SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2016

SEGMENT INFORMATION

SEGMENT INFORMATION

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 we have 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.   

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 (currently idled) 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 Pattiki mining complex is currently expected to cease production by the end of 2016.

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, CR Machine Shop, 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.

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 nine months ended September 30, 2016 and 2015 are presented below.

	Illinois				Other and		Elimination
	Basin		Appalachia		Corporate		(1)		Consolidated
	(in thousands)
Three months ended September 30, 2016
Total revenues (2)	$	378,488	$	154,852	$	41,719	$	(23,093)	$	551,966
Segment Adjusted EBITDA Expense (3)		246,946		95,601		26,664		(20,279)		348,932
Segment Adjusted EBITDA (4)		126,004		57,097		16,160		(2,814)		196,447
Capital expenditures		10,893		10,306		466		—		21,665
Three months ended September 30, 2015
Total revenues (2)	$	420,517	$	136,741	$	40,161	$	(31,077)	$	566,342
Segment Adjusted EBITDA Expense (3)		249,615		80,421		33,701		(27,663)		336,074
Segment Adjusted EBITDA (4)(5)		147,522		53,380		6,163		(3,413)		203,652
Capital expenditures		37,350		11,616		2,458		—		51,424

	Illinois				Other and		Elimination
	Basin		Appalachia		Corporate		(1)		Consolidated
	(in thousands)
Nine months ended September 30, 2016
Total revenues (2)	$	962,244	$	411,212	$	88,253	$	(57,977)	$	1,403,732
Segment Adjusted EBITDA Expense (3)		572,200		262,043		63,575		(49,336)		848,482
Segment Adjusted EBITDA (4)		376,056		143,589		25,555		(8,641)		536,559
Total assets (6)		1,541,513		480,920		374,810		(148,438)		2,248,805
Capital expenditures		41,264		27,317		1,686		—		70,267
Nine months ended September 30, 2015
Total revenues (2)	$	1,237,819	$	460,154	$	146,759	$	(113,471)	$	1,731,261
Segment Adjusted EBITDA Expense (3)		728,048		296,980		124,321		(103,819)		1,045,530
Segment Adjusted EBITDA (4)(5)		445,819		154,760		21,432		(9,652)		612,359
Total assets (6)		1,799,170		565,213		282,724		(137,058)		2,510,049
Capital expenditures (7)		105,536		49,055		4,591		—		159,182

(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				Nine Months Ended
		September 30,				September 30,
		2016		2015		2016		2015
	(in thousands)
Segment Adjusted EBITDA Expense		$	348,932	$	336,074	$	848,482	$	1,045,530
Outside coal purchases			(1,514)		(2)		(1,514)		(326)
Other income			293		455		545		750
Operating expenses (excluding depreciation, depletion and amortization)		$	347,711	$	336,527	$	847,513	$	1,045,954

(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, general and administrative expenses and asset impairment.  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				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands)
Consolidated Segment Adjusted EBITDA	$	196,447	$	203,652	$	536,559	$	612,359
General and administrative		(18,987)		(18,356)		(55,175)		(53,659)
Depreciation, depletion and amortization		(80,612)		(84,661)		(240,640)		(242,730)
Asset impairment		—		(10,695)		—		(10,695)
Interest expense, net		(7,998)		(7,066)		(23,375)		(22,204)
Income tax expense		(6)		(12)		(4)		(18)
Net income	$	88,844	$	82,862	$	217,365	$	283,053

(5) Includes equity in loss of affiliates for the three and nine months ended September 30, 2015 of $17.1 million and $48.5 million, respectively, in the Illinois Basin segment.

(6) Total assets for Other and Corporate include investments in affiliates of $128.1 million and $48.0 million at September 30, 2016 and 2015, respectively. 

(7) Capital expenditures shown above exclude the Hamilton acquisition on July 31, 2015, the Patriot acquisition on February 3, 2015 and the MAC acquisition on January 1, 2015.