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SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2021

16.SEGMENT INFORMATION

We operate in the United States as a diversified natural resource company that generates operating and royalty income from the production and marketing of coal to major domestic and international utilities and industrial users as well as royalty income from oil & gas mineral interests. We aggregate multiple operating segments into four reportable segments, Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties and Coal Royalties. We also have an "all other" category referred to as Other and Corporate.

Our two coal operations reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal operations reportable segments include seven mining complexes operating in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia and a coal loading terminal in Indiana on the Ohio River. Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK), and Williston (Bakken) basins. The operations within our Oil & Gas Royalties reportable segment primarily include receiving royalties and lease bonuses for our oil & gas mineral interests. Our Coal Royalties reportable segment includes coal reserves controlled by Alliance Resource Properties, which are either (a) leased to certain of our coal mining entities or (b) unleased but near our coal mining operations.

Beginning in the first quarter of 2021, we began to strategically view and manage our coal royalty activities separately from our coal mining operations since acquiring and managing a variety of royalty producing assets have similar management attributes. As a result, we restructured our reportable segments to better reflect this strategic view in how we manage our business and allocate resources. Prior periods have been recast to include Alliance Resource Properties within our new Coal Royalties reportable segment with offsetting recast adjustments primarily to our coal operations reportable segments and to a lesser extent, our Other and Corporate category. Our reported eliminations were recast also to reflect intercompany royalty revenues and offsetting intercompany royalty expense resulting from our new Coal Royalties reportable segment.

The Illinois Basin Coal Operations reportable segment includes currently operating mining complexes (a) the Gibson County Coal, LLC ("Gibson") mining complex, which includes the Gibson South mine, (b) the Warrior Coal, LLC ("Warrior") mining complex, (c) the River View Coal, LLC ("River View") mining complex and (d) the Hamilton mining complex. The Illinois Basin Coal Operations reportable segment also includes our currently operating Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") coal loading terminal in Indiana on the Ohio River. Our Coal Royalties reportable segment discussed below, controls other coal reserves near our Illinois Basin operations which have not yet been leased to our Illinois Basin mining entities.

The Illinois Basin Coal Operations reportable segment also includes Mid-America Carbonates, LLC ("MAC") and other support services as well as non-operating mining complexes including (a) the Gibson North mine, which ceased production in the fourth quarter of 2019, (b) Webster County Coal, LLC's Dotiki mining complex, (c) White County Coal, LLC's Pattiki mining complex, (d) Hopkins County Coal, LLC's mining complex, and (e) Sebree Mining, LLC's mining complex.

The Appalachia Coal Operations reportable segment includes currently operating mining complexes (a) the Mettiki mining complex, (b) the Tunnel Ridge, LLC mining complex and (c) the MC Mining, LLC ("MC Mining") mining complex. The Mettiki mining complex includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant. Our Coal Royalties reportable segment discussed below, controls the Penn Ridge coal reserves near our Tunnel Ridge operations which have not yet been leased to Tunnel Ridge.

The Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by AR Midland, LP and AllDale I & II and includes Alliance Minerals' equity interests in both AllDale III (Note 9 – Investment) and Cavalier Minerals.

The Coal Royalties reportable segment includes coal reserves controlled by Alliance Resource Properties, that are either (a) leased to certain of our mining complexes in both the Illinois Basin Coal Operations and Appalachia Coal Operations reportable segments or (b) near our coal mining operations but not yet leased to our coal mining entities. About two thirds of the coal sold by our Coal Operations' mines is leased from our Coal Royalties entities.

Other and Corporate includes marketing and administrative activities, Matrix Design Group, LLC and its subsidiaries ("Matrix Design"), Alliance Design Group, LLC ("Alliance Design") (collectively, Matrix Design and Alliance Design referred to as the "Matrix Group"), Pontiki Coal, LLC's workers' compensation and pneumoconiosis liabilities, Wildcat Insurance, LLC ("Wildcat Insurance"), which assists the ARLP Partnership with its insurance requirements, and AROP Funding and Alliance Finance (both discussed in Note 7 – Long-Term Debt).

Reportable segment results are presented below.


	Coal Operations				Royalties
	Illinois								Other and		Elimination
	Basin		Appalachia		Oil & Gas		Coal		Corporate		(1)		Consolidated

	(in thousands)
Three Months Ended March 31, 2021

Revenues - Outside	$	190,934	$	108,619	$	14,020	$	—	$	5,049	$	—	$	318,622
Revenues - Intercompany		—		—		—		11,301		2,719		(14,020)		—
Total revenues (2)		190,934		108,619		14,020		11,301		7,768		(14,020)		318,622

Segment Adjusted EBITDA Expense (3)		125,581		73,726		2,058		4,028		4,286		(11,962)		197,717
Segment Adjusted EBITDA (4)		57,673		31,506		11,946		7,273		3,481		(2,058)		109,821
Total assets		740,945		442,595		609,108		294,333		476,362		(412,163)		2,151,180
Capital expenditures		16,401		11,666		—		—		3,370		—		31,437

Three Months Ended March 31, 2020

Revenues - Outside	$	203,872	$	128,103	$	14,263	$	5	$	4,520	$	—	$	350,763
Revenues - Intercompany		—		—		—		11,371		2,859		(14,230)		—
Total revenues (2)		203,872		128,103		14,263		11,376		7,379		(14,230)		350,763

Segment Adjusted EBITDA Expense (3)		156,683		79,918		883		4,467		4,642		(11,895)		234,698
Segment Adjusted EBITDA (4)		43,333		47,302		13,755		6,909		2,737		(2,335)		111,701
Total assets		903,700		504,893		637,774		296,328		506,882		(453,156)		2,396,421
Capital expenditures		26,229		23,571		—		—		564		—		50,364

(1)

The elimination column represents the elimination of intercompany transactions and is primarily comprised of coal royalties paid by certain of our coal operation entities to Alliance Resource Properties, sales from the Matrix Group to our mining operations, coal sales and purchases between operations within different segments, sales of receivables to AROP Funding, financing between segments and insurance premiums paid to Wildcat Insurance.

(2)	Revenues included in the Other and Corporate column are primarily attributable to the outside and affiliate revenues at the Matrix Group and coal brokerage activities. In addition, Other and Corporate includes affiliate revenues from administrative and Wildcat Insurance revenues services.

(3)	Segment Adjusted EBITDA Expense includes operating expenses, coal purchases and other income. Transportation expenses are excluded as transportation revenues are recognized in an amount equal to transportation expenses when title passes to the customer.

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


	Three Months Ended
	March 31,
	2021		2020

	(in thousands)
Segment Adjusted EBITDA Expense	$	197,717	$	234,698
Other expense		(1,197)		(356)
Operating expenses (excluding depreciation, depletion and amortization)	$	196,520	$	234,342

(4)

Segment Adjusted EBITDA is defined as net income (loss) attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization, general and administrative expenses and asset and goodwill impairments. 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. Consolidated Segment Adjusted EBITDA is reconciled to net income as follows:


	Three Months Ended
	March 31,
	2021		2020

	(in thousands)
Consolidated Segment Adjusted EBITDA	$	109,821	$	111,701
General and administrative		(15,504)		(13,438)
Depreciation, depletion and amortization		(59,202)		(73,921)
Asset impairments		—		(24,977)
Goodwill impairment		—		(132,026)
Interest expense, net		(10,379)		(12,227)
Income tax benefit		12		105
Net income (loss) attributable to ARLP	$	24,748	$	(144,783)
Noncontrolling interest		78		76
Net income (loss)	$	24,826	$	(144,707)

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

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