T E N A N D C O U N T I N G.
2009 Annual Report | Alliance Resource Partners, L.P. | Alliance Holdings GP, L.P.
1
10 Defining Points
Alliance Resource Partners, L.P.
Nine consecutive years of
record financial results
Seven consecutive years
of increased distributions
to unitholders
Began mining operations in 1971
Currently the fifth-largest eastern
U.S. coal producer
Operates nine mining complexes;
is building No. 10
Employs more than 3,000
Produces and markets diverse
coal products and qualities
Primarily serves U.S. utilities and
industrial users
Transports coal by rail, truck
and barge
Operates a coal-loading terminal
on the Ohio River
Alliance Resources Partners, L.P. (ARLP) and
Alliance Holdings GP, L.P. (AHGP) are master
limited partnerships. Both are publicly traded
on the NASDAQ Global Select Market.
AHGP’s only assets are its ownership
interests in ARLP; therefore, this report
is specific to ARLP unless otherwise noted.
AHGP completed its initial public offering
in 2006.
2
T H E R E L E V A N C E O F 1 0
Ten years ago the landscape
changed for one of the energy
industry’s best-kept secrets.
Emerging from an initial public offering, Alliance Resource Partners
(ARLP) established a plan to enhance its status as a premier coal
producer and become a superior choice for investors.
The 10 years just completed brought ARLP remarkable operational
and financial success. Now the next decade begins, ripe with new
and inspiring opportunities.
1
F E L L O W U N I T H O L D E R S :
Our partnership has just completed the best financial
performance in Alliance Resource Partners’ 10-year
history, setting new full-year records with $1.23 billion
in revenues, EBITDA* totaling $340.4 million and
$192.2 million in net income.
We began this journey in August 1999, at a time
even as our country navigated the most difficult
when certain business sectors were experiencing
recession since the Great Depression.
unprecedented, albeit ultimately illusory, growth
fueled by the Internet boom. Many in the
It has been a pleasure sharing a decade of
investment community, skeptical of our prospects
achievements with our investors who have
and uncertain about our future, viewed Alliance
demonstrated a commitment to our success.
with a “show me” attitude. In the face of
Since our IPO, ARLP has delivered more than a
uncertainty, we held true to our core values
600 percent total return to unitholders – and in
and focused on solid business fundamentals
so doing earned a Standard & Poors ranking of
with a goal of delivering steady growth and
No. 39** out of 10,000 companies for total return
increased unitholder distributions.
to investors during the last 10 years. On a similar
performance track, Alliance Holdings GP, L.P.
Subsequent years presented further challenges,
(AHGP) has increased unitholder distributions
and coal floated in and out of favor with the
145 percent since its 2006 IPO.
capital markets. Through it all, ARLP stayed the
course and delivered nine consecutive years of
2010 already is offering glimpses of economic
record financial results. Even during the most
recovery. We move forward in this improving
recent 18 months, while a seemingly perfect
environment committed to achieving exceptional
storm of factors led to a worldwide economic crisis,
financial performance and partnership growth.
ARLP remained steady and continued to set new
financial records. We are especially proud of this
2
achievement – reporting record earnings in 2009
*Please see the inside back cover for a definition of EBITDA and GAAP to non-GAAP reconciliation information.
**Research Magazine, January 2010, citing Standard & Poors Capital IQ, November 2009.
1 0 Y E A R S O F D I S T R I B U T I O N* G R O W T H
$
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
‘99**
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
‘09
‘10
February
May
August
November
*Reflects distributions paid per quarter.
**1999 distribution pro-rated from initial public offering on August 20, 1999 through September 30, 1999.
33
For a decade, Alliance has nurtured a
disciplined and conservative approach
to asset expansion. The result: we
consistently create value for investors.
.
4
1
5
0
,
1
6
.
0
3
0
,
1
7
.
1
0
7
0
.
5
3
6
7
.
2
3
5
8
.
2
1
4
Total Assets
Dollars in Millions
5
.
6
3
3
9
.
6
1
3
3
.
0
1
3
2
.
9
0
3
8
.
4
1
3
4
19 9 9 *
20 0 0
20 01
20 0 2
20 0 3
20 0 4
20 0 5
20 0 6
20 07
20 0 8
20 0 9
NET INCOME
1999-2009
200
150
125
100
50
25
5
1
9
9
9
*
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
REVENUES
1999-2009
1400
1200
1000
800
600
400
200
1
9
9
9
*
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
EBITDA
1999-2009
350
300
250
200
150
100
50
I
S
N
O
L
L
M
N
I
I
S
R
A
L
L
O
D
S
N
O
I
L
L
I
M
N
I
S
R
A
L
L
O
D
S
N
O
I
L
L
I
M
N
I
S
R
A
L
L
O
D
1
9
9
9
*
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
5
*The unaudited selected pro forma financial and operating data for the year ended December 31, 1999, is based on the historical financial statements of the partnership from our
commencement of operations on August 20, 1999, through December 31, 1999, and our Predecessor for the period from January 1, 1999, through August 19, 1999. The pro
forma results of operations reflect certain pro forma adjustments to the historical results of operations as if we had been formed on January 1, 1999. The pro forma adjustments
include (a) pro forma interest on debt assumed by us and (b) the elimination of income tax expense as income taxes will be borne by the partners and not by us. The pro forma
adjustments do not include approximately $1.0 million of general and administrative expenses that we believe would have been incurred as a result of its being a public entity.
When Alliance Resource Partners debuted in 1999,
natural gas prices dropped so low that utilities began
converting from coal-fired generation in a “dash to gas.”
Flash forward 10 years. The scenario was similar
One of ARLP’s strengths is the ability to manage
in 2009, but this time coal-to-gas switching
sustainable growth. Our new River View mine,
was also coupled with an economic recession.
the largest single mine development in ARLP’s
At one point during the year, coal-fired electricity
history, opened in 2009 on schedule and under
generation was down 12 percent nationwide and
budget. By May 2010, six of its units will be online
the utilities’ coal stockpiles were at historic highs.
and 2010 production from those units is fully
Market conditions were so tough, many coal
committed. The startup of two additional River
producers – including ARLP – were forced to
View units is being delayed until coal supply/
take production offline.
demand fundamentals are in better balance.
ARLP’s development projects, Gibson South
In addition to adjusting production volumes,
and Penn Ridge, also are on hold until market
ARLP managed through 2009’s weak market
timing is right.
conditions by implementing rigorous cost and
capital expenditure controls. And our team
Construction of ARLP’s new Tunnel Ridge mine
worked tirelessly throughout the year to maximize
in the Northern Appalachian region is on target
our strong sales contract portfolio. By year end,
to begin longwall operations in late 2011 with
these efforts helped Alliance to again post new
significant coal sales commitments already in place.
records for revenues, net income and EBITDA.
Capital expenditures totaling $328.2 million
Looking to the future, Alliance also took steps to
covered our 2009 development activities,
further strengthen long-term contract positions
infrastructure improvements and maintenance
with key customers. Among the achievements:
requirements. We’ve budgeted between
ARLP announced a new seven-year coal supply
$275 million and $315 million for capital
agreement with the Tennessee Valley Authority –
expenditures during 2010, primarily to complete
the largest coal sales contract in Alliance’s history.
the construction of River View and continue the
development of Tunnel Ridge.
Everyone at Alliance is proud to work in an industry that
is critical to our nation’s economic success. At Alliance,
we are Powering America.
6
Kevin Vaughn
Captained 2009 National Champion Mine Rescue Team
10 Years of Growth
Completed ARLP IPO;
Broke ground for the
Gibson mining complex
Initiated $30 million Pattiki
mine extension
Kicked off expansion at the
Dotiki mining complex
Topped $500 million in revenues
Acquired Warrior Coal
Added 100 million tons of
scrubber-quality coal at Elk Creek
and Tunnel Ridge
Started three development
projects – Elk Creek,
Mountain View and Van Lear
Completed AHGP IPO;
Acquired River View reserves;
Completed Elk Creek and
Mountain View mine developments
Acquired 78 million tons of
Illinois Basin reserves; Began
River View construction.
Expanded Warrior complex;
Committed to Tunnel
Ridge development
7
Began production operations
at River View
19992000200120022003200420052006200720082009 8
Strong ethics, broad experience and a sense of urgency
are characteristics of ARLP employees.
Our men and women work hard and smart, and
devices and plan to outfit all of our continuous
their persistence steadies ARLP through market
miners with this safety equipment and make this
challenges, stringent and evolving government
technology available to the rest of our industry.
regulations and economic difficulties. Efforts of
Both of these technologies were designed
our team members are rewarded with competitive
specifically for underground mining environments
wages and benefit programs that further enhance
by the research and development teams at
our sense of priorities and possibilities.
our Matrix Design Group subsidiary and both
are approved by the U.S. Mine Safety and
Workplace health and safety are fundamental to
Health Administration.
ARLP’s culture and 2009 was one of our safest
years on record. Employees are empowered to
ARLP is also committed to the social, economic
champion the safety process, and their actions
and environmental well-being of the communities
and achievements continually make ARLP an
in which we operate. Minimal surface mining
employer of choice in all the regions in which
and no mountain top removal is used for our
we operate. Continuous training helps ensure
coal production. All ARLP mining facilities are
that safety procedures and state-of the-art
underground and employ either room and pillar
technology are second nature to our employees.
or longwall mining techniques. From the moment
As evidence, we are proud that our mine rescue
planning and permitting begins through full
participants brought home multiple first place
production and beyond, we take measures to
titles in the 2009 National Mine Rescue Competition.
preserve and restore the environment surrounding
our operations. For example, beginning in
Our goal is to have an accident-free work
1994 our Mettiki Complex and the Maryland
environment, and the highly advanced systems
Department of Natural Resources engaged in
used by our miners increase safety and efficiency.
a cooperative effort to construct a trout rearing
ARLP installed METS 2.1 (Miner & Equipment
facility within the complex’s 10 million gallons per
Tracking System) in all mine locations, well in
day drainage system. Today the facility provides
advance of MINER Act compliance schedules.
a coldwater resource where trout fisheries can
We also developed innovative proximity detection
revitalize their stock.
9
Coal plays a significant
role in fueling our country’s
economic engine.
Consider the following: Coal provides approximately half of
America’s electricity generation, powers the steel industry,
accounts for 93 percent of fossil fuel reserves in the United States,
consistently costs less than other fuels and creates high-paying
jobs. More than 134,000 are employed directly by the U.S. coal
industry, more than 600,000 are employed indirectly, and the
average wage of a miner is more than $72,000 – 59 percent higher
than the average American wage. Coal’s supply of affordable
10 Values of Coal
Fuels approximately half of U.S.
electric generation
Advances domestic energy security
Drives economic growth
Provides critical, high-paying jobs
Costs consistently less than other
energy sources
Results in lower-cost electricity
energy provides the foundation for America’s economic growth.
Is abundant in reserve supply
Coal also is important to the U.S. transportation industry. Nearly
Meets growing energy needs
Represents 93 percent of all U.S.
fossil fuel reserves
Outpaces other energy sources
for global demand
two-thirds of domestic shipments are moved by rail, and coal
is the largest freight commodity transported by barges on the
nation’s inland waterways.
Large coal deposits are found in 38 of the 50 states, and total U.S.
coal resources are estimated at nearly 4 trillion tons. More than
296 billion of those tons are considered recoverable using current
technology. At current burn rates, the U.S. has enough supply to
last well over 200 years.
During the past decade, the coal industry and electricity providers
have taken significant strides to advance technology and reduce
regulated emissions. Advanced technologies currently under
development have a target of reducing emissions to near zero.
For the last six years, coal has been the world’s fastest-growing
fuel. The International Energy Agency projects that by 2030 global
demand for coal will increase more than 53 percent, which means
in real terms there will be more growth in demand for coal than
other sources of energy. With the United States holding more
10
than a quarter of the world’s known reserves, the forward-looking
international supply/demand dynamics make U.S. coal increasingly
attractive as a resource for global markets.
1 0 S T R A T E G I C C O A L M I N E C O M P L E X E S
Alliance Resource Partners currently operates nine underground coal mine complexes and has a
tenth under construction. The mines are located in the Illinois Basin, Central Appalachia and Northern
Appalachia regions of the eastern United States. Reserves include low-sulfur, medium-sulfur and scrubber-
quality coal, allowing Alliance to meet diverse customer needs.
Illinois
Indiana
Ohio
Pennsylvania
Maryland
8
10
West
Virginia
5
1
9
2
3
4
Kentucky
6
7
Virginia
Illinois Basin
Central Appalachia
Northern Appalachia
Mining Complexes
1. Pattiki
Pattiki Mine
2. Dotiki
Dotiki Mine
3. Warrior
Warrior Mine
4. Hopkins
Elk Creek Mine
5. Gibson
Gibson North Mine
6. Pontiki
Excel No. 2 & Van Lear Mines
Transfer Terminal
7. MC Mining
Excel No. 3 Mine
8. Mettiki
Mountain View Mine
9. River View
River View Mine
Under Construction
10. Tunnel Ridge
Estimated reserves: 70 million tons
Mount Vernon Transfer Terminal
Operates a coal loading terminal on
the Ohio River
Mine Development Projects
Gibson South
Estimated reserves: 54 million tons
Penn Ridge
Estimated reserves: 57 million tons
11
10 Reasons to Invest
Proven track record of growth
Positive long-term coal fundamentals
Strong balance sheet and liquidity
Consistent distribution growth and
attractive tax-deferred yield
Managed for sustainable cash
flow growth
Valued customer relationships
Experienced, empowered employees
Well-positioned in growing markets
Inventory of growth projects
Substantial ownership position clearly
aligns management with unitholders
12
ARLP entered 2010 with a strong balance sheet,
solid internal cash flow, sound contractual positions
and visible growth opportunities.
Our strength provides flexibility and allows us to operate efficiently in difficult markets and provide
growth for our unitholders.
As the coal-producing industry’s only publicly traded master limited partnership, we are keenly aware
that distributions are key to those who invest in our future. With that in mind, our primary business
objective is to keep Alliance positioned for sustainable, capital-efficient growth in distributable cash
flows. This approach provides us the opportunity to deliver on our goal of providing distribution
increases to ARLP and AHGP unitholders that are in the top tier of the MLP sector. Alliance again
achieved that goal in 2009 as we increased distributions to ARLP unitholders by 8.4 percent and by
12.4 percent for AHGP unitholders, both compared to 2008 year-end distributions.
Looking forward, positive trends already taking place in 2010 have us optimistic about the potential for
additional growth in the current year. With our strong customer relationships and more than 29.6 million
tons of coal already committed and priced for the next 12 months, ARLP currently anticipates
the following increases in 2010:
• Revenues* – 24-31 percent
• Coal production – 15-17 percent
• Net income – 25-40 percent
• Sales volumes – 21-24 percent
• EBITDA – 20-32 percent
ARLP has set new financial records for nine straight years. We are counting on 2010 to
extend that streak to 10 in a row.
* Excludes transportation revenues
13
Joseph W. Craft III
ARLP President, Chief Executive
Officer and Director
AHGP President, Chief Executive
Officer and Chairman of the Board
March 3, 2010
Reconciliation Of GAAP "Cash Flows Provided By Operating Activities" To Non-GAAP "EBiTdA"
Reconciliation Of Non-GAAP "EBiTdA" To GAAP "Net income"
Year Ended December 31
(in thousands)
2009
2008
2007
2006
2005
$
Cash flows provided by operating activities
Non-cash compensation expense
Asset retirement obligations
Coal inventory adjustment to market
Net gain on foreign currency exchange
Net gain (loss) on sale of property, plant and equipment
Gain on sale of coal reserves
Gain from insurance recoveries for property damage
Gain from insurance settlement proceeds received in a prior period
Loss on retirement of damaged vertical belt equipment
Other
Net effect of working capital changes
Interest expense, net
Income tax expense (benefit)
)
)
)
282,741
(3,582
(2,678
(3,030
653
)
(136
-
-
-
-
(537
36,440
29,798
708
)
EBITDA
Depreciation, depletion and amortization
Interest expense, net
Income tax (expense) benefit
Cumulative effect of accounting change
340,377
(117,524
(29,798
(708
-
)
)
)
$
261,041
(3,931
(2,827
(452
-
911
5,159
-
-
-
(366
(19,661
18,418
(480
257,812
(105,278
(18,418
480
-
)
)
)
)
)
)
)
)
$
)
)
)
)
244,012
(3,925
(2,419
(21
-
3,189
-
2,357
5,088
-
( 811
7,898
9,952
1,669
266,989
(85,310
(9,952
(1,669
-
)
)
)
Net income
Net (income) loss attributable to noncontrolling interest
192,347
(190
)
134,596
(420
)
170,058
332
$
250,923
(4,112
(2,101
(319
-
1,188
-
-
-
-
(1,119
(5,317
9,175
2,443
)
)
)
)
)
250,761
(66,489
(9,175
(2,443
112
)
)
)
172,766
161
$
)
)
)
)
)
)
193,618
(8,193
(1,918
(573
-
(179
-
-
-
(1,298
(580
34,770
11,816
2,682
230,145
(55,637
(11,816
(2,682
-
)
)
)
160,010
-
Net income of ARLP
$
192,157
$
134,176
$
170,390
$
172,927
$
160,010
EBITDA is defined as net income of ARLP before net interest expense, income taxes, depreciation, depletion and amortization and net income attributable to noncontrolling
interest. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements such as investors, commercial banks,
research analysts and others to assess: the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; the ability of
our assets to generate cash sufficient to pay interest costs and support our indebtedness; our operating performance and return on investment as compared to those of
other companies in the coal energy sector, without regard to financing or capital structures; and the viability of acquisitions and capital expenditure projects and the overall
rates of return on alternative investment opportunities.
EBITDA should not be considered as an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial
performance presented in accordance with generally accepted accounting principles. EBITDA is not intended to represent cash flow and does not represent the measure of
cash available for distribution. Our method of computing EBITDA may not be the same method used to compute similar measures reported by other companies, or EBITDA
may be computed differently by us in different contexts (i.e., public reporting versus computation under financing agreements).
See our website, www.arlp.com for reconciliation information prior to 2005.
Forward-Looking Statements
This Annual Report contains forward-looking statements and information that are based on the beliefs of Alliance Resource Partners, L.P. and Alliance Holdings GP, L.P.
(the “Partnerships”) and those of their respective general partners (the “General Partners”), as well as assumptions made by and information currently available to them.
When used in this Annual Report, words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “could,” “believe,” “may,” and similar expressions and
statements regarding the plans and objectives of the Partnerships for future operations, are intended to identify forward-looking statements.
Although the Partnerships and their General Partners believe that such expectations reflected in such forward-looking statements are reasonable at the time such
statements are made, neither the Partnerships nor the General Partners can give assurances that such expectations will prove to be correct. Such statements are subject to
a variety of risks, uncertainties and assumptions. For a description of such risks and uncertainties, please see the forward-looking statements included in the Annual Reports
on Form 10-K for Alliance Resource Partners, L.P. and Alliance Holdings GP, L.P. which are available by request or can be viewed on the partnerships’ respective Web
sites. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those the Partnerships
anticipated, estimated, projected or expected.
The Partnerships have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
General Information
Partnership Tax details
The following information applies to Alliance Resource
Partners, L.P. and Alliance Holdings GP, L.P. unless
specified otherwise.
Partnership Offices
1717 South Boulder Avenue, Suite 400
Tulsa, OK 74119
(918) 295-7600
Partnership Mailing Address
P.O. Box 22027
Tulsa, OK 74121-2027
Contact
Brian L. Cantrell
Senior Vice President and Chief Financial Officer
(918) 295-7674
brian.cantrell@arlp.com
Business Structure
Publicly traded master limited partnership.
Common Unit Trading
Common units are traded on the NASdAQ Global Select Market.
NASdAQ Ticker Symbols
Alliance Resource Partners, L.P.
Alliance Holdings GP, L.P.
ARLP
AHGP
Common Units Outstanding (12/31/2009)
ARLP 36,661,029 common units
AHGP 59,863,000 common units
independent Auditors
deloitte & Touche LLP
One Technology Center
100 South Cincinnati Avenue, Suite 700
Tulsa, OK 74103
Unitholder Information
Cash distributions
The partnerships expect to make quarterly distributions to
unitholders of record on the applicable record dates according
to the following schedules:
Alliance Resource Partners, L.P.
Within 45 days after the end of each March, June, September
and december.
Alliance Holdings GP, L.P.
Within 50 days after the end of each March, June, September
and december.
Unitholders are partners in the partnership and receive quarterly cash
distributions. Cash distributions generally are not taxable as long as the
individual unitholder’s tax basis remains above zero.
A partnership generally is 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.
Schedule K-1
Unitholders of record 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 tax return.
Schedule K-1 information also is available on our Web sites. Please
visit www.arlp.com and www.ahgp.com.
Unitholders should refer questions regarding their Schedule K-1
as follows:
By Mail
K-1 Support
P.O. Box 799060
dallas, TX 75379-9060
By Phone/Fax
Alliance Resource Partners, L.P.
Phone (800) 485-6875 Fax (866) 554-3842
Alliance Holdings GP, L.P.
Phone (866) 867-4060 Fax (866) 554-3842
Transfer Agent and Registrar
direct requests regarding transfer of units, lost certificates, lost
distribution checks or address changes to:
American Stock Transfer and Trust Company
Attn: Shareholder Services
59 Maiden Lane – Plaza Level
New York, NY 10038
(800) 937-5449
investor information and Form 10-K
For more information or free copies of the 2009 Form 10-K, please
contact the appropriate e-mail address or phone number listed below.
Form 10-K also may be downloaded from the partnerships’ Web sites.
Alliance Resource Partners, L.P.
investorrelations@arlp.com
E-mail:
Phone:
(918) 295-7674
Web site: www.arlp.com
Alliance Holdings GP, L.P.
investorrelations@ahgp.com
E-mail:
Phone:
(918) 295-1415
Web site: www.ahgp.com
15
P.O. Box 22027, Tulsa, Oklahoma 74121-2027 | www.arlp.com | www.ahgp.com
16