13.SEGMENT INFORMATION

The ARLP Partnership operates in the eastern U.S. as a producer and marketer of coal to major utilities and industrial users. We aggregate multiple operating segments into two reportable segments: Illinois Basin and Appalachia, and an “all other” category referred to as Other and Corporate. Our reportable segments correspond to major coal producing regions in the eastern U.S. Similar economic characteristics for our operating segments within each of these two reportable segments generally include coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues.

As a result of the ARLP Partnership acquiring the remaining equity interests in White Oak Resources LLC (“White Oak”) and the assumption of operating control of the White Oak Mine No. 1 (now known as the Hamilton Mine No. 1) on July 31, 2015 (the “White Oak Acquisition”), the ARLP Partnership restructured its reportable segments to include Hamilton as part of our Illinois Basin segment due to the similarities in product, management, location, and operation with other mines included in the segment. This new organization reflects how the ARLP Partnership’s chief operating decision maker manages and allocates resources to our various operations. Prior periods have been recast to include our former White Oak segment as part of the Illinois Basin segment.

The Illinois Basin reportable segment is comprised of multiple operating segments, including current operating mining complexes a) Webster County Coal, LLC’s Dotiki mining complex, b) Gibson County Coal, LLC’s mining complex, which includes the Gibson North and Gibson South mines, c) White County Coal, LLC’s Pattiki mining complex (“Pattiki”), d) Warrior Coal, LLC’s mining complex, e) River View Coal, LLC’s mining complex and f) the Hamilton mining complex.

The Illinois Basin reportable segment also includes Hopkins County Coal, LLC’s mining complex, which includes the Elk Creek mine and the Fies property, Sebree Mining, LLC’s mining complex (“Sebree”), which includes the Onton mine, Steamport, LLC and certain Sebree reserves, CR Services, LLC, certain properties and equipment of Alliance Resource Properties, ARP Sebree, LLC, ARP Sebree South, LLC and UC Coal, LLC and its subsidiaries, UC Mining, LLC and UC Processing, LLC (collectively “UC Coal”). The Sebree and Fies properties are held by the ARLP Partnership for future mine development. UC Coal equipment assets acquired in 2015 are being deployed as needed at various Illinois Basin operating mines. The Elk Creek mine depleted its reserves in March 2016 and ceased production on April 1, 2016. The Onton and Gibson North mines have been idled since the fourth quarter of 2015 in response to market conditions and continued increases in coal inventories at the mines and customer locations. The Pattiki mining complex is currently expected to cease production by the end of 2016.

The Appalachia reportable segment is comprised of multiple operating segments, including the Mettiki mining complex, the Tunnel Ridge, LLC mining complex and the MC Mining, LLC mining complex. The Mettiki mining complex includes Mettiki Coal (WV), LLC’s Mountain View mine and Mettiki Coal, LLC’s preparation plant. During the fourth quarter of 2015, the ARLP Partnership surrendered the Penn Ridge leases as they were no longer a core part of the ARLP Partnership’s foreseeable development plans.

Other and Corporate includes the ARLP Partnership and AHGP’s marketing and administrative expenses, Alliance Service, Inc. (“ASI”) and its subsidiary, Matrix Design Group, LLC and its subsidiaries Matrix Design International, LLC and Matrix Design Africa (PTY) LTD (“Matrix Design”), Alliance Design Group, LLC (“Alliance Design”) (collectively, the Matrix Design entities and Alliance Design are referred to as the “Matrix Group”), ASI’s ownership of aircraft, the Mt. Vernon Transfer Terminal, LLC (“Mt. Vernon”) dock activities, coal brokerage activity, Mid-America Carbonates, LLC (“MAC”), certain activities of Alliance Resource Properties, Pontiki Coal, LLC’s throughput receivables and prior workers’ compensation and pneumoconiosis liabilities, Wildcat Insurance, LLC (“Wildcat Insurance”), Alliance Minerals, and its affiliate, Cavalier Minerals (See Note 8 – Variable Interest Entities), which holds an equity investment in AllDale Minerals (Note 9 – Equity Investment), and AROP Funding (Note 6 – Long-Term Debt).

Reportable segment results as of and for the three and six months ended June 30, 2016 and 2015 are presented below.

	Illinois Basin		Appalachia		Other and Corporate		Elimination (1)		Consolidated
					(in thousands)

Three months ended June 30, 2016

Total revenues (2)	$	295,880	$	138,034	$	21,468	$	(16,341)	$	439,041
Segment Adjusted EBITDA Expense (3)	154,175		89,426		16,165		(13,428)		246,338
Segment Adjusted EBITDA (4)	137,716		47,110		5,271		(2,913)		187,184
Capital expenditures	12,357		4,348		164		-		16,869

Three months ended June 30, 2015 (recast)

Total revenues (2)	$	425,580	$	167,165	$	51,590	$	(39,716)	$	604,619
Segment Adjusted EBITDA Expense (3)	248,569		118,744		44,137		(36,560)		374,890
Segment Adjusted EBITDA (4)(5)	150,259		45,547		7,158		(3,157)		199,807
Capital expenditures	34,429		21,701		1,298		-		57,428

Six months ended June 30, 2016

Total revenues (2)	$	583,756	$	256,360	$	46,534	$	(34,884)	$	851,766
Segment Adjusted EBITDA Expense (3)	325,254		166,442		36,911		(29,057)		499,550
Segment Adjusted EBITDA (4)	250,052		86,492		9,395		(5,827)		340,112
Total assets (6)	1,658,518		516,584		363,448		(165,815)		2,372,735
Capital expenditures	30,371		17,011		1,220		-		48,602

Six months ended June 30, 2015 (recast)

Total revenues (2)	$	817,302	$	323,413	$	106,598	$	(82,394)	$	1,164,919
Segment Adjusted EBITDA Expense (3)	478,433		216,559		90,620		(76,156)		709,456
Segment Adjusted EBITDA (4)(5)	298,297		101,380		15,269		(6,239)		408,707
Total assets (6)	1,590,029		580,059		318,363		(156,402)		2,332,049
Capital expenditures (7)	68,186		37,439		2,133		-		107,758

(1)

The elimination column represents the elimination of intercompany transactions and is primarily comprised of sales from the Matrix Group and MAC to the ARLP Partnership’s mining operations, coal sales and purchases between operations within different segments, sales of receivables to AROP Funding and insurance premiums paid to Wildcat Insurance.

(2)

Revenues included in the Other and Corporate column are primarily attributable to the Matrix Group revenues, Mt. Vernon transloading revenues, MAC revenues, Wildcat Insurance revenues and brokerage coal sales.

(3)

Segment Adjusted EBITDA Expense 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. We review Segment Adjusted EBITDA Expense per ton for cost trends.

The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to Operating expenses (excluding depreciation, depletion and amortization):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(in thousands)

Segment Adjusted EBITDA Expense	$	246,338	$	374,890	$	499,550	$	709,456
Outside coal purchases	-		(2)		-		(324)
Other income	161		177		252		295

Operating expenses (excluding depreciation, depletion and amortization)	$	246,499	$	375,065	$	499,802	$	709,427

(4)

Segment Adjusted EBITDA is defined as net income (prior to the allocation of noncontrolling interest) before net interest expense, income taxes, depreciation, depletion and amortization and general and administrative expenses. Management therefore is able to focus solely on the evaluation of segment operating profitability as it relates to the ARLP Partnership’s revenues and operating expenses, which are primarily controlled by our segments. Consolidated Segment Adjusted EBITDA is reconciled to net income as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(in thousands)

Consolidated Segment Adjusted EBITDA	$	187,184	$	199,807	$	340,112	$	408,707
General and administrative	(18,635)		(18,040)		(36,188)		(35,303)
Depreciation, depletion and amortization	(79,145)		(79,801)		(160,028)		(158,069)
Interest expense, net	(7,766)		(7,701)		(15,377)		(15,138)
Income tax expense (benefit)	(6)		(8)		2		(6)

Net income	$	81,632	$	94,257	$	128,521	$	200,191

(5)

Includes equity in loss of affiliates for the three and six months ended June 30, 2015 of $22.0 million and $31.4 million, respectively, in the Illinois Basin segment.

(6)

Total assets for Other and Corporate include investments in affiliate of $96.7 million at June 30, 2016. Total assets at June 30, 2015 for the Illinois Basin segment and Other and Corporate include investments in affiliates of $190.5 million and $31.3 million, respectively.

(7)

Capital expenditures shown above exclude the Patriot acquisition on February 3, 2015 and the MAC acquisition on January 1, 2015.