Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information

Segment Information

12. 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 four reportable segments: Illinois Basin, Central Appalachia, Northern Appalachia 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 the operating segments within each of these three reportable segments include coal quality, coal seam height, mining and transportation methods and regulatory issues.

The Illinois Basin reportable segment is comprised of multiple operating segments, including Webster County Coal, LLC's Dotiki mining complex, Gibson County Coal, LLC's Gibson North mining complex, Hopkins County Coal, LLC's Elk Creek mining complex, White County Coal, LLC's Pattiki mining complex, Warrior Coal, LLC's mining complex, River View Coal, LLC's mining complex, the Sebree Mining, LLC ("Sebree") property, the Gibson County Coal (South), LLC ("Gibson South") property and certain properties of Alliance Resource Properties, LLC ("Alliance Resource Properties") and its wholly-owned subsidiary, ARP Sebree, LLC. The ARLP Partnership recently received the permits necessary to begin mine construction at the Gibson South property, and on July 25, 2011, the ARLP Partnership's board of directors of its managing general partner approved development of the Gibson South mine, which is currently underway. The ARLP Partnership is in the process of permitting the Sebree property for future mine development.

The Central Appalachian reportable segment is comprised of two operating segments, Pontiki Coal, LLC's and MC Mining, LLC's mining complexes.

The Northern Appalachian reportable segment is comprised of multiple operating segments, including Mettiki Coal, LLC's mining complex, Mettiki Coal (WV) LLC's Mountain View mining complex, two small third-party mining operations, a mining complex currently under construction at Tunnel Ridge, LLC ("Tunnel Ridge") and the Penn Ridge Coal, LLC ("Penn Ridge") property. In May 2010, incidental production began from mine development activities at Tunnel Ridge; however, longwall production is not anticipated until early 2012. The ARLP Partnership is in the process of permitting the Penn Ridge property for future mine development.

Other and Corporate includes the ARLP Partnership and AHGP's marketing and administrative expenses, Matrix Design Group, LLC ("Matrix Design"), Alliance Design Group, LLC ("Alliance Design") (collectively, Matrix Design and Alliance Design are referred to as the "Matrix Group"), the Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") dock activities, coal brokerage activity, the ARLP Partnership's equity investment in Mid-America Carbonates, LLC, ("MAC") and certain properties of Alliance Resource Properties. Reportable segment results as of and for the three and six months ended June 30, 2011 and 2010 are presented below:

	Illinois Basin		Central Appalachia		Northern Appalachia		Other and Corporate		Elimination (1)			Consolidated
	(in thousands)
Reportable segment results for the three months ended June 30, 2011:
Total revenues (2)	$	323,214	$	57,521	$	69,493	$	10,876	$	(3,249	)	$	457,855
Segment Adjusted EBITDA Expense (3)		193,023		39,535		51,579		8,678		(3,249	)		289,566
Segment Adjusted EBITDA (4)		124,201		17,563		15,622		2,197		—			159,583
Capital expenditures		37,913		5,498		34,315		925		—			78,651
Reportable segment results for the three months ended June 30, 2010:
Total revenues (2)	$	296,949	$	40,928	$	57,973	$	10,741	$	(6,342	)	$	400,249
Segment Adjusted EBITDA Expense (3)		174,590		31,921		41,616		9,157		(6,342	)		250,942
Segment Adjusted EBITDA (4)		115,872		8,911		14,121		1,582		—			140,486
Capital expenditures		51,191		3,161		42,684		355		—			97,391
Reportable segment results as of and for the six months ended June 30, 2011:
Total revenues (2)	$	640,801	$	105,226	$	123,196	$	20,467	$	(8,663	)	$	881,027
Segment Adjusted EBITDA Expense (3)		373,267		73,052		92,893		18,337		(8,663	)		548,886
Segment Adjusted EBITDA (4)		254,934		31,134		25,937		2,130		—			314,135
Total assets		798,452		91,271		367,514		372,249		(990	)		1,628,496
Capital expenditures		73,354		11,855		55,773		1,451		—			142,433
Reportable segment results as of and for the six months ended June 30, 2010:
Total revenues (2)	$	591,586	$	80,690	$	98,975	$	21,208	$	(11,593	)	$	780,866
Segment Adjusted EBITDA Expense (3)		347,443		64,746		73,587		18,018		(11,593	)		492,201
Segment Adjusted EBITDA (4)		230,001		15,834		21,111		3,193		—			270,139
Total assets		759,487		80,656		286,740		32,733		(2,707	)		1,156,909
Capital expenditures		83,389		4,520		85,991		948		—			174,848

(1) The elimination column represents the elimination of intercompany transactions and is primarily comprised of sales from the Matrix Group to the ARLP Partnership's mining operations.

(2) Revenues included in the Other and Corporate column are primarily attributable to the Matrix Group revenues, Mt. Vernon transloading revenues and brokerage 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) (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Segment Adjusted EBITDA Expense	$	289,566		$	250,942		$	548,886		$	492,201
Outside coal purchases		(5,842	)		(4,544	)		(9,631	)		(6,386	)
Other income		393			304			980			154
Operating expenses (excluding depreciation, depletion and amortization)	$	284,117		$	246,702		$	540,235		$	485,969

(4) Segment Adjusted EBITDA is defined as Net Income (prior to the allocation of noncontrolling interest) before income taxes, net interest expense, 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 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Segment Adjusted EBITDA	$	159,583		$	140,486		$	314,135		$	270,139
General and administrative		(13,806	)		(11,823	)		(27,079	)		(23,026	)
Depreciation, depletion and amortization		(39,100	)		(35,677	)		(76,962	)		(71,973	)
Interest expense, net		(9,067	)		(7,390	)		(18,271	)		(14,933	)
Income tax expense		(324	)		(422	)		(96	)		(591	)
Net Income	$	97,286		$	85,174		$	191,727		$	159,616