending facility at the Virginia Electric and Power Company ("VEPCO") Mt. Storm Power Station. The Mettiki (MD) preparation plant has throughput capacity of 1,350 tons of raw coal per hour. Coal processed at the preparation plant can be trucked to the blending facility at Mt. Storm or shipped via the CSX railroad, which provides the opportunity to ship into the domestic and export metallurgical coal markets.

        Tunnel Ridge Complex.    The ARLP Partnership's subsidiary, Tunnel Ridge, LLC ("Tunnel Ridge"), operates the Tunnel Ridge mine, an underground, longwall mine in the Pittsburgh No. 8 coal seam, located near Wheeling, West Virginia. Tunnel Ridge began construction of the mine and related facilities in 2008. Development mining began in 2010, and the ARLP Partnership had incidental production of approximately 268,000 tons in 2011 as development mining continued. Longwall mining operations began at Tunnel Ridge in the second quarter of 2012 (mid-May). The mine produced just over 2.0 million tons in 2012 and the ARLP Partnership expects annual production to ultimately reach approximately 5.8 million tons. Coal produced from the Tunnel Ridge mine is transported by conveyor belt to a barge loading facility on the Ohio River. Through an agreement with a third-party, Tunnel Ridge has the ability to transload coal from barges for rail shipment on Wheeling and Lake Erie Railway. Capital expenditures required for development of Tunnel Ridge totaled approximately $280.0 million. This amount excludes capitalized interest and capitalized mine development costs associated with incidental production. (For more information about mine development costs, please read "Mine Development Costs" under "Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies.")

        Penn Ridge.    The ARLP Partnership's subsidiary, Penn Ridge Coal, LLC ("Penn Ridge"), is party to a coal lease agreement effective December 31, 2005 with Allegheny Pittsburgh Coal Company ("Allegheny"), pursuant to which Penn Ridge leases Allegheny's Buffalo coal reserve in Washington County, Pennsylvania, which is estimated to include approximately 56.7 million tons of proven and probable high-sulfur coal in the Pittsburgh No. 8 seam. Penn Ridge has initiated the permitting process for the Buffalo coal reserves and continues to evaluate development. (For more information on the permitting process, and matters that could hinder or delay the process, please read "—Regulation and Laws—Mining Permits and Approvals.") Development of the project is regulatory and market dependent, and its timing is open-ended pending obtaining all required regulatory approvals, sufficient coal sales commitments to support the project and final approval by the board of directors of MGP ("MGP Board of Directors").

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Other Operations

    Mt. Vernon Transfer Terminal, LLC

        The ARLP Partnership's subsidiary, Mt. Vernon, leases land and operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. Coal is delivered to Mt. Vernon by both rail and truck. The terminal has a capacity of 8.0 million tons per year with existing ground storage of approximately 60,000 to 70,000 tons. During 2012, the terminal loaded approximately 1.1 million tons for customers of Pattiki, Gibson and Elk Creek.

    Coal Brokerage

        As markets allow, the ARLP Partnership buys coal from non-affiliated producers principally throughout the eastern U.S., which it then resells. The ARLP Partnership has a policy of matching its outside coal purchases and sales to minimize market risks associated with buying and reselling coal. In 2012, the ARLP Partnership sold approximately 255,000 tons classified as brokerage coal.

    Alliance WOR Processing, LLC

        In September 2011, the ARLP Partnership completed a series of transactions with White Oak related to the development of White Oak Mine No. 1 near the city of McLeansboro, Illinois, which is under construction and will be an underground longwall mining operation producing high-sulfur coal from the Herrin No. 6 seam. Initial production from the continuous miner development units is expected to begin in 2013, and longwall mining is expected to begin in 2014. As part of the White Oak transaction, the ARLP Partnership's subsidiary, Alliance WOR Processing, LLC ("WOR Processing"), contracted with White Oak to construct, own, and operate the coal handling and processing facilities associated with the Mine No. 1 mine, which will have the capacity to process 2,000 tons of raw coal per hour. White Oak will have the ability to ship production from the Mine No. 1 mine via rail directly to customers or to various transloading facilities, including the Mt. Vernon transloading facility, for barge deliveries. WOR Processing also has an equity investment in White Oak. For more information about the White Oak transactions, please read "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions."

    Alliance Resource Properties, LLC

        Alliance Resource Properties owns coal reserves that it leases to certain of the ARLP Partnership's subsidiaries that operate its mining complexes. In September 2011, Alliance Resource Properties' subsidiary, Alliance WOR Properties, LLC ("WOR Properties"), acquired from the ARLP Partnership's affiliate White Oak the rights to approximately 204.9 million tons of proven and probable high-sulfur coal reserves, and leased those reserves back to White Oak. Approximately 105.2 million tons of those reserves are currently being developed for future mining by White Oak. Once coal sales begin from the mine, White Oak will pay WOR Properties earned royalties and during the period beginning January 1, 2015 and ending December 31, 2034 will pay WOR Properties a fully recoupable minimum monthly royalty of $1.625 million. WOR Properties anticipates receiving royalties from White Oak beginning in 2013 with the start-up of incidental production from White Oak's mine development.

    Matrix Group

        The ARLP Partnership's subsidiaries, Matrix Design Group, LLC ("Matrix Design") and Alliance Design Group, LLC ("Alliance Design") (collectively, "Matrix Group"), provide a variety of mine products and services for the ARLP Partnership's mining operations and to unrelated parties. The ARLP Partnership acquired this business in September 2006. Matrix Group's products and services include design and installation of underground mine hoists for transporting employees and materials in and out of mines; design of systems for automating and controlling various aspects of industrial and mining environments; and design and sale of mine safety equipment, including its miner and equipment tracking and proximity

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detection systems. In 2012, our financial results were not significantly impacted by Matrix Group's activities.

    Additional Services

        The ARLP Partnership develops and markets additional services in order to establish itself as the supplier of choice for its customers. Examples of the kind of services it has offered to date include ash and scrubber sludge removal, coal yard maintenance and arranging alternate transportation services. Historically, and in 2012, revenues from these services have been immaterial. In addition, the ARLP Partnership's affiliate, Mid-America Carbonates, LLC ("MAC"), which is a joint venture with White County Coal, manufactures and sells rock dust to the ARLP Partnership and to unrelated parties. In 2012, our financial results were not significantly impacted by MAC's business.

    Reportable Segments

        Please read "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and Segment Information under "Item 8. Financial Statements and Supplementary Data—Note 22. Segment Information" for information concerning our reportable segments.

Coal Marketing and Sales

        As is customary in the coal industry, the ARLP Partnership has entered into long-term coal supply agreements with many of its customers. These arrangements are mutually beneficial to the ARLP Partnership and its customers in that they provide greater predictability of sales volumes and sales prices. In 2012, approximately 94.2% and 94.3% of the ARLP Partnership's sales tonnage and total coal sales, respectively, were sold under long-term contracts (contracts having a term of one year or greater) with committed term expirations ranging from 2013 to 2020. As of January 28, 2013, the ARLP Partnership's nominal commitment under long-term contracts was approximately 38.5 million tons in 2013, 30.7 million tons in 2014, 23.4 million tons in 2015 and 18.7 million tons in 2016. The commitment of coal under contract is an approximate number because a limited number of the contracts contain provisions that could cause the nominal commitment to increase or decrease; however, the overall variance to total committed sales is minimal. The contractual time commitments for customers to nominate future purchase volumes under these contracts are typically sufficient to allow the ARLP Partnership to balance its sales commitments with prospective production capacity. In addition, the nominal commitment can otherwise change because of reopener provisions contained in certain of these long-term contracts.

        The provisions of long-term contracts are the results of both bidding procedures and extensive negotiations with each customer. As a result, the provisions of these contracts vary significantly in many respects, including, among other factors, price adjustment features, price and contract reopener terms, permitted sources of supply, force majeure provisions, coal qualities and quantities. Virtually all of the ARLP Partnership's long-term contracts are subject to price adjustment provisions, which permit an increase or decrease periodically in the contract price to reflect changes in specified price indices or items such as taxes, royalties or actual production costs. These provisions, however, may not assure that the contract price will reflect every change in production or other costs. Failure of the parties to agree on a price pursuant to an adjustment or a reopener provision can, in some instances, lead to early termination of a contract. Some of the long-term contracts also permit the contract to be reopened for renegotiation of terms and conditions other than pricing terms, and where a mutually acceptable agreement on terms and conditions cannot be concluded, either party may have the option to terminate the contract. The long-term contracts typically stipulate procedures for transportation of coal, quality control, sampling and weighing. Most contain provisions requiring the ARLP Partnership to deliver coal within stated ranges for specific coal characteristics such as heat, sulfur, ash, moisture, grindability, volatility and other qualities. Failure to meet these specifications can result in economic penalties, rejection or suspension of shipments or termination of the contracts. While most of the contracts specify the approved seams and/or approved

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locations from which the coal is to be mined, some contracts allow the coal to be sourced from more than one mine or location. Although the volume to be delivered pursuant to a long-term contract is stipulated, the buyers often have the option to vary the volume within specified limits.

Reliance on Major Customers

        The ARLP Partnership's two largest customers in 2012 were Louisville Gas and Electric Company and Tennessee Valley Authority. During 2012, the ARLP Partnership derived approximately 28.5% of its total revenues from these two customers and at least 10.0% of its total revenues from each of the two. For more information about these customers, please read "Item 8. Financial Statements and Supplementary Data—Note 21. Concentration of Credit Risk and Major Customers."

Competition

        The coal industry is intensely competitive. The most important factors on which the ARLP Partnership competes are coal price, coal quality (including sulfur and heat content), transportation costs from the mine to the customer and the reliability of supply. The ARLP Partnership's principal competitors include Alpha Natural Resources, Inc., Arch Coal, Inc., CONSOL Energy, Inc., James River Coal Company, Murray Energy, Inc., Foresight Energy LLC and Peabody Energy Corp. Some of these coal producers are larger and have greater financial resources and larger reserve bases than the ARLP Partnership. The ARLP Partnership also competes directly with a number of smaller producers in the Illinois Basin, Central Appalachian and Northern Appalachian regions. The prices the ARLP Partnership is able to obtain for its coal are primarily linked to coal consumption patterns of domestic electricity generating utilities, which in turn are influenced by economic activity, government regulations, weather and technological developments. Additionally, the ARLP Partnership exports a portion of its coal into the international coal markets. The prices the ARLP Partnership obtains for its export coal are influenced by a number of factors, such as global economic conditions, weather patterns and political instability, among others. Further, coal competes with other fuels such as petroleum, natural gas, nuclear energy and renewable energy sources for electrical power generation. Over time, costs and other factors, such as safety and environmental considerations, may affect the overall demand for coal as a fuel. For additional information, please see "Item 1A. Risk Factors." As the price of domestic coal increases, the ARLP Partnership may also begin to compete with companies that produce coal from one or more foreign countries.

Transportation

        The ARLP Partnership's coal is transported to its customers by rail, truck and barge. Depending on the proximity of the customer to the mine and the transportation available for delivering coal to that customer, transportation costs can range from 2.9% to 48.0% of the total delivered cost of a customer's coal. As a consequence, the availability and cost of transportation constitute important factors in the marketability of coal. The ARLP Partnership believes its mines are located in favorable geographic locations that minimize transportation costs for its customers, and in many cases it is able to accommodate multiple transportation options. Typically, the ARLP Partnership's customers pay the transportation costs from the mining complex to the destination, which is the standard practice in the industry. Approximately 52.3% of the ARLP Partnership's 2012 sales volume was initially shipped from the mines by rail, 13.1% was shipped from the mines by truck and 34.6% was shipped from the mines by barge. In 2012, the largest volume transporter of the ARLP Partnership's coal shipments was the CSX railroad which moved approximately 33.0% of the ARLP Partnership's tonnage over its rail system. The practices of, and rates set by, the transportation company serving a particular mine or customer may affect, either adversely or favorably, the ARLP Partnership's marketing efforts with respect to coal produced from the relevant mine.

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Regulation and Laws

        The coal mining industry is subject to extensive regulation by federal, state and local authorities on matters such as:

    employee health and safety;
    mine permits and other licensing requirements;
    air quality standards;
    water quality standards;
    storage of petroleum products and substances which are regarded as hazardous under applicable laws or which, if spilled, could reach waterways or wetlands;
    plant and wildlife protection;
    reclamation and restoration of mining properties after mining is completed;
    discharge of materials into the environment;
    storage and handling of explosives;
    wetlands protection;
    surface subsidence from underground mining; and
    the effects, if any, that mining has on groundwater quality and availability.

        In addition, the utility industry is subject to extensive regulation regarding the environmental impact of its power generation activities, which could affect demand for coal. It is possible that new legislation or regulations may be adopted, or that existing laws or regulations may be differently interpreted or more stringently enforced, any of which could have a significant impact on the ARLP Partnership's mining operations or its customers' ability to use coal. For more information, please see risk factors described in "Item 1A. Risk Factors" below.

        The ARLP Partnership is committed to conducting mining operations in compliance with applicable federal, state and local laws and regulations. However, because of the extensive and detailed nature of these regulatory requirements, particularly the regulatory system of the MSHA where citations can be issued without regard to fault and many of the standards include subjective elements, it is not reasonable to expect any coal mining company to be free of citations. When the ARLP Partnership receives a citation, it attempts to remediate any identified condition immediately. None of the ARLP Partnership's violations to date has had a material impact on its operations or financial condition. While it is not possible to quantify all of the costs of compliance with applicable federal and state laws and associated regulations, those costs have been and are expected to continue to be significant. Compliance with these laws and regulations has substantially increased the cost of coal mining for domestic coal producers.

        Capital expenditures for environmental matters have not been material in recent years. The ARLP Partnership has accrued for the present value of the estimated cost of asset retirement obligations and mine closings, including the cost of treating mine water discharge, when necessary. The accruals for asset retirement obligations and mine closing costs are based upon permit requirements and the costs and timing of asset retirement obligations and mine closing procedures. Although management believes it has made adequate provisions for all expected reclamation and other costs associated with mine closures, future operating results would be adversely affected if the ARLP Partnership later determines these accruals were insufficient.

    Mining Permits and Approvals

        Numerous governmental permits or approvals are required for mining operations. Applications for permits require extensive engineering and data analysis and presentation, and must address a variety of environmental, health, and safety matters associated with a proposed mining operation. These matters include the manner and sequencing of coal extraction, the storage, use and disposal of waste and other substances and other impacts on the environment, the construction of water containment areas, and reclamation of the area after coal extraction. Meeting all requirements imposed by any of these authorities

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may be costly and time consuming, and may delay or prevent commencement or continuation of mining operations.

        The permitting process for certain mining operations can extend over several years and can be subject to judicial challenge, including by the public. Some required mining permits are becoming increasingly difficult to obtain in a timely manner, or at all. We cannot assure you that the ARLP Partnership will not experience difficulty or delays in obtaining mining permits in the future.

        The ARLP Partnership is required to post bonds to secure performance under its permits. Under some circumstances, substantial fines and penalties, including revocation of mining permits, may be imposed under the laws and regulations described above. Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these laws and regulations. Regulations also provide that a mining permit can be refused or revoked if the permit applicant or permittee owns or controls, directly or indirectly through other entities, mining operations that have outstanding environmental violations. Although, like other coal companies, the ARLP Partnership has been cited for violations in the ordinary course of its business, it has never had a permit suspended or revoked because of any violation, and the penalties assessed for these violations have not been material.

    Mine Health and Safety Laws

        Stringent safety and health standards have been imposed by federal legislation since the Federal Coal Mine Health and Safety Act of 1969 ("CMHSA") was adopted. The Federal Mine Safety and Health Act of 1977 ("FMSHA"), and regulations adopted pursuant thereto, significantly expanded the enforcement of health and safety standards of the CMHSA, and imposed extensive and detailed safety and health standards on numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations, and numerous other matters. The MSHA monitors and rigorously enforces compliance with these federal laws and regulations. In addition, most of the states where the ARLP Partnership operates also have state programs for mine safety and health regulation and enforcement. Federal and state safety and health regulations affecting the coal mining industry are perhaps the most comprehensive and rigorous system in the United States for protection of employee safety and have a significant effect on the ARLP Partnership's operating costs. Although many of the requirements primarily impact underground mining, the ARLP Partnership's competitors in all of the areas in which it operates are subject to the same laws and regulations.

        The FMSHA has been construed as authorizing MSHA to issue citations and orders pursuant to the legal doctrine of strict liability, or liability without fault, and FMSHA requires imposition of a civil penalty for each cited violation. Negligence and gravity assessments, and other factors can result in the issuance of various types of orders, including orders requiring withdrawal from the mine or the affected area, and some orders can also result in the imposition of civil penalties. The FMSHA also contains criminal liability provisions. For example, criminal liability may be imposed upon corporate operators who knowingly and willfully authorize, order or carry out violations of the FMSHA, or its mandatory health and safety standards.

        The Federal Mine Improvement and New Emergency Response Act of 2006 ("MINER Act") significantly amended the FMSHA, imposing more extensive and stringent compliance standards, increasing criminal penalties and establishing a maximum civil penalty for non-compliance, and expanding the scope of federal oversight, inspection, and enforcement activities. Following the passage of the MINER Act, MSHA has issued new or more stringent rules and policies on a variety of topics, including:

    sealing off abandoned areas of underground coal mines;
    mine safety equipment, training and emergency reporting requirements;
    substantially increased civil penalties for regulatory violations;
    training and availability of mine rescue teams;

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    underground "refuge alternatives" capable of sustaining trapped miners in the event of an emergency;
    flame-resistant conveyor belts, fire prevention and detection, and use of air from the belt entry; and
    post-accident two-way communications and electronic tracking systems.

        MSHA continues to interpret and implement various provisions of the MINER Act, along with introducing new proposed regulations and standards. Among these new proposed regulations is MSHA's proposed rule titled "Lowering Miner's Exposure to Respirable Coal Mine Dust, Including Continuous Personal Dust Monitors." The proposed rule would require a 50% reduction in the allowable respirable coal mine dust exposure limits and require each operation to significantly increase the number of respirable coal mine dust samples taken. The rule would also increase oversight by MSHA regarding coal mine dust and ventilation issues at each mine, including the approval process for ventilation plans at each mine. Federal legislation was enacted in 2011 to prevent MSHA from implementing or enforcing the proposed rule until such time as the General Accounting Office ("GAO") performed an independent assessment of MSHA's data and methodology used in creating the rule. Although the GAO performed this assessment in 2012, MSHA has not yet announced when the final rule will be promulgated.

        Additionally, in 2012, MSHA promulgated a final rule to expand the job responsibilities of mine employees who perform pre-shift and on-shift examinations of working areas within underground coal mines. These employees examine the mine for hazards and to verify that atmospheric and ventilation conditions are in compliance with regulations. Under MSHA's new rule, examiners are now also required to examine for, and record the presence of, certain types of regulation violations for which MSHA inspectors would be inspecting.

        Effective March 25, 2013, MSHA will begin implementing its recently released Pattern of Violation ("POV") regulations under the FMSHA. Under this new POV regulation, MSHA will eliminate the ninety (90) day window, during which mine operators meeting certain initial POV screening criteria could take corrective action and engage in mitigation efforts to avoid being placed on POV status. Additionally, MSHA will make POV determinations based upon enforcement actions as issued, rather than enforcement actions that have been rendered final following the opportunity for administrative or judicial review. If a mine operator is placed on POV status, MSHA will thereafter issue an order withdrawing miners from the area affected by any enforcement action designated by MSHA as posing a significant and substantial, or S&S, hazard to the health and/or safety of miners. Further, the mine operator can be removed from POV status only upon: (1) a complete inspection of the entire mine with no S&S enforcement actions issued by MSHA or (2) no POV-related withdrawal orders being issued by MSHA within ninety (90) days following the mine operator being placed on POV status.

        Subsequent to passage of the MINER Act, Illinois, Kentucky, Pennsylvania and West Virginia have enacted legislation addressing issues such as mine safety and accident reporting, increased civil and criminal penalties, and increased inspections and oversight; and since January 2012, West Virginia has continued to consider additional mine safety legislation. Other states may pass similar legislation in the future.

        Some of the costs of complying with existing regulations and implementing new safety and health regulations may be passed on to the ARLP Partnership's customers. Although the ARLP Partnership is unable to quantify the full impact, implementing and complying with these new state and federal safety laws and regulations have had, and are expected to continue to have, an adverse impact on its results of operations and financial position.

    Black Lung Benefits Act

        The Black Lung Benefits Act of 1977 and the Black Lung Benefits Reform Act of 1977, as amended in 1981 ("BLBA") requires businesses that conduct current mining operations to make payments of black lung benefits to current and former coal miners with black lung disease and to some survivors of a miner

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who dies from this disease. The BLBA levies a tax on production of $1.10 per ton for underground-mined coal and $0.55 per ton for surface-mined coal, but not to exceed 4.4% of the applicable sales price, in order to compensate miners who are totally disabled due to black lung disease and some survivors of miners who died from this disease, and who were last employed as miners prior to 1970 or subsequently where no responsible coal mine operator has been identified for claims. In addition, BLBA provides that some claims for which coal operators had previously been responsible are or will become obligations of the government trust funded by the tax. The Revenue Act of 1987 extended the termination date of this tax from January 1, 1996, to the earlier of January 1, 2014, or the date on which the government trust becomes solvent. For miners last employed as miners after 1969 and who are determined to have contracted black lung, the ARLP Partnership self-insures the potential cost of compensating such miners using its actuary estimates of the cost of present and future claims. The ARLP Partnership is also liable under state statutes for black lung claims. Congress and state legislatures regularly consider various items of black lung legislation, which, if enacted, could adversely affect the ARLP Partnership's business, results of operations and financial position.

        Revised BLBA regulations took effect in January 2001, relaxing the stringent award criteria established under previous regulations and thus potentially allowing more new federal claims to be awarded and allowing previously denied claimants to re-file under the revised criteria. These regulations may also increase black lung related medical costs by broadening the scope of conditions for which medical costs are reimbursable and increase legal costs by shifting more of the burden of proof to the employer.

        The Patient Protection and Affordable Care Act ("PPACA") enacted in 2010, includes significant changes to the federal black lung program, retroactive to 2005, including an automatic survivor benefit paid upon the death of a miner with an awarded black lung claim and establishes a rebuttable presumption with regard to pneumoconiosis among miners with 15 or more years of coal mine employment that are totally disabled by a respiratory condition. These changes could have a material impact on the ARLP Partnership's costs expended in association with the federal black lung program.

    Workers' Compensation

        The ARLP Partnership provides income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. Workers' compensation laws also compensate survivors or workers who suffer employment related deaths. Several states in which the ARLP Partnership operates consider changes in workers' compensation laws from time to time. The ARLP Partnership generally self-insures this potential expense using its actuary estimates of the cost of present and future claims. For more information concerning the ARLP Partnership's requirement to maintain bonds to secure its workers' compensation obligations, see the discussion of surety bonds below under "—Bonding Requirements."

    Coal Industry Retiree Health Benefits Act

        The Federal Coal Industry Retiree Health Benefits Act ("CIRHBA") was enacted to fund health benefits for some United Mine Workers of America retirees. CIRHBA merged previously established union benefit plans into a single fund into which "signatory operators" and "related persons" are obligated to pay annual premiums for beneficiaries. CIRHBA also created a second benefit fund for miners who retired between July 21, 1992 and September 30, 1994, and whose former employers are no longer in business. Because of the ARLP Partnership's union-free status, it is not required to make payments to retired miners under CIRHBA, with the exception of limited payments made on behalf of predecessors of MC Mining. However, in connection with the sale of the coal assets acquired by ARH in 1996, MAPCO Inc., now a wholly-owned subsidiary of The Williams Companies, Inc., agreed to retain, and be responsible for, all liabilities under CIRHBA.

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    Surface Mining Control and Reclamation Act

        The Federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA") and similar state statutes establish operational, reclamation and closure standards for all aspects of surface mining as well as many aspects of deep mining. Although the ARLP Partnership has minimal surface mining activity and no mountaintop removal mining activity, SMCRA nevertheless requires that comprehensive environmental protection and reclamation standards be met during the course of and upon completion of its mining activities.

        SMCRA and similar state statutes require, among other things, that mined property be restored in accordance with specified standards and approved reclamation plans. SMCRA requires the ARLP Partnership to restore the surface to approximate the original contours as contemporaneously as practicable with the completion of surface mining operations. Federal law and some states impose on mine operators the responsibility for replacing certain water supplies damaged by mining operations and repairing or compensating for damage to certain structures occurring on the surface as a result of mine subsidence, a consequence of longwall mining and possibly other mining operations. The ARLP Partnership believes it is in compliance in all material respects with applicable regulations relating to reclamation.

        In addition, the Abandoned Mine Lands Program, which is part of SMCRA, imposes a tax on all current mining operations, the proceeds of which are used to restore mines closed before 1977. The tax for surface-mined and underground-mined coal is $0.28 per ton and $0.12 per ton, respectively. The ARLP Partnership has accrued the estimated costs of reclamation and mine closing, including the cost of treating mine water discharge when necessary. Please read "Item 8. Financial Statements and Supplementary Data—Note 17. Asset Retirement Obligations." In addition, states from time to time have increased and may continue to increase their fees and taxes to fund reclamation or orphaned mine sites and acid mine drainage ("AMD") control on a statewide basis.

        Under SMCRA, responsibility for unabated violations, unpaid civil penalties and unpaid reclamation fees of independent contract mine operators and other third parties can be imputed to other companies that are deemed, according to the regulations, to have "owned" or "controlled" the third-party violator. Sanctions against the "owner" or "controller" are quite severe and can include being blocked from receiving new permits and having any permits revoked that were issued after the time of the violations or after the time civil penalties or reclamation fees became due. The ARLP partnership is not aware of any currently pending or asserted claims against it relating to the "ownership" or "control" theories discussed above. However, the ARLP Partnership cannot assure you that such claims will not be asserted in the future.

        The U.S. Office of Surface Mining Reclamation ("OSM") published in November 2009, an Advance Notice of Proposed Rulemaking and announced its intent to revise the Stream Buffer Zone ("SBZ") rule published in December 2008. The SBZ rule prohibits mining disturbances within 100 feet of streams if there would be a negative effect on water quality. Environmental groups brought lawsuits challenging the rule, and in a March 2010 settlement, the OSM agreed to rewrite the SBZ rule. To date, the OSM has not proposed any new SBZ rule. In January 2013, the environmental groups reopened the litigation against OSM for failure to abide by the terms of the March 2010 settlement. The ARLP Partnership is unable to predict the impact, if any, of these actions by the OSM, although the actions potentially could result in additional delays and costs associated with obtaining permits, prohibitions or restrictions relating to mining activities near streams, and additional enforcement actions. The requirements of the revised SBZ rule, if adopted, will likely be stricter than the prior SBZ rule and may adversely affect the ARLP Partnership's business and operations.

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    Bonding Requirements

        Federal and state laws require bonds to secure the ARLP Partnership's obligations to reclaim lands used for mining, to pay federal and state workers' compensation, to pay certain black lung claims, and to satisfy other miscellaneous obligations. These bonds are typically renewable on a yearly basis. It has become increasingly difficult for the ARLP Partnership and for its competitors to secure new surety bonds without posting collateral. In addition, surety bond costs have increased while the market terms of surety bonds have generally become less favorable to the ARLP Partnership. It is possible that surety bond issuers may refuse to renew bonds or may demand additional collateral upon those renewals. The ARLP Partnership's failure to maintain, or inability to acquire, surety bonds that are required by state and federal laws would have a material adverse effect on its ability to produce coal, which could affect its profitability and cash flow.

        As of December 31, 2012, the ARLP Partnership had approximately $76.0 million in surety bonds outstanding to secure the performance of its reclamation obligations.

    Air Emissions

        The CAA and similar state and local laws and regulations regulate emissions into the air and affect coal mining operations. The CAA directly impacts the ARLP Partnership coal mining and processing operations by imposing permitting requirements and, in some cases, requirements to install certain emissions control equipment, achieve certain emissions standards, or implement certain work practices on sources that emit various air pollutants. The CAA also indirectly affects coal mining operations by extensively regulating the air emissions of coal-fired electric power generating plants and other coal-burning facilities. There have been a series of federal rulemakings focused on emissions from coal-fired electric generating facilities. In addition, there is pending litigation to force the U.S. Environmental Protection Agency ("EPA") to list coal mines as a category of air pollution sources that endanger public health or welfare under Section 111 of the CAA and establish standards to reduce emissions from new or modified coal mine sources of methane and other emissions. Installation of additional emissions control technology and any additional measures required under the laws, as well as regulations promulgated by the EPA, will make it more costly to operate coal-fired power plants and could make coal a less attractive fuel alternative in the planning and building of power plants in the future. A significant reduction in coal's share of power generating capacity could have a material adverse effect on our business, financial condition and results of operations.

        In addition to the greenhouse gas issues discussed below, the air emissions programs that may affect the ARLP Partnership's operations, directly or indirectly, include, but are not limited to, the following:

    The EPA's Acid Rain Program, provided in Title IV of the CAA, regulates emissions of sulfur dioxide from electric generating facilities. Sulfur dioxide is a by-product of coal combustion. Affected facilities purchase or are otherwise allocated sulfur dioxide emissions allowances, which must be surrendered annually in an amount equal to a facility's sulfur dioxide emissions in that year. Affected facilities may sell or trade excess allowances to other facilities that require additional allowances to offset their sulfur dioxide emissions. In addition to purchasing or trading for additional sulfur dioxide allowances, affected power facilities can satisfy the requirements of the EPA's Acid Rain Program by switching to lower sulfur fuels, installing pollution control devices such as flue gas desulfurization systems, or "scrubbers," or by reducing electricity generating levels. In 2012, the ARLP Partnership sold 93.1% of its total tons to electric utilities, of which 98.7% was sold to utility plants with installed pollution control devices. These requirements would not be supplanted by a replacement rule for the Clean Air Interstate Rule ("CAIR"), discussed below.

    The EPA has promulgated rules, referred to as the "Nitrogen Oxide SIP Call," that, among other things, require coal-fired power plants in 21 eastern states and Washington D.C. to make substantial reductions in nitrogen oxide emissions in an effort to reduce the impacts of ozone transport

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      between states. As a result of the program, many power plants have been or will be required to install additional emission control measures, such as selective catalytic reduction devices. Installation of additional emission control measures will make it more costly to operate coal-fired power plants, potentially making coal a less attractive fuel.

    Additionally, in March 2005, the EPA issued the final CAIR which would have permanently capped nitrogen oxide and sulfur dioxide emissions in 28 eastern states and Washington, D.C. On July 11, 2008, the D.C. Circuit Court of Appeals vacated CAIR, but on petition for rehearing, the court retracted its decision and remanded the rule to the EPA for further consideration. This remand had the effect of leaving the rule in place while the EPA evaluated possible changes to the rule to correct the defects identified in the court's original opinion. In June 2011, the EPA finalized the Cross State Air Pollution Rule ("CSAPR"), a replacement rule for CAIR, which would have required 28 states in the Midwest and eastern seaboard to reduce power plant emissions that cross state lines and contribute to ozone and/or fine particle pollution in other states. However, on August 21, 2012, the D.C. Circuit Court of Appeals vacated CSAPR, finding EPA exceeded its statutory authority under the CAA and striking down EPA's decision to require a federal implementation plan, rather than state implementation plans ("SIPs"), to implement mandated reductions. In its ruling, the Court ordered the EPA to continue administering CAIR but proceed expeditiously to promulgate a replacement rule for CAIR. The Court subsequently denied EPA's petition for an en banc hearing on CSAPR. It is possible that a future replacement rule for CAIR could lead to the premature retirement of coal-fired electric generating units, which could in turn reduce the demand for coal.

    In March 2005, the EPA finalized the Clean Air Mercury Rule ("CAMR"), which established a two-part, nationwide cap on mercury emissions from coal-fired power plants beginning in 2010. On February 8, 2008, the D.C. Circuit Court of Appeals vacated CAMR for further consideration by the EPA. On December 16, 2011, the EPA signed a rule to establish a national standard to reduce mercury and other toxic air pollutants from coal and oil-fired power plants, referred to as the EPA's Mercury and Air Toxics Standards ("MATS"). MATS imposes stricter limitations on mercury emissions from power plants than the vacated CAMR. States, companies and industry groups filed petitions to reconsider the rule and petitions for review in the D.C. Circuit Court of Appeals. EPA agreed on July 20, 2012 to reconsider the standards for new source emissions in the rule, but not other aspects of the rule. Legal challenges in the D.C. Circuit Court of Appeals are still pending. If upheld by the Court, MATS will force generators to make capital investments to retrofit power plans and will also likely lead to the premature retirement of a number of older coal-fired generating units. The retirements are likely to reduce the demand for coal.

    The EPA also issued a final rule on January 31, 2013 requiring Utility Boiler Maximum Achievable Control Technology standards ("Boiler MACT") for power plants, which requires owners of industrial, commercial, and institutional boilers to comply with standards for air pollutants, including mercury and other metals, fine particulates, and acid gases such as hydrogen chloride for several classes of boilers and process heaters, including large coal-fired boilers and process heaters. Like MATS, Boiler MACT imposes stricter limitations on mercury emissions than those vacated in CAMR. The ARLP Partnership anticipates legal challenges to Boiler MACT. However, if Boiler MACT is upheld, EPA estimates the rule will affect 1,700 existing major source facilities with an estimated 14,316 boilers and process heaters. Some owners will make capital expenditures to retrofit boilers and process heaters, while a number of boilers and process heaters will be prematurely retired. The retirements are likely to reduce the demand for coal.

    The EPA is required by the CAA to periodically re-evaluate the available health effects information to determine whether the national ambient air quality standards ("NAAQS") should be revised. Pursuant to this process, the EPA has adopted more stringent NAAQS for fine particulate matter, ozone, nitrogen oxide and sulfur dioxide. As a result, some states will be required to amend their

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      existing SIPs to attain and maintain compliance with the new air quality standards and other states will be required to develop new SIPs for areas that were previously in "attainment" but do not attain the new standards. In addition, under the revised ozone NAAQS, significant additional emissions control expenditures may be required at coal-fired power plants. Attainment dates for the new standards range between 2013 and 2030, depending on the severity of the non-attainment. In July 2009, the U.S. Court of Appeals for the District of Columbia vacated part of a rule implementing the ozone NAAQS and remanded certain other aspects of the rule to the EPA for further consideration. On July 19, 2012, the EPA released two separate risk assessments for ozone NAAQS recommending a lower ozone standard. EPA has announced plans to release a new ozone NAAQS by August 2013. That standard may impose additional emissions control requirements on new and expanded coal-fired power plants and industrial boilers. Because coal mining operations and coal-fired electric generating facilities emit particulate matter and nitrogen oxides, which are precursors to ozone formation, the ARLP Partnership's mining operations and its customers could be affected when the new standards are implemented by the applicable states. The ARLP Partnership does not know whether or to what extent these developments might indirectly reduce the demand for coal.

    The EPA's regional haze program is designed to protect and to improve visibility at and around national parks, national wilderness areas and international parks. Under the EPA program, states are required to develop SIPs to improve visibility. Typically, these plans call for reductions in SO2 and NOx emissions from coal-fueled electric plants. In recent cases, EPA has decided to negate the SIPs and impose stringent requirements through Federal Implementation Plans ("FIPs"). The regional haze program, including particularly EPA's FIPs, and any future regulations may restrict the construction of new coal-fired power plants whose operation may impair visibility at and around federally protected areas and may require some existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions. In addition, the EPA's new source review program under certain circumstances requires existing coal-fired power plants, when modifications to those plants significantly increase emissions, to install the more stringent air emissions control equipment. These requirements could limit the demand for coal in some locations.

        The Department of Justice, on behalf of the EPA, has filed lawsuits against a number of coal-fired electric generating facilities alleging violations of the new source review provisions of the CAA. The EPA has alleged that certain modifications have been made to these facilities without first obtaining certain permits issued under the new source review program. Several of these lawsuits have settled, but others remain pending, and still more lawsuits may be filed. Depending on the ultimate resolution of these cases, demand for coal could be affected.

    Carbon Dioxide Emissions

        Combustion of fossil fuels, such as the coal the ARLP Partnership produces, results in the emission of carbon dioxide, which is considered a "greenhouse gas" or "GHG." Future regulation of greenhouse gas emissions in the U.S. could occur pursuant to future U.S. treaty commitments, new domestic legislation or regulation by the EPA. President Obama has expressed support for a mandatory cap and trade program to restrict or regulate emissions of greenhouse gases and Congress has considered various proposals to reduce greenhouse gas emissions, and it is possible federal legislation could be adopted in the future. Internationally, the Kyoto Protocol, which set binding emission targets for developed countries (including the United States but has not been ratified by the United States, and Canada officially withdrew from its Kyoto commitment in 2012) was nominally extended past its expiration date of December 2012 with a requirement for a new legal construct to be put into place by 2015. If a replacement treaty or other international arrangement is reached, it likely would require additional reductions in greenhouse gas emissions that could, in turn, have a global impact on the demand for coal. Also, many states, regions and governmental bodies have adopted greenhouse gas initiatives and have or are considering the imposition

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of fees or taxes based on the emission of greenhouse gases by certain facilities, including coal-fired electric generating facilities. Depending on the particular regulatory program that may be enacted, at either the federal or state level, the demand for coal could be negatively impacted which would have an adverse effect on the ARLP Partnership's operations.

        Even in the absence of new federal legislation, the EPA has begun to regulate greenhouse gas emissions pursuant to the CAA based on the U.S. Supreme Court's 2007 decision in Massachusetts v. EPA that the EPA has authority to regulate greenhouse gas emissions. In 2009, the EPA issued a final rule declaring that greenhouse gas emissions, including carbon dioxide and methane, endanger public health and welfare and that greenhouse gases emitted by motor vehicles contribute to that endangerment ("Endangerment Finding").

        In May 2010, the EPA issued its final "tailoring rule" for greenhouse gas emissions, a policy aimed at shielding small emission sources from CAA permitting requirements. The EPA's rule phases in various greenhouse-gas-related permitting requirements beginning in January 2011. Beginning July 1, 2011, the EPA requires facilities that must already obtain new source review permits for other pollutants to include greenhouse gases in their permits for new construction projects that emit at least 100,000 tons per year of greenhouse gases and existing facilities that increase their emissions by at least 75,000 tons per year.

        In March of 2012, EPA proposed New Source Performance Standards ("NSPS") for CO2 emissions from new fossil fuel-fired power plants. The proposal requires new coal units to meet a CO2 emissions standard of 1,000 lb CO2/MWh, which is equivalent to the CO2 emitted by a natural gas combined cycle unit. Legal challenges to the proposed NSPS have been filed; more legal challenges are expected once EPA issues a final rule. The timing for promulgating a final rule is unknown, but latest reports are that it will be finalized by mid-year 2013. If the proposed rule is finalized as currently drafted, the rule will likely prevent new coal fired power plants from being built and reduce the demand for coal in the future. EPA has indicated that it may propose NSPS for existing and modified coal plants at some time in the future, which could lead to the premature retirement of coal-fired generating units and reduce the demand for coal.

        On June 28, 2010, the EPA issued the Final Mandatory Reporting of Greenhouse Gases Rule requiring all stationary sources that emit more than 25,000 tons of greenhouse gases per year to collect and report to the EPA data regarding such emissions. This suite of greenhouse gas rules affects many of the ARLP Partnership's customers, as well as additional source categories, including all underground mines subject to quarterly methane sampling by MSHA. Underground mines subject to these rules, including the ARLP Partnership's, were required to begin monitoring greenhouse gas emissions on January 1, 2011 and began reporting to the EPA in 2012.

        There have been numerous protests of and challenges to the permitting of new coal-fired power plants by environmental organizations and state regulators for concerns related to greenhouse gas emissions. For instance, various state regulatory authorities have rejected the construction of new coal-fueled power plants based on the uncertainty surrounding the potential costs associated with greenhouse gas emissions from these plants under future laws limiting the emissions of carbon dioxide. In addition, several permits issued to new coal-fueled power plants without limits on greenhouse gas emissions have been appealed to the EPA's Environmental Appeals Board. In addition, over thirty states have currently adopted "renewable energy standards" or "renewable portfolio standards," which encourage or require electric utilities to obtain a certain percentage of their electric generation portfolio from renewable resources by a certain date. These standards range generally from 10% to 30%, over time periods that generally extend from the present until between 2020 and 2030. Other states may adopt similar requirements, and federal legislation is a possibility in this area. To the extent these requirements affect the ARLP Partnership's current and prospective customers, they may reduce the demand for coal-fired power, and may affect long-term demand for its coal. Finally, a federal appeals court allowed a lawsuit pursuing federal common law claims to proceed against certain utilities on the basis that they may have created a public nuisance due to their emissions of carbon dioxide, while a second federal appeals court dismissed a similar case on procedural

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grounds. The U.S. Supreme Court recently overturned that decision on June 20, 2011, holding that federal common law provides no basis for public nuisance claims against utilities due to their carbon dioxide emissions, but despite this favorable ruling, tort-type liabilities remain a concern.

        It is possible that future international, federal and state initiatives to control carbon dioxide emissions could result in increased costs associated with coal consumption, such as costs to install additional controls to reduce carbon dioxide emissions or costs to purchase emissions reduction credits to comply with future emissions trading programs. Such increased costs for coal consumption could result in some customers switching to alternative sources of fuel, or otherwise adversely affect the ARLP Partnership's operations and demand for its products, which could have a material adverse effect on its business, financial condition and results of operations.

    Water Discharge

        The Federal Clean Water Act ("CWA") and similar state and local laws and regulations affect coal mining operations by imposing restrictions on effluent discharge into waters and the discharge of dredged or fill material into the waters of the U.S. Regular monitoring, as well as compliance with reporting requirements and performance standards, is a precondition for the issuance and renewal of permits governing the discharge of pollutants into water. Section 404 of the CWA imposes permitting and mitigation requirements associated with the dredging and filling of wetlands and streams. The CWA and equivalent state legislation, where such equivalent state legislation exists, affect coal mining operations that impact wetlands and streams. Although permitting requirements have been tightened in recent years, the ARLP Partnership believes it has obtained all necessary permits required under CWA Section 404 as it has traditionally been interpreted by the responsible agencies. However, mitigation requirements under existing and possible future "fill" permits may vary considerably. For that reason, the setting of post-mine asset retirement obligation accruals for such mitigation projects is difficult to ascertain with certainty and may increase in the future. Although more stringent permitting requirements may be imposed in the future, the ARLP Partnership is not able to accurately predict the impact, if any, of such permitting requirements.

        The U.S. Army Corps of Engineers ("Corps of Engineers") maintains two permitting programs under CWA Section 404 for the discharge of dredged or fill material: one for "individual" permits and a more streamlined program for "general" permits. In June 2010 the Corps of Engineers suspended the use of "general" permits under Nationwide Permit 21 ("NWP 21") in the Appalachian states. On February 21, 2012, the Corps of Engineers reissued the final 2012 NWP 21. The Center for Biological Diversity later filed a notice of intent to sue the Corps of Engineers based on allegations the 2012 NWP 21 program violated the Endangered Species Act. The ARLP Partnership's coal mining operations typically require Section 404 permits to authorize activities such as the creation of slurry ponds and stream impoundments. The CWA authorizes the EPA to review Section 404 permits issued by the Corps of Engineers, and in 2009, the EPA began reviewing Section 404 permits issued by the Corps of Engineers for coal mining in Appalachia. Currently, significant uncertainty exists regarding the obtaining of permits under the CWA for coal mining operations in Appalachia due to various initiatives launched by the EPA regarding these permits.

        For instance, even though the State of West Virginia has been delegated the authority to issue permits for coal mines in that state, the EPA is taking a more active role in its review of National Pollutant Discharge Elimination System ("NPDES") permit applications for coal mining operations in Appalachia. The EPA has stated that it plans to review all applications for NPDES permits. Indeed, final guidance issued by the EPA on July 21, 2011, encouraged EPA Regions 3, 4 and 5 to object to the issuance of state program NPDES permits where the Region does not believe that the proposed permit satisfies the requirements of the CWA, and, with regard to state issued general Section 404 permits, support the previously drafted Enhanced Coordination Procedures ("ECP"). On October 6, 2011, the U.S. District Court for the District of Columbia rejected the ECP on several different legal grounds and later, this same

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court enjoined EPA from any further usage of its final guidance. Any future application of procedures similar to ECP, such as may be enacted following notice and comment rulemaking, would have the potential to delay issuance of permits for surface coal mines, or to change the conditions or restrictions imposed in those permits.

        The EPA also has statutory "veto" power over a Section 404 permit if the EPA determines, after notice and an opportunity for a public hearing, that the permit will have an "unacceptable adverse effect." On January 14, 2011, the EPA exercised its veto power to withdraw or restrict the use of a previously issued permit for the Spruce No. 1 Surface Mine in West Virginia, which is one of the largest surface mining operations ever authorized in Appalachia. This action was the first time that such power was exercised with regard to a previously permitted coal mining project. A challenge to the EPA's exercise of this authority made in the federal District Court in the District of Columbia and on March 23, 2012, the Court ruled that the EPA lacked the statutory authority to invalidate an already issued Section 404 permit retroactively. This decision is currently on appeal. Any future use of the EPA's Section 404 "veto" power could create uncertainly with regard to the ARLP Partnership's continued use of current permits, as well as impose additional time and cost burdens on future operations, potentially adversely affecting its coal revenues.

        Total Maximum Daily Load ("TMDL") regulations under the CWA establish a process to calculate the maximum amount of a pollutant that an impaired water body can receive and still meet state water quality standards, and to allocate pollutant loads among the point and non-point pollutant sources discharging into that water body. Likewise, when water quality in a receiving stream is better than required, states are required to conduct an antidegradation review before approving discharge permits. The adoption of new TMDL-related allocations or any changes to antidegradation policies for streams near ARLP Partnership's coal mines could require more costly water treatment and could adversely affect its coal production.

    Hazardous Substances and Wastes

        The Federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), otherwise known as the "Superfund" law, and analogous state laws, impose liability, without regard to fault or the legality of the original conduct on certain classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the site where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for the release of hazardous substances may be subject to joint and several liability under CERCLA for the costs of cleaning up releases of hazardous substances and natural resource damages. Some products used in coal mining operations generate waste containing hazardous substances. The ARLP Partnership is currently unaware of any material liability associated with the release or disposal of hazardous substances from its past or present mine sites.

        The Federal Resource Conservation and Recovery Act ("RCRA") and corresponding state laws regulating hazardous waste affect coal mining operations by imposing requirements for the generation, transportation, treatment, storage, disposal, and cleanup of hazardous wastes. Many mining wastes are excluded from the regulatory definition of hazardous wastes, and coal mining operations covered by SMCRA permits are by statute exempted from RCRA permitting. RCRA also allows the EPA to require corrective action at sites where there is a release of hazardous substances. In addition, each state has its own laws regarding the proper management and disposal of waste material. While these laws impose ongoing compliance obligations, such costs are not believed to have a material impact on the ARLP Partnership's operations.

        On June 21, 2010, the EPA released a proposed rule to regulate the disposal of certain coal combustion by-products ("CCB"). The proposed rule sets forth two proposed very different approaches for regulating CCB under RCRA. The first option calls for regulation of CCB as a hazardous waste under

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Subtitle C, which creates a comprehensive program of federally enforceable requirements for waste management and disposal. The second option utilizes Subtitle D, which gives the EPA authority to set performance standards for waste management facilities and would be enforced primarily through citizen suits. The proposal leaves intact the Bevill exemption for beneficial uses of CCB. In April 2012, several environmental organizations filed suit against the EPA to compel the EPA to take action on the proposed rule. If CCB were re-classified as hazardous waste, regulations would likely restrict ash disposal, provide specifications for storage facilities, require groundwater testing and impose restrictions on storage locations, which could increase the ARLP Partnership's customers' operating costs and potentially reduce their ability to purchase coal. In addition, contamination caused by the past disposal of CCB, including coal ash, may lead to material liability to the ARLP Partnership's customers under RCRA or other federal or state laws and potentially reduce the demand for coal. Although it is not currently possible to predict how such regulations would impact the ARLP Partnership's operations or those of its customers, the regulation of CCB as hazardous waste could result in increased disposal and compliance costs, which could result in decreased demand for its products.

Other Environmental, Health And Safety Regulations

        In addition to the laws and regulations described above, the ARLP Partnership is subject to regulations regarding underground and above ground storage tanks in which it may store petroleum or other substances. Some monitoring equipment that it uses is subject to licensing under the Federal Atomic Energy Act. Water supply wells located on the ARLP Partnership's properties are subject to federal, state, and local regulation. In addition, the ARLP Partnership's use of explosives is subject to the Federal Safe Explosives Act. The ARLP Partnership is also required to comply with the Safe Drinking Water Act, the Toxic Substance Control Act, and the Emergency Planning and Community Right-to-Know Act. The costs of compliance with these regulations should not have a material adverse effect on the ARLP Partnership's business, financial condition or results of operations.

Employees

        To conduct its operations, the ARLP Partnership, as of February 1, 2013, employed 4,345 full-time employees, including 4,091 employees involved in active mining operations, 86 employees in other operations, and 168 corporate employees. The ARLP Partnership's work force is entirely union-free. The ARLP Partnership believes that relations with its employees are generally good. We do not have any employees of our own.

    Administrative Services

        On April 1, 2010, effective January 1, 2010, we entered into an amended and restated administrative services agreement ("Administrative Services Agreement") with ARLP, MGP, the Intermediate Partnership, our general partner AGP, and Alliance Resource Holdings II, Inc. ("ARH II"), the indirect parent of SGP. The Administrative Services Agreement superseded the administrative services agreement signed in connection with our initial public offering in 2006. Under the Administrative Services Agreement, certain employees of ARLP, including some executive officers, provide administrative services to AHGP and ARH II and their respective affiliates. We reimburse the ARLP Partnership for services rendered for us by those employees as provided under the Administrative Services Agreement. We paid the ARLP Partnership $0.4 million under this agreement for the year ended December 31, 2012. Please read "Item 13—Certain Relationships and Related Transactions, and Director Independence—Administrative Services."

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ITEM 1A.    RISK FACTORS

Risks Inherent in an Investment in Us

In the future, we may not have sufficient cash to pay distributions at our current quarterly distribution level or to increase distributions.

        Currently, our earnings and cash flow consist solely of cash distributions from ARLP. Therefore, the amount of distributions we are able to make to our unitholders may fluctuate based on the level of distributions ARLP makes to its partners. We cannot assure you that ARLP will continue to make quarterly distributions at its current level or increase its quarterly distributions in the future. In addition, while we would expect to increase or decrease distributions to our unitholders if ARLP increases or decreases distributions to us, the timing and amount of such increased or decreased distributions, if any, will not necessarily be comparable to the timing and amount of the increase or decrease in distributions made by ARLP to us.

        Our ability to distribute cash received from ARLP to our unitholders could be limited by a number of factors, including:

    interest expense and principal payments on indebtedness;
    restrictions on distributions contained in any current or future debt agreements;
    our general and administrative expenses;
    expenses of our subsidiaries other than ARLP, including tax liabilities of our corporate subsidiaries, if any;
    reserves necessary for us to make the necessary capital contributions to maintain our 1.98% general partner interest in ARLP as required by the partnership agreement of ARLP upon the issuance of additional partnership securities by ARLP; and
    reserves our general partner believes prudent for us to maintain for the proper conduct of our business or to provide for future distributions.

        We cannot guarantee that in the future we will be able to pay distributions or that any distributions we do make will be at or above our current quarterly distribution level. The actual amount of cash that is available for distribution to our unitholders will depend on numerous factors, many of which are beyond our control or the control of our general partner.

ARLP's cash distributions are not guaranteed and may fluctuate with its performance and other external factors.

        The amount of cash that ARLP can distribute to holders of its common units or other partnership securities, including us, each quarter principally depends on the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:

    the amount of coal the ARLP Partnership is able to produce from its properties;
    the price at which it is able to sell coal, which is affected by the supply of and demand for domestic and foreign coal;
    the level of its operating costs;
    weather conditions;
    the proximity to and capacity of transportation facilities;
    domestic and foreign governmental regulations and taxes;
    the price and availability of alternative fuels;
    the effect of worldwide energy consumption; and
    prevailing economic conditions.

        In addition, the actual amount of cash that ARLP will have available for distribution will depend on other factors, including:

    the level of its capital expenditures;

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    the cost of acquisitions, if any;
    its debt service requirements and restrictions on distributions contained in its current or future debt agreements;
    fluctuations in its working capital needs;
    unavailability of financing resulting in unanticipated liquidity restraints;
    the ability of ARLP to borrow under its credit agreement to make distributions to its unitholders; and
    the amount, if any, of cash reserves established by MGP, in its discretion, for the proper conduct of ARLP's business.

        Because of these and other factors, ARLP may not have sufficient available cash to pay a specific level of cash distributions to its unitholders. Furthermore, the amount of cash that ARLP has available for distribution depends primarily upon its cash flow, including cash flow from financial reserves and working capital borrowing, and is not solely a function of profitability, which will be affected by non-cash items. As a result, ARLP may be able to make cash distributions during periods when it records net losses and may be unable to make cash distributions during periods when it records net income. Please read "—Risks Related to Alliance Resource Partners' Business" for a discussion of further risks affecting ARLP's ability to generate available cash.

ARLP's managing general partner, with our consent, may limit or modify the incentive distributions we are entitled to receive in order to facilitate ARLP's growth strategy. Our general partner's board of directors can give this consent without a vote of our unitholders.

        We own ARLP's managing general partner, which owns the IDRs in ARLP that entitle us to receive increasing percentages, up to a maximum of 48%, of any cash distributed by ARLP, as certain target distribution levels are reached in excess of $0.275 per ARLP unit in any quarter. The IDRs currently participate at the maximum 48% target cash distribution level at current ARLP distribution levels. A substantial portion of the cash flow we receive from ARLP is provided by these IDRs. The MGP Board of Directors may reduce the distributions related to the IDRs payable to us with our consent, which we may provide without the approval of our unitholders.

A reduction in ARLP's distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.

        MGP's ownership of the IDRs in ARLP entitles us to receive specified percentages of total cash distributions made by ARLP with respect to any particular quarter only in the event that ARLP distributes more than $0.275 per unit for such quarter. As a result, the holders of ARLP's common units have a priority over the holders of ARLP's IDRs to the extent of cash distributions by ARLP up to and including $0.275 per unit for any quarter.

        MGP's ownership of the IDRs in ARLP entitles us to receive up to 48% of all cash distributed by ARLP. Because the IDRs participate at the maximum 48% target cash distribution level at current ARLP distribution levels, future growth in distributions we receive from ARLP will not result from an increase in the target cash distribution level associated with the IDRs.

        Furthermore, a decrease in the amount of distributions by ARLP to less than $0.375 per common unit per quarter would reduce MGP's percentage of the incremental cash distributions above $0.3125 per common unit per quarter from 48% to 23%. As a result, any such reduction in quarterly cash distributions from ARLP would disproportionately reduce the amount of all distributions that we receive from ARLP as compared to the impact on the holders of ARLP common units.

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Restrictions in future financing agreements could limit our ability to make distributions to our unitholders, borrow additional funds or capitalize on business opportunities.

        Any future credit facility could include such provisions and our ability to comply with them may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Failure to comply with any such restrictions or covenants could have significant consequences, such as causing a significant portion of the indebtedness under such a facility to become immediately due and payable or our lenders' commitment to make further loans to us under such facility to terminate. We might not have, or be able to obtain, sufficient funds to make such payments.

        Our payment of principal and interest on any future indebtedness will reduce our cash available for distribution on our units. In addition, any future levels of indebtedness may:

    adversely affect our ability to obtain additional financing for future operations or capital needs;
    limit our ability to pursue acquisitions and other business opportunities; or
    make our results of operations more susceptible to adverse economic or operating conditions.

Our unitholders do not elect our general partner or vote on our general partner's officers or directors. Units held by the Management Group (some of whom are current or former members of management) and their affiliates currently own 73.00% of our units, a sufficient number of our common units to block any attempt to remove our general partner.

        Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions regarding our business. Our unitholders do not have the ability to elect our general partner or the officers or directors of our general partner. The Board of Directors, including our independent directors, is chosen by the members of our general partner.

        Furthermore, if our unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. Our general partner may not be removed except upon the vote of the holders of at least 2/3rds of our outstanding units. Because the Management Group (some of whom are current or former members of management) and their affiliates currently own 73.00% of our outstanding common units, it is not currently possible for our general partner to be removed without their consent. As a result, the price at which our units trade may be lower because of the absence or reduction of a takeover premium in the trading price.

We may issue an unlimited number of limited partner interests, on terms and conditions established by our general partner, without the consent of our unitholders, which will dilute your ownership interest in us and may increase the risk that we will not have sufficient available cash to maintain or increase our per unit distribution level.

        The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

    our unitholders' proportionate ownership interest in us will decrease;
    the amount of cash available for distribution on each unit may decrease;
    the relative voting strength of each previously outstanding unit may be diminished;
    the ratio of taxable income to distributions may increase; and
    the market price of our common units may decline.

The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public markets, including sales by our existing unitholders.

        The Management Group (some of whom are current or former members of management) and their affiliates currently own 73.00% of our units. Sales by any of our existing unitholders of a substantial number of our common units in the public markets could have a material adverse effect on the price of our

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common units or could impair our ability to obtain capital through an offering of equity securities. We do not know whether any such sales would be made in the public market or in private placements, nor do we know what impact such potential or actual sales would have on our unit price in the future.

Control of our general partner and the IDRs in ARLP may be transferred to a third party without unitholder consent.

        Our general partner may transfer its general partner interest in us to a third party in a merger or in a sale of its equity securities without the consent of our unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of the owner of our general partner to sell or transfer all or part of its ownership interest in our general partner to a third-party. The new owner or owners of our general partner would then be in a position to replace the directors and officers of our general partner and control the decisions made and actions taken by its Board of Directors and officers. In addition, the owner of our general partner controls MGP, the owner of the IDRs in ARLP. Control of MGP can likewise be transferred to a third party without unitholder consent.

Our ability to sell our partnership interests in ARLP may be limited by securities law restrictions and liquidity constraints.

        Of the 15,544,169 common units of ARLP that we own, 6,422,531 common units are unregistered, restricted securities within the meaning of Rule 144 under the Securities Act. Unless we exercise our registration rights with respect to these common units, we are limited to selling into the market in any three-month period an amount of ARLP common units that does not exceed the greater of 1% of the total number of common units outstanding or the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale. We face contractual limitations on our ability to sell our general partner interest and IDRs, and the market for such interests is illiquid.

We depend on the leadership and involvement of Joseph W. Craft III and other key personnel for the success of our and ARLP's business.

        We depend on the leadership and involvement of Mr. Craft, the Chairman, President and Chief Executive Officer of our general partner and a Director and President and Chief Executive Officer of ARLP's managing general partner. Mr. Craft has been integral to the success of ARLP and us, due in part to his ability to identify and develop internal growth projects and accretive acquisitions, make strategic decisions and attract and retain key personnel. The loss of his leadership and involvement or the services of any members of our or ARLP's senior management team could have a material adverse effect on our business, financial condition and results of operations and those of ARLP.

Your liability as a limited partner may not be limited, and our unitholders may have to repay distributions or make additional contributions to us under certain circumstances.

        As a limited partner in a partnership organized under Delaware law, you could be held liable for our obligations to the same extent as a general partner if you participate in the "control" of our business. Our general partner generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner. Additionally, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in many jurisdictions.

        Under certain circumstances, our unitholders may have to repay amounts wrongfully distributed to them. Under Delaware law, neither we nor ARLP may make a distribution to our unitholders if the distribution would cause our or ARLP's respective liabilities to exceed the fair value of our respective assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, partners who received the distribution and who knew at the time of the distribution that it

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violated Delaware law will be liable to the partnership for the distribution amount. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

An increase in interest rates may cause the market price of our common units to decline.

        Like all equity investments, an investment in our common units is subject to certain risks. In exchange for accepting these risks, investors may expect to receive a higher rate of return than would otherwise be obtainable from lower-risk investments. Accordingly, as interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly-traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline.

If in the future we cease to manage and control ARLP, we may be deemed to be an investment company under the Investment Company Act of 1940.

        If we cease to manage and control ARLP and are deemed to be an investment company under the Investment Company Act of 1940 because of our ownership of ARLP partnership interests, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our organizational structure or our contract rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us or our affiliates.

The price of our common units may be volatile, and the trading market for our common units may not provide you with adequate liquidity.

        The market price of our common units could be subject to significant fluctuations. The following factors could affect our common unit price:

    ARLP's operating and financial performance and prospects;
    quarterly variations in the rate of growth of our financial indicators, such as net income and revenues;
    changes in revenue or earnings estimates or publication of research reports by analysts;
    the current economic downturn;
    the price of coal and expectations for the future of the coal industry;
    speculation by the press or investment community;
    sales of our common units by our unitholders;
    actions by our existing unitholders prior to their disposition of our common units;
    announcements by ARLP or its competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, securities offerings or capital commitments;
    general market conditions; and
    domestic and international economic, legal and regulatory factors related to ARLP's performance.

        The equity markets in general are subject to volatility that may be unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common units. In addition, potential investors may be deterred from investing in our common units for various reasons, including the very limited number of publicly-traded entities whose assets consist almost exclusively of partnership interests in a publicly-traded partnership. The lack of liquidity may also

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contribute to significant fluctuations in the market price of our common units and limit the number of investors who are able to buy our common units.

        Our common units and ARLP's common units may not trade in simple relation or proportion to one another. Instead, the trading prices may diverge because, among other things:

    ARLP's cash distributions to its common unitholders have a priority over distributions on its IDRs;
    we participate in the IDRs in ARLP, while ARLP's common unitholders do not; and
    we may enter into other businesses separate and apart from ARLP or any of its affiliates.

Our partnership agreement restricts the rights of unitholders owning 20% or more of our units.

        Our unitholders' voting rights are restricted by the provision in our partnership agreement generally providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the Board of Directors, cannot be voted on any matter. In addition, our partnership agreement contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders' ability to influence the manner or direction of our management. As a result, the price at which our common units will trade may be lower because of the absence or reduction of a takeover premium in the trading price.

ARLP may issue additional units, which may increase the risk that ARLP will not have sufficient available cash to maintain or increase its per unit distribution level.

        ARLP has wide latitude to issue additional units on terms and conditions established by MGP, including units that rank senior to the ARLP common units and the IDRs as to quarterly cash distributions. The payment of distributions on those additional units may increase the risk that ARLP may not have sufficient cash available to maintain or increase its per unit distribution level, which in turn may impact the available cash that we have to distribute to our unitholders. To the extent these units are senior to the common units or the IDRs, there is an increased risk that we will not receive the same level or increased distributions on the common units and IDRs. Neither the common units nor the IDRs are entitled to any arrearages from prior quarters.

Risks Related to Conflicts of Interest

        Conflicts of interest exist and may arise in the future among us, ARLP and our respective general partners and affiliates. Future conflicts of interest may arise among us and the entities affiliated with any general partner interests we acquire or among ARLP and such entities. For a further discussion of conflicts of interest that may arise, please read "Item 13. Certain Relationships and Related Party Transactions, and Director Independence."

Although we control ARLP through our ownership of ARLP's managing general partner, ARLP's managing general partner owes fiduciary duties to ARLP and ARLP's unitholders, which may conflict with our interests.

        Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including ARLP's managing general partner, on the one hand, and ARLP and its limited partners, on the other hand. The directors and officers of ARLP's managing general partner have fiduciary duties to manage ARLP in a manner beneficial to us, its owner. At the same time, ARLP's managing general partner has a fiduciary duty to manage ARLP in a manner beneficial to ARLP and its limited partners. The MGP Board of Directors will resolve any such conflict and has broad latitude to consider the interests of all parties to the conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

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        For example, conflicts of interest may arise in the following situations:

    the allocation of shared overhead expenses to ARLP and us;
    the interpretation and enforcement of contractual obligations between us and our affiliates, on the one hand, and ARLP, on the other hand;
    the determination and timing of the amount of cash to be distributed to ARLP's partners and the amount of cash to be reserved for the future conduct of ARLP's business;
    the decision as to whether ARLP should make acquisitions, and on what terms;
    the determination of whether ARLP should use cash on hand, borrow or issue equity to raise cash to finance acquisition or expansion capital projects, repay indebtedness, meet working capital needs, pay distributions to ARLP's partners or otherwise; and
    any decision we make in the future to engage in business activities independent of, or in competition with, ARLP.

The fiduciary duties of our general partner's officers and directors may conflict with those of ARLP's general partner's officers and directors.

        Our general partner's officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our partners. However, all of our general partner's executive officers also serve as executive officers of MGP. In addition, our general partner's non-independent director and one of our independent directors also serve as directors of MGP. As a result, these executive officers and directors have fiduciary duties to manage the business of ARLP in a manner beneficial to ARLP and its partners. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to ARLP, on one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

If we are presented with certain business opportunities, ARLP will have the first right to pursue such opportunities.

        Pursuant to an agreement among ARLP, SGP, MGP, ARH, ARH II, our general partner and us, among others, (referred to as the omnibus agreement), we have agreed to certain business opportunity arrangements to address potential conflicts that may arise between us and ARLP. If a business opportunity in respect of any coal mining, marketing and transportation assets is presented to us, our general partner, ARLP or its general partners, then ARLP will have the first right to acquire such assets. The omnibus agreement provides, among other things, that ARLP will be presumed to desire to acquire the assets until such time as it advises us that it has abandoned the pursuit of such business opportunity, and we may not pursue the acquisition of such assets prior to that time.

ARLP and affiliates of our general partner are not limited in their ability to compete with us, which could cause conflicts of interest and limit our ability to acquire additional assets or businesses which in turn could adversely affect our results of operations and cash available for distribution to our unitholders.

        Neither our partnership agreement nor the omnibus agreement prohibits ARLP or affiliates of our general partner from owning assets or engaging in businesses that compete directly or indirectly with us or one another. In addition, ARLP and its affiliates or affiliates of our general partner, may acquire, construct or dispose of additional assets related to the mining, marketing and transportation of coal or other assets in the future, without any obligation to offer us the opportunity to purchase or construct any of those assets. As a result, competition among these entities could adversely impact ARLP's or our results of operations and cash available for distribution.

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Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner and its affiliates have limited fiduciary duties to us and our unitholders, which may permit them to favor their own interests to the detriment of us and our unitholders.

        Conflicts of interest may arise among our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following:

    Our general partner is allowed to take into account the interests of parties other than us, including ARLP and its affiliates and any other businesses acquired in the future, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders.
    Our general partner has limited its liability and reduced its fiduciary duties under the terms of our partnership agreement, while also restricting the remedies available to our unitholders for actions that, without these limitations, might constitute breaches of fiduciary duties. As a result of purchasing our units, unitholders consent to various actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law.
    Our general partner determines the amount and timing of our investment transactions, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders.
    Our general partner determines which costs incurred by it and its affiliates are reimbursable by us.
    Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered, or from entering into additional contractual arrangements with any of these entities on our behalf, so long as the terms of any such payments or additional contractual arrangements are fair and reasonable to us.
    Our general partner controls the enforcement of obligations owed to us by it and its affiliates.
    Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

The president and chief executive officer of both our general partner and ARLP's managing general partner effectively controls us and ARLP through his control of our general partner and ARLP's managing general partner.

        Mr. Craft, the president and chief executive officer of both our general partner and ARLP's managing general partner, controls ARLP's managing general partner, indirectly jointly owns SGP and owns or controls 43.02% of ARLP's common units. Mr. Craft also currently holds, directly or indirectly or may be deemed to be the beneficial owner of, 71.44% of our common units. These interests give Mr. Craft substantial control over our and ARLP's business and operations and the ability to control the outcome of many matters that require unitholder approval. Mr. Craft is not restricted from disposing of all or a part of his equity interests in our general partner, in ARLP's managing general partner or in ARLP's special general partner.

Our partnership agreement limits our general partner's fiduciary duties to us and our unitholders and restricts the remedies available to our unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

        Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:

    permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its

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      determination whether or not to consent to any merger or consolidation of our partnership or amendment to our partnership agreement;

    provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning it believed the decisions were in the best interests of our partnership;
    generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the audit and conflicts committee of the Board of Directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third-parties or be "fair and reasonable" to us and that, in determining whether a transaction or resolution is "fair and reasonable," our general partner may consider the totality of the relationships among the parties involved, including other transactions that may be particularly advantageous or beneficial to us;
    provides that in resolving conflicts of interest, it will be presumed that in making its decision our general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and
    provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person's conduct was criminal.

        In becoming a limited partner of our partnership, a common unitholder is bound by the provisions in the partnership agreement, including the provisions discussed above.

Our general partner has a limited call right that may require you to sell your units at an undesirable time or price.

        If at any time our general partner and its affiliates own more than 85% of our outstanding units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units.

Risks Related to ARLP's Business

        Because our cash flow consists exclusively of distributions from ARLP, risks to the ARLP Partnership's business are also risks to us. We have set forth below many of the risks to ARLP's business or results of operations, the occurrence of which could negatively impact the ARLP Partnership's financial performance and decrease the amount of cash it is able to distribute to us, thereby decreasing the amount of cash we have available for distribution to our unitholders.

Global economic conditions or economic conditions in any of the industries in which the ARLP Partnership customers operate as well as sustained uncertainty in financial markets may have material adverse impacts on its business and financial condition that it currently cannot predict.

        Economic conditions in a number of industries served by the ARLP Partnership's primary customers substantially deteriorated in recent years and reduced the demand for coal. Although global industrial activity has recovered in 2010 and 2011 from 2009 levels, such activity weakened in 2012 and the outlook is uncertain, especially for Europe, which continues to be affected by sovereign debt issues, and the United States, which may increase taxes and cut government spending to address deficits. In addition, in 2008 and 2009, financial markets in the U.S., Europe and Asia also experienced unprecedented turmoil and

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upheaval. This was characterized by extreme volatility and declines in security prices, severely diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the U.S. federal government and other governments. Although we cannot predict the impacts, renewed weakness in the economic conditions of any of the industries the ARLP Partnership serves or in the financial markets could materially adversely affect the ARLP Partnership's business and financial condition. For example:

    the demand for electricity in the U.S. may not fully recover or may decline if economic conditions deteriorate, which may negatively impact the revenues, margins and profitability of the ARLP Partnership's business;
    any inability of the ARLP Partnership's customers to raise capital could adversely affect its ability to honor its obligations to us; and
    ARLP Partnership's future ability to access the capital markets may be restricted as a result of future economic conditions, which could materially impact the ARLP Partnership's ability to grow its business, including development of its coal reserves.

A substantial or extended decline in coal prices could negatively impact the ARLP Partnership's results of operations.

        The ARLP Partnership's results of operations are primarily dependent upon the prices it receives for its coal, as well as its ability to improve productivity and control costs. The prices the ARLP Partnership receives for its production depends upon factors beyond the ARLP Partnership's control, including:

    the supply of and demand for domestic and foreign coal;
    weather conditions;
    the proximity to and capacity of transportation facilities;
    domestic and foreign governmental regulations and taxes;
    the price and availability of alternative fuels;
    the effect of worldwide energy consumption; and
    prevailing economic conditions.

        Any adverse change in these factors could result in weaker demand and lower prices for the ARLP Partnership's products. A substantial or extended decline in coal prices could materially and adversely affect the ARLP Partnership by decreasing its revenues to the extent that it is not protected by the terms of existing coal supply agreements.

Competition within the coal industry may adversely affect the ARLP Partnership's ability to sell coal, and excess production capacity in the industry could put downward pressure on coal prices.

        The ARLP Partnership competes with other large coal producers and many small coal producers in various regions of the U.S. for domestic coal sales. The industry has undergone significant consolidation over the last decade. This consolidation has led to several competitors having significantly larger financial and operating resources than the ARLP Partnership. In addition, the ARLP Partnership competes to some extent with western surface coal mining operations that have a much lower per ton cost of production and produce low-sulfur coal. Over the last 20 years, growth in production from western coal mines has substantially exceeded growth in production from the east. Declining prices from an oversupply of coal in the market could reduce the ARLP Partnership's revenues and cash available for distribution.

Any change in consumption patterns by utilities away from the use of coal could affect the ARLP Partnership's ability to sell the coal it produces.

        The domestic electric utility industry accounts for approximately 93.0% of domestic coal consumption. The amount of coal consumed by the domestic electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of

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competing fuels for power plants such as nuclear, natural gas and fuel oil as well as alternative sources of energy. For example, the relatively low price of natural gas has resulted, in some instances, in utilities increasing natural gas consumption while decreasing coal consumption. Future environmental regulation of greenhouse gas emissions could accelerate the use by utilities of fuels other than coal. In addition, state and federal mandates for increased use of electricity derived from renewable energy sources could affect demand for coal. A number of states have enacted mandates that require electricity suppliers to rely on renewable energy sources in generating a certain percentage of power. Such mandates, combined with other incentives to use renewable energy sources, such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the domestic electric utility industry could adversely affect the price of coal, which could negatively impact the ARLP Partnership's results of operations and reduce its cash available for distribution to us.

Extensive environmental laws and regulations affect coal consumers, and have corresponding effects on the demand for the ARLP Partnership's coal as a fuel source.

        Federal, state and local laws and regulations extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, mercury and other compounds emitted into the air from coal-fired electric power plants, which are the ultimate consumers of much of the ARLP Partnership's coal. These laws and regulations can require significant emission control expenditures for many coal-fired power plants, and various new and proposed laws and regulations may require further emission reductions and associated emission control expenditures. These laws and regulations may affect demand and prices for coal. There is also continuing pressure on state and federal regulators to impose limits on carbon dioxide emissions from electric power plants, particularly coal-fired power plants. Further, far-reaching federal regulations promulgated by the EPA in the last four years, such as CSAPR and MATS, have led to the premature retirement of coal-fired generating units and a significant reduction in the amount of coal-fired generating capacity in the United States. While CSAPR was struck down by the Federal Court of Appeals for the D.C. Circuit and many of the other rules, including MATS, are currently being legally challenged by states and private parties, utilities and other generators of electricity made retirement decisions and retired some units based upon the EPA's proposed and finalized rules. In addition, the EPA has proposed regulations to govern the disposal of coal ash and other coal combustion residuals that include the possibility of categorizing such CCB as a hazardous waste. As a result of these current and proposed laws, regulations and regulatory initiatives, electricity generators may elect to switch to other fuels that generate less of these emissions or by-products, further reducing demand for coal. Please read "Item 1. Business—Regulation and Laws—Air Emissions," "—Carbon Dioxide Emissions" and "—Hazardous Substances and Wastes."

Increased regulation of greenhouse gas emissions could result in increased operating costs and reduced demand for coal as a fuel source, which could reduce demand for the ARLP Partnership's products, decrease its revenues and reduce its profitability.

        Combustion of fossil fuels, such as the coal the ARL Partnership produces, results in the emission of carbon dioxide into the atmosphere. On December 15, 2009, the EPA published the "endangerment finding" asserting that emissions of carbon dioxide and other greenhouse gases present an endangerment to public health and the environment, and the EPA has begun to regulate greenhouse gas emissions pursuant to the CAA. The EPA has proposed to regulate greenhouse gas emissions from new power plants. The standard proposed is a natural gas standard and would effectively prevent construction of new coal fired power plants. The EPA has not proposed to regulate greenhouse gas emissions from modified or existing power plants, but could attempt to do so in the future. In addition, it is possible more federal legislation or regulations could be adopted in the future to restrict greenhouse gas emissions, as President Obama has expressed support for a mandatory cap and trade program to restrict or regulate emissions of greenhouse gases and Congress has recently considered various proposals to reduce greenhouse gas emissions. Many states and regions have adopted greenhouse gas initiatives. Also, there have been

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numerous protests of, and challenges to, the permitting of new coal-fired power plants by environmental organizations and state regulators for concerns related to greenhouse gas emissions. Please read "Item 1. Business—Regulation and Laws—Air Emissions" and "—Carbon Dioxide Emissions."

        Future international, federal and state initiatives to control carbon dioxide emissions could result in increased costs associated with coal consumption, such as costs to install additional controls to reduce carbon dioxide emissions or costs to purchase emissions reduction credits to comply with future emissions trading programs. Such increased costs for coal consumption could result in reduced demand for coal and some customers switching to alternative sources of fuel, which could have a material adverse effect on the ARLP Partnership's business, financial condition and results of operations. In addition, the increased difficulty or inability of the ARLP Partnership's customers to obtain permits for construction of new or expansion of existing coal-fired power plants could adversely affect demand for its coal and have an adverse effect on its business and results of operation.

Plaintiffs in federal court litigation have attempted to pursue tort claims based on the alleged effects of climate change.

        In 2004, eight states and New York City sued five electric utility companies in Connecticut v. American Electric Power Co. These defendants were chosen as allegedly the five-largest carbon dioxide emitters in the U.S., through their fossil-fuel-fired electric power plants. Invoking the federal and state common law of public nuisance, plaintiffs sought an injunction requiring defendants to abate their contribution to the nuisance of climate change by capping carbon dioxide emissions and then reducing them. Plaintiffs sued both on their own behalf to protect state-owned property and on behalf of their citizens and residents to protect public health and well-being. On September 21, 2009, on appeal of the trial court's dismissal of the case, the Second Circuit issued a ruling holding that the district court erred in dismissing the complaints on political question grounds, that all of the plaintiffs have standing and that plaintiffs validly stated claims under the federal common law on nuisance. In June 2011, the U.S. Supreme Court issued a unanimous decision reversing the Second Circuit's decision and holding that the plaintiffs' federal common law claims were displaced by federal legislation and regulations. The U.S. Supreme Court did not address the Plaintiffs' state law tort claims and remanded the issue of preemption for the district court to consider on remand. While the U.S. Supreme Court held that federal common law provides no basis for public nuisance claims against utilities due to their carbon dioxide emissions, tort-type liabilities remain a possibility and a source of concern. Proliferation of successful climate change litigation could adversely impact demand for coal and ultimately have a material adverse effect on its business, financial condition and results of operations.

The stability and profitability of the ARLP Partnership's operations could be adversely affected if its customers do not honor existing contracts or do not extend existing or enter into new long-term contracts for coal.

        In 2012, the ARLP Partnership sold approximately 94.2% of its sales tonnage under contracts having a term greater than one year, which the ARLP Partnership refers to as long-term contracts. Long-term sales contracts have historically provided a relatively secure market for the amount of production committed under the terms of the contracts. From time to time industry conditions may make it more difficult for the ARLP Partnership to enter into long-term contracts with its electric utility customers, and if supply exceeds demand in the coal industry, electric utilities may become less willing to lock in price or quantity commitments for an extended period of time. Accordingly, the ARLP Partnership may not be able to continue to obtain long-term sales contracts with reliable customers as existing contracts expire.

Some of the ARLP Partnership's long-term coal sales contracts contain provisions allowing for the renegotiation of prices and, in some instances, the termination of the contract or the suspension of purchases by customers.

        Some of the ARLP Partnership's long-term contracts contain provisions that allow for the purchase price to be renegotiated at periodic intervals. These price reopener provisions may automatically set a new

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price based on the prevailing market price or, in some instances, require the parties to the contract to agree on a new price. Any adjustment or renegotiation leading to a significantly lower contract price could adversely affect the ARLP Partnership's operating profit margins. Accordingly, long-term contracts may provide only limited protection during adverse market conditions. In some circumstances, failure of the parties to agree on a price under a reopener provision can also lead to early termination of a contract.

        Several of the ARLP Partnership's long-term contracts also contain provisions that allow the customer to suspend or terminate performance under the contract upon the occurrence or continuation of certain events that are beyond the customer's reasonable control. Such events may include labor disputes, mechanical malfunctions and changes in government regulations, including changes in environmental regulations rendering use of the ARLP Partnership's coal inconsistent with the customer's environmental compliance strategies. In the event of early termination of any of the ARLP Partnership's long-term contracts, if it is unable to enter into new contracts on similar terms, its business, financial condition and results of operations could be adversely affected.

The ARLP Partnership depends on a few customers for a significant portion of its revenues, and the loss of one or more significant customers could affect its ability to maintain the sales volume and price of the coal it produces.

        During 2012, the ARLP Partnership derived approximately 28.5% of its total revenues from two customers and at least 10.0% of its 2012 total revenues from each of the two. If the ARLP Partnership were to lose either of these customers without finding replacement customers willing to purchase an equivalent amount of coal on similar terms, or if these customers were to decrease the amounts of coal purchased or the terms, including pricing terms, on which they buy coal from the ARLP Partnership, it could have a material adverse effect on the ARLP Partnership's business, financial condition and results of operations.

Litigation resulting from disputes with the ARLP Partnership's customers may result in substantial costs, liabilities and loss of revenues.

        From time to time the ARLP Partnership has disputes with its customers over the provisions of long-term coal supply contracts relating to, among other things, coal pricing, quality, quantity and the existence of specified conditions beyond the ARLP Partnership or its customers control that suspend performance obligations under the particular contract. Disputes may occur in the future and the ARLP Partnership may not be able to resolve those disputes in a satisfactory manner, which could have a material adverse effect on the ARLP Partnership's business, financial condition and results of operations.

The ARLP Partnership's ability to collect payments from its customers could be impaired if their creditworthiness declines or if they fail to honor their contracts with the ARLP Partnership.

        The ARLP Partnership's ability to receive payment for coal sold and delivered depends on the continued creditworthiness of its customers. If the creditworthiness of its customers declines significantly, its business could be adversely affected. In addition, if a customer refuses to accept shipments of the ARLP Partnership's coal for which they have an existing contractual obligation, the ARLP Partnership's revenues will decrease and it may have to reduce production at its mines until its customer's contractual obligations are honored.

The ARLP Partnership's profitability may decline due to unanticipated mine operating conditions and other events that are not within its control and that may not be fully covered under its insurance policies.

        The ARLP Partnership's mining operations are influenced by changing conditions or events that can affect production levels and costs at particular mines for varying lengths of time and, as a result, can diminish its profitability.

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        These conditions and events include, among others:

    fires;
    mining and processing equipment failures and unexpected maintenance problems;
    unavailability of required equipment;
    prices for fuel, steel, explosives and other supplies;
    fines and penalties incurred as a result of alleged violations of environmental and safety laws and regulations;
    variations in thickness of the layer, or seam, of coal;
    amounts of overburden, partings, rock and other natural materials;
    weather conditions, such as heavy rains, flooding, ice and other storms;
    accidental mine water discharges and other geological conditions;
    employee injuries or fatalities;
    labor-related interruptions;
    increased reclamation costs;
    inability to acquire, maintain or renew mining rights or permits in a timely manner, if at all;
    fluctuations in transportation costs and the availability or reliability of transportation; and
    unexpected operational interruptions due to other factors.

        These conditions have had, and can be expected in the future to have, a significant impact on the ARLP Partnership's operating results. Prolonged disruption of production at any of the ARLP Partnership's mines would result in a decrease in its revenues and profitability, which could materially adversely impact its quarterly or annual results.

        During October 2012, the ARLP Partnership completed its annual property and casualty insurance renewal with various insurance coverages effective October 1, 2012. The aggregate maximum limit in the commercial property program is $100.0 million per occurrence, excluding a $1.5 million deductible for property damage, a 90-day waiting period for underground business interruption and a $10.0 million overall aggregate deductible. The ARLP Partnership can make no assurances that it will not experience significant insurance claims in the future that could have a material adverse effect on its business, financial condition, results of operations and ability to purchase property insurance in the future and consequently have a material adverse effect on our business, financial condition and results of operations.

The ARLP Partnership does not control, and therefore may not be able to cause or prevent certain actions by, White Oak.

        White Oak is governed by its board of representatives and, while the ARLP Partnership is represented on such board, it will not control all of White Oak's decisions. Consequently, it may be difficult or impossible for the ARLP Partnership to cause White Oak to take actions that it believe would be in the ARLP Partnership's or White Oak's best interests, and the ARLP Partnership may be unable to control the amount and timing of cash it will receive from White Oak's operations. Likewise, the White Oak board may control the timing of certain capital investments the ARLP Partnership are committed to making in White Oak. The lack of control over timing of such revenues and costs could have an adverse impact on the benefits the ARLP Partnership expects to achieve from the White Oak transactions.

A shortage of skilled labor may make it difficult for the ARLP Partnership to maintain labor productivity and competitive costs and could adversely affect the ARLP Partnership's profitability.

        Efficient coal mining using modern techniques and equipment requires skilled laborers, preferably with at least one year of experience and proficiency in multiple mining tasks. In recent years, a shortage of experienced coal miners has caused the ARLP Partnership to include some inexperienced staff in the operation of certain mining units, which decreases its productivity and increases its costs. This shortage of experienced coal miners is the result of a significant percentage of experienced coal miners reaching

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retirement age, combined with the difficulty of retaining existing workers in and attracting new workers to the coal industry. Thus, this shortage of skilled labor could continue over an extended period. If the shortage of experienced labor continues or worsens, it could have an adverse impact on labor productivity and costs and its ability to expand production in the event there is an increase in the demand for coal, which could adversely affect its profitability.

Although none of the ARLP Partnership's employees are members of unions, its work force may not remain union-free in the future.

        None of the ARLP Partnership's employees is represented under collective bargaining agreements. However, all of its work force may not remain union-free in the future, and legislative, regulatory or other governmental action could make it more difficult to remain union-free. If some or all of the ARLP Partnership's currently union-free operations were to become unionized, it could adversely affect its productivity and increase the risk of work stoppages at its mining complexes. In addition, even if the ARLP Partnership remains union-free, its operations may still be adversely affected by work stoppages at unionized companies, particularly if union workers were to orchestrate boycotts against the ARLP Partnership's operations.

The ARLP Partnership's mining operations are subject to extensive and costly laws and regulations, and such current and future laws and regulations could increase current operating costs or limit the ARLP Partnership's ability to produce coal.

        The ARLP Partnership is subject to numerous and comprehensive federal, state and local laws and regulations affecting the coal mining industry, including laws and regulations pertaining to employee health and safety, permitting and licensing requirements, air and water quality standards, plant and wildlife protection, reclamation and restoration of mining properties after mining is completed, the discharge or release of materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Certain of these laws and regulations may impose strict liability without regard to fault or legality of the original conduct. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial liabilities, and the issuance of injunctions limiting or prohibiting the performance of operations. Complying with these laws and regulations may be costly and time consuming and may delay commencement or continuation of exploration or production operations. The possibility exists that new laws or regulations may be adopted, or that judicial interpretations or more stringent enforcement of existing laws and regulations may occur, which could materially affect the ARLP Partnership's mining operations, cash flow, and profitability, either through direct impacts on the ARLP Partnership's existing mining operations, or indirect impacts that discourage or limit the ARLP Partnership's customers' use of coal. Please read "Item 1. Business—Regulations and Laws."

        State and federal laws addressing mine safety practices impose stringent reporting requirements and civil and criminal penalties for violations. Federal and state regulatory agencies continue to interpret and implement these laws and propose new regulations and standards. Implementing and complying with these laws and regulations has increased and will continue to increase the ARLP Partnership's operational expense and to have an adverse effect on its results of operation and financial position. For more information, please read "Item 1. Business—Regulation and Laws—Mine Health and Safety Laws."

The ARLP Partnership may be unable to obtain and renew permits necessary for its operations, which could reduce its production, cash flow and profitability.

        Mining companies must obtain numerous governmental permits or approvals that impose strict conditions and obligations relating to various environmental and safety matters in connection with coal mining. The permitting rules are complex and can change over time. Regulatory authorities exercise considerable discretion in the timing and scope of permit issuance. The public has the right to comment on

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permit applications and otherwise participate in the permitting process, including through court intervention. Accordingly, permits required to conduct the ARLP Partnership's operations may not be issued, maintained or renewed, or may not be issued or renewed in a timely fashion, or may involve requirements that restrict the ARLP Partnership's ability to economically conduct its mining operations. Limitations on the ARLP Partnership's ability to conduct its mining operations due to the inability to obtain or renew necessary permits or similar approvals could reduce the ARLP Partnership's production, cash flow and profitability. Please read "Item 1. Business—Regulations and Laws—Mining Permits and Approvals."

        The EPA has begun reviewing permits required for the discharge of overburden from mining operations under Section 404 of the CWA. Various initiatives by the EPA regarding these permits have increased the time required to obtain and the costs of complying with such permits. In addition, the EPA previously exercised its "veto" power to withdraw or restrict the use of previously issued permits in connection with one of the largest surface mining operations in Central Appalachia, although that action was ultimately overturned by a Federal court. As a result of these developments, the ARLP Partnership may be unable to obtain or experience delays in securing, utilizing or renewing Section 404 permits required for its operations, which could have an adverse effect on its results of operation and financial position. Please read "Item 1. Business—Regulations and Laws—Water Discharge."

Fluctuations in transportation costs and the availability or reliability of transportation could reduce revenues by causing the ARLP Partnership to reduce its production or by impairing its ability to supply coal to its customers.

        Transportation costs represent a significant portion of the total cost of coal for the ARLP Partnership's customers and, as a result, the cost of transportation is a critical factor in a customer's purchasing decision. Increases in transportation costs could make coal a less competitive source of energy or could make the ARLP Partnership's coal production less competitive than coal produced from other sources. Disruption of transportation services due to weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts, bottlenecks or other events could temporarily impair the ARLP Partnership's ability to supply coal to its customers. The ARLP Partnership's transportation providers may face difficulties in the future that may impair its ability to supply coal to its customers, resulting in decreased revenues. If there are disruptions of the transportation services provided by the ARLP Partnership's primary rail or barge carriers that transport its coal and the ARLP Partnership is unable to find alternative transportation providers to ship its coal, its business could be adversely affected.

        Conversely, significant decreases in transportation costs could result in increased competition from coal producers in other parts of the country. For instance, difficulty in coordinating the many eastern coal loading facilities, the large number of small shipments, the steeper average grades of the terrain and a more unionized workforce are all issues that combine to make coal shipments originating in the eastern U.S. inherently more expensive on a per-mile basis than coal shipments originating in the western U.S. Historically, high coal transportation rates from the western coal producing areas into certain eastern markets limited the use of western coal in those markets. Lower rail rates from the western coal producing areas to markets served by eastern U.S. coal producers have created major competitive challenges for eastern coal producers. In the event of lower transportation costs, the increased competition could have a material adverse effect on the ARLP Partnership's business, financial condition and results of operations.

        In recent years, the states of Kentucky and West Virginia have increased enforcement of weight limits on coal trucks on their public roads. It is possible that all states in which the ARLP Partnership's coal is transported by truck may modify their laws to limit truck weight limits. Such legislation and enforcement efforts could result in shipment delays and increased costs. An increase in transportation costs could have an adverse effect on the ARLP Partnership's ability to increase or to maintain production and could adversely affect revenues.

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The ARLP Partnership may not be able to successfully grow through future acquisitions.

        Since ARLP's formation and the acquisition of its predecessor in August 1999, the ARLP Partnership has expanded its operations by adding and developing mines and coal reserves in existing, adjacent and neighboring properties. The ARLP Partnership continually seeks to expand its operations and coal reserves. The ARLP Partnership's future growth could be limited if it is unable to continue to make acquisitions, or if it is unable to successfully integrate the companies, businesses or properties it acquires. The ARLP Partnership may not be successful in consummating any acquisitions and the consequences of undertaking these acquisitions are unknown. Moreover, any acquisition could be dilutive to earnings and distributions to unitholders and any additional debt incurred to finance an acquisition could affect the ARLP Partnership's ability to make distributions to unitholders. The ARLP Partnership's ability to make acquisitions in the future could be limited by restrictions under its existing or future debt agreements, competition from other coal companies for attractive properties or the lack of suitable acquisition candidates.

Mine expansions and acquisitions involve a number of risks, any of which could cause the ARLP Partnership not to realize the anticipated benefits.

        If the ARLP Partnership is unable to successfully integrate the companies, businesses or properties it acquires, its profitability may decline and it could experience a material adverse effect on its business, financial condition, or results of operations. Expansion and acquisition transactions involve various inherent risks, including:

    uncertainties in assessing the value, strengths, and potential profitability of, and identifying the extent of all weaknesses, risks, contingent and other liabilities (including environmental or mine safety liabilities) of, expansion and acquisition opportunities;
    the ability to achieve identified operating and financial synergies anticipated to result from an expansion or an acquisition;
    problems that could arise from the integration of the new operations; and
    unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the ARLP Partnership's rationale for pursuing the expansion or acquisition opportunity.

        Any one or more of these factors could cause the ARLP Partnership not to realize the benefits anticipated to result from an expansion or acquisition. Any expansion or acquisition opportunities the ARLP Partnership pursues could materially affect its liquidity and capital resources and may require it to incur indebtedness, seek equity capital or both. In addition, future expansions or acquisitions could result in the ARLP Partnership assuming more long-term liabilities relative to the value of the acquired assets than it has assumed in its previous expansions and/or acquisitions.

Completion of growth projects and future expansion could require significant amounts of financing which may not be available to the ARLP Partnership on acceptable terms, or at all.

        The ARLP Partnership plans to fund capital expenditures for its current growth projects with existing cash balances, future cash flows from operations, borrowings under revolving credit facilities and cash provided from the issuance of debt or equity. The ARLP Partnership's funding plans may, however, be negatively impacted by numerous factors, including higher than anticipated capital expenditures or lower than expected cash flow from operations. In addition, the ARLP Partnership may be unable to refinance its current revolving credit facility when it expires or obtain adequate funding prior to expiry because its lending counterparties may be unwilling or unable to meet their funding obligations. Furthermore, additional growth projects and expansion opportunities may develop in the future which could also require significant amounts of financing that may not be available to the ARLP Partnership on acceptable terms or in the amounts it expects, or at all.

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        Various factors could adversely impact the debt and equity capital markets as well as the ARLP Partnership's credit ratings or its ability to remain in compliance with the financial covenants under its current debt agreements, which in turn could have a material adverse effect on its financial condition, results of operations and cash flows. If the ARLP Partnership is unable to finance its growth and future expansions as expected, it could be required to seek alternative financing, the terms of which may not be attractive to it, or to revise or cancel its plans.

The unavailability of an adequate supply of coal reserves that can be mined at competitive costs could cause the ARLP Partnership's profitability to decline.

        The ARLP Partnership's profitability depends substantially on its ability to mine coal reserves that have the geological characteristics that enable them to be mined at competitive costs and to meet the quality needed by the ARLP Partnership's customers. Because the ARLP Partnership depletes its reserves as it mines coal, its future success and growth depend, in part, upon its ability to acquire additional coal reserves that are economically recoverable. Replacement reserves may not be available when required or, if available, may not be mineable at costs comparable to those of the depleting mines. The ARLP Partnership may not be able to accurately assess the geological characteristics of any reserves that it acquires, which may adversely affect its profitability and financial condition. Exhaustion of reserves at particular mines also may have an adverse effect on the ARLP Partnership's operating results that is disproportionate to the percentage of overall production represented by such mines. The ARLP Partnership's ability to obtain other reserves in the future could be limited by restrictions under its existing or future debt agreements, competition from other coal companies for attractive properties, the lack of suitable acquisition candidates or the inability to acquire coal properties on commercially reasonable terms.

The estimates of the ARLP Partnership's coal reserves may prove inaccurate and could result in decreased profitability.

        The estimates of the ARLP Partnership's coal reserves may vary substantially from actual amounts of coal it is able to economically recover. The reserve data set forth in "Item 2. Properties" represent the ARLP Partnership's engineering estimates. All of the reserves presented in this Annual Report on Form 10-K constitute proven and probable reserves. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond the ARLP Partnership's control. Estimates of coal reserves necessarily depend upon a number of variables and assumptions, any one of which may vary considerably from actual results. These factors and assumptions relate to:

    geological and mining conditions, which may not be fully identified by available exploration data and/or differ from the ARLP Partnership's experiences in areas where it currently mines;
    the percentage of coal in the ground ultimately recoverable;
    historical production from the area compared with production from other producing areas;
    the assumed effects of regulation and taxes by governmental agencies; and
    assumptions concerning future coal prices, operating costs, capital expenditures, severance and excise taxes and development and reclamation costs.

        For these reasons, estimates of the recoverable quantities of coal attributable to any particular group of properties, classifications of reserves based on risk of recovery and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary substantially. Actual production, revenue and expenditures with respect to the ARLP Partnership's reserves will likely vary from estimates, and these variations may be material. Any inaccuracy in the estimates of the ARLP Partnership's reserves could result in higher than expected costs and decreased profitability.

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Mining in certain areas in which the ARLP Partnership operates is more difficult and involves more regulatory constraints than mining in other areas of the U.S., which could affect the mining operations and cost structures of these areas.

        The geological characteristics of some of the ARLP Partnership's coal reserves, such as depth of overburden and coal seam thickness, make them difficult and costly to mine. As mines become depleted, replacement reserves may not be available when required or, if available, may not be mineable at costs comparable to those characteristic of the depleting mines. In addition, permitting, licensing and other environmental and regulatory requirements associated with certain of the ARLP Partnership's mining operations are more costly and time-consuming to satisfy. These factors could materially adversely affect the mining operations and cost structures of, and the ARLP Partnership's customers' ability to use coal produced by, the ARLP Partnership's mines.

Some of the ARLP Partnership's operating subsidiaries lease a portion of the surface properties upon which their mining facilities are located.

        The ARLP Partnership's operating subsidiaries do not, in all instances, own all of the surface properties upon which their mining facilities have been constructed. Certain of the operating companies have constructed and now operate all or some portion of their facilities on properties owned by unrelated third parties with whom the subsidiary has entered into a long-term lease. The ARLP Partnership has no reason to believe that there exists any risk of loss of these leasehold rights given the terms and provisions of the subject leases and the nature and identity of the third-party lessors; however, in the unlikely event of any loss of these leasehold rights, operations could be disrupted or otherwise adversely impacted as a result of increased costs associated with retaining the necessary land use.

Unexpected increases in raw material costs could significantly impair the ARLP Partnership's operating profitability.

        The ARLP Partnership's coal mining operations are affected by commodity prices. The ARLP Partnership uses significant amounts of steel, petroleum products and other raw materials in various pieces of mining equipment, supplies and materials, including the roof bolts required by the room-and-pillar method of mining. Steel prices and the prices of scrap steel, natural gas and coking coal consumed in the production of iron and steel fluctuate significantly and may change unexpectedly. There may be acts of nature or terrorist attacks or threats that could also impact the future costs of raw materials. Future volatility in the price of steel, petroleum products or other raw materials will impact the ARLP Partnership's operational expenses and could result in significant fluctuations to its profitability.

The ARLP Partnership's indebtedness may limit its ability to borrow additional funds, make distributions to unitholders or capitalize on business opportunities.

        The ARLP Partnership has long-term indebtedness, consisting of its outstanding senior unsecured notes, revolving credit facility and its term loan agreement. At December 31, 2012, the ARLP Partnership's total long-term indebtedness outstanding was $773.0 million. The ARLP Partnership's leverage may:

    adversely affect its ability to finance future operations and capital needs;
    limit its ability to pursue acquisitions and other business opportunities;
    make its results of operations more susceptible to adverse economic or operating conditions; and
    make it more difficult to self-insure for the ARLP Partnership's workers' compensation obligations.

        In addition, the ARLP Partnership has unused borrowing capacity under its revolving credit facility. Future borrowings, under credit facilities or otherwise, could result in a significant increase in the ARLP Partnership's leverage.

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        The ARLP Partnership's payments of principal and interest on any indebtedness will reduce the cash available for distribution on its units. The ARLP Partnership will be prohibited from making cash distributions:

    during an event of default under any of its indebtedness; or
    if either before or after such distribution, it fails to meet a coverage test based on the ratio of its consolidated debt to its consolidated cash flow.

        Various limitations in the ARLP Partnership's debt agreements may reduce its ability to incur additional indebtedness, to engage in some transactions and to capitalize on business opportunities. Any subsequent refinancing of the ARLP Partnership's current indebtedness or any new indebtedness could have similar or greater restrictions.

Federal and state laws require bonds to secure the ARLP Partnership's obligations related to statutory reclamation requirements and workers' compensation and black lung benefits. The ARLP Partnership's inability to acquire or failure to maintain surety bonds that are required by state and federal law would have a material adverse effect on it.

        Federal and state laws require the ARLP Partnership to place and maintain bonds to secure its obligations to repair and return property to its approximate original state after it has been mined (often referred to as "reclaim" or "reclamation"), to pay federal and state workers' compensation and pneumoconiosis, or black lung, benefits and to satisfy other miscellaneous obligations. These bonds provide assurance that the ARLP Partnership will perform its statutorily required obligations and are referred to as "surety" bonds. These bonds are typically renewable on a yearly basis. The failure to maintain or the inability to acquire sufficient surety bonds, as required by state and federal laws, could subject the ARLP Partnership to fines and penalties and result in the loss of its mining permits. Such failure could result from a variety of factors, including:

    lack of availability, higher expense or unreasonable terms of new surety bonds;
    the ability of current and future surety bond issuers to increase required collateral, or limitations on availability of collateral for surety bond issuers due to the terms of the ARLP Partnership's credit agreements; and
    the exercise by third-party surety bond holders of their rights to refuse to renew the surety.

        The ARLP Partnership has outstanding surety bonds with governmental agencies for reclamation, federal and state workers' compensation and other obligations. The ARLP Partnership may have difficulty maintaining its surety bonds for mine reclamation as well as workers' compensation and black lung benefits. In addition, those governmental agencies may increase the amount of bonding required. The ARLP Partnership's inability to acquire or failure to maintain these bonds, or a substantial increase in the bonding requirements, would have a material adverse effect on it.

The ARLP Partnership and its subsidiaries are subject to various legal proceedings, which may have a material effect on its business.

        The ARLP Partnership is party to a number of legal proceedings incident to its normal business activities. There is the potential that an individual matter or the aggregation of multiple matters could have an adverse effect on the ARLP Partnership's cash flows, results of operations or financial position. Please see "Item 8. Financial Statements and Supplementary Data—Note 20. Commitments and Contingencies" for further discussion.

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Tax Risks to Our Common Unitholders

Our tax treatment depends on our status as a partnership for federal tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service, or IRS, treats us as a corporation for U.S. federal income tax purposes, or we or ARLP become subject to entity-level taxation for state tax purposes, our cash available for distribution to you would be substantially reduced.

        The anticipated after-tax benefit of an investment in our units depends largely on AHGP being treated as a partnership for U.S. federal income tax purposes. The value of our investment in ARLP depends largely on ARLP being treated as a partnership for federal income tax purposes.

        Despite the fact that we and ARLP are organized as limited partnerships under Delaware law, we and ARLP would be treated as corporations for U.S. federal income tax purposes unless we and ARLP satisfy a "qualifying income" requirement. Based upon ARLP's current operations, we believe we and ARLP satisfy the qualifying income requirement. However, neither we nor ARLP have requested, and do not plan to request, a ruling from the IRS on this or any other matter affecting us or ARLP. Failing to meet the qualifying income requirement or a change in current law could cause us or ARLP to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us or ARLP to taxation as an entity.

        If we or ARLP were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%, and would likely be liable for state income tax at varying rates. Distributions to our unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to our unitholders. Because taxes would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced. Therefore, our treatment as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of the units.

        ARLP's partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects ARLP to taxation as a corporation or otherwise subjects ARLP to entity-level taxation for U.S. federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on ARLP. Likewise, our cash distributions to you will be reduced if we or ARLP is subjected to any form of such entity-level taxation. At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. If any state were to impose a tax upon us or ARLP as an entity, the cash available for distribution to you would be reduced and the value of our common units or ARLP common units could be negatively impacted.

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

        The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, from time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships. One such legislative proposal would eliminate the qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will be reintroduced or will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units. Any modification to U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us or ARLP to meet the qualifying income requirement to be treated as partnerships for U.S. federal income tax purposes.

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If the IRS were to contest the federal income tax positions we take, it may adversely impact the market for our common units or ARLP common units, and the costs of any such contest would reduce cash available for distribution to ARLP and our unitholders.

        We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from the positions that we or ARLP take, even positions taken with the advice of counsel. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we or ARLP take. A court may not agree with some or all of the positions we or ARLP take. Any contest with the IRS may materially and adversely impact the market for our common units or ARLP's common units and the prices at which they trade. In addition, the costs of any contest with the IRS will be borne by ARLP and therefore indirectly by us, as a unitholder and as the owner of the managing general partner of ARLP. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders.

Even if you do not receive any cash distributions from us, you will be required to pay taxes on your share of our taxable income.

        You will be required to pay federal income taxes and, in some cases, state and local income taxes, on your share of our taxable income, whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax due from you with respect to that income.

Tax gain or loss on the disposition of our units could be more or less than expected.

        If you sell your units, you will recognize gain or loss equal to the difference between the amount realized and your tax basis in those units. Because distributions in excess of your allocable share of our net taxable income decrease your tax basis in your units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in effect, become taxable income to you if you sell such units at a price greater than your tax basis therein, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income to you due to potential recapture items, including depreciation and depletion recapture. In addition, because the amount realized includes a unitholder's share of our non-recourse liabilities, if you sell your units, you may incur a tax liability in excess of the amount of cash you receive from the sale.

Tax-exempt entities and non-U.S. persons owning our units face unique tax issues that may result in adverse tax consequences to them.

        Investment in our units by tax-exempt entities, such as individual retirement accounts (known as "IRAs") and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income. If you are a tax exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units.

We treat each purchaser of our units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which could adversely affect the value of our units.

        Because we cannot match transferors and transferees of units, we adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also

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could affect the timing of these tax benefits or the amount of gain from your sale of units and could have a negative impact on the value of our units or result in audit adjustments to your tax returns.

We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

        We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations. The U.S. Treasury Department has issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly-traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we have adopted. If the IRS were to challenge our proration method or new Treasury Regulations were issued, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.

A unitholder whose units are the subject of a securities loan (e.g., a loan to a "short seller" to cover a short sale of units) may be considered as having disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.

        Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a unitholder whose units are the subject of a securities loan may be considered as having disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.

ARLP has adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between the general partner and the unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

        When we or ARLP issue additional units or engage in certain other transactions, ARLP determines the fair market value of its assets and allocates any unrealized gain or loss attributable to its assets to the capital accounts of ARLP's unitholders and us. ARLP's methodology may be viewed as understating the value of ARLP's assets. In that case, there may be a shift of income, gain, loss and deduction between certain ARLP unitholders and us, which may be unfavorable to such ARLP unitholders. Moreover, under ARLP's valuation methods, subsequent purchasers of our common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to ARLP's intangible assets and a lesser portion allocated to ARLP's tangible assets. The IRS may challenge ARLP's valuation methods, or our or ARLP's allocation of the Section 743(b) adjustment attributable to ARLP's tangible and intangible assets, and allocations of income, gain, loss and deduction between us and certain of ARLP's unitholders.

        A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders' sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders' tax returns without the benefit of additional deductions.

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Certain federal income tax deductions currently available with respect to coal mining and production may be eliminated as a result of future legislation.

        The Obama administration has indicated a desire to eliminate certain key U.S. federal income tax provisions currently applicable to coal companies, including the percentage depletion allowance with respect to coal properties. No legislation with that effect has been proposed and elimination of those provisions would not impact the ARLP Partnership's financial statements or results of operations. However, elimination of the provisions could result in unfavorable tax consequences for its unitholders and, as a result, could negatively impact its unit price as well as our unitholders and unit price.

The sale or exchange of 50% or more of our capital and profits interests within a twelve-month period will result in the termination of us as a partnership for federal income tax purposes.

        We will be considered to have terminated as a partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns for one calendar year and could result in a significant deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in taxable income for the unitholder's taxable year that includes our termination. A termination does not affect our classification as a partnership for federal income tax purposes, but it would result in our being treated as a new partnership for U.S. federal income tax purposes following the termination. If we were treated as a new partnership, we would be required to make new tax elections and could be subject to penalties if we were unable to determine that a termination occurred. The IRS has recently announced a relief procedure whereby the IRS may allow a publicly-traded partnership that has technically terminated to provide only a single Schedule K-1 to unitholders for the two short tax periods included in the year in which the termination occurs.

You will likely be subject to state and local taxes and income tax return filing requirements in jurisdictions where you do not live as a result of investing in our units.

        In addition to U.S. federal income taxes, you will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property. You will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We may own property or conduct business in other states in the future. It is your responsibility to file all federal, state and local tax returns.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

Coal Reserves

        The ARLP Partnership must obtain permits from applicable regulatory authorities before beginning to mine particular reserves. For more information on this permitting process, and matters that could hinder or delay the process, please read "Item 1. Business—Regulation and Laws—Mining Permits and Approvals."

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        The ARLP Partnership's reported coal reserves are those it believes can be economically and legally extracted or produced at the time of the filing of this Annual Report on Form 10-K. In determining whether its reserves meet this economical and legal standard, the ARLP Partnership takes into account, among other things, its potential ability or inability to obtain a mining permit, the possible necessity of revising a mining plan, changes in estimated future costs, changes in future cash flows caused by changes in mining permits, variations in quantity and quality of coal, and varying levels of demand and their effects on selling prices.

        At December 31, 2012, the ARLP Partnership had approximately 919.5 million tons of coal reserves. Approximately 204.9 million tons of those reserves, located in Hamilton County, Illinois, are leased to White Oak and are not reflected in the operations table below. All of the estimates of reserves presented in the tables below are of proven and probable reserves (as defined below) and adhere to the standards described in U.S. Geological Survey ("USGS") Circular 831 and USGS Bulletin 1450-B. For information on the locations of the ARLP Partnership's mines, please read "Mining Operations" under "Item 1. Business."

        The following table sets forth reserve information at December 31, 2012, about the ARLP Partnership's mining operations:

 
   
   
  Proven and Probable Reserves    
   
   
   
 
 
   
   
  Pounds S02 per MMBTU   Reserve Assignment   Reserve Control  
 
   
  Heat Content
(BTUs per
pound)
 
Operations
  Mine Type   <1.2   1.2 - 2.5   >2.5   Total   Assigned   Unassigned   Owned   Leased  
 
   
   
  (tons in millions)
   
   
   
   
 

Illinois Basin Operations

                                                           

Dotiki (KY)

  Underground     12,100             47.0     47.0     47.0         19.0     28.0  

Warrior (KY)

  Underground     12,600             123.7     123.7     84.0     39.7     31.1     92.6  

Hopkins (KY)

  Underground/     12,200             29.7     29.7     14.7     15.0     5.0     24.7  

  Surface     11,500             7.8     7.8     7.8         7.8      

River View (KY)

  Underground     11,600             127.2     127.2     127.2         13.2     114.0  

Onton (KY)

  Underground     11,850             41.4     41.4     41.4         0.6     40.8  

Sebree (KY)

  Underground     11,400             26.2     26.2         26.2         26.2  

Pattiki (IL)

  Underground     11,500             46.1     46.1     46.1         0.1     46.0  

Gibson (North) (IN)

  Underground     11,500         9.8     8.7     18.5     18.5         0.1     18.4  

Gibson (South) (IN)

  Underground     11,500         21.7     45.2     66.9     66.9         20.8     46.1  
                                             

Region Total

                  31.5     503.0     534.5     453.6     80.9     97.7     436.8  
                                             

Central Appalachian Operations

                                                           

Pontiki (KY)

  Underground     12,900         2.9         2.9     2.9             2.9  

MC Mining (KY)

  Underground     12,600     10.0     0.5     1.5     12.0     12.0         1.6     10.4  
                                             

Region Total

              10.0     3.4     1.5     14.9     14.9         1.6     13.3  
                                             

Northern Appalachian Operations

                                                           

Mettiki (MD)

  Underground     12,900         1.9     5.3     7.2     7.2             7.2  

Mountain View (WV)

  Underground     12,900         3.2     2.4     5.6     5.6             5.6  

Tunnel Ridge (PA/WV)

  Underground     12,700             95.7     95.7     95.7             95.7  

Penn Ridge (PA)

  Underground     12,500             56.7     56.7     56.7             56.7  
                                             

Region Total

                  5.1     160.1     165.2     165.2             165.2  
                                             

Total

              10.0     40.0     664.6     714.6     633.7     80.9     99.3     615.3  
                                             

% of Total

              1.4 %   5.6 %   93.0 %   100.0 %   88.7 %   11.3 %   13.9 %   86.1 %
                                             

        The following table sets forth information related to reserves leased to White Oak at December 31, 2012:

 
   
   
  Proven and Probable Reserves    
   
   
   
 
 
   
   
  Pounds S02 per MMBTU   Reserve Assignment   Reserve Control  
 
   
  Heat Content
(BTUs per
pound)
 
Operation
  Mine Type   <1.2   1.2 - 2.5   >2.5   Total   Assigned   Unassigned   Owned   Leased  
 
   
   
  (tons in millions)
   
   
   
   
 

Illinois Basin Operation

                                                           

White Oak (IL)

  Underground     11,700             204.9     204.9     204.9         11.6     193.3  

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        The ARLP Partnership's reserve estimates are prepared from geological data assembled and analyzed by its staff of geologists and engineers. This data is obtained through the ARLP Partnership's extensive, ongoing exploration drilling and in-mine channel sampling programs. The ARLP Partnership's drill spacing criteria adhere to standards as defined by the USGS. The maximum acceptable distance from seam data points varies with the geologic nature of the coal seam being studied, but generally the standard for (a) proven reserves is that points of observation are no greater than 1/2 mile apart and are projected to extend as a 1/4 mile wide belt around each point of measurement and (b) probable reserves is that points of observation are between 1/2 and 11/2 miles apart and are projected to extend as a 1/2 mile wide belt that lies 1/4 mile from the points of measurement.

        Reserve estimates will change from time to time to reflect mining activities, additional analysis, new engineering and geological data, acquisition or divestment of reserve holdings, modification of mining plans or mining methods, and other factors. Weir International Mining Consultants performed an audit of the ARLP Partnership's reserves and calculation methods in August 2010.

        Reserves represent that part of a mineral deposit that can be economically and legally extracted or produced, and reflect estimated losses involved in producing a saleable product. All of the ARLP Partnership's reserves are steam coal, except for reserves at Mettiki that can be delivered to the steam or metallurgical markets. The 10.0 million tons of reserves listed as <1.2 pounds of SO2 per million British thermal units ("MMBTU") are compliance coal under Phase II of CAA.

        Assigned reserves are those reserves that have been designated for mining by a specific operation. Unassigned reserves are those reserves that have not yet been designated for mining by a specific operation. British thermal units ("BTU") values are reported on an as shipped, fully washed, basis. Shipments that are either fully or partially raw will have a lower BTU value.

        The ARLP Partnership controls certain leases for coal deposits that are near, but not contiguous to, its primary reserve bases. The tons controlled by these leases are classified as non-reserve coal deposits and are not included in the ARLP Partnership's reported reserves. These non-reserve coal deposits are as follows: Dotiki—6.5 million tons, Pattiki—13.5 million tons, Hopkins County Coal—2.5 million tons, River View—22.6 million tons, Onton—7.2 million tons, Sebree Mining—0.2 million tons, Gibson (North)—6.4 million tons, Gibson (South)—4.7 million tons, Warrior—9.5 million tons, Mettiki—1.8 million tons, Tunnel Ridge—2.3 million tons, Penn Ridge—3.4 million tons, and Pontiki—11.7 million tons. In addition, there are 64.3 million tons of coal located near the River View complex and 4.6 million tons of coal located near the Dotiki complex, for total non-reserve coal deposits of 161.2 million tons.

        The ARLP Partnership leases most of its reserves and generally has the right to maintain leases in force until the exhaustion of mineable and merchantable coal located within the leased premises or a larger coal reserve area. These leases provide for royalties to be paid to the lessor at a fixed amount per ton or as a percentage of the sales price. Many leases require payment of minimum royalties, payable either at the time of the execution of the lease or in periodic installments, even if no mining activities have begun. These minimum royalties are normally credited against the production royalties owed to a lessor once coal production has commenced.

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Mining Operations

        The following table sets forth production and other data about the ARLP Partnership's mining operations:

 
   
  Tons Produced    
   
Operations
  Location   2012   2011   2010   Transportation   Equipment
 
   
  (in millions)
   
   

Illinois Basin Operations

                             

Dotiki

  Kentucky     3.4     3.6     3.9   CSX, PAL, truck, barge   CM

Warrior

  Kentucky     5.9     5.4     5.8   CSX, PAL, truck, barge   CM

Hopkins

  Kentucky     3.1     3.3     3.3   CSX, PAL, truck, barge   CM

River View

  Kentucky     8.6     7.6     5.9   Barge   CM

Onton

  Kentucky     1.6           Barge, truck   CM

Pattiki

  Illinois     2.4     2.2     1.7   EVWR, barge   CM

Gibson (North)

  Indiana     3.4     3.4     3.1   CSX, NS, truck, barge   CM
                         

Region Total

        28.4     25.5     23.7        
                         

Central Appalachian Operations

                             

Pontiki

  Kentucky     0.6     1.0     0.9   NS, truck, barge   CM

MC Mining

  Kentucky     1.3     1.5     1.4   CSX, truck, barge   CM
                         

Region Total

        1.9     2.5     2.3        
                         

Northern Appalachian Operations

                             

Mettiki

  Maryland     0.2     0.2     0.4   Truck, CSX   CM, CS

Mountain View

  West Virginia     2.3     2.3     2.4   Truck, CSX   LW, CM

Tunnel Ridge

  West Virginia     2.0     0.3     0.1   Barge, WLE   LW, CM
                         

Region Total

        4.5     2.8     2.9        
                         

TOTAL

        34.8     30.8     28.9        
                         
CSX   - CSX Railroad
NS   - Norfolk Southern Railroad
PAL   - Paducah & Louisville Railroad
CM   - Continuous Miner
LW   - Longwall
EVWR   - Evansville Western Railroad
WLE   - Wheeling & Lake Erie Railroad
CS   - Contour Strip

ITEM 3.    LEGAL PROCEEDINGS

        We are not engaged in any material litigation. The ARLP Partnership is not engaged in any litigation that it believes is material to its operations, including without limitation, any litigation relating to its long-term coal supply contracts or under the various environmental protection statutes to which it is subject. However, the ARLP Partnership is subject to various types of litigation in the ordinary course of its business, and we cannot assure you that disputes or litigation will not arise or that the ARLP Partnership will be able to resolve any such future disputes or litigation in a satisfactory manner. The information under "General Litigation" and "Other" in "Item 8. Financial Statements and Supplementary Data—Note 20. Commitments and Contingencies" is incorporated herein by this reference.

ITEM 4.    MINE SAFETY DISCLOSURES

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

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        The common units representing limited partners' interests are listed on the NASDAQ Global Select Market under the symbol "AHGP." The common units began trading on May 10, 2006. On February 15, 2013, the closing market price for the common units was $51.68 per unit and there were 59,863,000 common units outstanding. There were approximately 8,468 record holders and beneficial owners (held in street name) of common units at December 31, 2012.

        The following table sets forth the range of high and low sales prices per common unit and the amount of cash distributions declared and paid with respect to the units, for the two most recent fiscal years:

 
  High   Low   Distributions Per Unit

1st Quarter 2011

  $ 58.00   $ 45.89   $0.555 (paid May 20, 2011)

2nd Quarter 2011

  $ 53.00   $ 44.36   $0.5825 (paid August 19, 2011)

3rd Quarter 2011

  $ 51.34   $ 41.32   $0.610 (paid November 18, 2011)

4th Quarter 2011

  $ 52.99   $ 40.24   $0.6375 (paid February 17, 2012)

1st Quarter 2012

  $ 54.64   $ 43.13   $0.6675 (paid May 18, 2012)

2nd Quarter 2012

  $ 45.69   $ 36.98   $0.6975 (paid August 17, 2012)

3rd Quarter 2012

  $ 52.67   $ 41.42   $0.72 (paid November 19, 2012)

4th Quarter 2012

  $ 51.07   $ 43.52   $0.74 (paid February 19, 2013)

        We will distribute 100% of our available cash (including any held by MGP) within 50 days after the end of each quarter to unitholders of record. Available cash is generally defined as all cash and cash equivalents on hand at the end of each quarter less reserves established by AGP in its reasonable discretion for future cash requirements. These reserves are retained to provide for the conduct of our business, the payment of debt principal and interest and to provide funds for future distributions.

Equity Compensation Plans

        The information relating to our equity compensation plans required by Item 5 is incorporated by reference to such information as set forth in "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters" contained herein.

ITEM 6.    SELECTED FINANCIAL DATA

        Since we own MGP, our financial statements reflect the consolidated results of the ARLP Partnership. The amount of earnings of the ARLP Partnership allocated to its limited partners' interests not owned by us is reflected as a noncontrolling interest in our consolidated income statement and balance sheet. Our consolidated financial statements do not differ materially from those of the ARLP Partnership. The differences between our financial statements and those of the ARLP Partnership are primarily attributable to (a) amounts reported as noncontrolling interests and (b) additional general and administrative costs and taxes attributable to us. The additional general and administrative costs principally consist of costs incurred by us as a result of being a publicly-traded partnership and amounts paid to Alliance Coal under an Administrative Services Agreement in addition to amounts paid to AGP under our partnership agreement.

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        Our historical financial data below were derived from the AHGP Partnership's audited consolidated financial statements as of and for the years ended December 31, 2012, 2011, 2010, 2009 and 2008.

 
  Year Ended December 31,  
(in millions, except unit, per unit and per ton data)
  2012   2011   2010   2009   2008  

Statements of Income

                               

Sales and operating revenues:

                               

Coal sales

  $ 1,979.4   $ 1,786.1   $ 1,551.5   $ 1,163.9   $ 1,093.1  

Transportation revenues

    22.0     31.9     33.6     45.7     44.7  

Other sales and operating revenues

    32.5     25.2     24.6     21.0     18.3  
                       

Total revenues

    2,033.9     1,843.2     1,609.7     1,230.6     1,156.1  
                       

Expenses:

                               

Operating expenses (excluding depreciation, depletion and amortization)

    1,303.3     1,131.8     1,009.9     797.6     801.9  

Transportation expenses

    22.0     31.9     33.6     45.7     44.7  

Outside coal purchases

    38.6     54.3     17.1     7.5     23.8  

General and administrative            

    62.8     55.0     54.2     42.9     38.9  

Depreciation, depletion and amortization

    218.1     160.3     146.9     117.5     105.3  

Asset impairment charge

    19.0                  

Gain from sale of coal reserves

                    (5.2 )

Net gain from insurance settlement and other(1)

                    (2.8 )
                       

Total operating expenses            

    1,663.8     1,433.3     1,261.7     1,011.2     1,006.6  
                       

Income from operations

    370.1     409.9     348.0     219.4     149.5  

Interest expense (net of interest capitalized)

    (28.7 )   (22.0 )   (30.1 )   (30.8 )   (22.1 )

Interest income

    0.2     0.4     0.2     1.1     3.7  

Equity in loss of affiliates, net

    (14.7 )   (3.4 )            

Other income

    3.2     1.0     0.9     1.2     0.9  
                       

Income before income taxes

    330.1     385.9     319.0     190.9     132.0  

Income tax expense (benefit)

    (1.1 )   (0.4 )   1.7     0.7     (0.5 )
                       

Net income

    331.2     386.3     317.3     190.2     132.5  

Income attributable to noncontrolling interests

    (135.1 )   (172.2 )   (143.0 )   (76.0 )   (51.3 )
                       

Net income attributable to Alliance Holdings GP, L.P. ("AHGP")

  $ 196.1   $ 214.1   $ 174.3   $ 114.2   $ 81.2  
                       

Basic and diluted net income of AHGP per limited partner unit

  $ 3.28   $ 3.58   $ 2.91   $ 1.91   $ 1.36  
                       

Distributions paid per limited partner unit

  $ 2.7225   $ 2.275   $ 1.90   $ 1.685   $ 1.3175  
                       

Weighted average number of units outstanding-basic and diluted

    59,863,000     59,863,000     59,863,000     59,863,000     59,863,000  
                       

Balance Sheet Data:

                               

Working capital

  $ 75.3   $ 271.7   $ 350.8   $ 56.9   $ 240.8  

Total assets

    1,958.8     1,734.5     1,504.1     1,054.3     1,032.6  

Long-term obligations(2)

    791.6     688.5     704.2     422.5     440.8  

Total liabilities(3)

    1,251.0     1,108.3     1,046.9     731.6     741.5  

Partners' capital(3)

  $ 707.8   $ 626.2   $ 457.2   $ 322.7   $ 291.2  

Other Operating Data:

                               

Tons sold

    35.2     31.9     30.3     25.0     27.2  

Tons produced

    34.8     30.8     28.9     25.8     26.4  

Coal sales per ton sold(4)

  $ 56.28   $ 55.95   $ 51.21   $ 46.60   $ 40.23  

Cost per ton sold(5)

  $ 38.15   $ 37.15   $ 33.90   $ 32.23   $ 30.39  

Other Financial Data:

                               

Net cash provided by operating activities

  $ 546.2   $ 576.1   $ 517.0   $ 280.8   $ 259.3  

Net cash used in investing activities

    (623.4 )   (401.1 )   (295.0 )   (320.1 )   (184.1 )

Net cash provided by (used in) financing activities

    (173.2 )   (235.8 )   96.1     (183.7 )   169.7  

EBITDA(6)

    576.7     567.8     495.8     338.2     255.7  

Maintenance capital expenditures(7)

    282.6     192.7     90.5     96.1     77.7  
(1)
Represents a realized gain in 2008 of $2.8 million on settlement of the ARLP Partnership's claim against the third party that provided security services at the time of the MC Mining Fire Incident.

(2)
Long-term obligations include long-term portions of debt and capital lease obligations.

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(3)
On January 1, 2009, we adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810-10-65 and 810-10-45-16, which amended accounting and reporting standards for noncontrolling ownership interests in subsidiaries. As a result, noncontrolling ownership interest in consolidated subsidiaries is now presented in the consolidated balance sheet within partners' capital as a separate component from the parent's equity. Consolidated net income now includes earnings attributable to both the parent and the noncontrolling interests.

(4)
Coal sales per ton sold are based on total coal sales divided by tons sold.

(5)
Cost per ton sold is based on the total of operating expenses and outside coal purchases divided by tons sold.

(6)
EBITDA is a financial measure not calculated in accordance with generally accepted accounting principles ("GAAP") and is defined as net income (prior to the allocation of noncontrolling interest) before income taxes, net interest expense and depreciation, depletion and amortization. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others, to assess:

the financial performance of the ARLP Partnership's assets without regard to financing methods, capital structure or historical cost basis;
the ability of the ARLP Partnership's assets to generate cash sufficient to pay interest costs and support its indebtedness;
the ARLP Partnership's operating performance and return on investment compared to those of other companies in the coal energy sector, without regard to financing or capital structures; and
the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDA should not be considered as an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. EBITDA is not intended to represent cash flow and does not represent the measure of cash available for distribution. Our method of computing EBITDA may not be the same method used to compute similar measures reported by other companies, or EBITDA may be computed differently by us in different contexts (e.g. public reporting versus computation under financing agreements).

        The following table presents a reconciliation of (a) GAAP "Cash Flows Provided by Operating Activities" to non-GAAP EBITDA and (b) non-GAAP EBITDA to GAAP net income (in thousands):

 
  Year Ended December 31,  
 
  2012   2011   2010   2009   2008  

Cash flows provided by operating activities

  $ 546,224   $ 576,105   $ 517,025   $ 280,802   $ 259,311  

Non-cash compensation expense

    (7,607 )   (6,417 )   (4,051 )   (3,582 )   (3,931 )

Settlement of deferred directors compensation

    459                  

Asset retirement obligations

    (2,853 )   (2,546 )   (2,579 )   (2,678 )   (2,827 )

Coal inventory adjustment to market

    (2,978 )   (386 )   (498 )   (3,030 )   (452 )

Equity in loss of affiliates, net

    (14,650 )   (3,404 )            

Net gain (loss) on foreign currency exchange

            (274 )   653      

Net gain (loss) on sale of property, plant and equipment

    (147 )   634     (234 )   (136 )   911  

Gain on sale of coal reserves

                    5,159  

Loss on retirement of vertical hoist conveyor system

            (1,204 )        

Asset impairment charge

    (19,031 )                

Other

    3,815     (1,488 )   (1,448 )   (537 )   (366 )

Net effect of working capital changes

    46,116     (15,820 )   (42,555 )   36,208     (19,971 )

Interest expense, net

    28,453     21,574     29,858     29,781     18,369  

Income tax expense (benefit)

    (1,082 )   (430 )   1,742     709     (480 )
                       

EBITDA

    576,719     567,822     495,782     338,190     255,723  

Depreciation, depletion and amortization

    (218,122 )   (160,335 )   (146,881 )   (117,524 )   (105,278 )

Interest expense, net

    (28,453 )   (21,574 )   (29,858 )   (29,781 )   (18,369 )

Income tax (expense) benefit

    1,082     430     (1,742 )   (709 )   480  
                       

Net income

  $ 331,226   $ 386,343   $ 317,301   $ 190,176   $ 132,556  
                       
(7)
The ARLP Partnership's maintenance capital expenditures, as defined under the terms of its partnership agreement, are those capital expenditures required to maintain, over the long-term, the operating capacity of its capital assets.

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ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

        The following discussion of our financial condition and results of operations should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. For more detailed information regarding the basis of presentation for the following financial information, please see "Item 8. Financial Statements and Supplementary Data—Note 1. Organization and Presentation and Note 2. Summary of Significant Accounting Policies."

Executive Overview

The AHGP Partnership

        We have no operating activities apart from those conducted by the ARLP Partnership, and our cash flows currently consist of distributions from ARLP on our ARLP partnership interests, including the IDRs that we own. We reflect our ownership interest in the ARLP Partnership on a consolidated basis, which means that our financial results are combined with the ARLP Partnership's financial results and the results of our other subsidiaries. The earnings of the ARLP Partnership allocated to its limited partners' interests not owned by us and allocated to SGP's general partner interest in ARLP are reflected as a noncontrolling interest in our consolidated income statement and balance sheet. Accordingly, the noncontrolling partners' interest in the ARLP Partnership's net income is reflected as reduction of consolidated net income in our results of operations to arrive at net income attributable to AHGP. In addition to the ARLP Partnership, our historical consolidated results of operations include the results of operations of MGP, our wholly-owned subsidiary.

        The AHGP Partnership's results of operations principally reflect the results of operations of the ARLP Partnership adjusted for noncontrolling partners' interest in the ARLP Partnership's net income. Accordingly, the discussion of our financial position and results of operations in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" reflects the operating activities and results of operations of the ARLP Partnership.

        Our primary business objective is to increase our cash distributions to our unitholders by actively assisting ARLP in executing its business strategy. ARLP's business strategy is to create sustainable, capital-efficient growth in available cash to maximize its distribution to its unitholders by:

    expanding its operations by adding and developing mines and coal reserves in existing, adjacent or neighboring properties;
    extending the lives of its current mining operations through acquisition and development of coal reserves using its existing infrastructure;
    continuing to make productivity improvements to remain a low-cost producer in each region in which it operates;
    strengthening its position with existing and future customers by offering a broad range of coal qualities, transportation alternatives and customized services; and
    developing strategic relationships to take advantage of opportunities within the coal industry and MLP sector.

The ARLP Partnership

        The ARLP Partnership is a diversified producer and marketer of coal primarily to major U.S. utilities and industrial users. In 2012, it produced a record 34.8 million tons of coal and sold a record 35.2 million tons. The coal it produced in 2012 was approximately 3.8% low-sulfur coal, 18.8% medium-sulfur coal and 77.4% high-sulfur coal. The ARLP Partnership classifies low-sulfur coal as coal with a sulfur content of less

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than 1%, medium-sulfur coal as coal with a sulfur content between 1% and 2%, and high-sulfur coal as coal with a sulfur content of greater than 2%.

        The ARLP Partnership operates eleven underground mining complexes, including the new Tunnel Ridge longwall mine in West Virginia and the Onton mine in west Kentucky acquired on April 2, 2012, and operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. The ARLP Partnership is constructing an additional mine at the southern Indiana Gibson County Coal mining complex and purchasing and funding development of reserves, constructing surface facilities and making equity investments in White Oak's new mining complex in southern Illinois. Please see "Item 1. Business—Mining Operations" for further discussion of the ARLP Partnership's mines. At December 31, 2012, the ARLP Partnership had approximately 919.5 million tons of proven and probable coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia. Approximately 204.9 million tons of those reserves are leased to White Oak. For more information on White Oak, please read "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions." The ARLP Partnership believes it controls adequate reserves to implement its currently contemplated mining plans.

        In 2012, approximately 93.1% of the ARLP Partnership's sales tonnage was purchased by electric utilities, with the balance sold to third-party resellers and industrial consumers. In 2012, approximately 94.2% of the ARLP Partnership's sales tonnage was sold under long-term contracts. The ARLP Partnership's long-term contracts contribute to its stability and profitability by providing greater predictability of sales volumes and sales prices. In 2012, approximately 94.1% of the ARLP Partnership's medium- and high-sulfur coal was sold to utility plants with installed pollution control devices. These devices, also known as scrubbers, eliminate substantially all emissions of sulfur dioxide.

        As discussed in more detail in "Item 1A. Risk Factors," the ARLP Partnership's results of operations could be impacted by prices for items that are used in coal production such as steel, electricity and other supplies, unforeseen geologic conditions or mining and processing equipment failures and unexpected maintenance problems, and by the availability or reliability of transportation for coal shipments. Additionally, the ARLP Partnership's results of operations could be impacted by its ability to obtain and renew permits necessary for its operations, secure or acquire coal reserves, or find replacement buyers for coal under contracts with comparable terms to existing contracts. Moreover, the regulatory environment has grown increasingly stringent in recent years. As outlined in "Item 1. Business—Regulation and Laws," a variety of measures taken by regulatory agencies in the U.S. and abroad in response to the perceived threat from climate change attributed to greenhouse gas emissions could substantially increase compliance costs for the ARLP Partnership and its customers and reduce demand for coal, which could materially and adversely impact the ARLP Partnership's results of operations. For additional information regarding some of the risks and uncertainties that affect the ARLP Partnership's business and the industry in which it operates, see "Item 1A. Risk Factors."

        The ARLP Partnership's principal expenses related to the production of coal are labor and benefits, equipment, materials and supplies, maintenance, royalties and excise taxes. Unlike many of the ARLP Partnership's competitors in the eastern U.S., it employs a totally union-free workforce. Many of the benefits of the ARLP Partnership's union-free workforce are related to higher productivity and are not necessarily reflected in direct costs. In addition, while the ARLP Partnership does not pay its customers' transportation costs, they may be substantial and are often the determining factor in a coal consumer's contracting decision. The ARLP Partnership's mining operations are located near many of the major eastern utility generating plants and on major coal hauling railroads in the eastern U.S. The River View and Tunnel Ridge mines and Mt. Vernon transloading facility are located on the Ohio River and the Onton mine is located on the Green River in western Kentucky.

        We have five reportable segments: the Illinois Basin, Central Appalachia, Northern Appalachia, White Oak and Other and Corporate. The first three reportable segments correspond to the three major coal producing regions in the eastern U.S. Factors similarly affecting financial performance of our

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operating segments within each of these three reportable segments include coal quality, coal seam height, mining and transportation methods and regulatory issues. The White Oak reportable segment is comprised of the ARLP Partnership's activities associated with the White Oak longwall Mine No. 1 development project in southern Illinois more fully described below.

    Illinois Basin reportable segment is comprised of multiple operating segments, including Webster County Coal's Dotiki mining complex, Gibson County Coal's mining complex, which includes the Gibson North mine and Gibson South project, Hopkins County Coal's Elk Creek mining complex, White County Coal's Pattiki mining complex, Warrior's mining complex, the Sebree Mining complex, which includes the Onton mine, Steamport and certain Sebree Reserves, River View's mining complex, CR Services, and certain properties of Alliance Resource Properties, ARP Sebree and ARP Sebree South. The development of the Gibson South mine is currently underway and the ARLP Partnership is in the process of permitting the Sebree Reserves and related property for future mine development. For information regarding the permitting process and matters that could hinder or delay the process, please read "Item 1. Business—Regulation and Laws—Mining Permits and Approvals" and for information regarding the acquisition of the Onton mine which was added to the Illinois Basin segment in April 2012, please read "Item 8. Financial Statements and Supplementary Data—Note 4. Acquisition of Business" of this Annual Report on Form 10-K.

    Central Appalachian reportable segment is comprised of two operating segments, the MC Mining and Pontiki mining complexes. The Pontiki mining complex was idled on August 29, 2012 and resumed operations on November 25, 2012. Please read "Item 8. Financial Statements and Supplementary Data—Note 5. Asset Impairment Charge" of this Annual Report on Form 10-K and discussions below regarding an asset impairment charge of $19.0 million related to the idling of the Pontiki mining complex.

    Northern Appalachian reportable segment is comprised of multiple operating segments, including Mettiki (MD)'s mining complex, Mettiki (WV)'s Mountain View mining complex, two small third-party mining operations (one of which ceased operations in July 2011), the Tunnel Ridge mining complex and the Penn Ridge Coal property. In May 2012, longwall production began at the Tunnel Ridge mine. The ARLP Partnership is in the process of permitting the Penn Ridge property for future mine development. For information regarding the permitting process and matters that could hinder or delay the process, please read "Item 1. Business—Regulation and Laws—Mining Permits and Approvals."

    White Oak reportable segment is comprised of two operating segments, WOR Processing and WOR Properties. WOR Processing includes both the surface operations at White Oak currently under construction and the equity investment in White Oak. WOR Properties owns reserves acquired from White Oak and is committed to acquiring additional reserves from White Oak with a lease-back arrangement. WOR Properties has also completed initial funding commitments to White Oak for development of these reserves. The White Oak reportable segment also includes two loans to White Oak from the Intermediate Partnership, one for the acquisition of mining equipment (which was repaid and terminated in June 2012) and another to construct certain surface facilities. For more information on White Oak, please read "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions" of this Annual Report on Form 10-K.

    Other and Corporate reportable segment includes ARLP Partnership and AHGP marketing and administrative expenses, Alliance Service, Inc. ("ASI") and Matrix Group and ASI's ownership of aircraft, the Mt. Vernon dock activities, coal brokerage activity, the ARLP Partnership's equity investment in MAC, and certain activities of Alliance Resource Properties. For more information on ASI, please read "Item 8. Financial Statements and Supplementary Data—Note 19. Related-Party Transactions" of this Annual Report on Form 10-K.

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    How the ARLP Partnership Evaluates its Performance

        The ARLP Partnership's management uses a variety of financial and operational measurements to analyze its performance. Primary measurements include the following: (1) raw and saleable tons produced per unit shift; (2) coal sales price per ton; (3) Segment Adjusted EBITDA Expense per ton; (4) EBITDA; and (5) Segment Adjusted EBITDA.

        Raw and Saleable Tons Produced per Unit Shift.    The ARLP Partnership reviews raw and saleable tons produced per unit shift as part of its operational analysis to measure the productivity of its operating segments which is significantly influenced by mining conditions and the efficiency of its preparation plants. A discussion of mining conditions and preparation plant costs are found below under "—Analysis of Historical Results of Operations" and therefore provides implicit analysis of raw and saleable tons produced per unit shift.

        Coal Sales Price per Ton.    The ARLP Partnership defines coal sales price per ton as total coal sales divided by tons sold. The ARLP Partnership reviews coal sales price per ton to evaluate marketing efforts and for market demand and trend analysis.

        Segment Adjusted EBITDA Expense per Ton.    The ARLP Partnership defines Segment Adjusted EBITDA Expense per ton (a non-GAAP financial measure) as the sum of operating expenses, outside coal purchases and other income divided by total tons sold. The ARLP Partnership reviews segment adjusted EBITDA expense per ton for cost trends.

        EBITDA.    The ARLP Partnership defines EBITDA (a non-GAAP financial measure) as net income before net interest expense, income taxes and depreciation, depletion and amortization. EBITDA is used as a supplemental financial measure by the ARLP Partnership's management and by external users of its financial statements such as investors, commercial banks, research analysts and others, to assess:

    the financial performance of its assets without regard to financing methods, capital structure or historical cost basis;
    the ability of its assets to generate cash sufficient to pay interest costs and support its indebtedness;
    its operating performance and return on investment compared to those of other companies in the coal energy sector, without regard to financing or capital structures; and
    the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

        Segment Adjusted EBITDA.    The ARLP Partnership defines Segment Adjusted EBITDA (a non-GAAP financial measure) as net income before net interest expense, income taxes, depreciation, depletion and amortization, corporate general and administrative expenses and asset impairment charge. Management therefore is able to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.

    Health Care Reform

        On March 23, 2010, President Obama signed into law the PPACA. Additionally, on March 30, 2010, President Obama signed into law a reconciliation measure, the Health Care and Education Reconciliation Act of 2010. Implementation of the PPACA and the Health Care and Education Reconciliation Act (collectively, the "Health Care Act") will result in comprehensive changes to health care in the U.S. Implementation of this legislation is planned to occur in phases, with standard plan changes already taking effect and extending through 2018.

        The Health Care Act continues to have implications on benefit plan eligibility, coverage requirements, and benefit standards and limitations. In the long-term, the ARLP Partnership's plan's health care costs are expected to increase for various reasons due to the Health Care Act, including the potential impact of an excise tax on "high cost" plans (beginning in 2018), among other standard requirements. The ARLP

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Partnership has chosen not to "grandfather" its health care plan as allowed under the Health Care Act. This decision allows the ARLP Partnership to make benefit modifications that encourage participants to use high-value, lower-cost medical-care options such as on-site medical services, generic preferred medications, and urgent-care centers instead of emergency rooms.

        In June 2012, the U.S. Supreme Court upheld the Health Care Act. As a result, the ARLP Partnership anticipates that certain government agencies will provide additional regulations or interpretations concerning the application of the Health Care Act and reporting required thereunder. However, until these regulations and interpretations are published, the ARLP Partnership is unable to reasonably estimate the further impact of the federal mandate requirements on its future health care costs.

        The Health Care Act also amended previous legislation related to coal workers' pneumoconiosis, or black lung, providing automatic extension of awarded lifetime benefits to surviving spouses and providing changes to the legal criteria used to assess and award claims. The impact of these changes to the ARLP Partnership's current population of beneficiaries and claimants resulted in an estimated $8.3 million increase to its black lung obligation at December 31, 2010. This increase to the obligation excludes the impact of potential re-filing of closed claims and potential filing rates for employees who terminated more than seven years ago as the ARLP Partnership does not have sufficient information to determine what, if any, claims will be filed until regulations are issued or claim development patterns are identified through future litigation of claims. The issuance of these regulations, if any, is currently uncertain and may take place over the next several years.

        The ARLP Partnership will continue to evaluate the potential impact of the legislation on its self-insured long-term disability plan, black lung liabilities, results of operations and internal controls as governmental agencies issue interpretations regarding the meaning and scope of the Health Care Act. However, the ARLP Partnership believes it is likely that its costs will continue to increase as a result of these provisions, which may have an adverse impact on our results of operations and cash flows.

    Analysis of Historical Results of Operations

    2012 Compared with 2011

        We reported net income of $331.2 million in 2012 compared to $386.3 million in 2011. This decrease of $55.1 million was principally due to higher operating expenses and depreciation, depletion and amortization, reduced coal sales volumes from the Mettiki mine into the metallurgical export markets, an asset impairment charge related to the Pontiki mining complex, and the increase in the pass through of losses, as anticipated, related to investments in the White Oak Mine No. 1 development project. These decreases to net income were offset partially by record revenues driven by record tons sold, resulting primarily from the start-up of longwall production from the Tunnel Ridge mine, increased production from the River View mine, and production from the recently acquired Onton mine, as well as improved pricing from the ARLP Partnership's Illinois Basin coal contracts. Higher operating expenses resulted from increased sales and production volumes, which particularly impacted materials and supplies expenses, labor-related expenses, maintenance costs and sales-related expenses. Also, higher operating expenses per ton reflect significantly lower coal recoveries from the Dotiki run-of-mine production as the mine completed its transition into a new coal seam during 2012 and the impact of regulatory actions on production and margins at the Central Appalachian mines and particularly the Pontiki mine. Anticipated increases in depreciation, depletion and amortization were attributable to the start-up of longwall production at the Tunnel Ridge mine, the addition of the Onton mine and capital expenditures related to infrastructure improvements at various other operations.

        Increased revenues reflect record sales and production volumes, which increased to 35.2 million tons sold and 34.8 million tons produced in 2012 compared to 31.9 million tons sold and 30.8 million tons produced in 2011. A higher average coal sales price in 2012, which increased to $56.28 per ton sold, as compared to $55.95 per ton sold in 2011, resulted from improved contract pricing for Illinois Basin coal

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sales offset partially by lower coal volumes sold by the Mettiki mine into the metallurgical export markets. The increase in produced tons primarily reflects increased production at the Tunnel Ridge mine, which initiated longwall production in May 2012, expansion of production at the River View and Warrior mines and the acquisition of the Onton mine in April 2012.

 
  December 31,   December 31,  
 
  2012   2011   2012   2011  
 
  (in thousands)
  (per ton sold)
 

Tons sold

    35,170     31,925     N/A     N/A  

Tons produced

    34,800     30,753     N/A     N/A  

Coal sales

  $ 1,979,437   $ 1,786,089   $ 56.28   $ 55.95  

Operating expenses and outside coal purchases

  $ 1,341,898   $ 1,186,030   $ 38.15   $ 37.15  

        Coal sales.    Coal sales increased 10.8% to $2.0 billion in 2012 from $1.8 billion in 2011. The increase of $193.3 million reflected the benefit of record tons sold (contributing $181.7 million in additional coal sales) and record average coal sales prices (contributing $11.6 million in coal sales). Average coal sales price increased $0.33 per ton sold in 2012 to $56.28 per ton compared to $55.95 per ton in 2011, primarily as a result of improved contract pricing in the Illinois Basin region offset partially by reduced Mettiki coal sales into the metallurgical export markets.

        Operating expenses and outside coal purchases.    Operating expenses and outside coal purchases increased 13.1% to $1.3 billion in 2012 from $1.2 billion in 2011 primarily due to record coal sales and production volumes. On a per ton basis, operating expenses and outside coal purchases increased 2.7% to $38.15 per ton sold from $37.15 in 2011. In addition to the impact of record volumes, increased operating expenses reflect various other factors, the most significant of which are discussed below:

    Labor and benefit expenses per ton produced, excluding workers' compensation, increased 3.4% to $12.48 per ton in 2012 from $12.07 per ton in 2011. The increase of $0.41 per ton reflects wage increases and higher benefit expenses, particularly increased health care and retirement expenses, the impact of increased headcount at Tunnel Ridge as the ARLP Partnership continued to hire and train additional employees prior to the start-up of longwall operations and, as discussed above, the production impacts resulting from Dotiki's lower coal recoveries and regulatory actions at the Central Appalachian mines, offset partially by higher production at the Tunnel Ridge mine, subsequent to the start-up of longwall production, and the River View and Warrior mines;

    Material and supplies expenses per ton produced increased to $12.36 per ton in 2012 from $12.26 per ton in 2011. The increase of $0.10 per ton resulted from higher costs for certain products and services, primarily contract labor used in the mining process (increase of $0.43 per ton), partially offset by lower roof support expenses per ton (decrease of $0.20 per ton) and certain safety-related materials and supplies expenses per ton (decrease of $0.10 per ton);

    Production taxes and royalties (which were incurred as a percentage of coal sales or based on coal volumes) increased $0.24 per produced ton sold in 2012 compared to 2011, primarily resulting from an increased mix of sales and production from certain mines as discussed above, in states with higher severance tax rates; and

    Capitalization of mine development expenses related to the construction of the Tunnel Ridge mine declined $23.6 million in 2012 compared to 2011. Capitalized development ceased in May 2012 with the startup of longwall production. Please read "Item 8. Financial Statements and Supplementary Data—Note 2. Summary of Significant Accounting Policies" of this Annual Report on Form 10-K for discussion of capitalized mine development costs.

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

    Workers' compensation expenses per ton produced decreased to $0.70 per ton in 2012 from $0.79 per ton in 2011. The decrease of $0.09 per ton resulted primarily from favorable reserve adjustments for claims incurred in prior years;

    Contract mining expenses decreased $3.1 million in 2012 compared to 2011. The decrease primarily reflects the permanent closure in July 2011 of one third-party mining operation at the Mettiki mining complex in the Northern Appalachian region; and

    Outside coal purchases decreased to $38.6 million in 2012 from $54.3 million in 2011. The decrease of $15.7 million was primarily attributable to decreased purchases of brokerage coal and coal for sale into the metallurgical export markets. Coal purchase costs per ton are typically higher than production costs per ton, thus significantly lower volumes of coal purchases in 2012 compared to 2011 reduced overall total expense per ton.

        Other sales and operating revenues.    Other sales and operating revenues are principally comprised of Mt. Vernon transloading revenues, Matrix Design sales and other outside services. Other sales and operating revenues increased to $32.5 million in 2012 from $25.2 million in 2011. The increase of $7.3 million was primarily attributable to amounts received from a customer for the partial buy-out of a certain Northern Appalachian coal contract.

        General and administrative.    General and administrative expenses for 2012 increased to $62.7 million compared to $55.0 million in 2011. The increase of $7.7 million was primarily due to increases in other professional services and higher salary and incentive compensation expenses resulting, in part, from increased headcount.

        Depreciation, depletion and amortization.    Depreciation, depletion and amortization increased to $218.1 million in 2012 compared to $160.3 million in 2011. The increase of $57.8 million was primarily attributable to the start-up of longwall production at the Tunnel Ridge mine, the addition of the Onton mine and capital expenditures related to infrastructure improvements at various other operations.

        Asset impairment charge.    In 2012, the ARLP Partnership recorded an asset impairment charge of $19.0 million associated with the long-lived assets at the Pontiki mining complex. Due to regulatory actions requiring certain surface facility repairs, the Pontiki mining complex was idled from August 29, 2012 to November 25, 2012. The asset impairment charge is primarily the result of the mine being idled, increased regulatory costs and uncertainty regarding the mine's future operations and market opportunities as discussed in more detail below and in "Item 8. Financial Statements and Supplementary Data—Note 5. Asset Impairment Charge."

        Interest expense.    Interest expense, net of capitalized interest, increased to $28.7 million in 2012 from $22.0 million in 2011. The increase of $6.7 million was principally attributable to lower capitalized interest in 2012 compared to 2011 due to a nonrecurring adjustment to capitalized interest in 2011, and increased borrowings under the revolving credit facility during 2012, as well as a $1.1 million write-off of deferred debt issuance costs in 2012 related to the early termination a term loan. These increases were partially offset by reduced interest expense resulting from the August 2012 principal repayment of $18.0 million on the original senior notes issued in 1999 and lower rates and fees under the new term loan and revolving credit facility. The term loan and revolving credit facility entered into in 2012 are discussed in more detail below under "—Debt Obligations." For more information on the nonrecurring adjustment to capitalized interest, please read "Item 8. Financial Statements and Supplementary Data—Note 23. Selected Quarterly Financial Data (Unaudited)."

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        Equity in loss of affiliates, net.    Equity in loss of affiliates, net includes the ARLP Partnership's share of the results of operations of its equity investments in White Oak and MAC. As anticipated, equity in loss of affiliates was $14.7 million in 2012 compared to $3.4 million in 2011, which was primarily attributable to losses allocated to the ARLP Partnership due to its equity investment in White Oak which began in September 2011. For more information regarding White Oak, please read "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions" of this Annual Report on Form 10-K.

        Transportation revenues and expenses.    Transportation revenues and expenses each decreased to $22.0 million in 2012 from $31.9 million in 2011. The decrease of $9.9 million was primarily attributable to reduced tonnage in 2012 for which the ARLP Partnership arranged the transportation compared to 2011, as well as a decrease in average transportation rates in 2012. The cost of transportation services are passed through to the ARLP Partnership's customers. Consequently, it does not realize any gain or loss on transportation revenues.

        Income tax benefit.    Income tax benefit was $1.1 million in 2012 compared to $0.4 million in 2011. Income taxes are primarily due to the operations of Matrix Design. The income tax benefit for 2012 was due to a net operating loss carryforward related to Matrix Design from prior years, as well as research and development tax credits earned by Matrix Design.

        Net income attributable to noncontrolling interests.    The noncontrolling interests balance is comprised of non-affiliate and affiliate ownership interests in the net assets of the ARLP Partnership that we consolidate. The noncontrolling interest designated as affiliate represents SGP's 0.01% general partner interest in ARLP and 0.01% general partner interest in the Intermediate Partnership. The noncontrolling interest designated as non-affiliates represents the limited partners' interest in ARLP controlled through the common unit ownership, excluding the 15,544,169 common units of ARLP held by us. The net income attributable to noncontrolling interest was $135.2 million and $172.2 million in 2012 and 2011, respectively. The decrease in net income attributable to noncontrolling interest is due to a decrease in the consolidated net income of the ARLP Partnership due to the changes in revenues and expenses described above as well as an increase in ARLP's managing general partner's priority distribution to us, which is deducted from ARLP's net income in the allocation of net income attributable to noncontrolling interest.

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        Segment Information.    Our 2012 Segment Adjusted EBITDA increased 5.7% to $658.5 million from 2011 Segment Adjusted EBITDA of $622.8 million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are as follows (in thousands):

 
  Year Ended December 31,    
   
 
 
  2012   2011   Increase (Decrease)  

Segment Adjusted EBITDA

                         

Illinois Basin

  $ 593,054   $ 505,113   $ 87,941     17.4 %

Central Appalachia

    25,712     53,729     (28,017 )   (52.1 )%

Northern Appalachia

    47,933     62,395     (14,462 )   (23.2 )%

White Oak

    (13,987 )   (4,407 )   (9,580 )   (1 )

Other and Corporate

    5,751     5,983     (232 )   (3.9 )%

Elimination

                 
                     

Total Segment Adjusted EBITDA(2)

  $ 658,463   $ 622,813   $ 35,650     5.7 %
                     

Tons sold

                         

Illinois Basin

    28,294     25,561     2,733     10.7 %

Central Appalachia

    1,951     2,548     (597 )   (23.4 )%

Northern Appalachia

    4,670     3,277     1,393     42.5 %

White Oak

                 

Other and Corporate

    255     539     (284 )   (52.7 )%

Elimination

                 
                     

Total tons sold

    35,170     31,925     3,245     10.2 %
                     

Coal sales

                         

Illinois Basin

  $ 1,485,640   $ 1,289,590   $ 196,050     15.2 %

Central Appalachia

    156,836     204,673     (47,837 )   (23.4 )%

Northern Appalachia

    315,801     262,286     53,515     20.4 %

White Oak

                 

Other and Corporate

    21,160     29,540     (8,380 )   (28.4 )%

Elimination

                 
                     

Total coal sales

  $ 1,979,437   $ 1,786,089   $ 193,348     10.8 %
                     

Other sales and operating revenues

                         

Illinois Basin

  $ 2,183   $ 1,638   $ 545     33.3 %

Central Appalachia

    23     157     (134 )   (85.4 )%

Northern Appalachia

    9,869     3,427     6,442     (1 )

White Oak

                 

Other and Corporate

    36,912     35,121     1,791     5.1 %

Elimination

    (16,528 )   (15,168 )   (1,360 )   9.0 %
                     

Total other sales and operating revenues

  $ 32,459   $ 25,175   $ 7,284     28.9 %
                     

Segment Adjusted EBITDA Expense

                         

Illinois Basin

  $ 894,769   $ 786,116   $ 108,653     13.8 %

Central Appalachia

    131,148     151,101     (19,953 )   (13.2 )%

Northern Appalachia

    277,736     203,317     74,419     36.6 %

White Oak

    (1,347 )   155     (1,502 )   (1 )

Other and Corporate

    53,005     59,526     (6,521 )   (11.0 )%

Elimination

    (16,528 )   (15,168 )   (1,360 )   9.0 %
                     

Total Segment Adjusted EBITDA Expense(3)

  $ 1,338,783   $ 1,185,047   $ 153,736     13.0 %
                     
(1)
Percentage increase or decrease was greater than or equal to 100%.

(2)
Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income (prior to the allocation of noncontrolling interest) before net interest expense, income taxes and depreciation,

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    depletion and amortization, general and administration expenses and asset impairment charge. 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, to assess:

    the financial performance of the ARLP Partnership's assets without regard to financing methods, capital structure or historical cost basis;
    the ability of the ARLP Partnership's assets to generate cash sufficient to pay interest costs and support its indebtedness;
    the ARLP Partnership's operating performance and return on investment compared to those of other companies in the coal energy sector, without regard to financing or capital structures; and
    the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

    Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those stated in the previous explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses, which are discussed above under "—Analysis of Historical Results of Operations," from Segment Adjusted EBITDA allows management to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.

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

 
  Year Ended December 31,  
 
  2012   2011  

Segment Adjusted EBITDA

  $ 658,463   $ 622,813  

General and administrative

   
(62,713

)
 
(54,991

)

Depreciation, depletion and amortization

    (218,122 )   (160,335 )

Asset impairment charge

    (19,031 )    

Interest expense, net

    (28,453 )   (21,574 )

Income tax benefit

    1,082     430  
           

Net income

  $ 331,226   $ 386,343  
           
(3)
Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, outside coal purchases and other income. Transportation expenses are excluded as these expenses are passed through to the ARLP Partnership's customers and, consequently, it does not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by the ARLP Partnership's management to assess the operating performance of the segments. In the ARLP Partnership's evaluation of EBITDA, which is discussed above under "—How the ARLP Partnership Evaluates its Performance," Segment Adjusted EBITDA Expense is a key component of EBITDA in addition to coal sales and other sales and operating revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management of the ARLP Partnership to focus solely on the evaluation of segment operating performance as it primarily relates to operating expenses. Outside coal purchases are included in Segment Adjusted EBITDA Expense because tons sold and coal sales include sales from outside coal purchases.

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

 
  Year Ended December 31,  
 
  2012   2011  

Segment Adjusted EBITDA Expense

  $ 1,338,783   $ 1,185,047  

Outside coal purchases

   
(38,607

)
 
(54,280

)

Other income

    3,115     983  
           

Operating expense (excluding depreciation, depletion and amortization)

  $ 1,303,291   $ 1,131,750  
           

        Illinois Basin – Segment Adjusted EBITDA increased 17.4% to $593.1 million in 2012 from $505.1 million in 2011. The increase of $88.0 million was primarily attributable to increased tons sold, which rose 10.7% to 28.3 million tons sold in 2012, as well as improved contract pricing resulting in a higher average coal sales price of $52.51 per ton in 2012 compared to $50.45 per ton in 2011. Coal sales increased 15.2% to $1.5 billion in 2012 compared to $1.3 billion in 2011. The increase of $0.2 billion reflects the higher average coal sales price discussed above as well as increased tons produced and sold from expansion of production at the River View and Warrior mines and the addition of the Onton mine, offset partially by the impact of difficult mining conditions at the Dotiki and Hopkins mines. Total Segment Adjusted EBITDA Expense in 2012 increased 13.8% to $894.8 million from $786.1 million in 2011 and increased $0.87 per ton sold to $31.62 from $30.75 per ton sold, primarily as a result of certain cost variances described above in the discussion of consolidated operating expenses, lower coal recoveries at the Dotiki mine as it completed transition into a new coal seam and the Hopkins mine due to adverse geological conditions, and higher cost per ton production from the Onton mine acquired on April 2, 2012. The Dotiki mine completed the transfer of all mining units to the new seam in mid-September 2012.

        Central Appalachia – For 2012, Central Appalachia tons sold decreased 23.4% to 2.0 million tons sold. The decrease in tons sold was primarily due to regulatory actions which idled the Pontiki mining complex from August 29, 2012 to November 25, 2012, in addition to an MSHA required mining unit reduction at both Central Appalachian mines in recent quarters. This decrease in tons sold resulted in lower Segment Adjusted EBITDA, which decreased 52.1% to $25.7 million in 2012 compared to $53.7 million in 2011, and total Segment Adjusted EBITDA Expense for 2012, which decreased 13.2% to $131.1 million from $151.1 million in 2011. Although Segment Adjusted EBITDA Expense decreased in 2012, Segment Adjusted EBITDA Expense per ton increased 13.3% to $67.22 per ton in 2012 from $59.31 per ton in 2011 primarily as a result of production issues discussed above and related lower coal sales volumes, as well as other cost increases described above in the discussion of consolidated operating expenses. For additional detail related to the Pontiki mining complex read below and "Item 8. Financial Statements and Supplementary Data—Note 5. Asset Impairment Charge."

        Northern Appalachia – Segment Adjusted EBITDA decreased 23.2% to $47.9 million in 2012, compared to $62.4 million in 2011. The decrease of $14.5 million was primarily attributable to decreased coal volumes sold into the metallurgical export markets resulting in a lower average sales price of $67.62 per ton sold in 2012 compared to $80.05 per ton sold in 2011. This decrease in coal sales price per ton was partially offset by increased tons sold, which increased 42.5% to 4.7 million tons in 2012 due to the start-up of longwall production at the Tunnel Ridge mine, which began in May 2012. The start-up of longwall production at Tunnel Ridge was also the primary reason for a 36.6% increase in Segment Adjusted EBITDA Expense in 2012 to $277.7 million compared to $203.3 million in 2011. Although Segment Adjusted EBITDA Expense increased in 2012, Segment Adjusted EBITDA Expense per ton decreased $2.58 per ton sold to $59.47 from $62.05 in 2011, primarily due to the lower cost per ton from longwall production at Tunnel Ridge and lower costs at the Mettiki complex due to reduced coal processing expenses and coal purchases.

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        White Oak – Segment Adjusted EBITDA was $(14.0) million in 2012 primarily due to losses allocated to us due to the ARLP Partnership's equity investment in White Oak compared to $(4.4) million in 2011. The ARLP Partnership's investment in White Oak began in September 2011.

        Other and Corporate – Coal sales decreased $8.4 million to $21.2 million in 2012 due to lower coal brokerage sales. Segment Adjusted EBITDA Expense decreased 11.0% to $53.0 million for 2012, primarily due to lower outside coal purchases, offset in part by increased component expenses related to Matrix Group safety equipment sales.

    2011 Compared with 2010

        We reported record net income of $386.3 million in 2011 compared to $317.3 million in 2010. This increase of $69.0 million was principally due to increased tons sold and improved contract pricing resulting in an average coal sales price of $55.95 per ton sold, as compared to $51.21 per ton sold in 2010. The ARLP Partnership sold 31.9 million tons and produced 30.8 million tons in 2011 compared to 30.3 million tons sold and 28.9 million tons produced in 2010. This increase in tons sold and produced primarily reflects increased production from the River View mine and the resumption of full production at the Pattiki mine in early 2011, as well as expanded coal brokerage activity. Higher operating expenses during 2011 resulted primarily from increased sales and production volumes, which particularly impacted materials and supplies expenses, sales-related expenses, maintenance costs and labor costs. Increased operating expenses also reflect increased incidental production at the Tunnel Ridge mine and higher outside coal purchases.

 
  December 31,   December 31,  
 
  2011   2010   2011   2010  
 
  (in thousands)
  (per ton sold)
 

Tons sold

    31,925     30,295     N/A     N/A  

Tons produced

    30,753     28,860     N/A     N/A  

Coal sales

  $ 1,786,089   $ 1,551,539   $ 55.95   $ 51.21  

Operating expenses and outside coal purchases

  $ 1,186,030   $ 1,027,013   $ 37.15   $ 33.90  

        Coal sales.    Coal sales increased 15.1% to $1.8 billion in 2011 from $1.6 billion in 2010. The increase of $234.6 million reflected the benefit of higher average coal sales prices (contributing $151.2 million in coal sales) and increased tons sold (contributing $83.4 million in additional coal sales). Average coal sales price increased $4.74 per ton sold in 2011 to $55.95 per ton compared to $51.21 per ton in 2010, primarily as a result of improved contract pricing across all regions.

        Operating expenses and outside coal purchases.    Operating expenses and outside coal purchases increased 15.5% to $1.2 billion in 2011 from $1.0 billion in 2010 primarily due to record coal sales and production volumes. On a per ton basis, operating expenses and outside coal purchases increased 9.6% to $37.15 per ton sold. In addition to the impact of record volumes, operating expenses were impacted by various other factors, the most significant of which are discussed below:

    Labor and benefit expenses per ton produced, excluding workers' compensation, increased 10.0% to $12.07 per ton in 2011 from $10.97 per ton in 2010. The increase of $1.10 per ton represents increased labor costs at the Illinois Basin mines and the Mettiki mine, as well as higher mine development labor and benefits at the Tunnel Ridge mine, partially offset by increased production at the River View, Pattiki and MC Mining mines;

    Workers' compensation expenses per ton produced increased to $0.79 per ton in 2011 from $0.72 per ton in 2010. The increase of $0.07 per ton primarily reflected a non-cash charge that resulted from a decrease in the discount rate to 3.75% at the end of 2011 from 4.70% at the end of 2010;

    Material and supplies expenses per ton produced increased 16.2% to $12.26 per ton in 2011 from $10.55 per ton in 2010. The increase of $1.71 per ton resulted from increased costs for certain

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      products and services, primarily roof support (increase of $0.57 per ton), outside services and contract labor used in the mining process (increase of $0.44 per ton), power and fuel used in the mining process (increase of $0.27 per ton), certain safety related materials and supplies (increase of $0.17 per ton) and ventilation (increase of $0.14 per ton), in addition to the cost impact resulting from heightened regulatory oversight;

    Maintenance expenses per ton produced increased 15.4% to $4.19 per ton in 2011 from $3.63 per ton in 2010. The increase of $0.56 per produced ton was primarily due to higher maintenance costs on continuous miners and shuttle cars in the Illinois Basin and Northern Appalachian regions, increased longwall maintenance costs at the Mettiki mine and higher costs in other various categories;

    Mine administration expenses increased $6.3 million in 2011 compared to 2010, primarily due to higher regulatory costs, insurance costs and increased components expense associated with safety equipment sales by Matrix Group;

    Contract mining expenses decreased $1.3 million in 2011 compared to 2010. The decrease primarily reflects the permanent closure of one third-party mining operation in the Northern Appalachian region during July 2011;

    Production taxes and royalties (which were incurred as a percentage of coal sales or based on coal volumes) increased $0.34 per produced ton sold in 2011 compared to 2010, primarily as a result of increased average coal sales prices across all regions;

    Operating expenses per ton sold for 2011 benefited, compared to 2010, from lower sales of beginning-of-the- year coal inventory, which typically bears a seasonally higher cost per ton. Beginning-of-the-year coal inventories were 0.3 million tons and 1.3 million tons for 2011 and 2010, respectively;

    Operating expenses in 2010 included $1.2 million for the retirement of certain assets resulting from the failure of the vertical hoist conveyor system at the Pattiki mine. For more information, please read "Part II. Item 8. Financial Statements and Supplementary Data—Note 3. Pattiki Vertical Hoist Conveyor System Failure in 2010" of this Annual Report on Form 10-K; and

    Outside coal purchases increased to $54.3 million in 2011 from $17.1 million in 2010. The increase of $37.2 million was primarily attributable to increased coal brokerage activity as well as Mettiki's higher tons and cost per ton of coal purchased, both in 2011.

        Other sales and operating revenues.    Other sales and operating revenues are principally comprised of Mt. Vernon transloading revenues, Matrix Design sales and other outside services. Other sales and operating revenues increased to $25.2 million in 2011 from $24.6 million in 2010. The increase of $0.6 million was primarily attributable to increased Matrix Design sales, partially offset by lower transloading revenues.

        General and administrative.    General and administrative expenses in 2011 increased to $55.0 million compared to $54.2 million in 2010. The increase of $0.8 million was primarily attributable to higher salary and benefit costs related to increased staffing levels.

        Depreciation, depletion and amortization.    Depreciation, depletion and amortization increased to $160.3 million in 2011 compared to $146.9 million in 2010. The increase of $13.4 million was primarily attributable to additional depreciation expense associated with the River View mine, infrastructure and equipment expenditures at the Dotiki mine and capital expenditures related to various infrastructure improvements and efficiency projects at other mining operations.

        Interest expense.    Interest expense, net of capitalized interest, decreased to $22.0 million in 2011 from $30.1 million in 2010. The decrease of $8.1 million was principally attributable to a nonrecurring

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adjustment to capitalized interest and reduced interest expense resulting from annual principal repayments made during August 2011 and 2010 of $18.0 million on the ARLP Partnership's original senior notes issued in 1999, partially offset by increased interest expense resulting from its $300 million term loan, which was completed in the fourth quarter of 2010 and is discussed in more detail below under "—Debt Obligations." For more information on the nonrecurring adjustment to capitalized interest, please read "Item 8. Financial Statements and Supplementary Data—Note 23. Selected Quarterly Financial Data (Unaudited)" of this Annual Report on Form 10-K.

        Equity in loss of affiliates, net.    Equity in loss of affiliates, net includes the ARLP Partnership's new equity investments in White Oak and MAC. For 2011, equity in loss of affiliates was $3.4 million, which was primarily attributable to losses allocated to the ARLP Partnership due to the equity investment in White Oak.

        Transportation revenues and expenses.    Transportation revenues and expenses each decreased to $31.9 million in 2011 from $33.6 million in 2010. The decrease of $1.7 million was primarily attributable to reduced tonnage in 2011 for which the ARLP Partnership arranged the transportation compared to 2010 partially offset by an increase in average transportation rates. The cost of transportation services are passed through to its customers. Consequently, the ARLP Partnership does not realize any gain or loss on transportation revenues.

        Income tax expense (benefit).    The income tax benefit was $0.4 million in 2011 compared to income tax expense of $1.7 million in 2010. Income taxes are primarily due to the operations of Matrix Design, which is owned by the ARLP Partnership's subsidiary, ASI. The income tax benefit was due to operating losses in 2011 from the Matrix Design operation.

        Net income attributable to noncontrolling interests.    The noncontrolling interests balance is comprised of non-affiliate and affiliate ownership interests in the net assets of the ARLP Partnership that we consolidate. The noncontrolling interest designated as affiliate represents SGP's 0.01% general partner interest in ARLP and 0.01% general partner interest in the Intermediate Partnership. The noncontrolling interest designated as non-affiliates represents the limited partners' interest in ARLP controlled through the common unit ownership, excluding the 15,544,169 common units of ARLP held by us. The net income attributable to noncontrolling interest was $172.2 million and $143.0 million in 2011 and 2010, respectively. The increase in net income attributable to noncontrolling interest is due to an increase in the consolidated net income of the ARLP Partnership due to the changes in revenues and expenses described above.

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        Segment Information.    Our 2011 Segment Adjusted EBITDA increased 13.2% to $622.8 million from 2010 Segment Adjusted EBITDA of $550.0 million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are as follows (in thousands):

 
  Year Ended December 31,    
   
 
 
  2011   2010   Increase (Decrease)  

Segment Adjusted EBITDA

                         

Illinois Basin

  $ 505,113   $ 460,592   $ 44,521     9.7 %

Central Appalachia

    53,729     36,714     17,015     46.3 %

Northern Appalachia

    62,395     46,702     15,693     33.6 %

White Oak

    (4,407 )       (4,407 )   (1 )

Other and Corporate

    5,983     5,989     (6 )   (0.1 )%

Elimination

                 
                     

Total Segment Adjusted EBITDA(2)

  $ 622,813   $ 549,997   $ 72,816     13.2 %
                     

Tons sold

                         

Illinois Basin

    25,561     24,763     798     3.2 %

Central Appalachia

    2,548     2,221     327     14.7 %

Northern Appalachia

    3,277     3,256     21     0.6 %

White Oak

                 

Other and Corporate

    539     55     484     (1 )

Elimination

                 
                     

Total tons sold

    31,925     30,295     1,630     5.4 %
                     

Coal sales

                         

Illinois Basin

  $ 1,289,590   $ 1,176,275   $ 113,315     9.6 %

Central Appalachia

    204,673     164,834     39,839     24.2 %

Northern Appalachia

    262,286     207,057     55,229     26.7 %

White Oak

                 

Other and Corporate

    29,540     3,373     26,167     (1 )

Elimination

                 
                     

Total coal sales

  $ 1,786,089   $ 1,551,539   $ 234,550     15.1 %
                     

Other sales and operating revenues

                         

Illinois Basin

  $ 1,638   $ 1,357   $ 281     20.7 %

Central Appalachia

    157     199     (42 )   (21.1 )%

Northern Appalachia

    3,427     3,520     (93 )   (2.6 )%

White Oak

                 

Other and Corporate

    35,121     41,359     (6,238 )   (15.1 )%

Elimination

    (15,168 )   (21,815 )   6,647     30.5 %
                     

Total other sales and operating revenues          

  $ 25,175   $ 24,620   $ 555     2.3 %
                     

Segment Adjusted EBITDA Expense

                         

Illinois Basin

  $ 786,116   $ 717,040   $ 69,076     9.6 %

Central Appalachia

    151,101     128,318     22,783     17.8 %

Northern Appalachia

    203,317     163,876     39,441     24.1 %

White Oak

    155         155     (1 )

Other and Corporate

    59,526     38,743     20,783     53.6 %

Elimination

    (15,168 )   (21,815 )   6,647     30.5 %
                     

Total Segment Adjusted EBITDA Expense(3)

  $ 1,185,047   $ 1,026,162   $ 158,885     15.5 %
                     
(1)
Percentage increase or decrease was greater than or equal to 100%.

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(2)
Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income (prior to the allocation of noncontrolling interest) before net interest expense, income taxes, depreciation, depletion and amortization, general and administration expenses and asset impairment charge. 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, to assess:

the financial performance of the ARLP Partnership's assets without regard to financing methods, capital structure or historical cost basis;
the ability of the ARLP Partnership's assets to generate cash sufficient to pay interest costs and support its indebtedness;
the ARLP Partnership's operating performance and return on investment compared to those of other companies in the coal energy sector, without regard to financing or capital structures; and
the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those stated in the previous explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses, which are discussed above under "—Analysis of Historical Results of Operations," from Segment Adjusted EBITDA allows management to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.

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

 
  Year Ended December 31,  
 
  2011   2010  

Segment Adjusted EBITDA

  $ 622,813   $ 549,997  

General and administrative

   
(54,991

)
 
(54,215

)

Depreciation, depletion and amortization

    (160,335 )   (146,881 )

Interest expense, net

    (21,574 )   (29,858 )

Income tax (expense) benefit

    430     (1,742 )
           

Net income

  $ 386,343   $ 317,301  
           
(3)
Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, outside coal purchases and other income. Transportation expenses are excluded as these expenses are passed through to the ARLP Partnership's customers and, consequently, it does not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by the ARLP Partnership's management to assess the operating performance of the segments. In the ARLP Partnership's evaluation of EBITDA, which is discussed above under "—How the ARLP Partnership Evaluates its Performance," Segment Adjusted EBITDA Expense is a key component of EBITDA in addition to coal sales and other sales and operating revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management of the ARLP Partnership to focus solely on the evaluation of segment operating performance as it primarily relates to operating expenses. Outside coal purchases are included in Segment Adjusted EBITDA Expense because tons sold and coal sales include sales from outside coal purchases.

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

 
  Year Ended December 31,  
 
  2011   2010  

Segment Adjusted EBITDA Expense

  $ 1,185,047   $ 1,026,162  

Outside coal purchases

   
(54,280

)
 
(17,078

)

Other income

    983     851  
           

Operating expense (excluding depreciation, depletion and amortization)

  $ 1,131,750   $ 1,009,935  
           

        Illinois Basin – Segment Adjusted EBITDA increased 9.7% to $505.1 million in 2011 from $460.6 million in 2010. The increase of $44.5 million was primarily attributable to improved contract pricing resulting in a higher average coal sales price of $50.45 per ton during 2011 compared to $47.50 per ton in 2010, as well as increased tons sold, which increased 3.2% to 25.6 million tons sold in 2011. Coal sales increased 9.6% to $1.3 billion in 2011 compared to $1.2 billion in 2010. The increase of $0.1 billion reflects the increase in average coal sales price discussed above and increased tons produced and sold from expansion of production capacity at the River View mine and resumption of full production at the Pattiki mine in the first quarter of 2011, offset partially by difficult mining conditions at the Dotiki and Warrior mines. Total Segment Adjusted EBITDA Expense in 2011 increased 9.6% to $786.1 million from $717.0 million in 2010, an increase of $1.79 per ton sold to $30.75 from $28.96 per ton sold, primarily as a result of certain cost increases described above under consolidated operating expenses, as well as lower production at the Dotiki and Warrior mines due to difficult mining conditions and weather related disruptions at the Gibson North mine. The per ton increases were partially offset by higher production at the River View and Pattiki mines in 2011 and the impact on 2010 of a $1.2 million loss on the retirement of certain assets related to the failed vertical hoist conveyor system at its Pattiki mine. For more information on Pattiki, please read "Item 8. Financial Statements and Supplementary Data—Note 3. Pattiki Vertical Hoist Conveyor System Failure in 2010" of this Annual Report on Form 10-K.

        Central Appalachia – Segment Adjusted EBITDA increased 46.3% to $53.7 million in 2011, compared to $36.7 million in 2010. The increase of $17.0 million was primarily attributable to increased tons sold, which increased 14.7% to 2.5 million tons sold in 2011, as well as improved contract pricing resulting in a higher average coal sales price of $80.34 per ton sold during 2011 compared to $74.19 per ton sold in 2010. Total Segment Adjusted EBITDA Expense during 2011 increased 17.8% to $151.1 million from $128.3 million during 2010, an increase of $1.55 per ton sold to $59.31 from $57.76 per ton sold, primarily as a result of certain cost increases described above under consolidated operating expenses, particularly the impact of increasingly stringent regulatory compliance which caused the idling of the Pontiki mine for approximately 24 consecutive days in the fourth quarter of 2011.

        Northern Appalachia – Segment Adjusted EBITDA increased to $62.4 million in 2011, compared to $46.7 million in 2010. The increase of $15.7 million was primarily attributable to improved contract pricing in the export coal markets resulting in a higher average sales price of $80.05 per ton sold in 2011 compared to $63.60 per ton sold in 2010. Segment Adjusted EBITDA Expense for 2011 increased 24.1% to $203.3 million from $163.9 million in 2010, an increase of $11.71 per ton sold to $62.05 from $50.34 per ton sold, primarily as a result of increased cost per ton of coal purchased for sale, additional longwall move days at the Mettiki mine in 2011 compared to 2010 and lower coal recoveries due to adverse geologic conditions, as well as the other cost increases described above under consolidated operating expenses, including expenses related to the Tunnel Ridge mine.

        White Oak – Segment Adjusted EBITDA was $(4.4) million in 2011 primarily due to losses allocated to the ARLP Partnership due to its new equity interest in White Oak.

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        Other and Corporate – Tons sold increased to 0.5 million tons during 2011 due to increased coal brokerage activity compared to 2010. Other sales and operating revenues decreased 15.1% to $35.1 million for 2011 compared to $41.4 million for 2010. The decrease of $6.2 million was primarily attributable to lower Matrix Group safety equipment sales. Segment Adjusted EBITDA Expense increased 53.6% to $59.5 million for 2011, primarily due to increased coal brokerage activities and increased component expenses and research costs associated with services revenue and safety equipment sales by Matrix Group.

Pattiki Vertical Hoist Conveyor System Failure in 2010

        On May 13, 2010, White County Coal's Pattiki mine was temporarily idled following the failure of the vertical hoist conveyor system used in conveying raw coal out of the mine. Operating expenses for the year ended December 31, 2010 include $1.2 million for retirement of certain assets related to the failed vertical hoist conveyor system in addition to other repair and clean-up expenses that were not significant on a consolidated or segment basis. As the loss on the vertical hoist conveyor system did not exceed the deductible under the ARLP Partnership's commercial property (including business interruption) insurance policies, it did not recover any amounts under such policies.

        While the Pattiki mine was temporarily idled, the ARLP Partnership expanded coal production at its other coal mines in the region, including the addition of the seventh and eighth production units at the River View mine, to partially offset the loss of production from the Pattiki mine. Consequently, the temporary idling of the Pattiki mine in 2010 did not have a material adverse impact on the ARLP Partnership's results of operations and cash flows. On July 19, 2010, the Pattiki mine resumed limited production while White County Coal continued to assess the effectiveness and reliability of the repaired vertical hoist conveyor system. On January 3, 2011, the Pattiki mine returned to full production capacity.

Pontiki Mine Asset Impairment Charge

        Pontiki's mining complex in Martin County, Kentucky was idled from August 29, 2012 to November 25, 2012. MSHA ordered the closure of the coal preparation plant and associated surface facilities at the Pontiki mining complex following the failure on August 23, 2012 of a belt line between two clean coal stacking tubes. MSHA required a comprehensive structural inspection of all the surface facilities by an independent bridge engineering firm before the surface facilities could be reopened. Although the Pontiki mining complex resumed operations to fulfill contractual obligations for the delivery of coal in 2013 under existing coal sales agreements, significant uncertainty remains regarding market demand and pricing for coal from Pontiki beyond 2013. This uncertainty along with the likelihood of future cost increases arising from stringent regulatory oversight places the long-term viability of Pontiki at significant risk.

        As a result of the above events, which included uncertainty around the future operations of the mine and the required additional repair costs, and the ARLP Partnership's assessment of related risks, it concluded that indicators of impairment were present and the carrying value of the asset group representing the Pontiki mining complex ("Pontiki Assets") was not fully recoverable. The ARLP Partnership estimated the fair value of the Pontiki Assets and determined it was exceeded by the carrying value and accordingly, recorded an asset impairment charge of $19.0 million in the Central Appalachian segment during the quarter ended September 30, 2012 to reduce the carrying value of the Pontiki Assets to their estimated fair value of $16.1 million. The fair value of the Pontiki Assets was determined using market and cost valuation techniques. The fair value analysis was based on the marketability of coal properties in the current market environment, discounted projected future cash flows, and estimated fair value of assets that could be sold or used at other operations. These estimates incorporate certain assumptions, including replacement cost of equipment and marketability of coal reserves in the Central Appalachian region, and it is possible that the estimates may change in the future resulting in the need to adjust the determination of fair value. The asset impairment established a new cost basis on which depreciation, depletion and amortization is calculated for the Pontiki Assets.

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Ongoing Acquisition Activities

        Consistent with its business strategy, from time to time the ARLP Partnership engages in discussions with potential sellers regarding possible acquisitions of certain assets and/or companies of the sellers.

Liquidity and Capital Resources

    Liquidity

        Our only cash generating assets are limited and general partnership interests in the ARLP Partnership, including IDRs, from which we receive quarterly distributions. We have no independent operations separate from those of the ARLP Partnership. We rely on distributions from the ARLP Partnership to fund our cash requirements.

        The ARLP Partnership has historically satisfied its working capital requirements and funded its capital expenditures and debt service obligations with cash generated from operations, cash provided by the issuance of debt or equity and borrowings under credit facilities. The ARLP Partnership believes that existing cash balances, future cash flows from operations, borrowings under credit facilities, and cash provided from the issuance of debt or equity will be sufficient to meet its working capital, capital expenditures, debt payments, commitments and distribution payments. The ARLP Partnership's ability to satisfy its obligations and planned expenditures will depend upon its future operating performance and access to and cost of financing sources, which will be affected by prevailing economic conditions generally and in the coal industry specifically, which are beyond its control. Based on the ARLP Partnership's recent operating results, current cash position, anticipated future cash flows and sources of financing that it expects to have available, it does not anticipate any significant liquidity constraints in the foreseeable future. However, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. Please see "Item 1A. Risk Factors."

        On September 22, 2011 (the "Transaction Date"), the ARLP Partnership entered into a series of transactions with White Oak and related entities to support development of a longwall mining operation currently under construction. At December 31, 2012, the ARLP Partnership had funded $191.0 million related to these transactions and it expects to fund a total of approximately $300.5 million to $425.5 million from the Transaction Date through the next two to three years, which includes the funding made to White Oak through December 31, 2012 discussed above. The ARLP Partnership plans to utilize existing cash balances, future cash flows from operations, borrowings under credit facilities and cash provided from the issuance of debt or equity to fund its commitments to the White Oak project. For more information on the White Oak transactions, please read "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions" of this Annual Report on Form 10-K.

    Cash Flows

        Cash provided by operating activities was $546.2 million in 2012 compared to $576.1 million in 2011. The decrease in cash provided by operating activities was primarily due to lower net income and increased coal inventory levels, certain prepaid expenses and accounts receivable in 2012 compared to 2011.

        Net cash used in investing activities was $623.4 million in 2012 compared to $401.1 million in 2011. The increase in cash used for investing activities was primarily attributable to the purchase of the Onton mine, higher capital expenditures for mine infrastructure and equipment at various mines, particularly the Warrior, River View, and MC Mining, and the ARLP Partnership's funding of the White Oak project during 2012. For information regarding the acquisition of the Onton mine and White Oak, please read "Item 8. Financial Statements and Supplementary Data—Note 4. Acquisition of Business" and "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions" of this Annual Report on Form 10-K.

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        Net cash used in financing activities was $173.2 million in 2012 compared to $235.8 million in 2011. The decrease in cash used in financing activities was primarily attributable to the proceeds from the $250 million term loan completed on May 23, 2012 and net borrowings under the credit facility during 2012, partially offset by the repayment of the $300 million term loan and $18.0 million in senior notes and increased distributions paid to partners in 2012.

        The ARLP Partnership has various commitments primarily related to long-term debt, including capital leases, operating lease commitments related to buildings and equipment, obligations for estimated future asset retirement obligations costs, workers' compensation and pneumoconiosis, capital projects and pension funding. The ARLP Partnership expects to fund these commitments with existing cash balances, future cash flows from operations, borrowings under revolving credit facilities and cash provided from the issuance of debt or equity. The following table provides details regarding the ARLP Partnership's contractual cash obligations as of December 31, 2012 (in thousands):

Contractual
Obligations
  Total   Less
than
1 year
  1 - 3
years
  3 - 5
years
  More than
5 years
 

Long-term debt

  $ 791,000   $ 18,000   $ 266,750   $ 361,250   $ 145,000  

Future interest obligations(1)

    119,564     33,147     54,615     27,038     4,764  

Operating leases

    6,010     1,653     1,854     1,820     683  

Capital leases(2)

    26,394     2,346     4,829     4,390     14,829  

Purchase obligations for capital projects

    96,926     96,926              

Coal purchase commitments

    6,680     6,680              

Reclamation obligations(3)

    155,576     3,192     4,155     24,869     123,360  

Workers' compensation and pneumoconiosis benefit(3)

    304,237     15,619     23,204     19,182     246,232  
                       

  $ 1,506,387   $ 177,563   $ 355,407   $ 438,549   $ 534,868  
                       
(1)
Interest on variable-rate, long-term debt was calculated using rates elected by the ARLP Partnership at December 31, 2012 for the remaining term of outstanding borrowings.

(2)
Includes amounts classified as interest and maintenance cost.

(3)
Future commitments for reclamation obligations, workers' compensation and pneumoconiosis are shown at undiscounted amounts. These obligations are primarily statutory, not contractual.

        The ARLP Partnership expects to contribute $2.4 million to the defined benefit pension plan ("Pension Plan") during 2013.

        In addition to the above described capital expenditures related to the ARLP Partnership's operating activities, it currently anticipates funding to White Oak during 2013 and 2014 approximately $125.7 million and $61.7 million, respectively, for reserve acquisitions, reserve development, surface facility financing and additional equity investment related to its participation in the White Oak Mine No. 1 development project.

    Off-Balance Sheet Arrangements

        In the normal course of business, the ARLP Partnership is a party to certain off-balance sheet arrangements. These arrangements include related party guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and surety bonds. Liabilities related to these arrangements are not reflected in our consolidated balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

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        The ARLP Partnership uses a combination of surety bonds and letters of credit to secure its financial obligations for reclamation, workers' compensation and other obligations as follows as of December 31, 2012 (in millions):

 
  Reclamation
Obligation
  Workers'
Compensation
Obligation
  Other   Total  

Surety bonds

  $ 76.0   $ 39.9   $ 5.7   $ 121.6  

Letters of credit

        41.5     12.7     54.2  

        The ARLP Partnership's continuing involvement in its unconsolidated affiliate, White Oak, will primarily consist of its support of the longwall mine currently under development in southern Illinois. The ARLP Partnership has committed to fund reserve acquisitions, reserve development, the construction of surface facilities, surface facility financing and the purchase of additional equity in White Oak. In addition, the ARLP Partnership incurred allocated losses related to its equity investment in White Oak of $15.3 million for the year ended December 31, 2012 and expects to incur further allocated losses on its equity investment in White Oak over the next twelve months as White Oak continues in the development stages of its operations. For more information on the White Oak transactions, please read "Part II. Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions" of this Annual Report on Form 10-K.

Capital Expenditures

        Capital expenditures increased to $424.6 million in 2012 compared to $321.9 million in 2011. See our discussion of "Cash Flows" above concerning this increase in capital expenditures.

        The ARLP Partnership currently projects average estimated annual maintenance capital expenditures over the next five years of approximately $5.70 per ton produced. The ARLP Partnership's anticipated total capital expenditures for 2013 are estimated in a range of $370.0 to $400.0 million. Management anticipates funding 2013 capital requirements with the ARLP Partnership's December 31, 2012 cash and cash equivalents of $28.3 million, future cash flows from operations, borrowings under revolving credit facilities and cash provided from the issuance of debt or equity, as discussed below. The ARLP Partnership will continue to have significant capital requirements over the long-term, which may require it to incur debt or seek additional equity capital. The availability and cost of additional capital to the ARLP Partnership will depend upon prevailing market conditions, the market price of ARLP's common units and several other factors over which the ARLP Partnership has limited control, as well as its financial condition and results of operations.

    Insurance

        During October 2012, the ARLP Partnership completed its annual property and casualty insurance renewal with various insurance coverages effective October 1, 2012. The aggregate maximum limit in the commercial property program is $100.0 million per occurrence excluding a $1.5 million deductible for property damage, a 90-day waiting period for underground business interruption and a $10.0 million overall aggregate deductible. The ARLP Partnership can make no assurances that it will not experience significant insurance claims in the future that could have a material adverse effect on its business, financial condition, results of operations and ability to purchase property insurance in the future and consequently have a material adverse effect on our business, financial condition and results of operations.

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Debt Obligations

    Alliance Holdings GP, L.P.

        We previously maintained a $2.0 million revolving credit facility ("AHGP Credit Facility") with C-Holdings, LLC ("C-Holdings"), which owns 100% of the members' interest of our general partner, AGP, and is controlled by Mr. Craft. The AHGP Credit Facility expired on April 1, 2011 and was not renewed.

    Alliance Resource Partners, L.P.

    ARLP Notes Offering and Credit Facility

        ARLP Credit Facility.    On May 23, 2012, the Intermediate Partnership entered into a credit agreement (the "Credit Agreement") with various financial institutions for a revolving credit facility (the "ARLP Revolving Credit Facility") of $700 million and a term loan (the "ARLP Term Loan") in the aggregate principal amount of $250 million (collectively, the ARLP Revolving Credit Facility and ARLP Term Loan are referred to as the "ARLP Credit Facility"). The ARLP Credit Facility replaces the $142.5 million revolving credit facility that was scheduled to mature September 25, 2012 and the $300 million term loan agreement dated December 29, 2010 that was prepaid and terminated early on May 23, 2012. The aggregate unpaid principal amount of $300 million and all unpaid interest was repaid using the proceeds of the ARLP Term Loan and borrowings under the ARLP Revolving Credit Facility. The Intermediate Partnership did not incur any early termination penalties in connection with the prepayment of the term loan. Borrowings under the Credit Agreement bear interest at a Base Rate or Eurodollar Rate, at the ARLP Partnership's election, plus an applicable margin that fluctuates depending upon the ratio of Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement). The ARLP Partnership has elected the Eurodollar Rate which, with applicable margin, was 1.86% on borrowings outstanding as of December 31, 2012. The ARLP Credit Facility matures May 23, 2017, at which time all amounts outstanding under the ARLP Revolving Credit Facility and the ARLP Term Loan are required to be repaid. Interest is payable quarterly, with principal of the ARLP Term Loan due as follows: commencing with the quarter ending June 30, 2014 and for each quarter thereafter ending on March 31, 2016, an amount per quarter equal to 2.50% of the aggregate amount of the ARLP Term Loan advances outstanding; for each quarter beginning June 30, 2016 through December 31, 2016 20% of the aggregate amount of the ARLP Term Loan advances outstanding; and the remaining balance of the ARLP Term Loan advances at maturity. The ARLP Partnership has the option to prepay the ARLP Term Loan at any time in whole or in part subject to terms and conditions described in the Credit Agreement. Upon a "change of control" (as defined in the Credit Agreement), the unpaid principal amount of the ARLP Credit Facility, all interest thereon and all other amounts payable under the ARLP Credit Agreement will become due and payable.

        At December 31, 2012, the ARLP Partnership had borrowings of $155.0 million and $23.5 million of letters of credit outstanding with $521.5 million available for borrowing under the ARLP Revolving Credit Facility. The ARLP Partnership utilizes the ARLP Revolving Credit Facility, as appropriate, to meet working capital requirements, capital expenditures, debt payments and distribution payments. The ARLP Partnership incurs an annual commitment fee of 0.25% on the undrawn portion of the ARLP Revolving Credit Facility.

        The ARLP Partnership incurred debt issuance costs of approximately $4.3 million in 2012 associated with the Credit Agreement, which have been deferred and are being amortized as a component of interest expense over the duration of the Credit Agreement. The ARLP Partnership also expensed $1.1 million of previously deferred debt issuance cost associated with its previous $300 million term loan.

        ARLP Senior Notes.    The Intermediate Partnership has $36.0 million principal amount of 8.31% senior notes due August 20, 2014, payable in two remaining equal annual installments of $18.0 million with interest payable semi-annually ("ARLP Senior Notes").

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        ARLP Series A Senior Notes.    On June 26, 2008, the Intermediate Partnership entered into a Note Purchase Agreement (the "2008 Note Purchase Agreement") with a group of institutional investors in a private placement offering. The Intermediate Partnership issued $205.0 million of Series A senior notes, which bear interest at 6.28% and mature on June 26, 2015 with interest payable semi-annually.

        ARLP Series B Senior Notes.    On June 26, 2008, the Intermediate Partnership issued under the 2008 Note Purchase Agreement $145.0 million of Series B senior notes (together with the Series A senior notes, the "2008 Senior Notes"), which bear interest at 6.72% and mature on June 26, 2018 with interest payable semi-annually.

        The ARLP Senior Notes, 2008 Senior Notes, and the ARLP Credit Facility described above (collectively, "ARLP Debt Arrangements") are guaranteed by all of the material direct and indirect subsidiaries of the Intermediate Partnership. The ARLP Debt Arrangements contain various covenants affecting the Intermediate Partnership and its subsidiaries restricting, among other things, the amount of distributions by the Intermediate Partnership, the incurrence of additional indebtedness and liens, the sale of assets, the making of investments, the entry into mergers and consolidations and the entry into transactions with affiliates, in each case subject to various exceptions. The ARLP Debt Arrangements also require the Intermediate Partnership to remain in control of a certain amount of mineable coal reserves relative to its annual production. In addition, the ARLP Debt Arrangements require the Intermediate Partnership to maintain (a) debt to cash flow ratio of not more than 3.0 to 1.0 and (b) 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 1.3 to 1.0 and 16.8 to 1.0, respectively, for the trailing twelve months ended December 31, 2012. The ARLP Partnership was in compliance with the covenants of the ARLP Debt Arrangements as of December 31, 2012.

        Other.    In addition to the letters of credit available under the ARLP Revolving Credit Facility discussed above, the ARLP Partnership also has agreements with two banks to provide additional letters of credit in an aggregate amount of $31.1 million to maintain surety bonds to secure certain asset retirement obligations and its obligations for workers' compensation benefits. At December 31, 2012, the ARLP Partnership had $30.7 million in letters of credit outstanding under agreements with these two banks. SGP previously guaranteed $5.0 million of these outstanding letters of credit. On May 4, 2011, the ARLP Partnership entered into an amendment, dated as of October 2, 2010, which released SGP from its guarantee of these outstanding letters of credit.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We discuss these estimates and judgments with AGP's Audit Committee ("Audit Committee") periodically. Actual results may differ from these estimates. We have provided a description of all significant accounting policies in the notes to our consolidated financial statements. The following critical accounting policies are materially impacted by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:

    Revenue Recognition

        Revenues from coal sales are recognized when title passes to the customer as the coal is shipped. Some coal supply agreements provide for price adjustments based on variations in quality characteristics of the coal shipped. In certain cases, a customer's analysis of the coal quality is binding and the results of the analysis are received on a delayed basis. In these cases, the ARLP Partnership estimates the amount of the

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quality adjustment and adjusts the estimate to actual when the information is provided by the customer. Historically such adjustments have not been material.

        Non-coal sales revenues primarily consist of transloading fees, mine safety services and products, and other handling and service fees. These non-coal sales revenues are recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collectability is reasonably assured.

    Coal Reserve Values

        All of the reserves presented in this Annual Report on Form 10-K constitute proven and probable reserves. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond the ARLP Partnership's control. Estimates of coal reserves necessarily depend upon a number of variables and assumptions, any one of which may vary considerably from actual results. These factors and assumptions relate to:

    geological and mining conditions, which may not be fully identified by available exploration data and/or differ from the ARLP Partnership's experiences in areas where it currently mines;
    the percentage of coal in the ground ultimately recoverable;
    historical production from the area compared with production from other producing areas;
    the assumed effects of regulation and taxes by governmental agencies; and
    assumptions concerning future coal prices, operating costs, capital expenditures, severance and excise taxes and development and reclamation costs.

        For these reasons, estimates of the recoverable quantities of coal attributable to any particular group of properties, classifications of reserves based on risk of recovery and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary substantially. Actual production, revenue and expenditures with respect to the ARLP Partnership's reserves will likely vary from estimates, and these variations may be material. Certain account classifications within our financial statements such as depreciation, depletion, and amortization, impairment charges and certain liability calculations such as asset retirement obligations may depend upon estimates of coal reserve quantities and values. Accordingly, when actual coal reserve quantities and values vary significantly from estimates, certain accounting estimates and amounts within our consolidated financial statements may be materially impacted. Coal reserve values are reviewed annually, at a minimum, for consideration in our consolidated financial statements.

    Workers' Compensation and Pneumoconiosis (Black Lung) Benefits

        The ARLP Partnership provides income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. The ARLP Partnership generally provides for these claims through self-insurance programs. Workers' compensation laws also compensate survivors of workers who suffer employment related deaths. The liability for traumatic injury claims is the ARLP Partnership's estimate of the present value of current workers' compensation benefits, based on its actuary estimates. The ARLP Partnership's actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including claim development patterns, mortality, medical costs and interest rates. The ARLP Partnership had accrued liabilities of $77.0 million and $73.2 million for these costs at December 31, 2012 and 2011, respectively. A one-percentage-point reduction in the discount rate would have increased the liability at December 31, 2012 approximately $6.6 million, which would have a corresponding increase in operating expenses.

        Coal mining companies are subject to CMHSA, as amended, and various state statutes for the payment of medical and disability benefits to eligible recipients related to coal worker's pneumoconiosis, or black lung. The ARLP Partnership provides for these claims through self-insurance programs. The black lung benefits liability is calculated using the service cost method based on the actuarial present value of the

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estimated black lung obligation. The ARLP Partnership's actuarial calculations are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents and discount rates. The ARLP Partnership had accrued liabilities of $61.0 million and $55.6 million for these benefits at December 31, 2012 and 2011, respectively. A one-percentage-point reduction in the discount rate would have increased the expense recognized for the year ended December 31, 2012 by approximately $1.2 million. Under the service cost method used to estimate the black lung benefits liability, actuarial gains or losses attributable to changes in actuarial assumptions, such as the discount rate, are amortized over the remaining service period of active miners.

        The discount rate for workers' compensation and black lung is derived by applying the Citigroup Pension Discount Curve to the projected liability payout. Other assumptions, such as claim development patterns, mortality, disability incidence and medical costs, are based upon standard actuarial tables adjusted for the ARLP Partnership's actual historical experiences whenever possible. The ARLP Partnership reviews all actuarial assumptions annually for reasonableness and consistency and updates such factors when underlying assumptions, such as discount rates, change or when sustained changes in the ARLP Partnership's historical experiences indicate a shift in the trend assumptions are warranted. For more information please see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Health Care Reform," above.

    Defined Benefit Plan

        Eligible employees at certain of the ARLP Partnership's mining operations participate in a Pension Plan that it sponsors. The benefit formula for the Pension Plan is a fixed dollar unit based on years of service. The calculation of the net periodic benefit cost (pension expense) and benefit obligation (pension liability) associated with the Pension Plan requires the use of a number of assumptions. Changes in these assumptions can result in materially different pension expense and pension liability amounts. In addition, actual experiences can differ materially from the assumptions. Significant assumptions used in calculating pension expense and pension liability are as follows:

    The ARLP Partnership's expected long-term rate of return assumption is based on broad equity and bond indices, the investment goals and objectives, the target investment allocation and on the long-term historical rates of return for each asset class. The ARLP Partnership's expected long-term rate of return used to determine its pension liability was 8.00% and 7.90% at December 31, 2012 and 2011, respectively. The ARLP Partnership's expected long-term rate of return used to determine its pension expense was 7.90% and 8.35% for the years ended December 31, 2012 and 2011, respectively. The expected long-term rate of return used to determine the ARLP Partnership's pension liability is based on an asset allocation assumption of 70.0% invested in domestic equity securities with an expected long-term rate of return of 8.5%, 10.0% invested in international equities with an expected long-term rate of return of 3.3% and 20.0% invested in fixed income securities with an expected long-term rate of return of 6.0%. The ARLP Partnership's expected long-term rate of return is based on a 20-year-average annual total return for each investment group. Additionally, the ARLP Partnership bases its determination of pension expense on a smoothed market-related valuation of assets equal to the fair value of assets, which immediately recognizes all investment gains or losses. The actual return on plan assets was 14.8% and (2.7)% for the years ended December 31, 2012 and 2011, respectively. Lowering the expected long-term rate of return assumption by 1.0% (from 7.90% to 6.90%) at December 31, 2011 would have increased the ARLP Partnership's pension expense for the year ended December 31, 2012 by approximately $0.5 million; and

    The ARLP Partnership's weighted average discount rate used to determine its pension liability was 3.99% and 4.49% at December 31, 2012 and 2011, respectively. The weighted average discount rate used to determine pension expense was 4.49% and 5.56% at December 31, 2012 and 2011, respectively. The discount rate that the ARLP Partnership utilizes for determining its future

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      pension obligation is based on a review of currently available high-quality fixed-income investments that receive one of the two highest ratings given by a recognized rating agency. The ARLP Partnership has historically used the average monthly yield for December of an A-rated utility bond index as the primary benchmark for establishing the discount rate. Lowering the discount rate assumption by 0.5% (from 4.49% to 3.99%) at December 31, 2011 would have increased pension expense for the year ended December 31, 2012 by approximately $0.1 million.

    Long-Lived Assets

        The ARLP Partnership reviews the carrying value of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-lived assets and certain intangibles are not reviewed for impairment unless an impairment indicator is noted. Several examples of impairment indicators include:

    A significant decrease in the market price of a long-lived asset;

    A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset; or

    A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.

        The above factors are not all inclusive, and management of the ARLP Partnership must continually evaluate whether other factors are present that would indicate a long-lived asset may be impaired. If there is an indication that carrying amount of an asset may not be recovered, the asset is monitored by management where changes to significant assumptions are reviewed. Individual assets are grouped for impairment review purposes based on the lowest level for which there is identifiable cash flows that are largely independent of the cash flows of other groups of assets, generally on a by-mine basis. The amount of impairment is measured by the difference between the carrying value and the fair value of the asset. The fair value of impaired assets is typically determined based on various factors, including the present values of expected future cash flows, the marketability of coal properties and the estimated fair value of assets that could be sold or used at other operations. The ARLP Partnership recorded an asset impairment charge of $19.0 million in 2012 (see "Item 8. Financial Statements and Supplementary Data—Note 5. Asset Impairment Charge" of this Annual Report on Form 10-K). No impairment charges were recorded in 2011 and 2010.

    Mine Development Costs

        Mine development costs are capitalized until production, other than production incidental to the mine development process, commences and are amortized on a units of production method based on the estimated proven and probable reserves. Mine development costs represent costs incurred in establishing access to mineral reserves and include costs associated with sinking or driving shafts and underground drifts, permanent excavations, roads and tunnels. The end of the development phase and the beginning of the production phase takes place when construction of the mine for economic extraction is substantially complete. The ARLP Partnership's estimate of when construction of the mine for economic extraction is substantially complete is based upon a number of factors, such as expectations regarding the economic recoverability of reserves, the type of mine under development, and completion of certain mine requirements, such as ventilation. Coal extracted during the development phase is incidental to the mine's production capacity and is not considered to shift the mine into the production phase. At December 31, 2012 and 2011 capitalized mine development costs were $32.6 million and $73.8 million, respectively, representing the carrying value of development costs attributable to properties where the ARLP Partnership has not reached the production stage of mining operations or leasing to third parties, and therefore, the mine development costs are not currently being amortized. The ARLP Partnership believes that the carrying value of these development costs will be recovered.

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    Asset Retirement Obligations

        SMCRA and similar state statutes require that mined property be restored in accordance with specified standards and an approved reclamation plan. A liability is recorded for the estimated cost of future mine asset retirement and closing procedures on a present value basis when incurred and a corresponding amount is capitalized by increasing the carrying amount of the related long-lived asset. Those costs relate to permanently sealing portals at underground mines and to reclaiming the final pits and support acreage at surface mines. Examples of these types of costs, common to both types of mining, include, but are not limited to, removing or covering refuse piles and settling ponds, water treatment obligations, and dismantling preparation plants, other facilities and roadway infrastructure. Accrued liabilities of $84.8 million and $72.3 million for these costs are recorded at December 31, 2012 and 2011, respectively. The liability for asset retirement and closing procedures is sensitive to changes in cost estimates and estimated mine lives.

        On at least an annual basis, the ARLP Partnership reviews its entire asset retirement obligation liability and makes necessary adjustments for permit changes as granted by state authorities, changes in the timing of reclamation activities, and revisions to cost estimates and productivity assumptions, to reflect current experience. Adjustments to the liability resulted in an increase of $12.5 million and $13.5 million for the years ended December 31, 2012 and 2011, respectively. The adjustments to the liability for the year ended December 31, 2012 were primarily attributable to a liability associated with the Onton mine acquisition and increased refuse site reclamation disturbances with new mine development work at Tunnel Ridge and Gibson South, as well as the net impact of overall general changes in inflation and discount rates, current estimates of the costs and scope of remaining reclamation work and fluctuations in projected mine life estimates over all locations. These increases were offset in part by reductions for completed reclamation work at certain inactive locations.

        While the precise amount of these future costs cannot be determined with certainty, the ARLP Partnership has estimated the costs and timing of future asset retirement obligations escalated for inflation, then discounted and recorded at the present value of those estimates. Discounting resulted in reducing the accrual for asset retirement obligations by $70.7 million and $71.3 million at December 31, 2012 and 2011. The ARLP Partnership estimates that the aggregate undiscounted cost of final mine closure is approximately $155.6 million at December 31, 2012. If the ARLP Partnership's assumptions differ from actual experiences, or if changes in the regulatory environment occur, its actual cash expenditures and costs that it incurs could be materially different than currently estimated.

    Contingencies

        We are not engaged in any material litigation. The ARLP Partnership is currently involved in certain legal proceedings. The ARLP Partnership's estimates of the probable costs and probability of resolution of these claims are based upon a number of assumptions, which it has developed in consultation with legal counsel involved in the defense of these matters and based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Based on known facts and circumstances, the ARLP Partnership believes the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on its 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 the ARLP Partnership's accruals, then they could have a material adverse effect.

Resale Shelves

        In June 2007, we filed with the SEC a shelf registration statement registering the resale of an aggregate of 47,363,000 outstanding units of equity securities of which 1,057,832 have been sold by certain common unitholders.

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        In May 2006, we filed with the SEC a shelf registration statement registering the resale of an aggregate of 523,122 outstanding units of equity securities of which 237,192 have been sold.

Secondary Public Offering

        On April 1, 2011, we completed a secondary public offering of 2.75 million common units representing limited partner interests in us at a price of $54.21 per unit, before underwriting discounts and commissions. These common units were previously held by the Management Group (some of whom are current or former members of management and the former indirect owners of MGP) and their affiliates. The sale of these already outstanding common units increases our public float. However, we received no proceeds from this secondary public offering, and no additional common units were issued by us.

Related Party Transactions

    ARLP Omnibus Agreement

        Pursuant to the terms of an amended omnibus agreement, we agreed, and caused our controlled affiliates to agree, for so long as management controls MGP through its ownership of our common units, not to engage in the business of mining, marketing or transporting coal in the U.S., unless ARLP is first offered the opportunity to engage in the potential activity or acquire a potential business, and the MGP Board of Directors with the concurrence of the conflicts committee of MGP ("MGP Conflicts Committee"), elects to cause ARLP not to pursue such opportunity or acquisition. The amended omnibus agreement provides, among other things, that ARLP will be presumed to desire to acquire the assets until such time as it advises us that it has abandoned the pursuit of such business opportunity, and we may not pursue the acquisition of such assets prior to that time. This restriction does not apply to: any business owned or operated by us and our affiliates at the closing of the IPO; any acquisition by us or our affiliates, so long as the majority of the value of the acquisition does not derive from a restricted business and ARLP is offered the opportunity to purchase the restricted business following its acquisition; or any business conducted by us or our affiliates with the approval of the MGP Board of Directors or MGP Conflicts Committee. Except as provided in the amended omnibus agreement, we and our affiliates are not prohibited from engaging in activities that directly compete with ARLP and our affiliates are not prohibited from engaging in activities that compete directly with us.

    Registration Rights

        In connection with the IPO, we agreed to register for sale under the Securities Act and applicable state securities laws, subject to certain limitations, any common units proposed to be sold by SGP and the former owners of MGP or any of their respective affiliates. These registration rights required us to file one registration statement for each of these groups. We also agreed to include any securities held by the owners of SGP and the former owners of MGP or any of their respective affiliates in any registration statement that we file to offer securities for cash, except an offering relating solely to an employee benefit plan and other similar exceptions. We satisfied our requirement by registering 47,363,000 outstanding common units on Form S-3 filed with the SEC on June 1, 2007, declared effective on June 27, 2007, of which 1,057,832 have been sold. A prospectus supplement was filed with the SEC on December 18, 2007. These registration rights are in addition to the registration rights that we agreed to provide AGP and its affiliates pursuant to our limited partnership agreement.

    AGP

        Our partnership agreement requires us to reimburse AGP for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business. The amounts billed by AGP to us include

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$0.4 million, $0.4 million and $0.7 million for the years ended December 31, 2012, 2011 and 2010, respectively, for costs principally related to the AGP Deferred Compensation Plan.

    Administrative Services

        On April 1, 2010, effective January 1, 2010, we entered into the Administrative Services Agreement with ARLP, MGP, the Intermediate Partnership, our general partner AGP, and ARH II, the indirect parent of SGP. The Administrative Services Agreement superseded the administrative services agreement signed in connection with our initial public offering in 2006. Under the Administrative Services Agreement, certain employees of ARLP, including some executive officers, provide administrative services to AHGP and ARH II and their respective affiliates. The ARLP Partnership is reimbursed for services rendered by its employees on behalf of these affiliates as provided under the Administrative Services Agreement. On a consolidated basis, the ARLP Partnership billed and recognized administrative service revenue under this agreement of $0.1 million, $0.2 million and $0.2 million for the years ended December 31, 2012, 2011 and 2010, respectively, from ARH II. This administrative service revenue is included in other sales and operating revenues in our consolidated statements of income.

    The ARLP Partnership's Related-Party Transactions

        The MGP Board of Directors and MGP Conflicts Committee review each of the ARLP Partnership's related-party transactions to determine that such transactions reflect market-clearing terms and conditions. As a result of these reviews, the MGP Board of Directors and MGP Conflicts Committee approved each of the transactions described below as fair and reasonable to us and our limited partners.

    Affiliate Contributions

        During December 2012 and 2011, an affiliated entity controlled by Mr. Craft contributed $2.0 million and $5.0 million, respectively, to us for the purpose of funding certain of the ARLP Partnership's general and administrative expenses. Upon our receipt of each contribution, we contributed the same to our subsidiary and ARLP's managing general partner, MGP, which in turn contributed the same to Alliance Coal. The ARLP Partnership made special allocations to MGP of certain general and administrative expenses equal to the amount of the contributions, MGP made an identical expense allocation to us, and we then made the same expense allocation to the affiliated entity controlled by Mr. Craft.

    White Oak Transactions

        On September 22, 2011, the ARLP Partnership entered into a series of transactions with White Oak and related entities to support development of a longwall mining operation currently under construction. The transactions feature several components, including an equity investment containing certain distribution and liquidation preferences, the acquisition and lease-back of certain reserves and surface rights, a coal handling and services agreement and a loan for surface facilities. For more information about the White Oak Transactions, please read "Item 8. Financial Statements and Supplementary Data—Note 13. White Oak Transactions" of this Annual Report on Form 10-K.

    SGP Land, LLC

        On March 1, 2012, JC Air, LLC ("JC Air"), a wholly-owned subsidiary of SGP, was acquired by and merged into the ARLP Partnership's subsidiary, ASI. JC Air's sole assets were two airplanes, one of which was previously subject to a time-sharing agreement between SGP Land, LLC ("SGP Land"), another subsidiary of SGP, and the ARLP Partnership. In consideration for this merger, the ARLP Partnership paid SGP approximately $8.0 million cash at closing.

        ASI has agreements with SGP Land, and with Mr. Craft, providing for the use of ASI aircraft by SGP Land and Mr. Craft. SGP and Mr. Craft paid the ARLP Partnership $0.1 million for aircraft usage in 2012

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as a result of these agreements. In addition, Alliance Coal has an agreement with JC Land, LLC ("JC Land"), an entity owned by Mr. Craft, providing for the use of JC Land's aircraft by Alliance Coal. As a result of this agreement, the ARLP Partnership paid JC Land $0.1 million for aircraft usage in 2012.

        The ARLP Partnership reimbursed SGP Land $0.3 million, $1.0 million and $0.8 million for the years ended December 31, 2012, 2011 and 2010, respectively in accordance with the provisions of the replaced time-sharing agreement, which ended on March 1, 2012, upon the merger of JC Air into ASI, as discussed above.

        In 2001, SGP Land, as successor in interest to an unaffiliated third party, entered into an amended mineral lease with MC Mining. Under the terms of the lease, MC Mining has paid and will continue to pay an annual minimum royalty of $0.3 million until $6.0 million of cumulative annual minimum and/or earned royalty payments have been paid. MC Mining paid royalties of $0.4 million, $0.3 million and $0.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, $2.3 million of advance minimum royalties paid under the lease is available for recoupment, and management expects that it will be recouped against future production.

    SGP

        In January 2005, the ARLP Partnership acquired Tunnel Ridge from ARH. In connection with this acquisition, the ARLP Partnership assumed a coal lease with SGP. Under the terms of the lease, Tunnel Ridge has paid and will continue to pay an annual minimum royalty of $3.0 million until the earlier of January 1, 2033 or the exhaustion of the mineable and merchantable leased coal. Tunnel Ridge paid advance minimum royalties of $3.0 million during each of the years ended December 31, 2012, 2011 and 2010. As of December 31, 2012, $20.2 million of advance minimum royalties paid under the lease is available for recoupment and management expects that it will be recouped against future production. In August 2010, the coal lease was amended to include approximately 34.4 million additional clean tons of recoverable coal reserves in the proven and probable categories.

        Tunnel Ridge also controls surface land and other tangible assets under a separate lease agreement with SGP. Under the terms of the lease agreement, Tunnel Ridge has paid and will continue to pay SGP an annual lease payment of $0.2 million. The lease agreement has an initial term of four years, which may be extended to match the term of the coal lease. Lease expense was $0.2 million for each of the years ended December 31, 2012, 2011 and 2010.

        The ARLP Partnership has a noncancelable lease arrangement for the Gibson North mine's coal preparation plant and ancillary facilities with SGP. Based on the terms of the original lease, the ARLP Partnership made monthly payments of approximately $0.2 million through January 2011. Effective February 1, 2011, the lease was amended to extend the term through January 2017 and modify other terms, including reducing the monthly payments to approximately $50,000. The lease arrangement is considered a capital lease based on the terms of the new arrangement. Lease payments for the years ended December 31, 2012, 2011 and 2010 were $0.6 million, $0.8 million and $2.6 million, respectively.

        The ARLP Partnership has agreements with two banks to provide letters of credit in an aggregate amount of $31.1 million (see "Item 8. Financial Statements and Supplementary Data—Note 8. Long-Term Debt" of this Annual Report on Form 10-K). SGP previously guaranteed $5.0 million of these outstanding letters of credit. These guarantees were released on May 4, 2011.

Accruals of Other Liabilities

        The ARLP Partnership had accruals for other liabilities, including current obligations, totaling $248.7 million and $221.9 million at December 31, 2012 and 2011, respectively. These accruals were chiefly comprised of workers' compensation benefits, black lung benefits, and costs associated with asset retirement obligations. These obligations are self-insured except for certain excess insurance coverage for

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workers' compensation. The accruals of these items were based on estimates of future expenditures based on current legislation, related regulations and other developments. Thus, from time to time, the ARLP Partnership's results of operations may be significantly affected by changes to these liabilities. Please see "Item 8. Financial Statements and Supplementary Data—Note 17. Asset Retirement Obligations" and "Note 18. Accrued Workers' Compensation and Pneumoconiosis Benefits."

Inflation

        At times, the ARLP Partnership's results have been significantly impacted by price increases affecting many of the components of its operating expenses such as fuel, steel, maintenance expense and labor. Any future inflationary or deflationary pressures could adversely affect the results of the ARLP Partnership's operations. Please see "Item 1A. Risk Factors."

New Accounting Standards

    New Accounting Standards Issued and Adopted

        In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"). ASU 2011-04 amends FASB ASC 820, Fair Value Measurement, to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. ASU 2011-04 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on our consolidated financial statements.

        In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income ("ASU 2011-05"). ASU 2011-05 removes the presentation options in FASB ASC 220, Comprehensive Income, and requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. Under the two statement approach, the first statement includes components of net income, and the second statement includes components of other comprehensive income ("OCI"). ASU 2011-05 does not change the items that must be reported in OCI. ASU 2011-05 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and its provisions had to be applied retrospectively for all periods presented in the financial statements. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-12"), which indefinitely deferred a provision of ASU 2011-05 that required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which OCI is presented. The adoption of ASU 2011-05 did not have a material impact on our consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We have no operating activities apart from those conducted by the ARLP Partnership. Our ownership interests, results of operations and cash flows principally reflect those of the ARLP Partnership. As such, our discussions of market risk reflect those risks as they apply to the ARLP Partnership.

Commodity Price Risk

        The ARLP Partnership has significant long-term coal supply agreements as evidenced by approximately 94.2% of its sales tonnage, including approximately 94.6% of its medium- and high-sulfur coal sales tonnage, being sold under long-term contracts in 2012. Virtually all of the long-term coal supply

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agreements are subject to price adjustment provisions, which permit an increase or decrease periodically in the contract price to principally reflect changes in specified price indices or items such as taxes, royalties or actual production costs resulting from regulatory changes. For additional discussion of coal supply agreements, please see "Item 1. Business—Coal Marketing and Sales" and "Item 8. Financial Statements and Supplementary Data—Note 21. Concentration of Credit Risk and Major Customers." As of January 29, 2013, the ARLP Partnership's nominal commitment under long-term contracts was approximately 38.5 million tons in 2013, 30.7 million tons in 2014, 23.4 million tons in 2015 and 18.7 million tons in 2016.

        The ARLP Partnership has exposure to price risk for supplies that are used directly or indirectly in the normal course of coal production such as steel, electricity and other supplies. The ARLP Partnership manages its risk for these items through strategic sourcing contracts for normal quantities required by its operations. The ARLP Partnership does not utilize any commodity price-hedges or other derivatives related to these risks.

Credit Risk

        In 2012, approximately 93.1% of the ARLP Partnership's sales tonnage was purchased by electric utilities. Therefore, the ARLP Partnership's credit risk is primarily with domestic electric power generators. The ARLP Partnership's policy is to independently evaluate each customer's creditworthiness prior to entering into transactions and to constantly monitor outstanding accounts receivable against established credit limits. When deemed appropriate by the ARLP Partnership's credit management department, it will take steps to reduce credit exposure to customers that do not meet its credit standards or whose credit has deteriorated. These steps may include obtaining letters of credit or cash collateral, requiring prepayments for shipments or establishing customer trust accounts held for the ARLP Partnership's benefit in the event of a failure to pay.

Exchange Rate Risk

        Almost all of the ARLP Partnership's transactions are denominated in U.S. dollars, and as a result, it does not have material exposure to currency exchange-rate risks.

Interest Rate Risk

        Borrowings under the ARLP Credit Facility are at variable rates and, as a result, the ARLP Partnership has interest rate exposure. Historically, the ARLP Partnership's earnings have not been materially affected by changes in interest rates. The ARLP Partnership does not utilize any interest rate derivative instruments related to its outstanding debt. The ARLP Partnership had $155.0 million in borrowings under the ARLP Revolving Credit Facility and $250.0 million outstanding under the ARLP Term Loan at December 31, 2012. A one percentage point increase in the interest rates related to the ARLP Revolving Credit Facility and ARLP Term Loan would result in an annualized increase in 2013 interest expense of $4.1 million, based on borrowing levels at December 31, 2012. With respect to the ARLP Partnership's fixed-rate borrowings, a one percentage point increase in interest rates would result in a decrease of approximately $13.3 million in the estimated fair value of these borrowings.

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        The table below provides information about the ARLP Partnership's market sensitive financial instruments and constitutes a "forward-looking statement." The fair values of long-term debt are estimated using discounted cash flow analyses, based upon the ARLP Partnership's current incremental borrowing rates for similar types of borrowing arrangements as of December 31, 2012 and 2011. The carrying amounts and fair values of financial instruments are as follows (in thousands):

Expected Maturity Dates
as of December 31, 2012
  2013   2014   2015   2016   2017   Thereafter   Total   Fair Value
December 31,
2012
 

ARLP Fixed rate debt

  $ 18,000   $ 18,000   $ 205,000   $   $   $ 145,000   $ 386,000   $ 430,849  

Weighted average interest rate

    6.61 %   6.52 %   6.54 %   6.72 %   6.72 %   6.72 %            

ARLP Variable rate debt

 
$

 
$

18,750
 
$

25,000
 
$

156,250
 
$

205,000
 
$

 
$

405,000
 
$

403,411
 

Weighted average interest rate(1)

    1.86 %   1.86 %   1.86 %   1.86 %   1.86 %   1.86 %            

Expected Maturity Dates
as of December 31, 2011

 

2012

 

2013

 

2014

 

2015

 

2016

 

Thereafter

 

Total

 

Fair Value
December 31,
2011

 

ARLP Fixed rate debt

  $ 18,000   $ 18,000   $ 18,000   $ 205,000   $   $ 145,000   $ 404,000   $ 444,386  

Weighted average interest rate

    6.68 %   6.61 %   6.52 %   6.54 %   6.72 %   6.72 %            

ARLP Variable rate debt

 
$

 
$

60,000
 
$

75,000
 
$

165,000
 
$

 
$

 
$

300,000
 
$

302,133
 

Weighted average interest rate(1)

    2.30 %   2.30 %   2.30 %   2.30 %                    
(1)
Interest rate on variable rate debt equal to the rate elected by the ARLP Partnership as of December 31, 2012, held constant for the remaining term of the outstanding borrowing.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Directors of Alliance GP, LLC
and the Partners of Alliance Holdings GP, L.P.

We have audited the accompanying consolidated balance sheets of Alliance Holdings GP, L.P. and subsidiaries (the "Partnership") as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows, and partners' capital for each of the two years in the period ended December 31, 2012. Our audits also included the 2012 and 2011 information in the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alliance Holdings GP, L.P. and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the 2012 and 2011 information in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the 2012 and 2011 information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Partnership's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2013 expressed an unqualified opinion thereon.

    /s/ Ernst & Young LLP

Tulsa, Oklahoma
March 1, 2013

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Alliance GP, LLC
and the Partners of Alliance Holdings GP, L.P.:

We have audited the accompanying consolidated statements of income, comprehensive income, cash flows and Partners' capital of Alliance Holdings GP, L.P. and subsidiaries (the "Partnership") for the year ended December 31, 2010. Our audits also included the financial statement schedule for the year ended December 31, 2010 listed in the Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of the operations and the cash flows of Alliance Holdings GP, L.P. and subsidiaries for the year ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Tulsa, Oklahoma
March 8, 2011
(March 1, 2013 related to the change in presentation of comprehensive income as described in Note 2)

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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2012 AND 2011
(In thousands, except unit data)

 
  December 31,  
 
  2012   2011  

ASSETS

             

CURRENT ASSETS:

             

Cash and cash equivalents

  $ 31,111   $ 281,469  

Trade receivables

    172,724     128,643  

Other receivables

    1,019     3,525  

Due from affiliates

    562      

Inventories

    46,660     33,837  

Advance royalties

    11,492     7,560  

Prepaid expenses and other assets

    20,554     12,022  
           

Total current assets

    284,122     467,056  

PROPERTY, PLANT AND EQUIPMENT:

             

Property, plant and equipment, at cost

    2,361,863     1,974,520  

Less accumulated depreciation, depletion and amortization

    (832,293 )   (793,200 )
           

Total property, plant and equipment, net

    1,529,570     1,181,320  

OTHER ASSETS:

             

Advance royalties

    23,267     27,916  

Due from affiliate

    3,084      

Equity investments in affiliates

    88,513     40,118  

Other long-term assets

    30,284     18,067  
           

Total other assets

    145,148     86,101  
           

TOTAL ASSETS

  $ 1,958,840   $ 1,734,477  
           

LIABILITIES AND PARTNERS' CAPITAL

             

CURRENT LIABILITIES:

             

Accounts payable

  $ 100,678   $ 97,369  

Due to affiliates

    327     494  

Accrued taxes other than income taxes

    20,033     15,897  

Accrued payroll and related expenses

    38,501     35,876  

Accrued interest

    1,435     2,195  

Workers' compensation and pneumoconiosis benefits

    9,320     9,511  

Current capital lease obligations

    1,000     676  

Other current liabilities

    19,572     15,326  

Current maturities, long-term debt

    18,000     18,000  
           

Total current liabilities

    208,866     195,344  

LONG-TERM LIABILITIES:

             

Long-term debt, excluding current maturities

    773,000     686,000  

Pneumoconiosis benefits

    59,931     54,775  

Accrued pension benefit

    31,078     27,538  

Workers' compensation

    68,786     64,520  

Asset retirement obligations

    81,644     70,836  

Long-term capital lease obligations

    18,613     2,497  

Other liabilities

    9,147     6,774  
           

Total long-term liabilities

    1,042,199     912,940  
           

Total liabilities

    1,251,065     1,108,284  
           

COMMITMENTS AND CONTINGENCIES

             

PARTNERS' CAPITAL:

             

Alliance Holdings GP, L.P. ("AHGP") Partners' Capital:

             

Limited Partners—Common Unitholders 59,863,000 units outstanding

    448,976     414,165  

Accumulated other comprehensive loss

    (18,296 )   (17,560 )
           

Total AHGP Partners' Capital

    430,680     396,605  

Noncontrolling interests

    277,095     229,588  
           

Total Partners' Capital

    707,775     626,193  
           

TOTAL LIABILITIES AND PARTNERS' CAPITAL

  $ 1,958,840   $ 1,734,477  
           

   

See notes to consolidated financial statements.

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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
(In thousands, except unit and per unit data)

 
  Year Ended December 31,  
 
  2012   2011   2010  

SALES AND OPERATING REVENUES:

                   

Coal sales

  $ 1,979,437   $ 1,786,089   $ 1,551,539  

Transportation revenues

    22,034     31,939     33,584  

Other sales and operating revenues

    32,459     25,175     24,620