SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2014 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis Of Presentation | |
Basis of Presentation |
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The accompanying consolidated financial statements include the accounts and operations of the AHGP Partnership and present our financial position as of December 31, 2014 and 2013, and results of our operations, comprehensive income, cash flows and changes in partners’ capital for each of the three years in the period ended December 31, 2014. All of our intercompany transactions and accounts have been eliminated. |
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The transfer of assets from prior years described above was between entities under common control. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, the transfer of assets was accounted for at historical cost, in a manner similar to a pooling of interests. |
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Since we own MGP, our consolidated financial statements reflect the consolidated results of the ARLP Partnership. 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. 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, amounts billed by, and reimbursed to, Alliance Coal under an amended and restated administrative services agreement (“Administrative Services Agreement”) and amounts billed by, and reimbursed to, AGP under our partnership agreement (Note 18). |
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On June 16, 2014, the ARLP Partnership completed a two-for-one split of its common units, whereby holders of record as of May 30, 2014 received a one unit distribution on each unit outstanding on that date. The unit split resulted in the issuance of approximately 37.0 million ARLP common units. Accordingly, AHGP received an additional 15,544,169 ARLP common units, which brought its total ownership to 31,088,338 ARLP common units. Unless otherwise noted, all references to the number of ARLP units and distribution amounts included in this report have been adjusted to give effect for this unit split for all periods presented. Provisions of ARLP’s partnership agreement affecting ARLP’s incentive distribution rights that we own have been amended to reflect the unit split. |
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Estimates | |
Estimates—The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) of the United States (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results could differ from those estimates. |
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Principles Of Consolidation And Noncontrolling Interests | |
Principles of Consolidation and Noncontrolling Interests—The consolidated financial statements include our accounts and those of MGP, ARLP, the Intermediate Partnership and the Intermediate Partnership’s operating subsidiaries in the consolidated group, after the elimination of intercompany accounts and transactions. The non-controlling interest on our consolidated balance sheet reflects the outside ownership interest in ARLP as well as Bluegrass Minerals Management, LLC’s (“Bluegrass Minerals”) ownership interest in Cavalier Minerals. See “Basis of Presentation” under Note 1 for information regarding our consolidation of ARLP. See also “Note 11. Noncontrolling Interests.” |
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Earnings Per Unit | |
Earnings per Unit—Basic earnings per limited partner unit is computed by dividing net income or loss allocated to limited partner interests by the weighted-average number of common units outstanding during a period. We currently have no dilutive securities. Total net income is allocated to the limited partner interests because the general partner’s interest is non-economic. |
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Fair Value Of Financial Instruments | |
Fair Value of Financial Instruments—The carrying amounts for cash equivalents, accounts receivable, accounts payable, due from affiliates and due to affiliates approximate fair value because of the short maturity of those instruments. At December 31, 2014 and 2013, the estimated fair value of the ARLP Partnership’s long-term debt, including current maturities, was approximately $833.4 million and $884.8 million, respectively (Note 8). |
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Cash And Cash Equivalents | |
Cash and Cash Equivalents—Cash and cash equivalents include cash on hand and on deposit, including highly liquid investments with maturities of three months or less. The ARLP Partnership had $0.4 million restricted cash and cash equivalents at December 31, 2014 and no restricted cash or cash equivalents at December 31, 2013. We had no other restricted cash and cash equivalents at December 31, 2014 and 2013. |
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Cash Management | |
Cash Management—The cash flows from operating activities section of our Consolidated Statements of Cash Flows reflects an adjustment for $1.7 million and $10.3 million representing book overdrafts at December 31, 2014 and 2012, respectively. The ARLP Partnership had no book overdrafts at December 31, 2013. We had no book overdrafts at December 31, 2014, 2013 and 2012. |
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Business Combinations | |
Business Combinations—For purchase acquisitions accounted for as a business combination, the ARLP Partnership is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. |
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Inventories | |
Inventories—Coal inventories are stated at the lower of cost or market on a first-in, first-out basis. Supply inventories are stated at an average cost basis, less a reserve for obsolete and surplus items. |
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Property, Plant And Equipment | |
Property, Plant and Equipment—Expenditures which extend the useful lives of existing plant and equipment assets are capitalized. Interest costs associated with major asset additions are capitalized during the construction period. Maintenance and repairs that do not extend the useful life or increase productivity of the asset are charged to operating expense as incurred. Exploration expenditures are charged to operating expense as incurred, including costs related to drilling and study costs incurred to convert or upgrade mineral resources to reserves. Preparation plants and processing facilities are depreciated using the units-of-production method. Other plant and equipment assets are depreciated principally using the straight-line method over the estimated useful lives of the assets, ranging from 1 to 16 years, limited by the remaining estimated life of each mine. Depreciable lives for mining equipment range from 1 to 16 years. Depreciable lives for buildings, office equipment and improvements range from 2 to 16 years. Gains or losses arising from retirements are included in operating expenses. Depletable lives for mineral rights, assuming current production expectations, range from 1 to 16 years. Depletion of mineral rights is provided on the basis of tonnage mined in relation to estimated recoverable tonnage, which equals estimated proven and probable reserves. Therefore, the ARLP Partnership’s mineral rights are depleted based on only proven and probable reserves derived in accordance with Industry Guide 7. At December 31, 2014 and 2013, land and mineral rights include $53.2 million and $45.5 million, respectively, representing the carrying value of coal reserves attributable to properties where the ARLP Partnership or a third-party to which it leases reserves are not currently engaged in mining operations or leasing to third parties, and therefore, the coal reserves are not currently being depleted. The ARLP Partnership believes that the carrying value of these reserves will be recovered. |
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Mine Development Costs | |
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. 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, 2014 and 2013, capitalized mine development costs were $7.0 million and $33.1 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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Long-Lived Assets | |
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 based upon estimated undiscounted future cash flows. To the extent the carrying amount is not recoverable based on undiscounted cash flows, the amount of impairment is measured by the difference between the carrying value and the fair value of the asset. The ARLP Partnership recorded an asset impairment charge of $19.0 million in 2012 (Note 4). No impairment charges were recorded in 2014 and 2013. We had no long-lived assets as of December 31, 2014 and 2013. |
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Intangible Assets | |
Intangible Assets—Intangible assets subject to amortization include contracts with covenants not to compete, customer contracts acquired from other parties and mining permits. Intangible assets are amortized on a straight-line basis over their useful life. Intangible assets for customer contracts are amortized on a per unit basis over the terms of the contracts. Amortization expense attributable to intangible assets was $3.0 million, $3.0 million and $2.6 million for the years ending December 31, 2014, 2013 and 2012, respectively. The intangible assets are included in prepaid expenses and other assets and other long-term assets on our consolidated balance sheets at December 31, 2014 and 2013. The intangible assets at December 31 are summarized as follows (in thousands): |
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| | December 31, 2014 | | December 31, 2013 |
| | Original Cost | | Accumulated | | Intangibles, | | Original Cost | | Accumulated | | Intangibles, |
Amortization | Net | Amortization | Net |
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Non-compete agreements | | $ | 15,152 | | | $ | (8,545 | ) | | $ | 6,607 | | | $ | 15,236 | | | $ | (7,002 | ) | | $ | 8,234 | |
Customer contracts | | 17,859 | | | (3,599 | ) | | 14,260 | | | 6,171 | | | (2,301 | ) | | 3,870 | |
Mining permits | | 3,843 | | | (182 | ) | | 3,661 | | | 3,843 | | | (116 | ) | | 3,727 | |
Total | | $ | 36,854 | | | $ | (12,326 | ) | | $ | 24,528 | | | $ | 25,250 | | | $ | (9,419 | ) | | $ | 15,831 | |
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Amortization expense attributable to intangible assets is estimated to be $9.6 million in 2015, $6.1 million in 2016, $3.2 million in 2017 and $1.0 million in both 2018 and 2019. The increase in 2015 and 2016 is due to amortization of customer contract intangibles that were acquired at December 31, 2014 and, therefore, had no amortization expense in the periods presented (Note 3). |
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Advance Royalties | |
Advance Royalties—Rights to coal mineral leases are often acquired and/or maintained through advance royalty payments. Where royalty payments represent prepayments recoupable against future production, they are recorded as an asset, with amounts expected to be recouped within one year classified as a current asset. As mining occurs on these leases, the royalty prepayments are charged to operating expenses. The ARLP Partnership assesses the recoverability of royalty prepayments based on estimated future production. Royalty prepayments estimated to be nonrecoverable are expensed. The ARLP Partnership’s advance royalties at December 31 are summarized as follows (in thousands): |
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| | 2014 | | 2013 | | | | | | | | | | | | | | | | | | |
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Advance royalties, affiliates (Note 18) | | $ | 10,706 | | $ | 17,840 | | | | | | | | | | | | | | | | | | |
Advance royalties, third-parties | | 14,605 | | 12,427 | | | | | | | | | | | | | | | | | | |
Total advance royalties | | $ | 25,311 | | $ | 30,267 | | | | | | | | | | | | | | | | | | |
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Asset Retirement Obligations | |
Asset Retirement Obligations—The ARLP Partnership records a liability for the estimated cost of future mine asset retirement and closing procedures on a present value basis when incurred or acquired 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. Accounting for asset retirement obligations also requires depreciation of the capitalized asset retirement cost and accretion of the asset retirement obligation over time. The depreciation is generally determined on a units of production basis and accretion is generally recognized over the life of the producing assets (Note 16). As changes in estimates occur (such as mine plan revisions, changes in estimated costs or changes in timing of the performance of reclamation activities), the revisions to the obligation and asset are recognized at the appropriate credit-adjusted, risk-free interest rate. |
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Workers' Compensation And Pneumoconiosis (Black Lung) Benefits | |
Workers’ Compensation and Pneumoconiosis (Black Lung) Benefits—The ARLP Partnership is generally self-insured for workers’ compensation benefits, including black lung benefits. The ARLP Partnership accrues a workers’ compensation liability for the estimated present value of workers’ compensation and black lung benefits based on its actuarially determined calculations (Note 17). |
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Income Taxes | |
Income Taxes—We are not a taxable entity for federal or state income tax purposes; the tax effect of our activities accrues to the unitholders. Although publicly traded partnerships as a general rule will be taxed as corporations, we qualify for an exemption because at least 90% of our income consists of qualifying income, as defined in Section 7704(c) of the Internal Revenue Code. Net income for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. Individual unitholders have different investment bases depending upon the timing and price of acquisition of their partnership units. Furthermore, each unitholder’s tax accounting, which is partially dependent upon the unitholder’s tax position, differs from the accounting followed in our consolidated financial statements. Accordingly, the aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each unitholder’s tax attributes in our partnership is not available to us. The ARLP Partnership’s subsidiaries, ASI and Wildcat Insurance, are subject to federal and state income taxes. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. |
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Our tax counsel has provided an opinion that AHGP, MGP, ARLP, the Intermediate Partnership and Alliance Coal will each be treated as a partnership. However, as is customary, no ruling has been or will be requested from the Internal Revenue Service (“IRS”) regarding our classification as a partnership for federal income tax purposes. |
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Revenue Recognition | |
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 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, royalties and throughput fees earned from White Oak Resources, LLC (“White Oak”) (Note 12), other coal contract fees and other handling and service fees. Transportation revenues are recognized in connection with the ARLP Partnership incurring the corresponding costs of transporting coal to customers through third-party carriers for which it is directly reimbursed through customer billings. We had no allowance for doubtful accounts for trade receivables at December 31, 2014 and 2013. |
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Pension Benefits | |
Pension Benefits—The ARLP Partnership’s defined benefit pension obligation and the related benefit cost are accounted for in accordance with “FASB” “ASC” 715, Compensation-Retirement Benefits. Pension cost and obligations are actuarially determined and are affected by assumptions including expected return on plan assets, discount rates, mortality assumptions, employee turnover rates and retirement dates. The ARLP Partnership evaluates its assumptions periodically and makes adjustments to these assumptions and the recorded liability as necessary (Note 13). |
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Common Unit-Based Compensation | |
Common Unit-Based Compensation—AHGP and the ARLP Partnership account for compensation expense attributable to restricted common units granted under the ARLP Long-Term Incentive Plan (“ARLP LTIP”), Supplemental Executive Retirement Plan (“SERP”), the AGP Amended and Restated Directors Annual Retainer and Deferred Compensation Plan (“AGP Deferred Compensation Plan”), and the MGP Amended and Restated Deferred Compensation Plan for Directors (the “MGP Deferred Compensation Plan”), collectively referred to as the (“Deferred Compensation Plans”) based on the requirements of FASB ASC 718, Compensation-Stock Compensation. Accordingly, the fair value of award grants is determined on the grant date of the award and this value is recognized as compensation expense on a pro rata basis for ARLP LTIP and SERP awards, as appropriate, over the requisite service period. Compensation expense for quarterly distributions credited to SERP accounts and awards for Deferred Compensation Plan awards is fully recognizable on the date credited. The corresponding liability for the ARLP LTIP, the SERP and the MGP Deferred Compensation Plan is classified as equity and included in the Non-Affiliate component of noncontrolling interest in the consolidated financial statements. The corresponding liability for the AGP Deferred Compensation Plan is included in limited partners’ capital in the consolidated financial statements (Note 14). |
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Investments | |
Investments—Investments and ownership interests are accounted for under the equity method of accounting if the ARLP Partnership has the ability to exercise significant influence, but not control, over the entity. Investments accounted for under the equity method are initially recorded at cost, and the difference between the basis of the ARLP Partnership’s investment and the underlying equity in the net assets of the joint venture at the investment date, if any, is amortized over the lives of the related assets that gave rise to the difference. In the event the ARLP Partnership’s ownership entitles it to a disproportionate sharing of income or loss, its equity in earnings or losses of affiliates is allocated based on the hypothetical liquidation at book value (“HLBV”) method of accounting. Under the HLBV method, equity in earnings or losses of affiliates is allocated based on the difference between the ARLP Partnership’s claim on the net assets of the equity method investee at the end and beginning of the period with consideration of certain eliminating entries regarding differences of accounting for various related party transactions, after taking into account contributions and distributions, if any. The ARLP Partnership’s share of the net assets of the equity method investee is calculated as the amount it would receive if the equity method investee were to liquidate all of its assets at net book value and distribute the resulting cash to creditors, other investors and the ARLP Partnership according to the respective priorities. The ARLP Partnership’s share of earnings or losses under the HLBV method of accounting from equity method investments and basis difference amortization is reported in the consolidated statements of income as “Equity in loss of affiliates, net.” The ARLP Partnership’s review its investments and ownership interests accounted for under the equity method of accounting for impairment whenever events or changes in circumstances indicate a loss in the value of the investment may be other than temporary. For 2014 and 2013, the ARLP Partnership determined there were no such material events or changes in circumstances that would indicate the carrying amounts of such investments were not recoverable. Our equity method investments include the ARLP Partnership’s ownership interests in White Oak, AllDale Minerals, L.P. (“AllDale Minerals”) and Mid-America Carbonates, LLC (“MAC”) (Note 12). We had no investments as of December 31, 2014 and 2013. |
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Variable Interest Entities ("VIEs") | |
Variable Interest Entities (“VIEs”)—VIEs are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions, (b) obligation to absorb expected losses or (c) right to receive expected residual returns. VIEs must be evaluated quantitatively and qualitatively to determine the primary beneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. |
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To determine a VIE’s primary beneficiary, we perform a qualitative assessment to determine which party, if any, has the power to direct activities of the VIE and the obligation to absorb losses and/or receive its benefits. This assessment involves identifying the activities that most significantly impact the VIE’s economic performance and determine whether it, or another party, has the power to direct those activities. When evaluating whether we are the primary beneficiary of a VIE, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. |
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