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Alliance Resource Partners, L.P.
1999 Annual Report
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A new coal company with a long history of steady growth.
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1999
M e s s a g e f r o m t h e P r e s i d e n t
a n d C h i e f E x e c u t i v e O f f i c e r
Dear Fellow Unitholders:
It is my genuine pleasure to welcome you to Alliance Resource Partners, L.P., the coal industry’s only
publicly-traded master limited partnership (MLP). Although this is the inaugural annual report for Alliance
Resource Partners, our organization has a long history of success. We began our mining operations as
MAPCO Coal Inc. in 1971 and have since grown through acquisitions and internal development to become
one of the largest coal producers in the eastern United States.
Thanks to your vote of confidence demonstrated by your ownership of common units, Alliance Resource
Partners became a publicly-traded MLP in August 1999 trading on the Nasdaq National Market under the
ticker symbol “ARLP”. The MLP structure was chosen because it focuses on cash flow – the same
performance measurement that our management team has always emphasized. The quality of our assets
and the predictability of our operating performance fit well within the MLP structure which passes the
operating results of the business directly to the unitholders. The elimination of double taxation of a
traditional corporate structure allows for increased cash distributions to unitholders making the MLP
attractive to yield-oriented investors.
Since our initial public offering, our operating and financial results have shown strong year over year
improvement. Our predictable and stable cash flow has also met expectations, allowing us to comfortably
distribute the targeted minimum quarterly distribution that, in each quarter since we became publicly-
traded, equates to $2.00 per unit on an annualized basis.
During the year 1999, we significantly grew our reserve base, began construction of a new mining complex
and continued to set production records at our operations. The accomplishments of the past year were
achieved despite a fiercely competitive marketplace. Dedication and teamwork among our employees was
the primary reason.
Our employees are one of our major assets with an average of 18 years experience with the company.
Today, we are better than ever – more motivated, more focused, and more dedicated to giving our
customers premium service and rewarding our unitholders for the faith you have shown in us.
Our goal is to grow the assets and sustainable cash flow of the MLP.
Our strategy is to grow through acquisitions, alliances and development
of internal projects. To compete successfully we know we must
continue to make productivity improvements in order to be a low cost,
reliable supplier to our electric utility customers. We believe that we are
well positioned to implement our strategy and achieve our goal.
Alliance Resource Partners is a proven operator with a long history of
steady growth. In our quest to be the most dependable provider of
high-quality energy, we are supported by strategically located
operations, an experienced and committed workforce, abundant long-
lived reserves, and geographic diversity that provide opportunities for
growth. These competitive strengths should bode well for our future
success and cash distribution potential.
Joseph W. Craft III
President and Chief Executive Officer
A l l i a n c e R e s o u r c e P a r t n e r s , L . P.
O p e r a t i o n s O v e r v i e w
Dotiki
Established: 1971
Location: Webster County, KY
Mine Type: Underground
Production: 3.6 mm tons
73.2 mm tons
Reserves:
Pontiki/Excel
Established: 1977
Location: Martin County, KY
Mine Type: Underground
Production: 1.8 mm tons
21.7 mm tons
Reserves:
MC Mining
Established: 1996
Location:
Mine Type: Underground
Production: 1.0 mm tons
23.7 mm tons
Reserves:
Pike County, KY
ILLINOIS
INDIANA
Gibson County Coal
Established: Expected late 2000
Location: Gibson County, IN
Mine Type: Underground
Production: Under development
Reserves:
37.8 mm tons
MARYLAND
KENTUCKY
VIRGINA
Pattiki
Established: 1980
Location: White County, IL
Mine Type: Underground
Production: 2.3 mm tons
82.4 mm tons
Reserves:
Hopkins County Coal
Established: 1998
Location: Hopkins County, KY
Mine Type: Surface/Underground
Production: 2.6 mm tons
37.2 mm tons
Reserves:
Mettiki
Established: 1977
Location: Garrett County, MD
Mine Type: Underground
Production: 2.8 mm tons
38.6 mm tons
Reserves:
Note: All data based on 1999 actual results
T o t h e U n i t h o l d e r s o f
A l l i a n c e R e s o u r c e P a r t n e r s , L . P.
The year 1999 was a notable one for
all of us at Alliance Resource Partners,
L.P. Not only did the Partnership enter
the public domain effective with its
initial public offering in August 1999,
but we also achieved outstanding
financial results given the poor market
conditions that we faced.
Financial Highlights
Our financial results for 1999 show
strong year over year improvements as
a result of our growth and cost savings
initiatives during the past two years.
Our six mining complexes produced
14.1 million tons in 1999 representing
a 5% increase from the previous year.
Four mining complexes (Dotiki, Pattiki,
Hopkins County Coal, MC Mining)
enjoyed production records. Dotiki set
its eighth consecutive and Pattiki set its
third consecutive record year for
production. Excel and MC Mining, our
compliance coal operations, enjoyed a
12% increase in annual production
from the previous year.
Our sales tonnage and revenues
declined slightly from 1998 levels due
to our planned reduced participation in
coal export brokerage markets. Because
coal export brokerage operations
generate lower margins than our direct
coal sales, changes in our levels of
brokerage activity have a greater impact
on revenues than on margins. The
brokerage business is not expected to
be a material part of our business in
the future.
The reduced sales revenue was more
than offset by cost reductions resulting
from increased productivity. Company-
wide productivity, as measured in tons
per man hour, increased by 4.4%
during 1999. Productivity improvements
were generated not only by improved
processes, but also by two major cost
reduction programs. In January 1998,
we acquired the assets that comprise
our Hopkins County Coal operations.
As part of our acquisition plan, we
rebuilt older equipment and purchased
new or refurbished equipment. With
the higher efficiencies resulting from
these capital investments, we began to
realize improved productivity beginning
in the third quarter of 1998 and have
continued to realize the full impact of
the new mining equipment during
1999. Secondly, in September 1998, we
suspended operations at our Pontiki
mine due to adverse market conditions.
In late 1998, we were able to obtain a
new long-term coal supply agreement
through 2006 that justified reopening
of the mine. As a result, the Pontiki
mine was restructured with a new mine
plan, operating structure, and
workforce hired by Excel Mining, LLC,
an affiliate of Pontiki Coal, LLC. During
late 1998 and early 1999, Excel’s
expenses were adversely impacted by
the restructuring costs as well as
reduced production as the mine slowly
returned to full operational status. Excel
has achieved substantial productivity
improvements generating an excellent
return on the restructuring investment.
EBITDA
$ Millions
$70
$60
$50
$40
$30
$20
$10
0
66.7
51.7
52.5
46.7
96
97
98
99
The increase in productivity resulting
from the benefits of the restructured
Pontiki/Excel mine and the capital
investments at the Hopkins County
Coal mining complex, allowed the
Partnership to significantly improve its
profitability. EBITDA (income before net
interest expense, income taxes,
depreciation, depletion and
amortization) increased 27% to $66.7
million for 1999 compared with $52.5
million for 1998. Continued growth
and productivity improvements are key
to our meeting our goal of increasing
the Partnership’s distributable cash
flow. We will continue to make
prudent capital investments in projects
to achieve this objective. With the
liquidity available from cash generated
from operations, our revolving credit
facility, and the 1999 year-end U.S.
Treasury Notes balance of
approximately $42 million, the
Partnership is well positioned to fund
capital expenditures that generate
incremental growth.
Long-Term Contracts
Our stability and profitability continue
to be supported by long-term contracts.
In 1999, approximately 75% of our
sales tonnage, including approximately
84% of our medium- and high-sulfur
coal sales tonnage, was sold under
long-term contracts with maturities
extending up to 2010. Major electric
utilities are the primary source of our
long-term contracts, consuming
approximately 77% of our sales
tonnage. Our long-term position as a
major supplier to our largest customers
has resulted in sales relationships with
each for at least 15 years. Our total
nominal commitment under significant
long-term contracts is approximately 88
million tons at December 31, 1999.
One of the major additions to our coal
sales contract portfolio occurred in June
1999, when we entered into a long-
term contract to provide 23 million
tons of low-sulfur coal to PSI Energy,
Inc., a subsidiary of Cinergy
Corporation, through December 2012.
The signing of this new long-term
contract provided the financial support
for the development of our new
Gibson County Coal mining complex.
Cost Per Ton
$ per Ton
$25
23.62
$20
$15
$10
$5
0
21.18
20.14
18.75
96
97
98
99
Reserve Growth
To ensure the long-term continuity of
the Partnership, we are constantly
acquiring coal reserve properties that
are adjacent or otherwise
complementary to our existing
operations. In September 1999, we
acquired approximately 21 million
saleable tons of reserves in western
Kentucky that are contiguous with our
Dotiki mine. This acquisition allows for
the immediate advancement of the
Dotiki mine’s existing operations into
the newly acquired reserve area without
the cost of additional development
capital. In March 2000, the
Partnership’s Special General Partner
exercised two separate options to
acquire more than 60 million tons of
reserves in western Kentucky. Upon
closing of this reserve acquisition, the
Partnership will have access to the
additional reserves through either a
lease or purchase agreement. Over the
last year, we have increased our
reserves from approximately 411 million
tons of proven and probable reserves at
December 31, 1998, to approximately
440 million tons of reserves at
December 31, 1999. The reserves
covered by the Special General Partner
options are not included in the 440
million tons of reserves noted above.
Gibson County Coal
Gibson County Coal is our new low-
sulfur mining complex under
development in southern Indiana. With
the signing of the new long-term sales
contract in June 1999, Gibson County
Coal has started construction of the
new mining complex to supply PSI
Energy Inc.’s Gibson Station with low-
sulfur coal to its generating units. The
slope construction commenced in the
fall of 1999 and construction of the
preparation plant began in January
2000. We expect the mine to
commence production by the end of
2000. Once the initial start-up curve
has been completed, Gibson County
Coal should provide additional
distributable cash flow to the
Partnership.
Tons Produced
Million Tons
15
12
9
6
3
0
14.1
13.4
10.9
9.0
96
97
98
99
Distributions to Unitholders
In November 1999, the Partnership
made its first distribution to unitholders.
For the 42-day period from the
Partnership’s commencement of
operations (on August 20, 1999)
through September 30, 1999, the
Partnership paid a pro-rata quarterly
distribution of $0.23 per unit ($2.00 on
an annualized basis) on all of its
outstanding Common and Subordinated
Units. In February 2000, the Partnership
paid its first full quarterly distribution,
for the period from October 1, 1999 to
December 31, 1999, of $0.50 per unit
on all of its outstanding Common and
Subordinated Units.
Future Prospects
Coal continues to be the largest fuel
source for generating electricity in the
United States, capturing over 55% of
market share. Though utility
deregulation and new regulatory and
legislative initiatives create a changing
economic environment within our
industry, we remain convinced that
increased coal demand will be realized
over the next decade. Coal’s abundance
and low cost have contributed to its
lead role as the primary fuel source for
utility baseload electricity generation.
Because of coal’s dominance in the
utility industry, increased demand for
electricity generally results in increased
demand for coal. The federal Energy
Information Administration is currently
projecting coal demand for electric
utility generation to increase by over
one percent in 2000 and by over three
percent in 2001. In a billion ton
industry, every one percent of growth
equates to incremental coal demand of
10 million tons.
Although coal demand has grown
steadily, the coal industry continues to
experience consolidation. To increase
competitiveness, coal production has
been shifting from smaller, high-cost
operations to larger, low-cost
operations. This emerging pattern has
resulted in significant industry
consolidation during the past ten years.
The Partnership should be a beneficiary
of this industry trend as it creates
opportunities for incremental growth
through acquisitions of operating
companies and undeveloped reserves
that can benefit from our economies
of scale.
In the long run, only those coal
companies that can adapt to changing
industry trends will be successful. The
Partnership management is well aware
of the issues facing the industry and
has positioned itself to stand the test
of time. We believe our attitude to stay
competitive, regardless of the economic
environment, protects our future and
allows us to be successful for the long-
term, which best serves our employees,
customers, and unitholders.
C o a l a n d E l e c t r i c i t y –
A D i r e c t C o n n e c t i o n
Availability of reliable sources of
electricity is something we may take for
granted because 24 hours each day,
the availability of electricity makes our
lives more comfortable. Electricity is
generated through use of many natural
resources. Electric utility power plants in
the United States are fueled by coal,
oil, gas, nuclear power, and hydro.
However, when it comes to utility
electricity generation, coal is by far the
predominant energy source.
Market Share
Simply stated, coal is the United States’
major source of electricity. Electric
utility companies in the United States
have steadily increased their reliance
upon coal as their primary source of
fuel. Coal’s share of the fuel market
for electricity generation has risen from
48% in 1979 to 56% in 1999. Electric
utilities have increased their reliance on
coal as their principal energy source
primarily for one reason - coal has
consistently remained the most reliable
and lowest cost fuel to generate
inexpensive electricity. Because of its
low-cost attributes, electric utilities rely
on coal-fired electricity generation in
most cases to supply their baseload
electricity needs, the amount of power
that is consistently required 24 hours
per day.
U.S. Electric Utility Generation
By Fuel Source
Coal 56%
Nuclear 23%
Natural Gas 9%
Hydro 9%
Petroleum 3%
Data Source: Energy Information Administration
U.S. Coal Demand
Million Tons
1000
800
600
400
200
0
1,000
951
890
791
680
79
84
89
94
99
Data Source: Energy Information Administration
Coal Demand
With 86% of domestic coal production
consumed by the electric utility industry,
the continued growth in electricity
demand has resulted in a simultaneous
increase in the demand for more coal.
Over the past 20 years, total coal
consumption has increased from 680
million tons per year in 1979 to a
record 1 billion tons in 1999. This
demand level has made coal the largest
source of overall domestic energy
production since 1984. Coal, with 33%
of the total United States energy
production, outpaces both oil and
natural gas as the primary domestic
source of energy.
Coal Resources
Coal is the most abundant natural
resource in the United States. The
locations and quantities of the United
States coal resources are generally well
known and have been found in 38
states. Total United States coal
resources are estimated at nearly 4
trillion tons making coal much more
plentiful than domestic oil and natural
gas reserves. The amount of coal
reserves considered recoverable with
current technology is approximately 275
billion tons – enough to last nearly 300
years at current demand levels.
Affordable electricity is essential to the
economic development, growth and
technological progress of the United
States. Producing coal is a sophisticated,
high tech, 21st century enterprise in
which an essential energy resource is
extracted from its natural surroundings
in an efficient and environmentally
compatible manner. Given the
importance of coal in the generation of
low-priced electricity, as the United
States economy continues to grow, coal
will be there as the primary fuel source
for electric utilities to provide the nation
with the vital electricity it needs.
U.S. Natural Resources
Reserve Lifes in Years
Natural Gas 71
Petroleum 77
E
S
A
B
E
C
R
U
O
S
E
R
Coal 273
50
100
150
200
250
300
Data Source: Energy Information Administration
W h e n y o u u s e
e l e c t r i c i t y ,
t h i n k a b o u t c o a l .
T h e r e i s a d i r e c t
c o n n e c t i o n .
U n i t h o l d e r I n f o r m a t i o n
Publicly-Traded Units
Alliance Resource Partners, L.P. is a
publicly-traded master limited
partnership.
Alliance Resource Partners, L.P.
common units began trading on the
Nasdaq National Market under the
symbol ARLP in August of 1999. As of
December 31, 1999, there were
15,405,311 common and subordinated
units outstanding.
Cash Distributions
Alliance Resource Partners, L.P. expects
to make Minimum Quarterly
Distributions of $0.50 per common
unit within 45 days after the end of
each March, June, September and
December to unitholders of record on
the applicable record dates.
Partnership Tax Details
n Unitholders are partners in the
Partnership and receive cash
distributions. The cash distributions
are generally not taxable as long as
the partner’s tax basis remains above
zero.
n A partnership is generally not subject
to federal or state income tax. The
annual income, gains, losses,
deductions, or credits of the
Partnership flow through to the
unitholders, who are required to
report their allocated share of these
amounts on their individual tax
returns, as though the unitholder had
incurred these items directly.
n Unitholders of record will receive
Schedule K-1 packages that
summarize their allocated share of
the Partnership’s reportable tax items
for the fiscal year. It is important to
note that cash distributions received
should not be reported as taxable
income. Only the amounts provided
on the Schedule K-1 should be
entered on each unitholder’s 1999
tax return.
n Should you have questions
regarding the Schedule K-1 contact:
Alliance Resource Partners, L.P.
K-1 Support
P.O. Box 480927
Denver, CO 80248
1-800-485-6875
Transfer Agent and Registrar
Unitholder requests regarding transfer of units, lost certificates, lost distribution
checks or changes of address should be directed to:
American Stock Transfer and Trust Company
Attn: Shareholder Services
40 Wall Street
New York, NY 10005
(800) 937-5449
Additional Investor Information
Additional information about Alliance Resource Partners, L.P. can be obtained by
contacting Investor Relations by e-mail at fredric@arlp.com, telephone at (918)
295-7642, or writing to the Partnership’s Mailing Address provided below.
Partnership Offices
Alliance Resource Partners, L.P.
1717 South Boulder Avenue
Tulsa, OK 74119
(918) 295-7600
Partnership Mailing Address
P.O. Box 22027
Tulsa, OK 74121-2027
Independent Auditors
Deloitte & Touche LLP
Two Warren Place
6120 South Yale, Suite 1700
Tulsa, OK 74136
Officers and Directors
Joseph W. Craft III
President, Chief Executive Officer and
Director
Thomas L. Pearson
Senior Vice President – Law and
Administration, General Counsel and
Secretary
Michael L. Greenwood
Senior Vice President – Chief Financial
Officer and Treasurer
Charles R. Wesley
Senior Vice President – Operations
Gary J. Rathburn
Senior Vice President – Marketing
John J. MacWilliams
Director
Preston R. Miller, Jr.
Director
John P. Neafsey
Director
John H. Robinson
Director
Paul R. Tregurtha
Director
1717 South Boulder Avenue
P.O. Box 22027
Tulsa, Oklahoma 74121-2027
Contact:
Carolyn Fredrich
Director – Investor Relations
918-295-7642
fredric@arlp.com
Alliance Resource Partners, L.P.
common units
are traded on the Nasdaq National Market
Ticker Symbol: ARLP