##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM

TO

COMMISSION FILE NO.: 0-51952





ALLIANCE HOLDINGS
GP, L.P.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



|                                                              |  |                                  
|------------------------------------------------------------- |  | ---------------------------------
|DELAWARE                                                      |  | 03-0573898                       
|(STATE OR OTHER JURISDICTION OFINCORPORATION OR ORGANIZATION) |  | (IRS EMPLOYER IDENTIFICATION NO.)

1717 SOUTH BOULDER AVENUE, SUITE 400, TULSA, OKLAHOMA 74119

(ADDRESS OF
PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(918) 295-1415

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to Section 12(b) of the Act: Common Units representing limited partner interests



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange On Which
Registered
|Common Units        |  | The NASDAQ Stock Market LLC              

Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   ̈  Yes    x   No

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.   ̈  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    x  Yes     ̈  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).     ̈  Yes     ̈  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one)

Large Accelerated Filer   ̈    Accelerated
Filer  x    Non-Accelerated Filer   ̈    Smaller Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).     ̈  Yes    x  No

The aggregate value of the common units held by non-affiliates of the registrant (treating all executive officers, all current and former
employees who comprise a group under Rule 13d-5(b) of the Securities Exchange Act of 1934 and directors of the registrant, for this purpose, as if they may be affiliates of the registrant) was approximately $236,332,085 as of June 30, 2009, the
last business day of the registrants most recently completed second fiscal quarter, based on the reported closing price of the common units as reported on the NASDAQ Stock Market, LLC on such date.

As of March 3, 2010, 59,863,000 common units were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None









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TABLE OF CONTENTS



|         |  |                                                                                                             |  |     
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                             |  | Page
|        
|PART I  
|         |  |                                                                                                            
|Item 1.  |  | Business                                                                                                    |  | 1   
|         |  |                                                                                                            
|Item 1A. |  | Risk Factors                                                                                                |  | 19  
|         |  |                                                                                                            
|Item 1B. |  | Unresolved Staff Comments                                                                                   |  | 39  
|         |  |                                                                                                            
|Item 2.  |  | Properties                                                                                                  |  | 40  
|         |  |                                                                                                            
|Item 3.  |  | Legal Proceedings                                                                                           |  | 42  
|         |  |                                                                                                            
|Item 4.  |  | [Reserved]                                                                                                  |  | 43  
|        
|PART II 
|         |  |                                                                                                            
|Item 5.  |  | Market for Registrants Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities |  | 44  
|         |  |                                                                                                            
|Item 6.  |  | Selected Financial Data                                                                                     |  | 45  
|         |  |                                                                                                            
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 48  
|         |  |                                                                                                            
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                  |  | 75  
|         |  |                                                                                                            
|Item 8.  |  | Financial Statements and Supplementary Data                                                                 |  | 76  
|         |  |                                                                                                            
|Item 9.  |  | Changes in and Disagreements with Accountant on Accounting and Financial Disclosure                         |  | 111 
|         |  |                                                                                                            
|Item 9A. |  | Controls and Procedures                                                                                     |  | 111 
|         |  |                                                                                                            
|Item 9B. |  | Other Information                                                                                           |  | 114 
|        
|PART III
|         |  |                                                                                                            
|Item 10. |  | Directors, Executive Officers and Corporate Governance of the General Partner                               |  | 115 
|         |  |                                                                                                            
|Item 11. |  | Executive Compensation                                                                                      |  | 119 
|         |  |                                                                                                            
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters               |  | 131 
|         |  |                                                                                                            
|Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                   |  | 133 
|         |  |                                                                                                            
|Item 14. |  | Principal Accountant Fees and Services                                                                      |  | 135 
|        
|PART IV 
|         |  |                                                                                                            
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                  |  | 136 



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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
(the Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) that are intended to come within the safe harbor protection provided by those sections. These statements are based on our
beliefs as well as assumptions made by, and information currently available to, us. When used in this document, the words anticipate, believe, continue, estimate, expect,
forecast, may, project, will, and similar expressions identify forward-looking statements. Without limiting the foregoing, all statements relating to our future outlook, anticipated capital
expenditures, future cash flows and borrowings and sources of funding are forward-looking statements. These statements reflect our current views with respect to future events and are subject to numerous assumptions that we believe are reasonable,
but are open to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements. Among the factors that could cause actual results to differ from those in the forward-looking
statements are:



| |  |  | increased competition in coal markets and the ARLP Partnerships ability to respond to the competition;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | decreases in coal prices, which could adversely affect the ARLP Partnerships operating results and cash flows;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | risks associated with the ARLP Partnerships expansion of its operations and properties;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | deregulation of the electric utility industry or the effects of any adverse change in the coal industry, electric utility industry, or general economic
conditions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dependence on significant customer contracts, including renewing customer contracts upon expiration of existing contracts;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | weakness in global economic conditions or in industries in which our customers operate;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | liquidity constraints, including those resulting from the cost or unavailability of financing due to current capital market conditions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | customer bankruptcies, cancellations or breaches to existing contracts, or other failures to perform;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | customer delays, failure to take coal under contracts or defaults in making payments;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | adjustments made in price, volume or terms to existing coal supply agreements;
| | - |  | ------------------------------------------------------------------------------



| |  |  | fluctuations in coal demand, prices and availability due to labor and transportation costs and disruptions, equipment availability, governmental
regulations, including those related to carbon dioxide emissions, and other factors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legislation, regulatory and court decisions and interpretations thereof, including issues related to climate change and miner health and safety;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ARLP Partnerships productivity levels and margins it earns on coal sales;
| | - |  | ------------------------------------------------------------------------------



| |  |  | greater than expected increases in raw material costs;
| | - |  | ------------------------------------------------------



| |  |  | greater than expected shortage of skilled labor;
| | - |  | ------------------------------------------------



| |  |  | the ARLP Partnerships ability to maintain satisfactory relations with its employees;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | any unanticipated increases in labor costs, adverse changes in work rules, or unexpected cash payments associated with post-mine reclamation and
workers compensation claims;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any unanticipated increases in transportation costs and risk of transportation delays or interruptions;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | greater than expected environmental regulation, costs and liabilities;
| | - |  | ----------------------------------------------------------------------



| |  |  | a variety of operational, geologic, permitting, labor and weather-related factors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | risks associated with major mine-related accidents, such as mine fires, or interruptions;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | results of litigation, including claims not yet asserted;
| | - |  | ---------------------------------------------------------



| |  |  | difficulty maintaining the ARLP Partnerships surety bonds for mine reclamation as well as workers compensation and black lung benefits;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulty in making accurate assumptions and projections regarding pension and other post-retirement benefit liabilities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | coal markets share of electricity generation, including as a result of environmental concerns related to coal mining and combustion and the cost
and perceived benefits of alternative sources of energy, such as natural gas, nuclear energy and renewable fuels;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | replacement of coal reserves;
| | - |  | -----------------------------



| |  |  | a loss or reduction of benefits from certain tax credits;
| | - |  | ---------------------------------------------------------



| |  |  | difficulty obtaining commercial property insurance, and risks associated with the ARLP Partnerships participation (excluding any applicable
deductible) in its commercial insurance property program; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other factors, including those discussed in Item 1A. Risk Factors and Item 3. Legal Proceedings.
| | - |  | ----------------------------------------------------------------------------------------------------



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If one or more of these or other risks or uncertainties materialize, or should underlying
assumptions prove incorrect, our actual results may differ materially from those described in any forward-looking statement. When considering forward-looking statements, you should also keep in mind the risk factors described in Risk
Factors below. The risk factors could also cause our actual results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to update the above list or to announce publicly the result of any
revisions to any of the forward-looking statements to reflect future events or developments.

You should consider the information above when
reading any forward-looking statements contained:



| |  |  | in this Annual Report on Form 10-K;
| | - |  | -----------------------------------



| |  |  | other reports filed by us with the Securities and Exchange Commission (SEC);
| | - |  | ------------------------------------------------------------------------------



| |  |  | our press releases; and
| | - |  | -----------------------



| |  |  | written or oral statements made by us or any of our officers or other authorized persons acting on our behalf.
| | - |  | --------------------------------------------------------------------------------------------------------------



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Significant Relationships Referenced in this Annual Report



| |  |  | References to we, us, our or AHGP mean Alliance Holdings GP, L.P., individually as the parent company,
and not on a consolidated basis.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to AHGP Partnership mean the business and operations of Alliance Holdings GP, L.P., the parent company, as well as its
consolidated subsidiaries, which includes Alliance Resource Management GP, LLC and Alliance Resource Partners, L.P. and its consolidated subsidiaries.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to AGP mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P., also referred to as our general partner.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to ARLP Partnership mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its
consolidated subsidiaries.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to ARLP mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to MGP mean Alliance Resource Management GP, LLC, the managing general partner of Alliance Resource Partners, L.P.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to SGP mean Alliance Resource GP, LLC, the special general partner of Alliance Resource Partners, L.P.
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | References to Intermediate Partnership mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource
Partners, L.P.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to Alliance Coal mean Alliance Coal, LLC, the holding company for operations of Alliance Resource Operating Partners, L.P.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

PART I



|ITEM 1. | BUSINESS
|------- | --------

General

We are a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol AHGP. We own, directly
and indirectly, 100% of the members interest in MGP, the managing general partner of ARLP. We completed our initial public offering (IPO) in May 2006.

Currently, our only cash-generating assets are our ownership interests in ARLP, which consist of the following:



| |  |  | a 1.98% general partner interest in ARLP, which we hold through our 100% ownership interest in MGP;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the incentive distribution rights (IDRs) in ARLP;
| | - |  | ---------------------------------------------------



| |  |  | 15,544,169 common units of ARLP, representing approximately 42.4% of the common units of ARLP as of December 31, 2009; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | a 0.001% managing interest in Alliance Coal, which we hold through our 100% ownership interest in MGP.
| | - |  | ------------------------------------------------------------------------------------------------------

We are owned 100% by our limited partners. Our general partner, AGP, has a non-economic interest in us and is owned by Joseph W. Craft III,
the Chairman, President and Chief Executive Officer of AGP as well as the President and Chief Executive Officer and a Director of MGP.



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The following diagram depicts our organization and ownership as of December 31, 2009:

LOGO



|(1) | The Management Group comprises current and former members of management, who are the former indirect owners of MGP, and their affiliates.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



|(2) | The units held by SGP and most of the units held by the Management Group are subject to a transfer restriction agreement that, subject to a number of exceptions
(including certain transfers by Mr. Craft in which the other parties to the agreement are entitled or required to participate), prohibits the transfer of such units unless approved by a majority of the disinterested members of the board of
directors of AGP (Board of Directors) pursuant to certain procedures set forth in the agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our primary business objective is to increase our cash distributions to our unitholders by actively assisting ARLP in executing its business strategy. ARLPs business strategy is to create sustainable, capital-efficient growth in
available cash to maximize its distributions to its unitholders.

The ARLP Partnership is a diversified producer and marketer
of coal primarily to major United States (U.S.) utilities and industrial users. The ARLP Partnership began mining operations in 1971 and, since then, has grown through acquisitions and internal development to become what we believe to be
the fifth largest coal producer in the eastern U.S. At December 31, 2009, the ARLP Partnership had approximately 647.2 million tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia. In 2009, the
ARLP Partnership produced 25.8 million tons of coal and sold 25.0 million tons of coal, of which 10.1% was low-sulfur coal, 22.5% was medium-sulfur coal and 67.4% was high-sulfur coal. In 2009, the ARLP Partnership sold 91.8% of its total
tons to electric utilities, of which 88.6% was sold to utility plants with installed pollution control devices. These devices, also known as scrubbers, eliminate substantially all emissions of sulfur dioxide. The ARLP Partnership classifies
low-sulfur coal as coal with a sulfur content of less than 1%, medium-sulfur coal as coal with a sulfur content between 1% and 2%, and high-sulfur coal as coal with a sulfur content of greater than 2%.



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The ARLP Partnership operates nine underground mining complexes in Illinois, Indiana,
Kentucky, Maryland, and West Virginia. The ARLP Partnership is constructing a new mining complex in West Virginia, and it also operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. The ARLP Partnerships mining activities
are conducted in three geographic regions commonly referred to in the coal industry as the Illinois Basin, Central Appalachian and Northern Appalachian regions. The ARLP Partnership has grown historically, and expects to grow in the future, through
expansion of its operations by adding and developing mines and coal reserves in these regions.

Our internet address is
www.ahgp.com, and we make available free of charge on our website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and Forms 3, 4 and 5 for our Section 16 filers (and amendments and exhibits,
such as press releases, to such filings) as soon as reasonably practicable after we electronically file with or furnish such material to the SEC. Information on our website or any other website is not incorporated by reference into this report and
does not constitute a part of this report.

We file or furnish annual, quarterly and current reports, proxy statements
and other documents with the SEC under the Exchange Act. The public may read and copy any materials that we file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file
electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

Mining Operations

The ARLP Partnership produces a diverse range of steam coals with varying sulfur and heat contents, which enables it to
satisfy the broad range of specifications required by its customers. The following chart summarizes the ARLP Partnerships coal production by region for the last five years.



|                                                                   |  |                         |  |      |  |      |  |      |  |     
|------------------------------------------------------------------ |  | ----------------------- |  | ---- |  | ---- |  | ---- |  | ----
|                                                                   |  | Year Ended December 31,
|Regions and Complexes                                              |  | 2009                    |  | 2008 |  | 2007 |  | 2006 |  | 2005
|                                                                   |  | (tons in millions)     
|Illinois Basin:                                                    |  |                         |  |      |  |      |  |      |  |     
|Dotiki, Warrior, Pattiki, Hopkins, River View and Gibson complexes |  | 20.7                    |  | 20.3 |  | 17.9 |  | 16.9 |  | 15.7
|Central Appalachian:                                               |  |                         |  |      |  |      |  |      |  |     
|Pontiki and MC Mining complexes                                    |  | 2.6                     |  | 3.2  |  | 3.2  |  | 3.5  |  | 3.3 
|Northern Appalachian:                                              |  |                         |  |      |  |      |  |      |  |     
|Mettiki complex                                                    |  | 2.5                     |  | 2.9  |  | 3.2  |  | 3.3  |  | 3.3 
|                                                                   |  |                         |  |      |  |      |  |      |  |     
|Total                                                              |  | 25.8                    |  | 26.4 |  | 24.3 |  | 23.7 |  | 22.3
|                                                                   |  |                         |  |      |  |      |  |      |  |     



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The following map shows the location of the ARLP Partnerships mining complexes and
projects:

LOGO

Illinois Basin Operations

The ARLP Partnerships Illinois Basin mining operations are located in western Kentucky, southern Illinois and southern Indiana. The
ARLP Partnership currently has approximately 2,230 employees and operates six mining complexes in the Illinois Basin.

Dotiki Complex. The ARLP Partnerships subsidiary, Webster County Coal, LLC (Webster County Coal), operates Dotiki, which is an underground mining complex located near the city of Providence in Webster County,
Kentucky. The complex was opened in 1966, and was purchased by the ARLP Partnership in 1971. The Dotiki complex utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. Dotikis preparation plant
has throughput capacity of 1,300 tons of raw coal an hour. Coal from the Dotiki complex is shipped via the CSX Transportation, Inc. (CSX) and Paducah & Louisville Railway, Inc. (PAL) railroads and by truck on U.S.
and state highways directly to customers or to various transloading facilities, including the Mt. Vernon Transfer Terminal, LLC (Mt. Vernon) transloading facility, for sale to customers capable of receiving barge deliveries.

Warrior Complex. The ARLP Partnerships subsidiary, Warrior Coal, LLC (Warrior), operates an
underground mining complex located near the city of Madisonville in Hopkins County, Kentucky. The Warrior complex was opened in 1985 and acquired by the ARLP Partnership in February 2003. Warrior utilizes continuous mining units employing
room-and-pillar mining techniques



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to produce high-sulfur coal. Warriors new preparation plant became operational in the first quarter of 2009 and has throughput capacity of 1,200 tons of raw coal an hour. Warriors
production can be shipped via the CSX and PAL railroads and by truck on U.S. and state highways directly to customers or to various transloading facilities, including the Mt. Vernon transloading facility, for sale to customers capable of
receiving barge deliveries.

Pattiki Complex. The ARLP Partnerships subsidiary, White County Coal, LLC
(White County Coal), operates Pattiki, an underground mining complex located near the city of Carmi in White County, Illinois. The ARLP Partnership began construction of the complex in 1980 and has operated it since its inception. The
Pattiki complex utilizes continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. The preparation plant has throughput capacity of 1,000 tons of raw coal an hour. Coal from the Pattiki complex is shipped via
the Evansville Western Railway, Inc. (EVW) railroad directly to customers or to various transloading facilities, including the Mt. Vernon transloading facility, for sale to customers capable of receiving barge deliveries.

Hopkins Complex.The Hopkins complex, which the ARLP Partnership acquired in January 1998, is located near the city of
Madisonville in Hopkins County, Kentucky. It is operated by the ARLP Partnerships subsidiary, Hopkins County Coal, LLC (Hopkins County Coal). During 2006, Hopkins County Coal ceased production from its Newcoal surface mine, which
is being reclaimed, and began operations at its Elk Creek underground mine using continuous mining units employing room-and-pillar mining techniques to produce high-sulfur coal. Coal produced from the Elk Creek mine is processed and shipped through
Hopkins County Coals preparation plant, which has throughput capacity of 1,200 tons of raw coal an hour. Elk Creeks production can be shipped via the CSX and PAL railroads and by truck on U.S. and state highways directly to customers or
to various transloading facilities, including the Mt. Vernon transloading facility, for sale to customers capable of receiving barge deliveries.

Gibson Complex. The ARLP Partnerships subsidiary, Gibson County Coal, LLC (Gibson County Coal), operates the Gibson mine, an underground mining complex located near the city of
Princeton in Gibson County, Indiana. The mine began production in November 2000 and utilizes continuous mining units employing room-and-pillar mining techniques to produce medium-sulfur coal. The preparation plant has throughput capacity of 700 tons
of raw coal an hour. Production from Gibson is either shipped by truck on U.S. and state highways or transported by rail on CSX and Norfolk Southern Railway Company (NS) railroads directly to customers or to various transloading
facilities, including the Mt. Vernon transloading facility, for sale to customers capable of receiving barge deliveries. We refer to the reserves mined at this location as the Gibson North reserves. The ARLP Partnership also controls
undeveloped reserves in Gibson County that are not contiguous to the reserves currently being mined, which we refer to as the Gibson South reserves. See Gibson South Reserves discussed below.

River View Complex. In April 2006, the ARLP Partnership acquired River View Coal, LLC (River View) from Alliance Resource
Holdings, Inc. (ARH). River View currently controls, through coal leases or direct ownership, approximately 120.8 million tons of proven and probable high-sulfur coal in the Kentucky No. 7, No. 9 and No. 11 coal seams
underlying properties located primarily in Union County, Kentucky, as well as certain surface properties, facilities and permits. In July 2007, the ARLP Partnership began construction of the mining complex and production began in August 2009. River
View is an underground mining complex that, at full capacity, will have the capability of annually producing approximately 6.4 million tons utilizing eight continuous mining units employing room-and-pillar mining techniques. River Views
preparation plant has throughput capacity of 1,800 tons of raw coal per hour. Coal produced from the River View mine is transported by overland belt to a barge loading facility on the Ohio River (mile marker 843). Total capital expenditures required
to develop the River View mine to full capacity are estimated to range from approximately $250 million to $275 million, of which $199.5 million has been incurred as of December 31, 2009. These amounts exclude capitalized interest and
capitalized mine development costs associated with incidental production. (For more information about mine development costs, please read Mine Development Costs under Item 8. Financial Statements and Supplementary DataNote 2.
Summary of Significant Accounting Policies.)

Gibson South Reserves. The ARLP Partnership has partially completed
the permitting process for the Gibson South reserves and continues to evaluate development of the project. (For more information on the permitting process, and matters that could hinder or delay the process, please read Regulation and
LawsMining Permits and Approvals.) Development of the project continues to be market dependent, and its timing is open-ended pending sufficient coal sales commitments to support the project. The ARLP Partnership expects the mine
to be developed as an underground mining complex using continuous mining units employing room-and-pillar techniques, and to have annual production capacity of approximately 3.0 million to 3.5 million tons. Definitive development commitment
for Gibson South is dependent upon final approval by the board of directors of MGP (the MGP Board of Directors).



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Central Appalachian Operations

The ARLP Partnerships Central Appalachian mining operations are located in eastern Kentucky. The ARLP Partnership currently has
approximately 440 employees and operates two mining complexes in Central Appalachia.

Pontiki Complex.The Pontiki
complex is located near the city of Inez in Martin County, Kentucky. The ARLP Partnership constructed the mine in 1977. Its subsidiary, Pontiki Coal, LLC (Pontiki), owns the mining complex and controls the reserves, and its subsidiary,
Excel Mining, LLC (Excel), conducts all mining operations. The underground operation utilizes continuous mining units employing room-and-pillar mining techniques to produce low-sulfur coal. The preparation plant has throughput capacity
of 900 tons of raw coal an hour. Coal produced in 2009 remained low sulfur, but does not meet the compliance requirements of Phase II of the Federal Clean Air Act (CAA) (see Regulation and LawsAir Emissions
below). Coal produced from the mine is shipped via the NS railroad directly to customers or to various transloading facilities on the Ohio River for sale to customers capable of receiving barge deliveries, or by truck via U.S. and state highways
directly to customers or to various docks on the Big Sandy River for shipment to customers capable of receiving barge deliveries. In 2009, the ALRP Partnership idled one of the Pontiki production units due to weak coal market conditions.

MC Mining Complex.The MC Mining complex is located near the city of Pikeville in Pike County, Kentucky. The ARLP Partnership
acquired the mine in 1989. Its subsidiary, MC Mining, LLC (MC Mining), owns the mining complex and leases the reserves, and Excel conducts all mining operations. The underground operation utilizes continuous mining units employing
room-and-pillar mining techniques to produce low-sulfur coal. The preparation plant has throughput capacity of 1,000 tons of raw coal an hour. Substantially all of the coal produced at MC Mining in 2009 met or exceeded the compliance requirements of
Phase II of the CAA (see Regulation and LawsAir Emissions below). Coal produced from the mine is shipped via the CSX railroad directly to customers or to various transloading facilities on the Ohio River for sale to
customers capable of receiving barge deliveries, or by truck via U.S. and state highways directly to customers or to various docks on the Big Sandy River for shipment to customers capable of receiving barge deliveries.

Northern Appalachian Operations

The ARLP Partnerships Northern Appalachian mining operations currently employ approximately 250 employees and are located in Maryland and West Virginia. The ARLP Partnership operates one mining
complex and has one mining complex under construction in Northern Appalachia. It also controls undeveloped reserves in West Virginia and Pennsylvania.

Mettiki (MD) Operation.The ARLP Partnerships subsidiary, Mettiki Coal, LLC (Mettiki (MD)), previously operated an underground longwall mine located near the city of Oakland in
Garrett County, Maryland. Underground longwall mining operations ceased at this mine in October 2006 upon the exhaustion of the economically mineable reserves, and the longwall mining equipment was moved from the Mettiki (MD) operation to the
operation of the ARLP Partnerships subsidiary, Mettiki Coal (WV), LLC (Mettiki (WV)) (discussed below). Medium-sulfur coal produced from two small-scale third-party mining operations (a surface strip mine and an underground mine)
on properties controlled by Mettiki (MD) and another subsidiary of the ARLP Partnership, Backbone Mountain, LLC, supplements the Mettiki (WV) production, providing blending optimization and allowing the operation to take advantage of market
opportunities as they arise. The surface strip mine was idled for part of 2009 due to weak coal market conditions.

The ARLP
Partnerships Mettiki (MD) preparation plant has throughput capacity of 1,350 tons of raw coal an hour. A portion of the Mettiki (WV) production is transported to this preparation plant for processing and then trucked to a blending facility at
the Virginia Electric and Power Company (VEPCO) Mt. Storm Power Station. The preparation plant also is served by the CSX railroad, providing the opportunity to ship into the metallurgical coal market.

Mettiki (WV) Operation. In July 2005, Mettiki (WV) began continuous miner development of the Mountain View mine located in Tucker
County, West Virginia. Upon completion of mining at the Mettiki (MD) longwall operation, the longwall mining equipment was moved to the Mountain View mine and put into operation in November 2006. The Mountain View mine produces medium-sulfur coal
which is transported by truck either to the Mettiki (MD) preparation plant (which is served by CSX) or to the coal blending facility at the VEPCO Mt. Storm Power Station.

Tunnel Ridge Complex.The ARLP Partnerships subsidiary, Tunnel Ridge, LLC (Tunnel Ridge), controls, through a coal lease agreement with SGP, approximately 70.2 million tons
of proven and probable high-sulfur coal in the Pittsburgh No. 8 coal seam in West Virginia and Pennsylvania. An underground mining permit was issued to Tunnel Ridge by the West Virginia Department



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of Environmental Protection on February 12, 2007, and it has either received or has applications pending for all permits necessary to conduct operations. (For more information on the
permitting process, and matters that could hinder or delay the process, please read Regulation and LawsMining Permits and Approvals.) In September of 2008, the MGP Board of Directors gave final approval for development
of the reserves, and Tunnel Ridge has begun construction of the mining complex, which will be an underground, longwall mine. Capital expenditures required for development are estimated to be in the range of approximately $285 million to $300
million, of which $92.7 million has been incurred as of December 31, 2009. These amounts exclude capitalized interest and capitalized mine development costs associated with incidental production. (For more information about mine development
costs, please read Mine Development Costs under Item 8. Financial Statements and Supplementary DataNote 2. Summary of Significant Accounting Policies.) Tunnel Ridge expects to begin longwall mining operations in the
second half of 2011, and expects annual production capacity of the mine to be approximately 5.5 to 6.0 million tons. Beginning in the second quarter of 2010, the ARLP Partnership anticipates incidental production of approximately 20,000 to
40,000 tons per month during the mine development phase increasing to approximately 100,000 tons per month of incidental production in 2011 until longwall mining and full production begins later in 2011.

Penn Ridge. The ARLP Partnerships subsidiary, Penn Ridge Coal, LLC (Penn Ridge), is party to a coal lease agreement
effective December 31, 2005 with Allegheny Pittsburgh Coal Company (Allegheny), pursuant to which Penn Ridge leases Alleghenys Buffalo coal reserve in Washington County, Pennsylvania, which is estimated to include
approximately 56.7 million tons of proven and probable high-sulfur coal in the Pittsburgh No. 8 seam. Penn Ridge has initiated the permitting process for the Buffalo coal reserves and continues to evaluate development. (For more
information on the permitting process, and matters that could hinder or delay the process, please read Regulation and LawsMining Permits and Approvals.) Development of the project continues to be market dependent, and
its timing is open-ended pending sufficient coal sales commitments to support the project. It is expected that these reserves will be developed as an underground mining complex using either continuous mining units employing room-and-pillar
techniques, longwall mining, or both. The annual production capacity of the Penn Ridge mine is expected to be approximately 2.5 to 3.0 million tons utilizing continuous mining units or up to 5.0 million tons with longwall mining.
Definitive development commitment for Penn Ridge is dependent upon final approval by the MGP Board of Directors.

Other Operations

Mt. Vernon Transfer Terminal, LLC

The ARLP Partnerships subsidiary, Mt. Vernon, leases land and operates a coal loading terminal on the Ohio River (mile marker 827.5) at Mt. Vernon, Indiana. Coal is delivered to Mt. Vernon by both
rail and truck. The terminal has a capacity of 8.0 million tons per year with existing ground storage of approximately 60,000 to 70,000 tons. During 2009, the terminal loaded approximately 2.9 million tons for customers of Pattiki, Gibson,
Elk Creek, and for third-parties.

Coal Brokerage

As markets allow, the ARLP Partnership buys coal from non-affiliated producers principally throughout the eastern U.S., which it then
resells. The ARLP Partnership has a policy of matching its outside coal purchases and sales to minimize market risks associated with buying and reselling coal. In 2009, the ARLP Partnership sold 13,497 tons classified as brokerage coal in its
financial results.

Matrix Design Group, LLC

The ARLP Partnerships subsidiaries, Matrix Design Group, LLC and Alliance Design Group, LLC (collectively, MDG), provide a
variety of mine products and services for the ARLP Partnerships mining operations and to unrelated parties. The ARLP Partnership acquired this business in September 2006. MDGs products and services include design and installation of
underground mine hoists for transporting employees and materials in and out of mines; design of systems for automating and controlling various aspects of industrial and mining environments; and design and sale of mine safety equipment, including its
miner and equipment tracking system. In 2009, our financial results were not significantly impacted by MDGs activities.

Additional Services

The ARLP Partnership develops and markets additional services in order to establish
itself as the supplier of choice for its customers. Examples of the kind of services it has offered to date include ash and scrubber sludge removal, coal yard maintenance and arranging alternate transportation services. Revenues from these services
in 2009 and historically have represented less than



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one percent of the ARLP Partnerships total revenues. In addition, the ARLP Partnerships affiliate, Mid-America Carbonates, LLC (MAC), which is a joint venture in which
White County Coal participates, manufactures and sells rock dust to the ARLP Partnerships mining operations and to unrelated parties. In 2009, our financial results were not significantly impacted by MACs business. Please read Item
8. Financial Statements and Supplementary DataNote 12. Noncontrolling Interests.

Reportable Segments

Please read Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations, and Segment Information under Item 8. Financial Statements and Supplementary DataNote 21. Segment Information for information concerning our reportable segments.

Synfuel Facilities

For several years, three of the ARLP Partnerships mining complexesthe Warrior Complex and the Gibson Complex in the Illinois Basin Region and the Mettiki Complex in the Northern Appalachian
Regionsupplied coal feedstock and provided services to third-party coal synfuel facilities located at or near these complexes. The ARLP Partnerships agreements with those third-parties terminated on December 31, 2007 coincident with
the expiration of the federal non-conventional source fuel tax credit and, as a result, it no longer supplies feedstock or provides services to those facilities. In 2007, the incremental net income benefit to the ARLP Partnership from these
synfuel-related agreements was approximately $28.5 million.

Coal Marketing and Sales

As is customary in the coal industry, the ARLP Partnership has entered into long-term coal supply agreements with many of its customers.
These arrangements are mutually beneficial to the ARLP Partnership and its customers in that they provide greater predictability of sales volumes and sales prices. In 2009, approximately 92.6% and 91.1% of the ARLP Partnerships sales tonnage
and total coal sales, respectively, were sold under long-term contracts (contracts having a term of one year or greater) with committed term expirations ranging from 2010 to 2016. The ARLP Partnerships total nominal commitment under
significant long-term contracts for existing operations was approximately 138.7 million tons at December 31, 2009, and is expected to be delivered as follows: 29.2 million tons in 2010, 26.9 million tons in 2011,
20.4 million tons in 2012, and 62.2 million tons thereafter during the remaining terms of the relevant coal supply agreements. The total commitment of coal under contract is an approximate number because, in some instances, the contracts
contain provisions that could cause the nominal total commitment to increase or decrease by as much as 20%. The contractual time commitments for customers to nominate future purchase volumes under these contracts are typically sufficient to allow
the ARLP Partnership to balance its sales commitments with prospective production capacity. In addition, the nominal total commitment can otherwise change because of reopener provisions contained in certain of these long-term contracts.

The provisions of long-term contracts are the results of both bidding procedures and extensive negotiations with each customer. As a
result, the provisions of these contracts vary significantly in many respects, including, among others, price adjustment features, price and contract reopener terms, permitted sources of supply, force majeure provisions, coal qualities and
quantities. Virtually all of the ARLP Partnerships long-term contracts are subject to price adjustment provisions, which permit an increase or decrease periodically in the contract price to reflect changes in specified price indices or items
such as taxes, royalties or actual production costs. These provisions, however, may not assure that the contract price will reflect every change in production or other costs. Failure of the parties to agree on a price pursuant to an adjustment or a
reopener provision can lead to early termination of a contract. Some of the long-term contracts also permit the contract to be reopened for renegotiation of terms and conditions other than the pricing terms, and where a mutually acceptable agreement
on terms and conditions cannot be concluded, either party may have the option to terminate the contract. The long-term contracts typically stipulate procedures for transportation of coal, quality control, sampling and weighing. Most contain
provisions requiring the ARLP Partnership to deliver coal within stated ranges for specific coal characteristics such as heat, sulfur, ash, moisture, grindability, volatility and other qualities. Failure to meet these specifications can result in
economic penalties or termination of the contracts. While most of the contracts specify the approved seams and/or approved locations from which the coal is to be mined, some contracts allow the coal to be sourced from more than one mine or location.
Although the volume to be delivered pursuant to a long-term contract is stipulated, the buyers often have the option to vary the volume within specified limits.



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Reliance on Major Customers

The ARLP Partnerships four largest customers in 2009 were Louisville Gas and Electric Company, VEPCO, Seminole Electric Cooperative,
Inc and Tennessee Valley Authority. During 2009, it derived approximately 41.8% of its total revenues from these four customers and at least 10.0% of its total revenues from each of the four. For more information about these customers, please read
Item 8. Financial Statements and Supplementary DataNote 21. Concentration of Credit Risk and Major Customers.

Competition

The coal industry is intensely competitive. The most important factors on which the ARLP
Partnership competes are coal price, coal quality (including sulfur and heat content), transportation costs from the mine to the customer and the reliability of supply. The ARLP Partnerships principal competitors include Alpha Natural
Resources, Inc., Arch Coal, Inc., CONSOL Energy, Inc., International Coal Group, Inc., James River Coal Company, Massey Energy Company, Murray Energy, Inc., Patriot Coal Corporation and Peabody Energy Corp. Some of these coal producers are larger
and have greater financial resources and larger reserve bases than the ARLP Partnership. The ARLP Partnership also competes directly with a number of smaller producers in the Illinois Basin, Central Appalachian and Northern Appalachian regions. The
prices the ARLP Partnership is able to obtain for its coal are primarily linked to coal consumption patterns of domestic electricity generating utilities, which in turn are influenced by economic activity, government regulations, weather and
technological developments. Additionally, coal competes with other fuels such as petroleum, natural gas, nuclear energy and renewable energy sources for electrical power generation. Over time, costs and other factors, such as safety and
environmental considerations, may affect the overall demand for coal as a fuel. For additional information, please see Item 1A. Risk Factors. As the price of domestic coal increases, the ARLP Partnership may also begin to compete with
companies that produce coal from one or more foreign countries.

Transportation

The ARLP Partnerships coal is transported to its customers by rail, truck and barge. Depending on the proximity of the customer to the
mine and the transportation available for delivering coal to that customer, transportation costs can range from 3.0% to 55.0% of the total delivered cost of a customers coal. As a consequence, the availability and cost of transportation
constitute important factors in the marketability of coal. The ARLP Partnership believes its mines are located in favorable geographic locations that minimize transportation costs for its customers, and in many cases it is able to accommodate
multiple transportation options. Typically, the ARLP Partnerships customers pay the transportation costs from the mining complex to the destination, which is the standard practice in the industry. Approximately 76.1% of the ARLP
Partnerships 2009 sales volume was initially shipped from the mines by rail, with the remainder leaving the mines by truck or barge. In 2009, the largest volume transporter of the ARLP Partnerships coal shipments was CSX, which moved
approximately 37.0% of the ARLP Partnerships tonnage over its rail system. The practices of, and rates set by, the transportation company serving a particular mine or customer may affect, either adversely or favorably, the ARLP
Partnerships marketing efforts with respect to coal produced from the relevant mine.

Regulation and Laws

The coal mining industry is subject to regulation by federal, state and local authorities on matters such as:



| |  |  | employee health and safety;
| | - |  | ---------------------------



| |  |  | mine permits and other licensing requirements;
| | - |  | ----------------------------------------------



| |  |  | air quality standards;
| | - |  | ----------------------



| |  |  | water quality standards;
| | - |  | ------------------------



| |  |  | storage of petroleum products and substances which are regarded as hazardous under applicable laws or which, if spilled, could reach waterways or
wetlands;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | plant and wildlife protection;
| | - |  | ------------------------------



| |  |  | reclamation and restoration of mining properties after mining is completed;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the discharge of materials into the environment;
| | - |  | ------------------------------------------------



| |  |  | storage and handling of explosives;
| | - |  | -----------------------------------



| |  |  | wetlands protection;
| | - |  | --------------------



| |  |  | surface subsidence from underground mining; and
| | - |  | -----------------------------------------------



| |  |  | the effects, if any, that mining has on groundwater quality and availability.
| | - |  | -----------------------------------------------------------------------------



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In addition, the utility industry is subject to extensive regulation regarding the
environmental impact of its power generation activities, which could affect demand for the ARLP Partnerships coal. It is possible that new legislation or regulations may be adopted, or that existing laws or regulations may be differently
interpreted or more stringently enforced, any of which could have a significant impact on the ARLP Partnerships mining operations or its customers ability to use coal.

The ARLP Partnership is committed to conducting mining operations in compliance with applicable federal, state and local laws and
regulations. However, because of the extensive and detailed nature of these regulatory requirements, it is extremely difficult for the ARLP Partnership and other underground coal mining companies in particular, as well as the coal industry in
general, to comply with all requirements at all times. None of the ARLP Partnerships violations to date has had a material impact on its operations or financial condition. While it is not possible to quantify all of the costs of compliance
with applicable federal and state laws and associated regulations, those costs have been and are expected to continue to be significant. Compliance with these laws and regulations has substantially increased the cost of coal mining for domestic coal
producers.

Capital expenditures for environmental matters have not been material in recent years. The ARLP Partnership has
accrued for the present value of the estimated cost of asset retirement obligations and mine closings, including the cost of treating mine water discharge, when necessary. The accruals for asset retirement obligations and mine closing costs are
based upon permit requirements and the costs and timing of asset retirement obligations and mine closing procedures. Although management believes it has made adequate provisions for all expected reclamation and other costs associated with mine
closures, future operating results would be adversely affected if the ARLP Partnership later determines these accruals to be insufficient.

Mining Permits and Approvals

Numerous governmental permits or
approvals are required for mining operations. Applications for permits require extensive engineering and data analysis and presentation, and must address a variety of environmental, health, and safety matters associated with a proposed mining
operation. These matters include the manner and sequencing of coal extraction, the storage, use and disposal of waste and other substances and other impacts on the environment, the construction of water containment areas, and reclamation of the area
after coal extraction. Meeting all requirements imposed by any of these authorities may be costly and time consuming, and may delay or prevent commencement or continuation of mining operations in certain locations.

As is typical in the coal industry, the ARLP Partnership strives to obtain mining permits within a time frame that allows it to mine
reserves as planned on an uninterrupted basis. Typically, the ARLP Partnership commences actions to obtain permits between 18 and 24 months before it plans to mine a new area. In the ARLP Partnerships experience, permits generally are approved
within 12 to 18 months after a completed application is submitted, although regulatory authorities exercise considerable discretion in the timing and scope of permit issuance and the public has rights to engage in the permitting process, including
intervention in the courts, which can cause delay. Generally, the ARLP Partnership has not experienced material difficulties in obtaining mining permits in the areas where its reserves are located. However, the permitting process for certain mining
operations has extended over several years and we cannot assure you that the ARLP Partnership will not experience difficulty or delays in obtaining mining permits in the future.

The ARLP Partnership is required to post bonds to secure performance under its permits. Under some circumstances, substantial fines and
penalties, including revocation of mining permits, may be imposed under the laws and regulations described above. Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these laws and
regulations. Regulations also provide that a mining permit can be refused or revoked if the permit applicant or permittee owns or controls, directly or indirectly through other entities, mining operations that have outstanding environmental
violations. Although, like other coal companies, the ARLP Partnership has been cited for violations in the ordinary course of its business, it has never had a permit suspended or revoked because of any violation, and the penalties assessed for these
violations have not been material.

Mine Health and Safety Laws

Stringent safety and health standards have been imposed by federal legislation since 1969 when the Federal Coal Mine Health and Safety Act of
1969 (CMHSA) was adopted. The Federal Mine Safety and Health Act of 1977 (FMSHA), and regulations adopted pursuant thereto, significantly expanded the enforcement of health and safety standards of the CMHSA, and imposed
extensive and detailed safety and health standards on numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations, and numerous other matters. The Mine Safety and
Health



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Administration (MSHA) monitors and rigorously enforces compliance with these federal laws and regulations. In addition, as part of the FMSHA, the Federal Black Lung Benefits Act
(BLBA) requires payments of benefits by all businesses that conduct current mining operations to coal miners with black lung disease and to some survivors of miners who die from this disease. Most of the states where the ARLP Partnership
operates also have state programs for mine safety and health regulation and enforcement. In combination, federal and state safety and health regulation in the coal mining industry is perhaps the most comprehensive and rigorous system for protection
of employee safety and health affecting any segment of any industry, and this regulation has a significant effect on the ARLP Partnerships operating costs. Although many of the requirements primarily impact underground mining, the ARLP
Partnerships competitors in all of the areas in which it operates are subject to the same laws and regulations.

In
2006, the Federal Mine Improvement and New Emergency Response Act of 2006 (MINER Act) was enacted. The MINER Act significantly amended the FMSHA, imposing more extensive and stringent compliance standards, increasing criminal penalties
and establishing a maximum civil penalty for non-compliance, and expanding the scope of federal oversight, inspection, and enforcement activities. Following the passage of the MINER Act, MSHA has issued new or more stringent rules and policies on a
variety of topics, including:



| |  |  | sealing off abandoned areas of underground coal mines;
| | - |  | ------------------------------------------------------



| |  |  | mine safety equipment, training and emergency reporting requirements;
| | - |  | ---------------------------------------------------------------------



| |  |  | substantially increased civil penalties for regulatory violations;
| | - |  | ------------------------------------------------------------------



| |  |  | training and availability of mine rescue teams;
| | - |  | -----------------------------------------------



| |  |  | underground refuge alternatives capable of sustaining trapped miners in the event of an emergency;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | flame-resistant conveyor belt, fire prevention and detection, and use of air from the belt entry; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | post-accident two-way communications and electronic tracking systems.
| | - |  | ---------------------------------------------------------------------

Subsequent to passage of the MINER Act, Illinois, Kentucky, Pennsylvania and West Virginia have enacted legislation addressing issues
such as mine safety and accident reporting, increased civil and criminal penalties, and increased inspections and oversight. Other states may pass similar legislation in the future. Also, additional federal legislation that would have imposed
additional safety and health requirements on coal mining was introduced in the 110thCongress, but did not become law. Although the same or similar legislation has not been introduced in the current 111thCongress, it could be introduced at any time. In addition, MSHA continues to interpret and implement various
provisions of the MINER Act. Although the ARLP Partnership is unable to quantify the full impact, implementing and complying with these new laws and regulations have had, and are expected to continue to have, an adverse impact on its results of
operation and financial position.

Black Lung Benefits Act

The BLBA levies a tax on production of $1.10 per ton for underground-mined coal and $0.55 per ton for surface-mined coal, but not to exceed
4.4% of the applicable sales price, in order to compensate miners who are totally disabled due to black lung disease and some survivors of miners who died from this disease, and who were last employed as miners prior to 1970 or subsequently where no
responsible coal mine operator has been identified for claims. In addition, BLBA provides that some claims for which coal operators had previously been responsible are or will become obligations of the government trust funded by the tax. The Revenue
Act of 1987 extended the termination date of this tax from January 1, 1996, to the earlier of January 1, 2014, or the date on which the government trust becomes solvent. For miners last employed as miners after 1969 and who are determined
to have contracted black lung, the ARLP Partnership self-insures the potential cost of compensating such miners using its actuary estimates of the cost of present and future claims. The ARLP Partnership is also liable under state statutes for black
lung claims.

Revised BLBA regulations took effect in January 2001, relaxing the stringent award criteria established under
previous regulations and thus potentially allowing more new federal claims to be awarded and allowing previously denied claimants to re-file under the revised criteria. These regulations may also increase black lung related medical costs by
broadening the scope of conditions for which medical costs are reimbursable, and increase legal costs by shifting more of the burden of proof to the employer. Moreover, Congress and state legislatures regularly consider various items of black lung
legislation that, if enacted, could adversely affect our business, financial condition, and results of operation.



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Workers Compensation

The ARLP Partnership is required to compensate employees for work-related injuries. Several states in which it operates consider changes in
workers compensation laws from time to time. The ARLP Partnership generally self-insures this potential expense using its actuary estimates of the cost of present and future claims. For more information concerning the ARLP Partnerships
requirement to maintain bonds to secure its workers compensation obligations, see the discussion of surety bonds below under Surface Mining Control and Reclamation Act.

Coal Industry Retiree Health Benefits Act

The Federal Coal Industry Retiree Health Benefits Act (CIRHBA) was enacted to fund health benefits for some United Mine Workers of America retirees. CIRHBA merged previously established union
benefit plans into a single fund into which signatory operators and related persons are obligated to pay annual premiums for beneficiaries. CIRHBA also created a second benefit fund for miners who retired between
July 21, 1992 and September 30, 1994, and whose former employers are no longer in business. Because of the ARLP Partnerships union-free status, it is not required to make payments to retired miners under CIRHBA, with the exception of
limited payments made on behalf of predecessors of MC Mining. However, in connection with the sale of the coal assets acquired by ARH in 1996, MAPCO Inc., now a wholly-owned subsidiary of The Williams Companies, Inc., agreed to retain, and be
responsible for, all liabilities under CIRHBA.

Surface Mining Control and Reclamation Act

The Federal Surface Mining Control and Reclamation Act (SMCRA), establishes operational, reclamation and closure standards for
all aspects of surface mining as well as many aspects of deep mining. Although the ARLP Partnership has minimal surface mining activity and no mountaintop removal mining activity, SMCRA nevertheless requires that comprehensive environmental
protection and reclamation standards be met during the course of and upon completion of mining activities.

SMCRA and similar
state statutes require, among other things, that mined property be restored in accordance with specified standards and approved reclamation plans. SMCRA requires the ARLP Partnership to restore the surface to approximate the original contours as
contemporaneously as practicable with the completion of surface mining operations. Federal law and some states impose on mine operators the responsibility for replacing certain water supplies damaged by mining operations and repairing or
compensating for damage to certain structures occurring on the surface as a result of mine subsidence, a consequence of longwall mining and possibly other mining operations. The ARLP Partnership believes it is in compliance in all material respects
with applicable regulations relating to reclamation.

In addition, the Abandoned Mine Lands Program, which is part of SMCRA,
imposes a tax on all current mining operations, the proceeds of which are used to restore mines closed before 1977. The tax for surface-mined and underground-mined coal is $0.315 per ton and $0.135 per ton, respectively, through 2012. In fiscal
years 2013 through 2021, the tax for surface-mined and underground-mined coal will be reduced to $0.28 per ton and $0.12 per ton, respectively. The ARLP Partnership has accrued the estimated costs of reclamation and mine closing, including the cost
of treating mine water discharge when necessary. Please read Item 8. Financial Statements and Supplementary Data.Note 16. Asset Retirement Obligations. In addition, states from time to time have increased and may continue to
increase their fees and taxes to fund reclamation or orphaned mine sites and acid mine drainage (AMD) control on a statewide basis.

Under SMCRA, responsibility for unabated violations, unpaid civil penalties and unpaid reclamation fees of independent contract mine operators and other third-parties can be imputed to other companies
that are deemed, according to the regulations, to have owned or controlled the third-party violator. Sanctions against the owner or controller are quite severe and can include being blocked from
receiving new permits and having any permits that have been issued since the time of the violations revoked or, in the case of civil penalties and reclamation fees, since the time those amounts became due. The ARLP Partnership is not aware of any
currently pending or asserted claims against it relating to the ownership or control theories discussed above. However, the ARLP Partnership cannot assure you that such claims will not be asserted in the future.

On June 11, 2009, the U.S. Department of the Interior, the U.S. Army Corps of Engineers (Corps of Engineers) and the
U.S. Environmental Protection Agency (EPA) issued a Memorandum of Understanding (MOU) setting forth an Interagency Action Plan on Appalachian Surface Coal Mining to significantly reduce the harmful environmental
consequences of Appalachian surface coal mining operations, while ensuring that future mining remains consistent with federal law. Pursuant to the MOU, the Office



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of Surface Mining Reclamation and Enforcement (OSM) intends to reevaluate and determine how it will more effectively conduct oversight of state permitting, state enforcement,
and regulatory activities under SMCRA. In a statement issued on its oversight review, the OSM specifically noted that while the MOU applies only to six Appalachian states, any changes it makes to its oversight policy will apply nationwide.
Among the immediate actions OSM has indicated it plans to take are more oversight inspections, articulation of OSM authority to conduct inspections without prior notification to the state, evaluation of oversight data collection, analysis, and
reporting requirements and methodologies, review of more state-issued permits and state permitting procedures, and development of a national geographic information system with data on coal mining and reclamation activities. The ARLP Partnership is
unable to predict the impact, if any, of such actions by the OSM, although the actions could result in additional delays in obtaining permits and additional enforcement action, as a result of increased inspections.

Bonding Requirements

Federal and state laws require bonds to secure the ARLP Partnerships obligations to reclaim lands used for mining, to pay federal and state workers compensation, to pay certain black lung
claims, and to satisfy other miscellaneous obligations. These bonds are typically renewable on a yearly basis. It has become increasingly difficult for the ARLP Partnership and for its competitors to secure new surety bonds without the posting of
partial collateral. In addition, surety bond costs have increased while the market terms of surety bonds have generally become less favorable to the ARLP Partnership. It is possible that surety bonds issuers may refuse to renew bonds or may demand
additional collateral upon those renewals. The ARLP Partnerships failure to maintain, or inability to acquire, surety bonds that are required by state and federal laws would have a material adverse effect on it.

Air Emissions

The CAA and similar state and local laws and regulations regulate emissions into the air and affect coal mining operations. The CAA directly impacts the ARLP Partnership coal mining and processing
operations by imposing permitting requirements and, in some cases, requirements to install certain emissions control equipment, achieve certain emissions standards, or implement certain work practices on sources that emit various air pollutants. The
CAA also indirectly affects coal mining operations by extensively regulating the air emissions of coal-fired electric power generating plants and other coal-burning facilities. There have been a series of federal rulemakings focused on emissions
from coal-fired electric generating facilities. Installation of additional emissions control technology and any additional measures required under the laws and EPA regulations will make it more costly to operate coal-fired power plants and could
make coal a less attractive fuel alternative in the planning and building of power plants in the future. Any reduction in coals share of power generating capacity could have a material adverse effect on our business, financial condition and
results of operations.

The EPAs Acid Rain Program, provided in Title IV of the CAA, regulates emissions of sulfur
dioxide from electric generating facilities. Sulfur dioxide is a by-product of coal combustion. Affected facilities purchase or are otherwise allocated sulfur dioxide emissions allowances, which must be surrendered annually in an amount equal to a
facilitys sulfur dioxide emissions in that year. Affected facilities may sell or trade excess allowances to other facilities that require additional allowances to offset their sulfur dioxide emissions. In addition to purchasing or trading for
additional sulfur dioxide allowances, affected power facilities can satisfy the requirements of the EPAs Acid Rain Program by switching to lower sulfur fuels, installing pollution control devices such as flue gas desulfurization systems, or
scrubbers, or by reducing electricity generating levels.

The EPA has promulgated rules, referred to as the
Nitrogen Oxide SIP Call, that, among other things, require coal-fired power plants in 21 eastern states and Washington D.C. to make substantial reductions in nitrogen oxide emissions in an effort to reduce the impacts of ozone transport
between states. Additionally, in March 2005, the EPA issued the final Clean Air Interstate Rule (CAIR) which permanently capped nitrogen oxide and sulfur dioxide emissions in 28 eastern states and Washington, D.C. beginning in 2009 and
2010, respectively. CAIR required these states to achieve the mandated nitrogen oxide and sulfur dioxide emission reductions by requiring power plants to either participate in an EPA-administered cap-and-trade program that capped these
emissions in two phases, or by meeting an individual state emissions budget through measures established by the state. Similarly, in March 2005, the EPA finalized the Clean Air Mercury Rule (CAMR), which established a two-part,
nationwide cap on mercury emissions from coal-fired power plants beginning in 2010. If it had been fully implemented, the CAMR would have permitted states to develop and manage their own mercury control regulations or participate in an interstate
cap-and-trade program for mercury emission allowances. The CAIR and CAMR rules were both the subject of successful legal challenges, however, which have rendered the future of these rules uncertain. On February 8, 2008, the D.C. Circuit Court
of Appeals vacated the CAMR rule for further consideration by the



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EPA. In response to that ruling, the EPA is developing, and has stated that it intends to propose by March 10, 2011, air toxics standards for coal- and oil-fired generating units. On
December 24, 2009, the EPA approved an Information Collection Request requiring power plants to submit emissions information for use in developing those standards. In addition, on July 11, 2008, the D.C. Circuit Court of Appeals vacated
the CAIR, but on petition for rehearing, the court retracted its vacatur and remanded the rule to the EPA for further consideration. This remand has the effect of leaving the rule in place while the EPA evaluates possible changes to the rule to
correct the defects identified in the courts original opinion. While the futures of the CAIR and CAMR are uncertain, the EPA may require a significant amount of emissions reductions at coal-fired power generation facilities in replacing those
rules. The additional costs that could be associated with the implementation of any rules could make coal a less attractive fuel source.

The EPA is required by the CAA to periodically re-evaluate the available health effects information to determine whether the national ambient air quality standards should be revised. Pursuant to this
process, in 2006, the EPA adopted a more stringent national air quality standard for fine particulate matter; in 2008, the EPA adopted a more stringent national ambient air quality standard for ozone, and in January 2010, the EPA adopted a more
stringent national air quality standard for nitrogen oxide. As a result, some states will be required to amend their existing state implementation plans to attain and maintain compliance with the new air quality standards and other states will be
required to develop new state implementation plans for areas that were previously in attainment but do not attain the new standards. States are expected to submit their implementation plans for meeting the new fine particulate matter
standard to the EPA over the next two years, and their implementation plans for meeting the new ozone standard over the next four years. By January 2012, the EPA expects to make an initial classification of areas as either in attainment or
nonattainment regarding the new nitrogen dioxide standard or as unclassifiable. When sufficient data from the rules new monitoring requirements becomes available after 2015, the EPA will then reclassify previously unclassifiable areas as in
attainment or nonattainment. Because coal mining operations and coal-fired electric generating facilities emit particulate matter and nitrogen oxides, which are precursors to ozone formation, the ARLP Partnerships mining operations and its
customers could be affected when the new standards are implemented by the applicable states.

In June 2005, the EPA announced
final amendments to its regional haze program originally developed in 1999 to improve visibility in national parks and wilderness areas. As part of the new rules, affected states were required to develop implementation plans by December 2007 that,
among other things, identify facilities that will have to reduce emissions and comply with stricter emission limitations. Most states missed the December 2007 deadline, and on January 9, 2009, the EPA issued a Finding of Failure to Submit State
Implementation Plans, which may trigger Federal enforcement plans in some states. This program may restrict construction of new coal-fired power plants where emissions are projected to reduce visibility in protected areas. In addition, this program
may require certain existing coal-fired power plants to install emissions control equipment to reduce haze-causing emissions such as sulfur dioxide, nitrogen oxide, and particulate matter. Demand for the ARLP Partnerships coal could be
affected when these new standards are implemented by the applicable states.

The Department of Justice, on behalf of the EPA,
has filed lawsuits against a number of coal-fired electric generating facilities, including some of the ARLP Partnerships customers, alleging violations of the new source review provisions of the CAA. The EPA has alleged that certain
modifications have been made to these facilities without first obtaining certain permits issued under the new source review program. Several of these lawsuits have settled, but others remain pending, and still more lawsuits may be filed. Depending
on the ultimate resolution of these cases, demand for the ARLP Partnerships coal could be affected.

Carbon
Dioxide Emissions

Combustion of fossil fuels, such as the coal the ARLP Partnership produces, results in the emission
of carbon dioxide into the atmosphere. The U.S. Congress is considering legislation to reduce emissions of greenhouse gases. On June 26, 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of
2009 (ACESA), which would establish an economy-wide cap-and-trade program to reduce U.S. emissions of greenhouse gases, including carbon dioxide. The net effect of ACESA would be to impose increasing costs on the combustion of
carbon-based fuels such as oil, refined petroleum products, and natural gas. The U.S. Senate has begun work on its own legislation for restricting domestic greenhouse gas emissions. President Obama has expressed support for legislation to restrict
or regulate emissions of greenhouse gases. In addition, more than one-third of the states, either individually or through multi-state regional initiatives, already have begun implementing legal measures to reduce emissions of greenhouse gases.
Depending on the particular regulatory program that could apply, at either the federal or state level, ARLP Partnerships customers could be required to purchase and surrender allowances for greenhouse gas emissions resulting from their



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operations or install emission control equipment to reduce emissions of greenhouse gases. These requirements could increase the ARLP Partnership customers operational and compliance costs
and result in reduced demand for its coal products and have an adverse effect on its operations.

Also, as a result of the
U.S. Supreme Courts decision on April 2, 2007 in Massachusetts v. EPA, the EPA may regulate greenhouse gas emissions from mobile sources such as cars and trucks even if Congress does not adopt new legislation specifically
addressing emissions of greenhouse gases. The Courts holding in Massachusetts v. EPA that greenhouse gases including carbon dioxide fall under the federal CAA definition of air pollutant may also result in future regulation
of carbon dioxide and other greenhouse gas emissions from stationary sources. In September 2009, the EPA published a proposed rule to regulate greenhouse gas emissions for light-duty vehicles under the CAA, in response to the Supreme Courts
decision in Massachusetts. On December 15, 2009, the EPA published its finding that greenhouse gas emissions, including carbon dioxide and methane, endanger public health and welfare and that greenhouse gases emitted by motor vehicles
contribute to that endangerment (Endangerment Finding). The EPAs Endangerment Finding does not impose greenhouse gas controls on its own, but is a necessary prerequisite to further regulatory action under the CAA to control
greenhouse gas emissions from sources, in particular mobile sources. Several groups have filed Petitions for Reconsideration asking the EPA to reconsider the Endangerment Finding based on developments occurring after the end of the public comment
period for the Endangerment Finding. Further, several groups have filed Petitions for Review asking the United States Court of Appeals for the District of Columbia Circuit to review the legality of the EPAs Endangerment Finding.

The EPA has indicated that it expects to issue final greenhouse gas emission standards for light-duty vehicles in March 2010. Once these
rules are finalized and actual greenhouse gases become subject to regulation under the CAA, then another CAA program  the prevention of significant deterioration (PSD) program  could require certain stationary sources,
including coal-fired power plants, to obtain permits prior to construction and modification and to implement best available control technology. In another, related rulemaking, the so-called tailoring rule, the EPA has proposed to exclude
thousands of smaller stationary sources by limiting the reach of the PSD program for greenhouse gas emissions to sources that emit more than 25,000 tons of carbon dioxide equivalent, rather than to sources that emit 100 or 250 tons per year
according to statutory limits. At the same time, the EPA is proposing to limit the reach of the CAAs Title V permitting program to sources that emit 25,000 tons of carbon dioxide equivalent per year, rather than 100 tons per year, as set forth
under the statute. Although these EPA rules may be subject to litigation, if greenhouse gases become subject to PSD regulation, these requirements could increase the ARLP Partnership customers operational and compliance costs and result in
reduced demand for its coal products, and have an adverse effect on its operations. Measures to control and regulate carbon dioxide emissions could increase the costs of the ARLP Partnerships coal mining and processing operations.

In addition, on October 30, 2009, the EPA issued the Final Mandatory Reporting of Greenhouse Gases Rule requiring all stationary
sources that emit more than 25,000 tons of greenhouse gases per year to collect and report to the EPA data regarding such emissions. This rule affects many of the ARLP Partnerships customers, as well as its Mettiki (MD) mining complex which
operates a coal-fired stationary source thermal dryer to process coal.

In December 2009, the U.S. joined other countries in
negotiating the Copenhagen Accord, a nonbinding agreement that allows countries to commit to specific efforts to reduce greenhouse gas emissions, although how and when the commitment may be converted into binding emission reduction obligations is
currently uncertain. Those specific efforts must be brought forward during 2010 and established officially in the Copenhagen Accord. In addition, the terms of the Copenhagen Accord include a system of monitoring the progress being made in the
reduction of greenhouse gas emissions.

In addition, there have been an increasing number of protests of and challenges to the
permitting of new coal-fired power plants in several states by environmental organizations for concerns related to greenhouse gas emissions from new plants. Environmental permitting agencies in several states have denied permits for construction of
new coal-fired power plants based on concerns over emissions of greenhouse gases. In November 2008, the federal Environmental Appeals Board remanded a CAA permitting decision in the In re Deseret Power Electric Cooperative case for
reconsideration of whether carbon dioxide is a pollutant subject to regulation under the CAA with instructions to consider its nationwide implications. In response to this decision, in December 2008, the EPA Administrator issued an interpretive rule
determining that carbon dioxide is not subject to regulation under the CAA. Environmental groups filed a Petition for Reconsideration of the interpretive rule. On February 17, 2009, the EPA granted the Petition for Reconsideration and sought
public comment on the interpretive memorandum as well as the Deseret decision. In granting the petition, the EPA emphasized that the memorandum does not bind states issuing air permits under their own State Implementation Plans. If the EPA
regulates greenhouse gas emissions of light-duty vehicles, as discussed above, the subject to regulation dispute will be



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resolved in that such emissions will become regulated under the CAA. Other lawsuits regarding the permitting of coal-fired power plants have challenged, and are expected to continue to challenge,
how permitting authorities such as the EPA or states consider what is best available control technology for greenhouse gases, which may result in delays or difficulties in obtaining permits. The increased difficulty or inability of the
ARLP Partnerships customers to obtain permits for construction of new or expansion of existing coal-fired power plants could adversely affect its operations and demand for its products.

It is possible that future international, federal and state initiatives to control carbon dioxide emissions could result in increased costs
associated with coal consumption, such as costs to install additional controls to reduce carbon dioxide emissions or costs to purchase emissions reduction credits to comply with future emissions trading programs. Such increased costs for coal
consumption could result in some customers switching to alternative sources of fuel, or otherwise adversely affect the ARLP Partnerships operations and demand for its products, which could have a material adverse effect on its business,
financial condition, and results of operations.

Water Discharge

The Federal Clean Water Act (CWA) and similar state and local laws and regulations affect coal mining operations by imposing
restrictions on effluent discharge into waters and the discharge of dredged or fill material into the waters of the U.S. Regular monitoring, as well as compliance with reporting requirements and performance standards, is a precondition for the
issuance and renewal of permits governing the discharge of pollutants into water. Section 404 of the CWA imposes permitting and mitigation requirements associated with the dredging and filling of wetlands and streams. The CWA and equivalent
state legislation, where such equivalent state legislation exists, affect coal mining operations that impact wetlands and streams. Although permitting requirements have been tightened in recent years, the ARLP Partnership believes it has obtained
all necessary permits required under CWA Section 404 as it has traditionally been interpreted by the responsible agencies. However, mitigation requirements under existing and possible future fill permits may vary considerably. For
that reason, the setting of post-mine asset retirement obligation accruals for such mitigation projects is difficult to ascertain with certainty and may increase in the future. Although more stringent permitting requirements may be imposed in the
future, the ARLP Partnership is not able to accurately predict the impact, if any, of such permitting requirements.

The Corps
of Engineers maintains two permitting programs under CWA Section 404 for the discharge of dredged or fill material: one for individual permits and a more streamlined program for general permits.

Decisions as a result of litigation filed in the federal district court for the Southern District of West Virginia, and related litigation
filed in federal district court in Kentucky, have created uncertainty regarding the future ability to obtain general permits, including Nationwide Permit 21, authorizing the construction of valley fills for the disposal of overburden from mining
operations. The ARLP Partnership does not operate any mines located within the Southern District of West Virginia and currently utilize Nationwide Permit 21 at limited locations. Litigation over the validity of Nationwide Permit 21 is ongoing. In
November 2009, pursuant to the MOU, the Corps of Engineers published a proposal to modify or suspend the use of Nationwide Permit 21 in connection with surface coal mining activities in the Appalachian region. If challenges to the use of Nationwide
Permit 21 ultimately are successful, or if Nationwide Permit 21 is modified or suspended, the ARLP Partnership may be required to apply for individual discharge permits pursuant to Section 404 of the CWA in areas that would have otherwise
utilized Nationwide Permit 21. Such a change could result in delays in obtaining required mining permits to conduct operations, which could in turn result in reduced production, cash flow, and profitability. State and federal legislation that would
prohibit or restrict the use of Section 404 permits for the discharge of overburden from certain mining operations or otherwise limit mountaintop mining also has been proposed. If such legislation were to pass, the disposal of overburden could
be regulated in a more stringent and costly manner, or there could be other restrictions or additional costs, delays, or other regulatory burdens placed on the ARLP Partnerships operations.

In addition, litigation has been filed in West Virginia and Kentucky challenging the issuance of individual Section 404 permits for
mining activities by other coal producers. Although the ARLP Partnerships mining operations are not implicated in any of these particular cases, it is possible that litigation affecting the Corps of Engineers ability to issue CWA
Section 404 permits could adversely affect the ARLP Partnerships ability to obtain permits in a timely manner and could therefore adversely affect its results of operations and financial position.

A number of other ongoing and proposed regulatory and legislative initiatives also could adversely affect the ARLP Partnerships
ability to obtain required permits in a timely manner. The June 11, 2009 interagency MOU set forth Enhanced Coordination Procedures for the review of applications for CWA Section 404 permits for surface coal mining activities in
Appalachia.



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In September 2009, the EPA identified 79 projects that required further, detailed environmental review of their pending permit applications under these procedures. Although none of the ARLP
Partnerships projects were subjected to additional review, the enhanced review procedures indicate that obtaining Section 404 permits could become more difficult, time-consuming, and costly.

In addition, the OSM published in November 2009, an Advance Notice of Proposed Rulemaking and announced its intent to revise the Stream
Buffer Zone (SBZ) rule published in December 2008. The SBZ rule sets forth conditions under which mining activities may be conducted in or near perennial or intermittent streams. The OSM also announced a series of measures that it
intends to implement immediately, until the revisions to the SBZ rule are finalized, including: (1) mandatory coordination of review and approval of SMCRA permits with those required under the CWA; (2) meetings in each state with
appropriate state and federal agencies regarding the coordination of SMCRA and CWA permitting and authorization; and (3) specific direction to OSM inspectors to focus on particular standards and permit conditions when conducting oversight
inspections, including, among other things, verifying that provisions of the CWA were complied with prior to the initiation of mining activities. The ARLP Partnership is unable to predict the impact, if any, of the proposed rulemaking and the
interim measures taken by the OSM, although the actions could result in prohibitions or restrictions relating to mining activities near streams, additional delays and costs associated with obtaining permits, and potentially additional CWA
enforcement actions as a result of an increased focus on inspections.

Also, each state is required to submit to the EPA their
biennial CWA Section 303(d) lists identifying all waterbodies not meeting state specified water quality standards. For each listed waterbody, the state is required to begin developing a Total Maximum Daily Load (TMDL) to:



| |  |  | determine the maximum pollutant loading the waterbody can assimilate without violating water quality standards;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | identify all current pollutant sources and loadings to that waterbody;
| | - |  | ----------------------------------------------------------------------



| |  |  | calculate the pollutant loading reduction necessary to achieve water quality standards; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | establish a means of allocating that burden among and between the point and non-point sources contributing pollutants to the waterbody.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

The ARLP Partnership is currently participating in stakeholders meetings and in negotiations with
various states and the EPA to establish reasonable TMDLs that will accommodate expansion of its operations. These and other regulatory developments may restrict the ARLP Partnerships ability to develop new mines, or could require it or its
customers to modify existing operations, the extent of which cannot be accurately or reasonably predicted.

The Federal Safe
Drinking Water Act (SDWA) and its state equivalents affect coal mining operations by imposing requirements on the underground injection of fine coal slurry, fly ash, and flue gas scrubber sludge, and by requiring permits to conduct such
underground injection activities. The inability to obtain these permits could have a material impact on the ARLP Partnerships ability to inject such materials into the inactive areas of some of its old underground mine workings.

In addition to establishing the underground injection control program, the SDWA also imposes regulatory requirements on owners and operators
of public water systems. This regulatory program could impact the ARLP Partnerships reclamation operations where subsidence or other mining-related problems require the provision of drinking water to affected adjacent homeowners.
However, it is unlikely that any of the ARLP Partnerships reclamation activities would fall within the definition of a public water system. While the ARLP Partnership has several drinking water supply sources for its employees and
contractors that are subject to SDWA regulation, the SDWA is unlikely to have a material impact on the ARLP Partnerships operations.

Hazardous Substances and Wastes

The Federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), otherwise known as the Superfund law, and analogous state laws, impose liability, without regard to fault or the legality of the original conduct on certain
classes of persons that are considered to have contributed to the release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for the release of hazardous substances may be subject to joint and several liability under CERCLA for the costs of cleaning up the
hazardous substances released into the environment and for damages to natural resources. Some products used in coal mining operations generate waste containing hazardous substances. The ARLP Partnership is currently unaware of any material liability
associated with the release or disposal of hazardous substances from its past or present mine sites.



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The Federal Resource Conservation and Recovery Act (RCRA) and corresponding
state laws regulating hazardous waste affect coal mining operations by imposing requirements for the generation, transportation, treatment, storage, disposal, and cleanup of hazardous wastes. Many mining wastes are excluded from the regulatory
definition of hazardous wastes, and coal mining operations covered by SMCRA permits are by statute exempted from RCRA permitting. RCRA also allows the EPA to require corrective action at sites where there is a release of hazardous substances. In
addition, each state has its own laws regarding the proper management and disposal of waste material. While these laws impose ongoing compliance obligations, such costs are not believed to have a material impact on the ARLP Partnerships
operations.

In 2000, the EPA declined to impose hazardous waste regulatory controls on the disposal of some coal combustion
by-products (CCB), including the practice of using CCB as mine fill. However, under pressure from environmental groups, the EPA has continued evaluating the possibility of placing additional solid waste regulatory restrictions on the
disposal of such materials. On March 1, 2006, the National Academy of Sciences released a report commissioned by Congress that studied CCB mine filling practices and recommended federal regulatory oversight of CCB mine filling under either
SMCRA or the non-hazardous waste provisions of RCRA. As a result of this report, on March 14, 2007, the OSM issued an Advanced Notice of Rule making proposing federal regulations on CCB mine filling practices. On August 29, 2007, the EPA
published a Notice of Data Availability concerning information regarding the disposal of CCB in landfills and surface impoundments that has been generated since the decision in 2000. Accordingly, although the ARLP Partnership believes the beneficial
uses of CCB that it employs do not constitute poor environmental practices, it is not currently possible to assess how any such regulations would impact its operations or those of its customers.

In addition, the EPA has recently issued Information Request Letters to electric utilities that have surface impoundments containing CCB,
seeking information to assist the EPA in evaluating the structural integrity of these impoundments. The EPA has been conducting on-site assessments of coal ash impoundments and ponds at electric utility facilities, and a number of these facilities
have developed action plans to improve the integrity of impoundments. The EPA also has announced its intention to promulgate regulations for the management of CCB by electric utilities, potentially by revising its 2000 determination that CCB should
not be regulated as hazardous wastes under RCRA. Although it is not currently possible to predict how such regulations would impact the ARLP Partnerships operations or those of its customers, the regulation of CCB as hazardous waste
could result in increased disposal and compliance costs, which could result in decreased demand for its products.

Other Environmental,
Health And Safety Regulation

In addition to the laws and regulations described above, the ARLP Partnership is subject to
regulations regarding underground and above ground storage tanks in which it may store petroleum or other substances. Some monitoring equipment that it uses is subject to licensing under the Federal Atomic Energy Act. Water supply wells located on
the ARLP Partnerships properties are subject to federal, state, and local regulation. In addition, the ARLP Partnerships use of explosives is subject to the Federal Safe Explosives Act (SEA). The costs of compliance with
these regulations should not have a material adverse effect on our business, financial condition or results of operations.

Employees

To conduct its operations, the ARLP Partnership currently employs approximately 3,090 full-time employees, including
approximately 170 corporate employees and approximately 2,920 employees involved in active mining operations. The ARLP Partnerships work force is entirely union-free. The ARLP Partnership believes that relations with its employees are
generally good. We do not have any employees of our own.

Administrative Services

In connection with our IPO, we entered into an administrative services agreement (Administrative Services Agreement) with AGP,
MGP, ARLP, the Intermediate Partnership and Alliance Resource Holdings, II (ARH II). Under the Administrative Services Agreement, certain employees of Alliance Coal, including some executive officers, provide administrative services for
us, ARH II and our affiliates. We reimburse the ARLP Partnership for services rendered for us by those employees as provided under the Administrative Services Agreement. We paid the ARLP Partnership $0.4 million under this agreement for the year
ended December 31, 2009. Please read Item 13Certain Relationships and Related Transactions, and Director IndependenceAdministrative Services.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Inherent in an
Investment in Us

In the future, we may not have sufficient cash to pay distributions at our current quarterly distribution level or
to increase distributions.

Currently, the source of our earnings and cash flow consists solely of cash distributions
from ARLP. Therefore, the amount of distributions we are able to make to our unitholders may fluctuate based on the level of distributions ARLP makes to its partners. We cannot assure you that ARLP will continue to make quarterly distributions at
its current level or increase its quarterly distributions in the future. In addition, while we would expect to increase or decrease distributions to our unitholders if ARLP increases or decreases distributions to us, the timing and amount of such
increased or decreased distributions, if any, will not necessarily be comparable to the timing and amount of the increase or decrease in distributions made by ARLP to us.

Our ability to distribute cash received from ARLP to our unitholders could be limited by a number of factors, including:



| |  |  | interest expense and principal payments on indebtedness;
| | - |  | --------------------------------------------------------



| |  |  | restrictions on distributions contained in any current or future debt agreements;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | our general and administrative expenses;
| | - |  | ----------------------------------------



| |  |  | expenses of our subsidiaries other than ARLP, including tax liabilities of our corporate subsidiaries, if any;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | reserves necessary for us to make the necessary capital contributions to maintain our 1.98% general partner interest in ARLP as required by the
partnership agreement of ARLP upon the issuance of additional partnership securities by ARLP; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reserves our general partner believes prudent for us to maintain for the proper conduct of our business or to provide for future distributions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

We cannot guarantee that in the future we will be able to pay distributions or that any distributions we do
make will be at or above our current quarterly distribution level. The actual amount of cash that is available for distribution to our unitholders will depend on numerous factors, many of which are beyond our control or the control of our general
partner.

ARLPs cash distributions are not guaranteed and may fluctuate with its performance and other
external factors.

The amount of cash that ARLP can distribute to holders of its common units or other partnership
securities, including us, each quarter principally depends on the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:



| |  |  | the amount of coal the ARLP Partnership is able to produce from its properties;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the price at which it is able to sell coal, which is affected by the supply of and demand for domestic and foreign coal;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the level of its operating costs;
| | - |  | ---------------------------------



| |  |  | weather conditions;
| | - |  | -------------------



| |  |  | the proximity to and capacity of transportation facilities;
| | - |  | -----------------------------------------------------------



| |  |  | domestic and foreign governmental regulations and taxes;
| | - |  | --------------------------------------------------------



| |  |  | the price and availability of alternative fuels;
| | - |  | ------------------------------------------------



| |  |  | the effect of worldwide energy consumption; and
| | - |  | -----------------------------------------------



| |  |  | prevailing economic conditions.
| | - |  | -------------------------------

In addition, the actual amount of cash that ARLP will have available for distribution will depend on other factors, including:



| |  |  | the level of its capital expenditures;
| | - |  | --------------------------------------



| |  |  | the cost of acquisitions, if any;
| | - |  | ---------------------------------



| |  |  | its debt service requirements and restrictions on distributions contained in its current or future debt agreements;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuations in its working capital needs;
| | - |  | ------------------------------------------



| |  |  | unavailability of financing resulting in unanticipated liquidity restraints;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the ability of ARLP to borrow under its credit agreement to make distributions to its unitholders; and
| | - |  | ------------------------------------------------------------------------------------------------------



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| |  |  | the amount, if any, of cash reserves established by MGP, in its discretion, for the proper conduct of ARLPs business.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

Because of these and other factors, ARLP may not have sufficient available cash to pay a specific level of
cash distributions to its unitholders. Furthermore, the amount of cash that ARLP has available for distribution depends primarily upon its cash flow, including cash flow from financial reserves and working capital borrowing, and is not solely a
function of profitability, which will be affected by non-cash items. As a result, ARLP may be able to make cash distributions during periods when it records net losses and may be unable to make cash distributions during periods when it records net
income. Please read Risks Related to Alliance Resource Partners Business for a discussion of further risks affecting ARLPs ability to generate distributable cash flow.

ARLPs managing general partner, with our consent, may limit or modify the incentive distributions we are entitled to receive in order to
facilitate ARLPs growth strategy. Our general partners board of directors can give this consent without a vote of our unitholders.

We own ARLPs managing general partner, which owns the IDRs in ARLP that entitle us to receive increasing percentages, up to a maximum of 48%, of any cash distributed by ARLP, as certain target
distribution levels are reached in excess of $0.275 per ARLP unit in any quarter. The IDRs currently participate at the maximum 48% target cash distribution level. A substantial portion of the cash flow we receive from ARLP is provided by these
IDRs. The MGP Board of Directors may reduce the distributions related to the IDRs payable to us with our consent, which we may provide without the approval of our unitholders.

A reduction in ARLPs distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.

MGPs ownership of the IDRs in ARLP entitles us to receive specified percentages of total cash distributions made by ARLP with respect
to any particular quarter only in the event that ARLP distributes more than $0.275 per unit for such quarter. As a result, the holders of ARLPs common units have a priority over the holders of ARLPs IDRs to the extent of cash
distributions by ARLP up to and including $0.275 per unit for any quarter.

MGPs ownership of the IDRs in ARLP entitle
us to receive up to 48% of all cash distributed by ARLP. Because the IDRs currently participate at the maximum 48% target cash distribution level, future growth in distributions we receive from ARLP will not result from an increase in the target
cash distribution level associated with the IDRs.

Furthermore, a decrease in the amount of distributions by ARLP to less than
$0.375 per common unit per quarter would reduce MGPs percentage of the incremental cash distributions above $0.3125 per common unit per quarter from 48% to 23%. As a result, any such reduction in quarterly cash distributions from ARLP would
disproportionately reduce the amount of all distributions that we receive from ARLP as compared to the impact on the holders of ARLP common units only.

Restrictions in future financing agreements could limit our ability to make distributions to our unitholders, borrow additional funds or capitalize on business opportunities.

Any future credit facility could include such provisions and our ability to comply with them may be affected by events beyond our control,
including prevailing economic, financial and industry conditions. Failure to comply with any such restrictions or covenants could have significant consequences, such as causing a significant portion of the indebtedness under such a facility to
become immediately due and payable or our lenders commitment to make further loans to us under such facility to terminate. We might not have, or be able to obtain, sufficient funds to make such payments.

Our payment of principal and interest on any future indebtedness will reduce our cash available for distribution on our units. In addition,
any future levels of indebtedness may:



| |  |  | adversely affect our ability to obtain additional financing for future operations or capital needs;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | limit our ability to pursue acquisitions and other business opportunities; or
| | - |  | -----------------------------------------------------------------------------



| |  |  | make our results of operations more susceptible to adverse economic or operating conditions.
| | - |  | --------------------------------------------------------------------------------------------

For more information regarding our credit facility, please read Item 7. Managements Discussion and Analysis of Financial
Conditions and Results of OperationsDebt Obligations.



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Our unitholders do not elect our general partner or vote on our general
partners officers or directors. Certain current and former members of management and their affiliates currently own 79.41% of our units, a sufficient number of our common units to block any attempt to remove our general
partner.

Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on
matters affecting our business and, therefore, limited ability to influence managements decisions regarding our business. Our unitholders do not have the ability to elect our general partner or the officers or directors of our general partner.
The Board of Directors, including our independent directors, is chosen by the members of our general partner.

Furthermore, if
our unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. Our general partner may not be removed except upon the vote of the holders of at least 2/3rds of our
outstanding units. Because certain current and former members of management and their affiliates currently own 79.41% of our outstanding common units, it is not currently possible for our general partner to be removed without their consent. As a
result, the price at which our units trade may be lower because of the absence or reduction of a takeover premium in the trading price.

We may issue an unlimited number of limited partner interests, on terms and conditions established by our general partner, without the consent of our unitholders, which will dilute your ownership interest in us and may increase the
risk that we will not have sufficient available cash to maintain or increase our per unit distribution level.

The
issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:



| |  |  | our unitholders proportionate ownership interest in us will decrease;
| | - |  | ----------------------------------------------------------------------



| |  |  | the amount of cash available for distribution on each unit may decrease;
| | - |  | ------------------------------------------------------------------------



| |  |  | the relative voting strength of each previously outstanding unit may be diminished;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the ratio of taxable income to distributions may increase; and
| | - |  | --------------------------------------------------------------



| |  |  | the market price of our common units may decline.
| | - |  | -------------------------------------------------

The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public markets, including sales by our existing unitholders.

Certain current and former members of management and their affiliates currently own 79.41% of our units. Sales by any
of our existing unitholders of a substantial number of our common units in the public markets, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain
capital through an offering of equity securities. We do not know whether any such sales would be made in the public market or in private placements, nor do we know what impact such potential or actual sales would have on our unit price in the
future.

Control of our general partner and the IDRs in ARLP may be transferred to a third-party without unitholder consent.

Our general partner may transfer its general partner interest in us to a third-party in a merger or in a sale of its equity
securities without the consent of our unitholders. Furthermore, there is no restriction in the partnership agreement on the ability of the owner of our general partner to sell or transfer all or part of its ownership interest in our general partner
to a third-party. The new owner or owners of our general partner would then be in a position to replace the directors and officers of our general partner and control the decisions made and actions taken by its Board of Directors and officers. In
addition, the owner of our general partner controls MGP, the owner of the IDRs in ARLP. Control of MGP can likewise be transferred to a third-party without unitholder consent.

Our ability to sell our partnership interests in ARLP may be limited by securities law restrictions and liquidity constraints.

Of the 15,544,169 common units of ARLP that we own, 6,422,531 common units are unregistered, restricted securities within the meaning of Rule
144 under the Securities Act. Unless we exercise our registration rights with respect to these common units, we are limited to selling into the market in any three-month period an amount of ARLP common units that does not exceed the greater of 1% of
the total number of common units outstanding or the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale. We face contractual limitations on our ability to sell our general partner interest and
IDRs, and the market for such interests is illiquid.



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We depend on the leadership and involvement of Joseph W. Craft III and other key personnel for the
success of our and ARLPs business.

We depend on the leadership and involvement of Mr. Craft, the Chairman,
President and Chief Executive Officer of our general partner and a Director and President and Chief Executive Officer of ARLPs managing general partner. Mr. Craft has been integral to the success of ARLP and us, due in part to his ability
to identify and develop internal growth projects and accretive acquisitions, make strategic decisions and attract and retain key personnel. The loss of his leadership and involvement or the services of any members of our or ARLPs senior
management team could have a material adverse effect on our business, financial condition and results of operations and those of ARLP.

Several key personnel, including Messrs. Craft, Charles R. Wesley and Thomas M. Wynne, received substantial amounts of the proceeds from our IPO in May 2006. As a result of these cash payments, there is an increased risk that key personnel
will retire or resign in the future.

Your liability as a limited partner may not be limited, and our unitholders may have to repay
distributions or make additional contributions to us under certain circumstances.

As a limited partner in a
partnership organized under Delaware law, you could be held liable for our obligations to the same extent as a general partner if you participate in the control of our business. Our general partner generally has unlimited liability for
the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner. Additionally, the limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership have not been clearly established in many jurisdictions.

Under certain
circumstances, our unitholders may have to repay amounts wrongfully distributed to them. Under Delaware law, neither we nor ARLP may make a distribution to our unitholders if the distribution would cause our or ARLPs respective
liabilities to exceed the fair value of our respective assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, partners who received the distribution and who knew at the time of the
distribution that it violated Delaware law will be liable to the partnership for the distribution amount. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for
purposes of determining whether a distribution is permitted.

An increase in interest rates may cause the market price of our common
units to decline.

Like all equity investments, an investment in our common units is subject to certain risks. In
exchange for accepting these risks, investors may expect to receive a higher rate of return than would otherwise be obtainable from lower-risk investments. Accordingly, as interest rates rise, the ability of investors to obtain higher risk-adjusted
rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partnership interests. Reduced
demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline.

If in the future we cease to manage and control ARLP, we may be deemed to be an investment company under the Investment Company Act of 1940.

If we cease to manage and control ARLP and are deemed to be an investment company under the Investment Company Act of 1940 because of our
ownership of ARLP partnership interests, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our organizational structure or our contract rights to fall outside
the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property
to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us or our affiliates.



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The price of our common units may be volatile, and the trading market for our common units may not
provide you with adequate liquidity.

The market price of our common units could be subject to significant
fluctuations. The following factors could affect our common unit price:



| |  |  | ARLPs operating and financial performance and prospects;
| | - |  | ---------------------------------------------------------



| |  |  | quarterly variations in the rate of growth of our financial indicators, such as net income and revenues;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | changes in revenue or earnings estimates or publication of research reports by analysts;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the current economic downturn;
| | - |  | ------------------------------



| |  |  | the price of coal and expectations for the future of the coal industry;
| | - |  | -----------------------------------------------------------------------



| |  |  | speculation by the press or investment community;
| | - |  | -------------------------------------------------



| |  |  | sales of our common units by our unitholders;
| | - |  | ---------------------------------------------



| |  |  | actions by our existing unitholders prior to their disposition of our common units;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | announcements by ARLP or its competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, securities offerings or
capital commitments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general market conditions; and
| | - |  | ------------------------------



| |  |  | domestic and international economic, legal and regulatory factors related to ARLPs performance.
| | - |  | ------------------------------------------------------------------------------------------------

The equity markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading price of our common units. In addition, potential investors may be deterred from investing in our common units for various reasons, including the very limited number of
publicly traded entities whose assets consist almost exclusively of partnership interests in a publicly traded partnership. The lack of liquidity may also contribute to significant fluctuations in the market price of our common units and limit the
number of investors who are able to buy our common units.

Our common units and ARLPs common units may not trade in
simple relation or proportion to one another. Instead, the trading prices may diverge because, among other things:



| |  |  | ARLPs cash distributions to its common unitholders have a priority over distributions on its IDRs;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | we participate in the IDRs in ARLP, while ARLPs common unitholders do not; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | we may enter into other businesses separate and apart from ARLP or any of its affiliates.
| | - |  | -----------------------------------------------------------------------------------------

Our partnership agreement restricts the rights of unitholders owning 20% or more of our units.

Our unitholders voting rights are restricted by the provision in our partnership agreement generally providing that any units held by a
person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the Board of Directors, cannot be voted on any
matter. In addition, our partnership agreement contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders ability to
influence the manner or direction of our management. As a result, the price at which our common units will trade may be lower because of the absence or reduction of a takeover premium in the trading price.

ARLP may issue additional units, which may increase the risk that ARLP will not have sufficient available cash to maintain or increase its per unit
distribution level.

ARLP has wide latitude to issue additional units on terms and conditions established by MGP,
including units that rank senior to the ARLP common units and the IDRs as to quarterly cash distributions. The payment of distributions on those additional units may increase the risk that ARLP may not have sufficient cash available to maintain or
increase its per unit distribution level, which in turn may impact the available cash that we have to distribute to our unitholders. To the extent these units are senior to the common units or the IDRs, there is an increased risk that we will not
receive the same level or increased distributions on the common units and IDRs. Neither the common units nor the IDRs are entitled to any arrearages from prior quarters.

Risks Related to Conflicts of Interest

Conflicts of interest exist and may
arise in the future among us, ARLP and our respective general partners and affiliates. Future conflicts of interest may arise among us and the entities affiliated with any general partner interests we acquire or among ARLP and such entities. For a
further discussion of conflicts of interest that may arise, please read Item 13. Certain Relationships and Related Party Transactions, and Director Independence.



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Although we control ARLP through our ownership of ARLPs managing general partner, ARLPs
managing general partner owes fiduciary duties to ARLP and ARLPs unitholders, which may conflict with our interests.

Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including ARLPs managing general partner, on the one hand, and ARLP and its limited partners, on the other hand.
The directors and officers of ARLPs managing general partner have fiduciary duties to manage ARLP in a manner beneficial to us, its owner. At the same time, ARLPs managing general partner has a fiduciary duty to manage ARLP in a manner
beneficial to ARLP and its limited partners. The MGP Board of Directors will resolve any such conflict and has broad latitude to consider the interests of all parties to the conflict. The resolution of these conflicts may not always be in our best
interest or that of our unitholders.

For example, conflicts of interest may arise in the following situations:



| |  |  | the allocation of shared overhead expenses to ARLP and us;
| | - |  | ----------------------------------------------------------



| |  |  | the interpretation and enforcement of contractual obligations between us and our affiliates, on the one hand, and ARLP, on the other hand;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the determination and timing of the amount of cash to be distributed to ARLPs partners and the amount of cash to be reserved for the future
conduct of ARLPs business;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the decision as to whether ARLP should make acquisitions, and on what terms;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the determination of whether ARLP should use cash on hand, borrow or issue equity to raise cash to finance acquisition or expansion capital projects,
repay indebtedness, meet working capital needs, pay distributions to ARLPs partners or otherwise; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any decision we make in the future to engage in business activities independent of, or in competition with, ARLP.
| | - |  | -----------------------------------------------------------------------------------------------------------------

The fiduciary duties of our general partners officers and directors may conflict with those of
ARLPs general partners officers and directors.

Our general
partners officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our partners. However, all of our general partners executive officers also serve as executive officers of MGP. In addition, our
general partners non-independent director and one of our independent directors also serve as directors of MGP. As a result, these executive officers and directors have fiduciary duties to manage the business of ARLP in a manner beneficial to
ARLP and its partners. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to ARLP, on one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in
our best interest or that of our unitholders.

If we are presented with certain business opportunities, ARLP will have the first right
to pursue such opportunities.

Pursuant to an agreement among ARLP, SGP, MGP, ARH, ARH II, our general partner and us,
among others, (referred to as the omnibus agreement), we have agreed to certain business opportunity arrangements to address potential conflicts that may arise between us and ARLP. If a business opportunity in respect of any coal mining, marketing
and transportation assets is presented to us, our general partner, ARLP or its general partners, then ARLP will have the first right to acquire such assets. The omnibus agreement provides, among other things, that ARLP will be presumed to desire to
acquire the assets until such time as it advises us that it has abandoned the pursuit of such business opportunity, and we may not pursue the acquisition of such assets prior to that time.

ARLP and affiliates of our general partner are not limited in their ability to compete with us, which could cause conflicts of interest and limit our
ability to acquire additional assets or businesses which in turn could adversely affect our results of operations and cash available for distribution to our unitholders.

Neither our partnership agreement nor the omnibus agreement prohibits ARLP or affiliates of our general partner from owning assets or
engaging in businesses that compete directly or indirectly with us or one another. In addition, ARLP and its affiliates or affiliates of our general partner, may acquire, construct or dispose of additional assets related to the mining, marketing and
transportation of coal or other assets in the future, without any obligation to offer us the opportunity to purchase or construct any of those assets. As a result, competition among these entities could adversely impact ARLPs or our results of
operations and cash available for distribution.



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Potential conflicts of interest may arise among our general partner, its affiliates and us. Our
general partner and its affiliates have limited fiduciary duties to us and our unitholders, which may permit them to favor their own interests to the detriment of us and our unitholders.

Conflicts of interest may arise among our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand.
As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following:



| |  |  | Our general partner is allowed to take into account the interests of parties other than us, including ARLP and its affiliates and any other businesses
acquired in the future, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our general partner has limited its liability and reduced its fiduciary duties under the terms of our partnership agreement, while also restricting the
remedies available to our unitholders for actions that, without these limitations, might constitute breaches of fiduciary duties. As a result of purchasing our units, unitholders consent to various actions and conflicts of interest that might
otherwise constitute a breach of fiduciary or other duties under applicable state law.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our general partner determines the amount and timing of our investment transactions, borrowings, issuances of additional partnership securities and
reserves, each of which can affect the amount of cash that is available for distribution to our unitholders.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our general partner determines which costs incurred by it and its affiliates are reimbursable by us.
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered, or from entering
into additional contractual arrangements with any of these entities on our behalf, so long as the terms of any such payments or additional contractual arrangements are fair and reasonable to us.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our general partner controls the enforcement of obligations owed to us by it and its affiliates.
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.
| | - |  | -----------------------------------------------------------------------------------------------------------------

The president and chief executive officer of both our general partner and ARLPs managing general partner effectively
controls us and ARLP through his control of our general partner and ARLPs managing general partner.

Mr. Craft, the president and chief executive officer of both our general partner and ARLPs managing general partner, controls ARLPs managing general partner, indirectly owns SGP and owns or controls 43.31% of ARLPs
common units. Mr. Craft also currently holds, directly or indirectly or may be deemed to be the beneficial owner of, 79.41% of our common units. These interests give Mr. Craft substantial control over our and ARLPs business and
operations and the ability to control the outcome of many matters that require unitholder approval. Mr. Craft is not restricted from disposing of all or a part of his equity interests in our general partner, in ARLPs managing general
partner or in ARLPs special general partner.

Our partnership agreement limits our general partners fiduciary duties to us
and our unitholders and restricts the remedies available to our unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state
fiduciary duty law. For example, our partnership agreement:



| |  |  | permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This
entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include
the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of our partnership or amendment to our partnership
agreement;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long
as it acted in good faith, meaning it believed the decisions were in the best interests of our partnership;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the audit and conflicts committee of the Board
of Directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third-parties or be fair and reasonable to us and that, in determining
whether a transaction or resolution is fair and reasonable, our general partner may consider the totality of the relationships among the parties involved, including other transactions that may be particularly advantageous or beneficial
to us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | provides that in resolving conflicts of interest, it will be presumed that in making its decision our general partner acted in good faith, and in any
proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for
any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct or,
in the case of a criminal matter, acted with knowledge that such persons conduct was criminal.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
becoming a limited partner of our partnership, a common unitholder is bound by the provisions in the partnership agreement, including the provisions discussed above.

Our general partner has a limited call right that may require you to sell your units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 85% of our outstanding units, our general partner will have the right,
but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be
required to sell your units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units.

Risks Related to ARLPs Business

Because our cash flow consists
exclusively of distributions from ARLP, risks to the ARLP Partnerships business are also risks to us. We have set forth below many of the risks to ARLPs business or results of operations, the occurrence of which could negatively impact
the ARLP Partnerships financial performance and decrease the amount of cash it is able to distribute to us, thereby decreasing the amount of cash we have available for distribution to our unitholders.

Weakness in global economic conditions or in any of the industries in which the ARLP Partnership customers operate, or sustained uncertainty in
financial markets may have material adverse impacts on its business and financial condition that it currently cannot predict.

As widely reported, economic conditions in the U.S. and globally have deteriorated and the extent and timing of a recovery, especially in the U.S. and Europe, is uncertain. Financial markets in the U.S., Europe and Asia have also
experienced a period of unprecedented turmoil and upheaval characterized by extreme volatility and declines in security prices, severely diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure,
collapse or sale of various financial institutions and an unprecedented level of intervention from the U.S. federal government and other governments. Weakness in the U.S. or global economies, in any of the industries we serve or in the financial
markets, could materially adversely affect its business and financial condition. For example:



| |  |  | the demand for electricity in the U.S. has declined and may remain at low levels or further decline if economic conditions remain weak, which may
negatively impact the revenues, margins and profitability of the ARLP Partnerships business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the tightening of capital markets or lack of capital availability to the ARLP Partnerships customers could adversely affect its ability to honor
its obligations to us; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ARLP Partnerships ability to access the capital markets may be restricted at a time when it would like, or need, to raise capital for
operating its business, including development of coal reserves.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A substantial or extended decline in coal prices
could negatively impact the ARLP Partnerships results of operations.

The ARLP Partnerships results of
operations are primarily dependent upon the prices it receives for its coal, as well as its ability to improve productivity and control costs. The prices the ARLP Partnership receives for its production depends upon factors beyond the ARLP
Partnerships control, including:



| |  |  | the supply of and demand for domestic and foreign coal;
| | - |  | -------------------------------------------------------



| |  |  | weather conditions;
| | - |  | -------------------



| |  |  | the proximity to, and capacity of, transportation facilities;
| | - |  | -------------------------------------------------------------



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| |  |  | domestic and foreign governmental regulations and taxes;
| | - |  | --------------------------------------------------------



| |  |  | the price and availability of alternative fuels;
| | - |  | ------------------------------------------------



| |  |  | the effect of worldwide energy consumption; and
| | - |  | -----------------------------------------------



| |  |  | prevailing economic conditions.
| | - |  | -------------------------------

Any adverse change in these factors could result in weaker demand and lower prices for the ARLP Partnerships products. A substantial or extended decline in coal prices could materially and adversely
affect the ARLP Partnership by decreasing its revenues in the event that it is not otherwise protected pursuant to the specific terms of its coal supply agreements.

Competition within the coal industry may adversely affect the ARLP Partnerships ability to sell coal, and excess production capacity in the industry could put downward pressure on coal prices.

The ARLP Partnership competes with other large coal producers and many small coal producers in various regions of the
U.S. for domestic coal sales. The industry has undergone significant consolidation over the last decade. This consolidation has led to several competitors having significantly larger financial and operating resources than the ARLP Partnership. In
addition, the ARLP Partnership competes to some extent with western surface coal mining operations that have a much lower per ton cost of production and produce low-sulfur coal. Over the last 20 years, growth in production from western coal mines
has substantially exceeded growth in production from the east. Declining prices from an oversupply of coal in the market could reduce the ARLP Partnerships revenues and cash available for distribution.

Any change in consumption patterns by utilities away from the use of coal could affect the ARLP Partnerships ability to sell the coal it
produces.

The domestic electric utility industry accounts for approximately 90% of domestic coal consumption. The
amount of coal consumed by the domestic electric utility industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of competing fuels for power plants such
as nuclear, natural gas and fuel oil as well as alternative sources of energy. For example, the relatively low price of natural gas in 2009 resulted, in some instances, in utilities increasing natural gas consumption while decreasing coal
consumption. Future environmental regulation of greenhouse gas emissions could accelerate the use by utilities of fuels other than coal. In addition, state and federal mandates for increased use of electricity derived from renewable energy sources
could affect demand for the ARLP Partnerships coal. A number of states have enacted mandates that require electricity suppliers to rely on renewable energy sources in generating a certain percentage of power. Such mandates, combined with other
incentives to use renewable energy sources, such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the domestic electric utility industry could adversely affect the price of coal, which
could negatively impact the ARLP Partnerships results of operations and reduce its cash available for distribution.

The stability
and profitability of the ARLP Partnerships operations could be adversely affected if its customers do not honor existing contracts or do not extend existing or enter into new long-term contracts for coal.

A substantial decrease in the amount of coal sold by the ARLP Partnership pursuant to long-term contracts would reduce the certainty of the
price and amounts of coal sold and subject the ARLP Partnerships revenue stream to increased volatility. If that were to happen, changes in spot market coal prices would have a greater impact on the ARLP Partnerships results, and any
decreases in the spot market price for coal could adversely affect its profitability and cash flow. In 2009, the ARLP Partnership sold approximately 92.6% of its sales tonnage under contracts having a term greater than one year, which it refers to
as long-term contracts. Long-term sales contracts have historically provided a relatively secure market for the amount of production committed under the terms of the contracts. From time to time industry conditions may make it more difficult for the
ARLP Partnership to enter into long-term contracts with its electric utility customers, and if supply exceeds demand in the coal industry, electric utilities may become less willing to lock in price or quantity commitments for an extended period of
time. Accordingly, the ARLP Partnership may not be able to continue to obtain long-term sales contracts with reliable customers as existing contracts expire.

Some of the ARLP Partnerships long-term coal sales contracts contain provisions allowing for the renegotiation of prices and, in some instances, the termination of the contract or the
suspension of purchases by customers.

Some of the ARLP Partnerships long-term contracts contain provisions that
allow for the purchase price to be renegotiated at periodic intervals. These price reopener provisions may automatically set a new price based on the prevailing market price or, in



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some instances, require the parties to the contract to agree on a new price. Any adjustment or renegotiation leading to a significantly lower contract price could adversely affect the ARLP
Partnerships operating profit margins. Accordingly, long-term contracts may provide only limited protection during adverse market conditions. In some circumstances, failure of the parties to agree on a price under a reopener provision can also
lead to early termination of a contract.

Several of the ARLP Partnerships long-term contracts also contain provisions
that allow the customer to suspend or terminate performance under the contract upon the occurrence or continuation of certain events that are beyond the customers reasonable control. Such events may include labor disputes, mechanical
malfunctions and changes in government regulations, including changes in the CAA rendering use of the ARLP Partnerships coal inconsistent with the customers pollution control strategies. In the event of early termination of any of the
ARLP Partnerships long-term contracts, if the ARLP Partnership is unable to enter into new contracts on similar terms, its business, financial condition and results of operations could be adversely affected.

Extensive environmental laws and regulations affect coal consumers, and have corresponding effects on the demand for the ARLP Partnerships coal
as a fuel source.

Federal, state and local laws and regulations extensively regulate the amount of sulfur dioxide,
particulate matter, nitrogen oxides, mercury and other compounds emitted into the air from coal-fired electric power plants, which are the ultimate consumers of the ARLP Partnerships coal. These laws and regulations can require significant
emission control expenditures for many coal-fired power plants, and various new and proposed laws and regulations may require further emission reductions and associated emission control expenditures. A substantial portion of the ARLP
Partnerships coal has a high-sulfur content, which may result in increased sulfur dioxide emissions when combusted. Accordingly, these laws and regulations may affect demand and prices for the ARLP Partnerships low- and high-sulfur coal.
There is also continuing pressure on state and federal regulators to impose limits on carbon dioxide emissions from electric power plants, particularly coal-fired power plants. As a result of these current and proposed laws, regulations and
regulatory initiatives, electricity generators may elect to switch to other fuels that generate less of these emissions, further reducing demand for the ARLP Partnerships coal. Please read Item 1. BusinessRegulation and
LawsAir Emissions and Carbon Dioxide Emissions. In addition, the EPA has announced its intent to promulgate regulations for the management of CCB. Currently, CCB is not regulated as a hazardous waste. If
the EPA were to regulate CCB as a hazardous waste or impose other restrictions or limitations on the management and disposal of CCB, this change could result in increased disposal and compliance costs, which could result in decreased demand for the
ARLP Partnerships products. Please read Item 1. BusinessRegulation and LawsHazardous Substances and Wastes.

Increased regulation of greenhouse gas emissions could result in increased operating costs and reduced demand for coal as a fuel source, which could reduce demand for the ARLP Partnerships products, decrease its revenues and
reduce its profitability.

Combustion of fossil fuels, such as the coal we produce, results in the emission of carbon
dioxide into the atmosphere. On December 15, 2009, the U.S. EPA published its findings that emissions of carbon dioxide and other greenhouse gases present an endangerment to public health and the environment because emissions of
such gases are, according to the EPA, contributing to warming of the earths atmosphere and other climatic changes. These findings may lead to the EPA adopting and implementing regulations that would restrict emissions of greenhouse gases under
existing provisions of the CAA. Accordingly, the EPA has proposed regulations that would require a reduction in emissions of greenhouse gases from motor vehicles and could trigger permit review for greenhouse gas emissions from certain stationary
sources, including many industrial users and coal-fired power plants. The U.S. Congress is considering legislation to reduce emissions of greenhouse gases. On June 26, 2009, the U.S. House of Representatives passed the American Clean
Energy and Security Act of 2009 or ACESA, which would establish an economy-wide cap-and-trade program to reduce U.S. emissions of greenhouse gases, including carbon dioxide and methane. The net effect of ACESA would be to impose
increasing costs on the combustion of carbon-based fuels such as coal. The U.S. Senate has begun work on its own legislation for restricting domestic greenhouse gas emissions. President Obama has expressed support for legislation to restrict or
regulate emissions of greenhouse gases. In December 2009, the U.S. joined with a number other countries in negotiating the Copenhagen Accord, a nonbinding agreement to commit to specific efforts to reduce greenhouse gas emissions, although how and
when the commitment may be converted into binding emission reduction obligations is currently uncertain. Many states already have begun implementing legal measures to reduce emissions of greenhouse gases. Please read Item 1.
BusinessRegulation and LawsAir Emissions and Carbon Dioxide Emissions.



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Future international, federal and state initiatives to control carbon dioxide emissions
could result in increased costs associated with coal consumption, such as costs to install additional controls to reduce carbon dioxide emissions or costs to purchase emissions reduction credits to comply with future emissions trading programs. Such
increased costs for coal consumption could result in reduced demand for coal and some customers switching to alternative sources of fuel, which could have a material adverse effect on the ARLP Partnerships business, financial condition, and
results of operations. In addition, increased difficulty or inability of the ARLP Partnerships customers to obtain permits for construction of new or expansion of existing coal-fired power plants could adversely affect demand for its coal and
have an adverse effect on its business and results of operation.

Recent federal court rulings may allow plaintiffs to pursue tort
claims based on the alleged effects of climate change.

In 2004, eight states and New York City sued five electric
utility companies in Connecticut v. American Electric Power Co., Civ. No. 04 CV 05669 (S.D.N.Y.). These defendants were chosen as allegedly the five largest carbon dioxide emitters in the U.S., through their fossil-fuel-fired electric
power plants. Invoking the federal and state common law of public nuisance, plaintiffs sought an injunction requiring defendants to abate their contribution to the nuisance of climate change by capping carbon dioxide emissions and then reducing
them. Plaintiffs sued both on their own behalf to protect state-owned property and on behalf of their citizens and residents to protect public health and well-being. On September 21, 2009, on appeal of the trial courts dismissal of the
case, the Second Circuit issued a ruling holding that the district court erred in dismissing the complaints on political question grounds, that all of the Plaintiffs have standing and that Plaintiffs validly stated claims under the federal common
law on nuisance.

Also, in late November 2009, in Comer v. Murphy Oil USA, et al.,
No. 07-60756 (5thCir.) industry defendants asked the
Fifth Circuit for a rehearing of its decision of October 16, 2009 overturning the dismissal of tort claims brought by residents of Mississippi against dozens of companies in the energy, fossil fuel production, and chemical industries, including
ten coal companies, seeking money damages for injuries allegedly sustained as a result of Hurricane Katrina in 2005. In 2007, the district court had granted the defendants motions to dismiss, finding that the plaintiffs lacked standing and
holding that the complaint raised only nonjusticiable political questions. In reversing, the Fifth Circuit held the plaintiffs had standing to bring their four state common law claims (public and private nuisance, trespass, and negligence), and that
the claims did not present nonjusticiable political questions, and remanded to the trial court for further proceedings.

Although the ARLP Partnership cannot predict the impact, if any, of these court decisions, proliferation of successful climate change litigation could ultimately have a material adverse effect on its business, financial condition and
results of operations.

The ARLP Partnership depends on a few customers for a significant portion of its revenues, and the loss of one
or more significant customers could affect its ability to maintain the sales volume and price of the coal it produces.

During 2009, the ARLP Partnership derived approximately 41.8% of its total revenues from four customers and at least 10.0% of its 2009 total revenues from each of the four. If the ARLP Partnership were to lose any of these customers without
finding replacement customers willing to purchase an equivalent amount of coal on similar terms, or if these customers were to decrease the amounts of coal purchased or the terms, including pricing terms, on which they buy coal from the ARLP
Partnership, it could have a material adverse effect on the ARLP Partnerships business, financial condition and results of operations.

Litigation resulting from disputes with the ARLP Partnerships customers may result in substantial costs, liabilities and loss of revenues.

From time to time the ARLP Partnership has disputes with its customers over the provisions of long-term coal supply contracts relating to, among other things, coal pricing, quality, quantity and the
existence of specified conditions beyond the ARLP Partnership or its customers control that suspend performance obligations under the particular contract. Disputes may occur in the future and the ARLP Partnership may not be able to resolve those
disputes in a satisfactory manner, which could have a material adverse effect on the ARLP Partnerships business, financial condition and results of operations.



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The ARLP Partnerships ability to collect payments from its customers could be impaired if their
creditworthiness declines or if they fail to honor their contracts with the ARLP Partnership.

The ARLP
Partnerships ability to receive payment for coal sold and delivered depends on the continued creditworthiness of its customers. If the creditworthiness of its customers declines significantly, its business could be adversely affected. In
addition, if a customer refuses to accept shipments of the ARLP Partnerships coal for which they have an existing contractual obligation, the ARLP Partnerships revenues will decrease and it may have to reduce production at its mines
until its customers contractual obligations are honored.

The ARLP Partnerships profitability may decline due to
unanticipated mine operating conditions and other events that are not within its control and that may not be fully covered under its insurance policies.

The ARLP Partnerships mining operations are influenced by changing conditions or events that can affect production levels and costs at particular mines for varying lengths of time and, as a result,
can diminish its profitability.

These conditions and events include, among others:



| |  |  | fires;
| | - |  | ------



| |  |  | mining and processing equipment failures and unexpected maintenance problems;
| | - |  | -----------------------------------------------------------------------------



| |  |  | unavailability of required equipment;
| | - |  | -------------------------------------



| |  |  | prices for fuel, steel, explosives and other supplies;
| | - |  | ------------------------------------------------------



| |  |  | fines and penalties incurred as a result of alleged violations of environmental and safety laws and regulations;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | variations in thickness of the layer, or seam, of coal;
| | - |  | -------------------------------------------------------



| |  |  | amounts of overburden, partings, rock and other natural materials;
| | - |  | ------------------------------------------------------------------



| |  |  | weather conditions, such as heavy rains, flooding, ice and other storms;
| | - |  | ------------------------------------------------------------------------



| |  |  | accidental mine water discharges and other geological conditions;
| | - |  | -----------------------------------------------------------------



| |  |  | employee injuries or fatalities;
| | - |  | --------------------------------



| |  |  | labor-related interruptions;
| | - |  | ----------------------------



| |  |  | increased reclamation costs;
| | - |  | ----------------------------



| |  |  | inability to acquire, maintain or renew mining rights or permits in a timely manner, if at all; and
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | fluctuations in transportation costs and the availability or reliability of transportation.
| | - |  | -------------------------------------------------------------------------------------------

These conditions have had, and can be expected in the future to have, a significant impact on the ARLP Partnerships operating results.
Prolonged disruption of production at any of the ARLP Partnerships mines would result in a decrease in its revenues and profitability, which could materially adversely impact its quarterly or annual results.

During September 2009, the ARLP Partnership completed its annual property and casualty insurance renewal with various insurance coverages
effective as of October 1, 2009. The ARLP Partnership has elected to retain a participating interest in its commercial property insurance program at an average rate of approximately 14.7% in the overall $75.0 million of coverage, representing
22% of the primary $50.0 million layer. The ARLP Partnership does not participate in the second layer of $25.0 million in excess of $50.0 million.

The 14.7% participation rate for this years renewal is consistent with the ARLP Partnerships prior year participation. The aggregate maximum limit in the commercial property program is $75.0
million per occurrence of which, as a result of the ARLP Partnerships participation, it is responsible for a maximum amount of $11.0 million for each occurrence, excluding a $1.5 million deductible for property damage, a $5.0 million aggregate
deductible for extra expense and a 60-day waiting period for business interruption. The ARLP Partnership can make no assurances that it will not experience significant insurance claims in the future, which as a result of its level of participation
in the commercial property program, could have a material adverse effect on its business, financial condition, results of operations and ability to purchase property insurance in the future.

A shortage of skilled labor may make it difficult for the ARLP Partnership to maintain labor productivity and competitive costs and could adversely
affect the ARLP Partnerships profitability.

Efficient coal mining using modern techniques and equipment requires
skilled laborers, preferably with at least one year of experience and proficiency in multiple mining tasks. In recent years, a shortage of experienced coal miners has caused the ARLP Partnership to include some inexperienced staff in the operation
of certain mining units, which decreases its productivity and increases its costs. This shortage of experienced coal miners is the result of a significant percentage of experienced coal miners reaching retirement age, combined with the difficulty of
retaining existing workers in and attracting new workers to the coal industry. Thus, this shortage of skilled labor could continue over an extended period. If the shortage of experienced labor continues or worsens, it could have an adverse impact on
labor productivity and costs and its ability to expand production in the event there is an increase in the demand for its coal, which could adversely affect its profitability.



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Although none of the ARLP Partnerships employees are members of unions, its work force may not
remain union-free in the future.

None of the ARLP Partnerships employees is represented under collective
bargaining agreements. However, all of its work force may not remain union-free in the future, and proposed legislation such as the Employee Free Choice Act, could, if enacted, make staying union-free more difficult. If some or all of the ARLP
Partnerships currently union-free operations were to become unionized, it could adversely affect its productivity and increase the risk of work stoppages at its mining complexes. In addition, even if the ARLP Partnership remains union-free,
its operations may still be adversely affected by work stoppages at unionized companies, particularly if union workers were to orchestrate boycotts against the ARLP Partnerships operations.

The ARLP Partnerships mining operations are subject to extensive and costly laws and regulations, and such current and future laws and
regulations could increase current operating costs or limit the ARLP Partnerships ability to produce coal.

The
ARLP Partnership is subject to numerous and comprehensive federal, state and local laws and regulations affecting the coal mining industry, including laws and regulations pertaining to employee health and safety, permitting and licensing
requirements, air quality standards, water pollution, plant and wildlife protection, reclamation and restoration of mining properties after mining is completed, the discharge or release of materials into the environment, surface subsidence from
underground mining and the effects that mining has on groundwater quality and availability. Certain of these laws and regulations may impose joint and several strict liability without regard to fault or legality of the original conduct. Failure to
comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial liabilities, and the issuance of injunctions limiting or prohibiting the performance of operations.
Complying with these laws and regulations may be costly and time consuming and may delay commencement or continuation of exploration or production operations. The possibility exists that new laws or regulations may be adopted, or that judicial
interpretations or more stringent enforcement of existing laws and regulations may occur, that could materially affect the ARLP Partnerships mining operations, cash flow, and profitability, either through direct impacts on the ARLP
Partnerships existing mining operations, or indirect impacts that discourage or limit the ARLP Partnerships customers use of coal. Please read Item 1. BusinessRegulations and Laws.

Congress and several state legislatures (including those in Illinois, Kentucky, West Virginia and Pennsylvania) have passed new laws
addressing mine safety practices and imposing stringent new mine safety and accident reporting requirements and increased civil and criminal penalties for violations of mine safety laws. Implementing and complying with these new laws and regulations
has increased and will continue to increase the ARLP Partnerships operational expense and to have an adverse effect on the ARLP Partnerships results of operation and financial position. For more information, please read Item 1.
BusinessRegulation and LawsMine Health and Safety Laws.

The ARLP Partnership may be unable to obtain and renew
permits necessary for its operations, which could reduce its production, cash flow and profitability.

Mining companies
must obtain numerous governmental permits or approvals that impose strict conditions and obligations relating to various environmental and safety matters in connection with coal mining. The permitting rules are complex and can change over time.
Regulatory authorities exercise considerable discretion in the timing and scope of permit issuance. The public has the right to comment on permit applications and otherwise participate in the permitting process, including through court intervention.
Accordingly, permits required to conduct the ARLP Partnerships operations may not be issued, maintained or renewed, or may not be issued or renewed in a timely fashion, or may involve requirements that restrict the ARLP Partnerships
ability to economically conduct its mining operations. Limitations on the ARLP Partnerships ability to conduct its mining operations due to the inability to obtain or renew necessary permits or similar approvals could reduce the ARLP
Partnerships production, cash flow and profitability. Please read Item 1. BusinessRegulations and LawsMining Permits and Approvals.

Litigation has been filed to enjoin the issuance of Nationwide Permit 21, which is a general permit issued by the Corps of Engineers to streamline the process for obtaining permits for the discharge of
overburden from mining operations under Section 404 of the CWA. In addition, the Corps of Engineers published a proposal to modify or suspend the use of Nationwide Permit 21 in the Appalachian region. In the event current or future litigation
contesting the use of Nationwide Permit 21 is successful, the ARLP



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Partnership may be required to apply for individual discharge permits pursuant to Section 404 of the CWA in areas that would have otherwise utilized Nationwide Permit 21. This could result
in additional delays and costs in developing mining operations. In addition, lawsuits have also challenged the Corps of Engineers issuance of certain individual Section 404 permits. Although the ARLP Partnerships mining operations
are not implicated in any of these particular cases, it is possible that the outcome of these lawsuits may have long-term effects on the Corps of Engineers ability to issue CWA permits and could thereby adversely affect its results of
operation and financial position. In addition, there are a number of ongoing or proposed regulatory and legislative developments that could restrict or limit the ability to obtain Section 404 permits for discharges of dredged or fill material
associated with mining operations, including a federal, interagency action plan on Appalachian surface coal mining and an enhanced environmental review process for Section 404 permits for mining operations in Appalachia. Such a change could
result in delays in obtaining required mining permits to conduct operations, which could in turn result in reduced production, cash flow and profitability. Please read Item 1. BusinessRegulations and LawsWater
Discharge.

Fluctuations in transportation costs and the availability or reliability of transportation could reduce revenues
by causing the ARLP Partnership to reduce its production or by impairing its ability to supply coal to its customers.

Transportation costs represent a significant portion of the total cost of coal for the ARLP Partnerships customers and, as a result, the cost of transportation is a critical factor in a customers purchasing decision. Increases
in transportation costs could make coal a less competitive source of energy or could make the ARLP Partnerships coal production less competitive than coal produced from other sources. Disruption of transportation services due to
weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts, bottlenecks or other events could temporarily impair the ARLP Partnerships ability to supply coal to its customers. The ARLP Partnerships
transportation providers may face difficulties in the future that may impair its ability to supply coal to its customers, resulting in decreased revenues. If there are disruptions of the transportation services provided by the ARLP
Partnerships primary rail or barge carriers that transport its coal and the ARLP Partnership is unable to find alternative transportation providers to ship its coal, our business could be adversely affected.

Conversely, significant decreases in transportation costs could result in increased competition from coal producers in other parts of the
country. For instance, difficulty in coordinating the many eastern coal loading facilities, the large number of small shipments, the steeper average grades of the terrain and a more unionized workforce are all issues that combine to make coal
shipments originating in the eastern U.S. inherently more expensive on a per-mile basis than coal shipments originating in the western U.S. Historically, high coal transportation rates from the western coal producing areas into certain eastern
markets limited the use of western coal in those markets. Lower rail rates from the western coal producing areas to markets served by eastern U.S. coal producers have created major competitive challenges for eastern coal producers. In the event of
lower transportation costs, the increased competition could have a material adverse effect on the ARLP Partnerships business, financial condition and results of operations.

In recent years, the states of Kentucky and West Virginia have increased enforcement of weight limits on coal trucks on their public roads.
It is possible that all states in which the ARLP Partnerships coal is transported by truck may modify their laws to limit truck weight limits. Such legislation and enforcement efforts could result in shipment delays and increased costs. An
increase in transportation costs could have an adverse effect on the ARLP Partnerships ability to increase or to maintain production and could adversely affect revenues.

The ARLP Partnership may not be able to successfully grow through future acquisitions.

Since ARLPs formation and the acquisition of its predecessor in August 1999, the ARLP Partnership has expanded its operations by adding and developing mines and coal reserves in existing, adjacent
and neighboring properties. The ARLP Partnership continually seeks to expand its operations and coal reserves. The ARLP Partnerships future growth could be limited if it is unable to continue to make acquisitions, or if it is unable to
successfully integrate the companies, businesses or properties it acquires. The ARLP Partnership may not be successful in consummating any acquisitions and the consequences of undertaking these acquisitions are unknown. Moreover, any acquisition
could be dilutive to earnings and distributions to unitholders and any additional debt incurred to finance an acquisition could affect the ARLP Partnerships ability to make distributions to unitholders. The ARLP Partnerships ability to
make acquisitions in the future could be limited by restrictions under its existing or future debt agreements, competition from other coal companies for attractive properties or the lack of suitable acquisition candidates.



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Mine expansions and acquisitions involve a number of risks, any of which could cause the ARLP
Partnership not to realize the anticipated benefits.

If the ARLP Partnership is unable to successfully integrate the
companies, businesses or properties it acquires, its profitability may decline and it could experience a material adverse effect on its business, financial condition, or results of operations. Expansion and acquisition transactions involve various
inherent risks, including:



| |  |  | uncertainties in assessing the value, strengths, and potential profitability of, and identifying the extent of all weaknesses, risks, contingent and
other liabilities (including environmental or mine safety liabilities) of, expansion and acquisition opportunities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability to achieve identified operating and financial synergies anticipated to result from an expansion or an acquisition;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | problems that could arise from the integration of the new operations; and
| | - |  | -------------------------------------------------------------------------



| |  |  | unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the ARLP Partnerships rationale
for pursuing the expansion or acquisition opportunity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Any one or more of these factors could cause the ARLP Partnership
not to realize the benefits anticipated to result from an expansion or acquisition. Any expansion or acquisition opportunities the ARLP Partnership pursues could materially affect its liquidity and capital resources and may require it to incur
indebtedness, seek equity capital or both. In addition, future expansions or acquisitions could result in the ARLP Partnership assuming more long-term liabilities relative to the value of the acquired assets than it has assumed in its previous
expansions and/or acquisitions.

Completion of growth projects and future expansion could require significant amounts of financing which
may not be available to the ARLP Partnership on acceptable terms, or at all.

The ARLP Partnership plans to fund
capital expenditures for its current growth projects with existing cash balances, future cash flow from operations, borrowings under its revolving credit facility and cash provided from the issuance of debt or equity. The ARLP Partnerships
funding plans may, however, be negatively impacted by numerous factors, including higher than anticipated capital expenditures or lower than expected cash flow from operations. In addition, the ARLP Partnership may be unable to refinance its current
revolving credit facility when it expires or obtain adequate funding prior to expiry because its lending counterparties may be unwilling or unable to meet their funding obligations. Furthermore, additional growth projects and expansion opportunities
may develop in the future which could also require significant amounts of financing. Consequently, completion of growth projects and future expansion could require significant amounts of financing which may not be available to the ARLP Partnership
on acceptable terms or in the proportions that it expects, or at all.

Global financial markets and economic conditions have
been, and continue to be, disrupted and volatile. The debt and equity capital markets have been exceedingly distressed as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically. These
issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions have made, and will likely continue to make, it difficult to obtain funding.

The cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have raised interest
rates, enacted tighter lending standards, refused to refinance existing debt at maturity at all or on terms similar to expiring terms and, in some cases, reduced or ceased to provide funding to borrowers under existing facilities. For a discussion
of how these tighter lending standards may impact the ARLP Partnerships 2010 capital expenditure plans, please read Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and
Capital ResourcesCapital Expenditures.

The credit market and debt and equity capital market conditions
discussed above could negatively impact the ARLP Partnerships credit ratings or its ability to remain in compliance with the financial covenants under its revolving credit agreement, which could have a material adverse effect on its financial
condition, results of operations and cash flows. If the ARLP Partnership is unable to finance its growth and future expansions as expected, it could be required to seek alternative financing, the terms of which may not be attractive to it, or to
revise or cancel its plans.

The unavailability of an adequate supply of coal reserves that can be mined at competitive costs could
cause the ARLP Partnerships profitability to decline.

The ARLP Partnerships profitability depends
substantially on its ability to mine coal reserves that have the geological characteristics that enable them to be mined at competitive costs and to meet the quality needed by the ARLP Partnerships customers. Because the ARLP Partnership
depletes its reserves as it mines coal, its future success and growth depend, in part, upon its



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ability to acquire additional coal reserves that are economically recoverable. Replacement reserves may not be available when required or, if available, may not be mineable at costs comparable to
those of the depleting mines. The ARLP Partnership may not be able to accurately assess the geological characteristics of any reserves that it acquires, which may adversely affect its profitability and financial condition. Exhaustion of reserves at
particular mines also may have an adverse effect on the ARLP Partnerships operating results that is disproportionate to the percentage of overall production represented by such mines. The ARLP Partnerships ability to obtain other
reserves in the future could be limited by restrictions under its existing or future debt agreements, competition from other coal companies for attractive properties, the lack of suitable acquisition candidates or the inability to acquire coal
properties on commercially reasonable terms.

The estimates of the ARLP Partnerships coal reserves may prove inaccurate and could
result in decreased profitability.

The estimates of the ARLP Partnerships coal reserves may vary substantially
from actual amounts of coal it is able to economically recover. The reserve data set forth in Item 2. Properties represent the ARLP Partnerships engineering estimates. All of the reserves presented in this Annual Report on Form
10-K constitute proven and probable reserves. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond the ARLP Partnerships control. Estimates of coal reserves necessarily depend upon a
number of variables and assumptions, any one of which may vary considerably from actual results. These factors and assumptions relate to:



| |  |  | geological and mining conditions, which may not be fully identified by available exploration data and/or differ from the ARLP Partnerships
experiences in areas where it currently mines;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the percentage of coal in the ground ultimately recoverable;
| | - |  | ------------------------------------------------------------



| |  |  | historical production from the area compared with production from other producing areas;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the assumed effects of regulation and taxes by governmental agencies; and
| | - |  | -------------------------------------------------------------------------



| |  |  | assumptions concerning future coal prices, operating costs, capital expenditures, severance and excise taxes and development and reclamation costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

For these reasons, estimates of the recoverable quantities of coal attributable to any particular group of
properties, classifications of reserves based on risk of recovery and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary substantially. Actual
production, revenue and expenditures with respect to the ARLP Partnerships reserves will likely vary from estimates, and these variations may be material. Any inaccuracy in the estimates of the ALRP Partnerships reserves could result in
higher than expected costs and decreased profitability.

Mining in certain areas in which the ARLP Partnership operates is more
difficult and involves more regulatory constraints than mining in other areas of the U.S., which could affect the mining operations and cost structures of these areas.

The geological characteristics of some of the ARLP Partnerships coal reserves, such as depth of overburden and coal seam thickness,
make them difficult and costly to mine. As mines become depleted, replacement reserves may not be available when required or, if available, may not be mineable at costs comparable to those characteristic of the depleting mines. In addition,
permitting, licensing and other environmental and regulatory requirements associated with certain of the ARLP Partnerships mining operations are more costly and time-consuming to satisfy. These factors could materially adversely affect the
mining operations and cost structures of, and the ARLP Partnerships customers ability to use coal produced by, the ARLP Partnerships mines.

Some of the ARLP Partnerships operating subsidiaries lease a portion of the surface properties upon which their mining facilities are located.

The ARLP Partnerships operating subsidiaries do not, in all instances, own all of the surface properties upon which their mining
facilities have been constructed. Certain of the operating companies have constructed and now operate all or some portion of their facilities on properties owned by unrelated third-parties with whom the subsidiary has entered into a long-term lease.
The ARLP Partnership has no reason to believe that there exists any risk of loss of these leasehold rights given the terms and provisions of the subject leases and the nature and identity of the third-party lessors; however, in the unlikely event of
any loss of these leasehold rights, operations could be disrupted or otherwise adversely impacted as a result of increased costs associated with retaining the necessary land use.



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Unexpected increases in raw material costs could significantly impair the ARLP Partnerships
operating profitability.

The ARLP Partnerships coal mining operations are affected by commodity prices. The ARLP
Partnership uses significant amounts of steel, petroleum products and other raw materials in various pieces of mining equipment, supplies and materials, including the roof bolts required by the room and pillar method of mining. Steel prices and the
prices of scrap steel, natural gas and coking coal consumed in the production of iron and steel fluctuate significantly and may change unexpectedly. There may be acts of nature or terrorist attacks or threats that could also impact the future costs
of raw materials. Future volatility in the price of steel, petroleum products or other raw materials will impact the ARLP Partnerships operational expenses and could result in significant fluctuations to its profitability.

The ARLP Partnerships indebtedness may limit its ability to borrow additional funds, make distributions to unitholders or capitalize on business
opportunities.

The ARLP Partnership has long-term indebtedness, consisting of its outstanding senior unsecured notes
and its revolving credit facility. At December 31, 2009, the ARLP Partnerships total long-term indebtedness outstanding was $422.0 million. The ARLP Partnerships leverage may:



| |  |  | adversely affect its ability to finance future operations and capital needs;
| | - |  | ----------------------------------------------------------------------------



| |  |  | limit its ability to pursue acquisitions and other business opportunities;
| | - |  | --------------------------------------------------------------------------



| |  |  | make its results of operations more susceptible to adverse economic or operating conditions; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | make it more difficult to self-insure for the ARLP Partnerships workers compensation obligations.
| | - |  | ---------------------------------------------------------------------------------------------------

In addition, the ARLP Partnership has unused borrowing capacity under its revolving credit facility. Future borrowings, under credit
facilities or otherwise, could result in a significant increase in the ARLP Partnerships leverage.

The ARLP
Partnerships payments of principal and interest on any indebtedness will reduce the cash available for distribution on its units. The ARLP Partnership will be prohibited from making cash distributions:



| |  |  | during an event of default under any of its indebtedness; or
| | - |  | ------------------------------------------------------------



| |  |  | if either before or after such distribution, it fails to meet a coverage test based on the ratio of its consolidated debt to its consolidated cash
flow.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

Various limitations in the ARLP Partnerships debt agreements may reduce its ability to incur
additional indebtedness, to engage in some transactions and to capitalize on business opportunities. Any subsequent refinancing of the ARLP Partnerships current indebtedness or any new indebtedness could have similar or greater restrictions.

Federal and state laws require bonds to secure the ARLP Partnerships obligations related to statutory reclamation requirements
and workerscompensation and black lung benefits. The ARLP Partnerships inability to acquire or failure to maintain surety bonds that are required by state and federal law would have a material adverse effect on it.

Federal and state laws require the ARLP Partnership to place and maintain bonds to secure its obligations to repair
and return property to its approximate original state after it has been mined (often referred to as reclaim or reclamation), to pay federal and state workers compensation and pneumoconiosis, or black lung, benefits and
to satisfy other miscellaneous obligations. These bonds provide assurance that the ARLP Partnership will perform its statutorily required obligations and are referred to as surety bonds. These bonds are typically renewable on a yearly
basis. The failure to maintain or the inability to acquire sufficient surety bonds, as required by state and federal laws, could subject the ARLP Partnership to fines and penalties and result in the loss of its mining permits. Such failure could
result from a variety of factors, including:



| |  |  | lack of availability, higher expense or unreasonable terms of new surety bonds;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the ability of current and future surety bond issuers to increase required collateral, or limitations on availability of collateral for surety bond
issuers due to the terms of the ARLP Partnerships credit agreements; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the exercise by third-party surety bond holders of their rights to refuse to renew the surety.
| | - |  | ----------------------------------------------------------------------------------------------

The ARLP Partnership has outstanding surety bonds with third-parties for reclamation expenses, federal and state workers compensation
obligations and other miscellaneous obligations. The ARLP Partnership may have difficulty maintaining its surety bonds for mine reclamation as well as workers compensation and black lung benefits. The ARLP Partnerships inability to
acquire or failure to maintain these bonds would have a material adverse effect on it.



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The ARLP Partnership and its subsidiaries are subject to various legal proceedings, which may have a
material effect on its business.

The ARLP Partnership is party to a number of legal proceedings incident to its normal
business activities. There is the potential that an individual matter or the aggregation of multiple matters could have an adverse effect on the ARLP Partnerships cash flows, results of operations or financial position. Please see Item
8. Financial Statements and Supplementary DataNote 19. Commitments and Contingencies for further discussion.

Tax Risks to Our
Common Unitholders

If we or ARLP were to become subject to entity-level taxation for federal or state tax purposes, our cash
available for distribution to you would be substantially reduced.

The anticipated after-tax benefit of an investment
in our units depends largely on AHGP being treated as a partnership for federal income tax purposes. We have not requested, and do not plan to request, a ruling from the Internal Revenue Service (IRS) on this matter. The value of our
investment in ARLP depends largely on ARLP being treated as a partnership for federal income tax purposes.

Despite the fact
that we and ARLP are limited partnerships under Delaware law, it is possible in certain circumstances for a partnership such as ARLPs or ours to be treated as a corporation for federal income tax purposes. Although we do not believe, based
upon ARLPs current operations, that we or ARLP would be so treated, a change in ARLPs business or our business (or a change in current law) could cause us or ARLP to be treated as a corporation for federal income tax purposes or
otherwise subject us or ARLP to taxation as an entity.

If we were treated as a corporation for federal income tax purposes, we
would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35% and would likely pay state income tax at varying rates. Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses, deductions or credits would flow through to you. Because taxes would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Thus, treatment of us
as a corporation would result in a material reduction in our anticipated cash flow and after-tax return to you, likely causing a substantial reduction in the value of our units.

If ARLP were treated as a corporation for federal income tax purposes, it would pay federal income tax on its taxable income at the
corporate tax rate and would likely pay state income tax at varying rates. Distributions to us would generally be taxable to you as corporate distributions, and no income, gains, losses, deduction or credits would flow through to us. As a result,
there would be a material reduction in our anticipated cash flow, likely causing a substantial reduction in the value of our units.

Current law may change, causing us or ARLP to be treated as a corporation for federal income tax purposes or otherwise subjecting us or ARLP to entity-level taxation. At the federal level, legislation has recently been considered that would
have eliminated partnership tax treatment for certain publicly traded partnerships. Although such legislation would not have appeared to apply to us or ARLP as considered, it could be reintroduced in a manner that does apply to us or ARLP. We are
unable to predict whether any of these changes or other proposals will be reintroduced or will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units or ARLP common units. At the state level,
because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. If any state were to
impose a tax upon us or ARLP as an entity, the cash available for distribution to you would be reduced.

ARLPs
partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects ARLP to taxation as a corporation or otherwise subjects ARLP to entity-level taxation for federal, state or local income tax
purposes, the minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on ARLP. Likewise, our cash distributions to you will be reduced if we or ARLP is subjected to any form of
such entity-level taxation.



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If the IRS were to contest the federal income tax positions we take, it may adversely impact the
market for our common units or ARLP common units, and the costs of any such contest would reduce cash available for distribution to ARLP and our unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from the positions that we or ARLP take,
even positions taken with the advice of counsel. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we or ARLP take. A court may not agree with some or all of the positions we or ARLP take.
Any contest with the IRS may materially and adversely impact the market for our common units or ARLPs common units and the prices at which they trade. In addition, the costs of any contest with the IRS will be borne by ARLP and therefore
indirectly by us, as a unitholder and as the owner of the general partner of ARLP. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne
indirectly by our unitholders.

Even if you do not receive any cash distributions from us, you will be required to pay taxes on your
share of our taxable income.

You will be required to pay federal income taxes and, in some cases, state and local
income taxes, on your share of our taxable income, whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that result
from your share of our taxable income.

Tax gain or loss on the disposition of our units could be different than expected.

If you sell your units, you will recognize gain or loss equal to the difference between the amount realized and your
tax basis in those units. Because distributions in excess of your allocable share of our net taxable income decrease your tax basis in your units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in
effect, become taxable income to you if you sell such units at a price greater than your tax basis therein, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not
representing gain, may be taxed as ordinary income to you due to potential recapture items, including depreciation and depletion recapture. In addition, because the amount realized includes a unitholders share of our non-recourse liabilities,
if you sell your units, you may incur a tax liability in excess of the amount of cash you receive from the sale.

Tax-exempt entities
and non-U.S. persons owning our units face unique tax issues that may result in adverse tax consequences to them.

Investment in our units by tax-exempt entities, such as individual retirement accounts (known as IRAs) and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations
exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable
effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income. If you are a tax exempt entity or a non-U.S. person, you should consult your tax advisor before
investing in our common units.

We treat each purchaser of our units as having the same tax benefits without regard to the units
purchased. The IRS may challenge this treatment, which could adversely affect the value of our units.

Because we
cannot match transferors and transferees of units, we adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount
of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of units and could have a negative impact on the value of our units or result in audit adjustments to your tax returns.

We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the
ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among
our unitholders.

We prorate our items of income, gain, loss and deduction between transferors and transferees of our
units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations.
Recently, however, the Department of the Treasury and the IRS issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly traded partnership may use a similar monthly simplifying convention to allocate tax items
among transferor and transferee unitholders. Although publicly traded partnerships are entitled to rely on these proposed Treasury Regulations, they are not binding on the IRS and are subject to change until final Treasury Regulations are issued.



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A unitholder whose units are loaned to a short seller to cover a short sale of units may
be considered as having disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.

Because a unitholder whose units are loaned to a short seller to cover a short sale of units may be considered as having disposed
of the loaned units, he may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the
period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as
ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing
their units.

ARLP has adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between
the general partner and the unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

When we or ARLP issue additional units or engage in certain other transactions, ARLP determines the fair market value of its assets and allocates any unrealized gain or loss attributable to such assets to
the capital accounts of ARLPs unitholders and us. ARLPs methodology may be viewed as understating the value of ARLPs assets. In that case, there may be a shift of income, gain, loss and deduction between certain ARLP unitholders
and us, which may be unfavorable to such ARLP unitholders. Moreover, under ARLPs current valuation methods, subsequent purchasers of our common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment
allocated to ARLPs intangible assets and a lesser portion allocated to ARLPs tangible assets. The IRS may challenge ARLPs valuation methods, or our or ARLPs allocation of the Section 743(b) adjustment attributable to
ARLPs tangible and intangible assets, and allocations of income, gain, loss and deduction between us and certain of ARLPs unitholders.

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our
unitholders sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders tax returns without the benefit of additional deductions.

Certain federal income tax deductions currently available with respect to coal mining and production may be eliminated as a result of future
legislation.

President Obamas Proposed Fiscal Year 2011 Budget includes proposed legislation that would, if
enacted into law, make significant changes to U.S. tax laws, including the elimination of certain key U.S. federal income tax provisions currently applicable to coal companies, including the repeal of the percentage depletion allowance with respect
to coal properties. The passage of any legislation as a result of the budget proposal or any other similar change in U.S. federal income tax law could eliminate certain tax deductions that are currently available with respect to the ARLP
Partnerships operations. Although the current proposal would have no impact on the ARLP Partnerships financial statements or results of operations, any such change could result in unfavorable tax consequences for its unitholders and as a
result, negatively impact the ARLP Partnerships unit price.

The sale or exchange of 50% or more of our capital and profits
interests within a twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of
determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us
filing two tax returns for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a calendar year, the closing of our
taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. A termination does not affect our classification as a partnership for federal income tax
purposes, but it would result in our being treated as a new partnership for tax purposes. If we were treated as a new partnership, we would be required to make new tax elections and could be subject to penalties if we were unable to determine that a
termination occurred.



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You will likely be subject to state and local taxes and income tax return filing requirements in
jurisdictions where you do not live as a result of investing in our units.

In addition to federal income taxes, you
will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property. You will
likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We may own
property or conduct business in other states in the future. It is your responsibility to file all federal, state and local tax returns.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



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|ITEM 2. | PROPERTIES
|------- | ----------

Coal Reserves

The ARLP Partnership must obtain permits from applicable state regulatory authorities before beginning to mine particular
reserves. For more information on this permitting process, and matters that could hinder or delay the process, please read Item 1. BusinessRegulation and LawsMining Permits and Approvals.

The ARLP Partnerships reported coal reserves are those it believes can be economically and legally extracted or produced at the time
of the filing of its Annual Report on Form 10-K. In determining whether its reserves meet this economical and legal standard, the ARLP Partnership takes into account, among other things, its potential ability or inability to obtain a mining permit,
the possible necessity of revising a mining plan, changes in estimated future costs, changes in future cash flows caused by changes in mining permits, variations in quantity and quality of coal, and varying levels of demand and their effects on
selling prices.

At December 31, 2009, the ARLP Partnership had approximately 647.2 million tons of coal reserves.
All of the estimates of reserves which are presented in this Annual Report on Form 10-K are of proven and probable reserves (as defined below) and adhere to the standards described in United States Geological Survey (USGS) Circular 831
and USGS Bulletin 1450-B. For information on the locations of the ARLP Partnerships mines, please read Mining Operations under Item 1. Business.

The following table sets forth reserve information, at December 31, 2009, about the ARLP Partnerships mining operations:



|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|------------------------------- |  | ----------- |  | ---------------------------- |  | ---------------------------- | - |  | ------------------ | - |  | ----- | - |  | ----- | - |  | -------- | - |  | ---------- | -
|                                |  |             |  |                              |  | Proven and Probable Reserves |   |  |                    |  
|                                |  |             |  |                              |  | Pounds S02 per MMbtu         |   |  | Reserve Assignment |  
|Operations                      |  | Mine Type   |  | Heat Content(Btus per pound) |  | <1.2                         |   |  | 1.2-2.5            |   |  | >2.5  |   |  | Total |   |  | Assigned |   |  | Unassigned |  
|                                |  |             |  |                              |  | (tons in millions)           |   |  |                    |   |  |       |  
|Illinois Basin Operations       |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Dotiki (KY)                     |  | Underground |  | 12,200                       |  |                             |   |  |                   |   |  | 97.8  |   |  | 97.8  |   |  | 97.8     |   |  |           |  
|Warrior (KY)                    |  | Underground |  | 12,600                       |  |                             |   |  |                   |   |  | 74.6  |   |  | 74.6  |   |  | 56.8     |   |  | 17.8       |  
|Hopkins (KY)                    |  | Underground |  | 12,200                       |  |                             |   |  |                   |   |  | 41.2  |   |  | 41.2  |   |  | 26.1     |   |  | 15.1       |  
|                                |  | / Surface   |  | 11,500                       |  |                             |   |  |                   |   |  | 7.8   |   |  | 7.8   |   |  | 7.8      |   |  |           |  
|River View (KY)                 |  | Underground |  | 11,600                       |  |                             |   |  |                   |   |  | 120.8 |   |  | 120.8 |   |  | 120.8    |   |  |           |  
|Pattiki (IL)                    |  | Underground |  | 11,500                       |  |                             |   |  |                   |   |  | 47.4  |   |  | 47.4  |   |  | 47.4     |   |  |           |  
|Gibson (North) (IN)             |  | Underground |  | 11,600                       |  |                             |   |  | 22.0               |   |  | 3.7   |   |  | 25.7  |   |  | 25.7     |   |  |           |  
|Gibson (South) (IN)             |  | Underground |  | 11,500                       |  |                             |   |  | 12.9               |   |  | 40.7  |   |  | 53.6  |   |  |         |   |  | 53.6       |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Region Total                    |  |             |  |                              |  |                             |   |  | 34.9               |   |  | 434.0 |   |  | 468.9 |   |  | 382.4    |   |  | 86.5       |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Central Appalachian Operations  |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Pontiki (KY)                    |  | Underground |  | 13,000                       |  |                             |   |  | 9.2                |   |  |      |   |  | 9.2   |   |  | 9.2      |   |  |           |  
|MC Mining (KY)                  |  | Underground |  | 12,600                       |  | 16.3                         |   |  |                   |   |  | 1.8   |   |  | 18.1  |   |  | 18.1     |   |  |           |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Region Total                    |  |             |  |                              |  | 16.3                         |   |  | 9.2                |   |  | 1.8   |   |  | 27.3  |   |  | 27.3     |   |  |           |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Northern Appalachian Operations |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Mettiki (MD)                    |  | Underground |  | 13,200                       |  |                             |   |  | 2.6                |   |  | 7.0   |   |  | 9.6   |   |  | 9.6      |   |  |           |  
|Mountain View (WV)              |  | Underground |  | 13,200                       |  |                             |   |  | 5.2                |   |  | 9.3   |   |  | 14.5  |   |  | 14.5     |   |  |           |  
|Tunnel Ridge (PA/WV)            |  | Underground |  | 12,600                       |  |                             |   |  |                   |   |  | 70.2  |   |  | 70.2  |   |  | 70.2     |   |  |           |  
|Penn Ridge (PA)                 |  | Underground |  | 12,500                       |  |                             |   |  |                   |   |  | 56.7  |   |  | 56.7  |   |  | 56.7     |   |  |           |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Region Total                    |  |             |  |                              |  |                             |   |  | 7.8                |   |  | 143.2 |   |  | 151.0 |   |  | 151.0    |   |  |           |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|Total                           |  |             |  |                              |  | 16.3                         |   |  | 51.9               |   |  | 579.0 |   |  | 647.2 |   |  | 560.7    |   |  | 86.5       |  
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  
|% of Total                      |  |             |  |                              |  | 2.5                          | % |  | 8.0                | % |  | 89.5  | % |  | 100.0 | % |  | 86.6     | % |  | 13.4       | %
|                                |  |             |  |                              |  |                              |   |  |                    |   |  |       |   |  |       |   |  |          |   |  |            |  

The ARLP Partnerships reserve estimates are prepared from geological data
assembled and analyzed by its staff of geologists and engineers. This data is obtained through the ARLP Partnerships extensive, ongoing exploration drilling and in-mine channel sampling programs. The ARLP Partnerships drill spacing
criteria adhere to standards as defined by the USGS. The maximum acceptable distance from seam data points varies with the geologic nature of the coal seam being studied, but generally the standard for (a) proven reserves is that points of
observation are no greater than 1/2mile apart and
are projected to extend as a 1/4mile wide belt
around each point of measurement and (b) probable reserves is that points of observation are between 1/2and 1 1/2miles apart and are projected to extend as a 1/2mile wide belt that lies 1/4mile from the points of measurement.



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Reserve estimates will change from time to time to reflect mining activities, additional
analysis, new engineering and geological data, acquisition or divestment of reserve holdings, modification of mining plans or mining methods, and other factors. Weir International Mining Consultants performed an overview audit of the ARLP
Partnerships reserves and calculation methods in October 2005, which audit will be updated during 2010.

Reserves represent that part of a mineral deposit that can be economically and legally extracted or produced, and reflect estimated losses involved in producing a saleable product. All of the ARLP Partnerships reserves are steam coal,
but the reserves at the Mettiki and Mountain View complexes can be characterized as cross-over coal that can be produced as metallurgical. The 16.3 million tons of reserves listed as <1.2 pounds of SO2per MMbtu are compliance coal under Phase II of CAA.

Assigned reserves are those reserves that have been designated for mining by a specific operation.

Unassigned reserves are those reserves that have not yet been designated for mining by a specific operation.

Btu values are reported on an as-shipped, fully washed basis. Shipments that are either fully or partially raw will have a lower Btu value.

The ARLP Partnership controls certain leases for coal deposits that are near, but not contiguous to, its primary reserve
bases. The tons controlled by these leases are classified as non-reserve coal deposits and are not included in the ARLP Partnerships reported reserves. These non-reserve coal deposits are as follows: Dotiki8.8 million tons,
Pattiki5.7 million tons, Hopkins County Coal3.3 million tons, River View23.5 million tons, Gibson (North)2.4 million tons, Gibson (South)14.0 million tons, Warrior8.1 million tons, Mettiki5.1 million
tons; Tunnel Ridge6.1 million tons, Penn Ridge3.4 million tons, Pontiki8.6 million tons, and 66.0 million tons of coal located near the River View complex, for total non-reserve coal deposits of 155.0 million tons.

The ARLP Partnership leases most of its reserves and generally has the right to maintain leases in force until the exhaustion
of the mineable and merchantable coal within the leased premises or for so long as it is conducting mining operations in a larger defined coal reserve area. These leases provide for royalties to be paid to the lessor at a fixed amount per ton or as
a percentage of the sales price. Many leases require payment of minimum royalties, payable either at the time of the execution of the lease or in periodic installments, even if no mining activities have begun. These minimum royalties are normally
credited against the production royalties owed to a lessor once coal production has commenced.



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Mining Operations

The following table sets forth production and other data about the ARLP Partnerships mining operations:



|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|------------------------------- |  | ------------- |  | -------------- |  | -------------- |  | --------- |  | ---------------------- |  | ------
|Operations                      |  | Location      |  | Tons Produced  |  | Transportation |  | Equipment
|                                |  | 2009          |  | 2008           |  | 2007           |  |          
|                                |  |               |  | ( in millions) |  |                |  |          
|Illinois Basin Operations       |  |               |  |                |  |                |  |           |  |                        |  |       
|Dotiki                          |  | Kentucky      |  | 4.2            |  | 4.7            |  | 4.6       |  | CSX, PAL, truck, barge |  | CM    
|Warrior                         |  | Kentucky      |  | 6.2            |  | 5.1            |  | 4.6       |  | CSX, PAL, truck, barge |  | CM    
|Hopkins                         |  | Kentucky      |  | 4.0            |  | 4.0            |  | 2.6       |  | CSX, PAL, truck, barge |  | CM    
|River View                      |  | Kentucky      |  | 0.5            |  |               |  |          |  | Barge                  |  | CM    
|Pattiki                         |  | Illinois      |  | 2.5            |  | 2.7            |  | 2.9       |  | EVW, barge             |  | CM    
|Gibson (North)                  |  | Indiana       |  | 3.3            |  | 3.8            |  | 3.2       |  | CSX, NS, truck, barge  |  | CM    
|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|Region Total                    |  |               |  | 20.7           |  | 20.3           |  | 17.9      |  |                        |  |       
|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|Central Appalachian Operations  |  |               |  |                |  |                |  |           |  |                        |  |       
|Pontiki                         |  | Kentucky      |  | 1.1            |  | 1.5            |  | 1.4       |  | NS, truck, barge       |  | CM    
|MC Mining                       |  | Kentucky      |  | 1.5            |  | 1.7            |  | 1.8       |  | CSX, truck, barge      |  | CM    
|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|Region Total                    |  |               |  | 2.6            |  | 3.2            |  | 3.2       |  |                        |  |       
|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|Northern Appalachian Operations |  |               |  |                |  |                |  |           |  |                        |  |       
|Mettiki                         |  | Maryland      |  | 0.3            |  | 0.4            |  | 0.4       |  | Truck, CSX             |  | CM    
|Mountain View                   |  | West Virginia |  | 2.2            |  | 2.5            |  | 2.8       |  | Truck, CSX             |  | LW, CM
|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|Region Total                    |  |               |  | 2.5            |  | 2.9            |  | 3.2       |  |                        |  |       
|                                |  |               |  |                |  |                |  |           |  |                        |  |       
|TOTAL                           |  |               |  | 25.8           |  | 26.4           |  | 24.3      |  |                        |  |       
|                                |  |               |  |                |  |                |  |           |  |                        |  |       



|    |  |   |  |                              
|--- |  | - |  | -----------------------------
|CSX |  | - |  | CSX Railroad                 
|NS  |  | - |  | Norfolk Southern Railroad    
|PAL |  | - |  | Paducah & Louisville Railroad
|CM  |  | - |  | Continuous Miner             
|LW  |  | - |  | Longwall                     
|EVW |  | - |  | Evansville Western Railroad  



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

We are
not engaged in any material litigation. The ARLP Partnership is not engaged in any litigation that it believes is material to its operations, including without limitation, any litigation relating to its long-term coal supply contracts or under the
various environmental protection statutes to which it is subject. However, the ARLP Partnership is subject to various types of litigation in the ordinary course of its business, and we cannot assure you that disputes or litigation will not arise or
that the ARLP Partnership will be able to resolve any such future disputes or litigation in a satisfactory manner. The information under General Litigation and Other in Item 8. Financial Statements and Supplementary
Data.Note 19. Commitments and Contingencies is incorporated herein by this reference.

On November 2, 2006
George W. Rector et al. (the Plaintiffs) filed a complaint in the Circuit Court of the Second Judicial Circuit of Illinois, in White County, Illinois, against the ARLP Partnerships subsidiaries White County Coal, LLC, Alliance
Properties, LLC and Alliance Coal, LLC (collectively the Alliance Defendants) asserting claims for breach of contract, breach of fiduciary duty and unjust enrichment. A bench trial of the case was concluded in November 2009, but the
court has not yet issued a decision. The Plaintiffs claims are based on their assertion that, as a result of assignments in 1977, 1978 and 1979 from the Plaintiffs or their predecessors to the Alliance Defendants predecessors,
MAPCO Coal, Inc. and MAPCO Land & Development Corporation (collectively MAPCO), of certain coal leases, they are entitled to receive royalty payments on all coal mined previously or in the future from the property once affected
by those leases as well as from other property in the area. Plaintiffs have alleged damages of $33.0 million or more, and have also asserted a claim for punitive damages. The subject assignments were made in accordance with an agreement between
Plaintiffs and MAPCO pursuant to which Plaintiffs reserved the right to receive an overriding royalty on coal mined under the assigned leases. Several years after MAPCO terminated a number of the assigned leases, the Alliance Defendants
entered into new leases of some of the property previously covered by the assigned leases, and subsequently began mining in the area. The ARLP Partnership believes that Plaintiffs overriding royalty interest did not extend to any renewal of
the subject leases or to any new lease covering the same property, and that Plaintiffs claims are without merit. The ARLP Partnership also believes that an adverse decision in this litigation, if any, would not have a material adverse effect
on its business, financial position or results of operations.



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On April 24, 2006, the ARLP Partnership was served with a complaint from Mr. Ned
Comer, et al. (the Plaintiffs) alleging that approximately 40 oil and coal companies, including the ARLP Partnership, (the Defendants) is liable to the Plaintiffs for tortuously causing damage to Plaintiffs property in
Mississippi. The Plaintiffs allege that the Defendants greenhouse gas emissions caused global warming and resulted in the increase in the destructive capacity of Hurricane Katrina. On August 30, 2007, the trial court dismissed the
Plaintiffs complaint. On September 17, 2007, Plaintiffs filed a notice of appeal of that dismissal to the U.S. Court of Appeals for the Fifth Circuit. On October 16, 2009, the Fifth Circuit overturned the trial courts dismissal
of the Plaintiffs private nuisance, trespass and negligence claims, finding Article III constitutional standing and no political question. The Fifth Circuit remanded these claims to the trial court for further proceedings. By order dated
February 26, 2010, the Fifth Circuit granted the Defendants petition for rehearing en banc, with oral argument scheduled for May 24, 2010. The ARLP Partnership believes this complaint is without merit and it does not believe that an
adverse decision in this litigation matter, if any, based on the ARLP Partnerships status as a defendant, will have a material adverse effect on its business, financial position or results of operations. If, however, tort claims brought in
this and other cases against corporate defendants for liability arising from greenhouse gas emissions are successful, demand for the ARLP Partnerships coal could be adversely impacted.



|ITEM 4. | RESERVED
|------- | --------



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

The common units representing limited partners interests are listed on the NASDAQ Global Select Market under the symbol
AHGP. The common units began trading on May 10, 2006. On February 26, 2010, the closing market price for the common units was $28.72 per unit and there were 59,863,000 common units outstanding. There were approximately 5,936
record holders and beneficial owners (held in street name) of common units at December 31, 2009.

The following table
sets forth the range of high and low sales prices per common unit and the amount of cash distributions declared and paid with respect to the units, for the two most recent fiscal years:



|                 |  |      |       |     |   |                        |  |                                 
|---------------- |  | ---- | ----- | --- | - | ---------------------- |  | --------------------------------
|                 |  | High |       | Low |   | Distributions Per Unit
|1st Quarter 2008 |  | $    | 25.50 |     | $ | 19.22                  |  | $0.2875 (paid May 20, 2008)     
|2nd Quarter 2008 |  | $    | 30.83 |     | $ | 21.96                  |  | $0.3525 (paid August 19, 2008)  
|3rd Quarter 2008 |  | $    | 31.00 |     | $ | 9.43                   |  | $0.390 (paid November 19, 2008) 
|4th Quarter 2008 |  | $    | 21.87 |     | $ | 10.18                  |  | $0.4025 (paid February 19, 2009)
|1st Quarter 2009 |  | $    | 18.88 |     | $ | 13.05                  |  | $0.415 (paid May 20, 2009)      
|2nd Quarter 2009 |  | $    | 23.74 |     | $ | 15.54                  |  | $0.4275 (paid August 19, 2009)  
|3rd Quarter 2009 |  | $    | 22.44 |     | $ | 18.12                  |  | $0.440 (paid November 19, 2009) 
|4th Quarter 2009 |  | $    | 29.09 |     | $ | 19.50                  |  | $0.4525 (paid February 19, 2010)

We will
distribute 100% of our available cash (including any held by MGP) within 50 days after the end of each quarter to unitholders of record. Available cash is generally defined as all cash and cash equivalents on hand at the end of each quarter less
reserves established by the AGP in its reasonable discretion for future cash requirements. These reserves are retained to provide for the conduct of our business, the payment of debt principal and interest and to provide funds for future
distributions.

Equity Compensation Plans

The information relating to our equity compensation plans required by Item 5 is incorporated by reference to such information as set forth in Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Unitholder Matters contained herein.



44



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|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

We were formed in November 2005 and, therefore, we do not have any historical financial statements before that date. On May 15, 2006, we completed our IPO of 12,500,000 common units representing limited partner interests in us at a
price of $25.00 per unit. Concurrent with the closing of the IPO, Alliance Management Holdings, LLC (AMH) and AMH II, LLC (AMH II) (which were the previous owners of MGP), AHGP and SGP entered into a Contribution Agreement
(Contribution Agreement) pursuant to which 100% of the members interest in MGP, ARLPs IDRs, 15,550,628 of ARLPs common units and a 0.001% managing interest in Alliance Coal were contributed to us.

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 (Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations), the transfer of
assets was accounted for at historical cost, in a manner similar to a pooling of interests. Consequently, our financial statements are presented as though the transfer of assets occurred on January 1, 2006 and the financial statements for prior
years were previously restated to furnish comparative information.

Since we own MGP, our historical financial statements
reflect the consolidated results of the ARLP Partnership. The amount of earnings of the ARLP Partnership allocated to its limited partners interests, not owned by us, is 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, (b) additional general and administrative costs and taxes attributable to us, and (c) debt and interest expense attributable to borrowings under our credit facility. The additional
general and administrative costs principally consist of costs incurred by us as a result of being a publicly traded partnership, amounts paid to Alliance Coal under an Administrative Services Agreement in addition to amounts paid to AGP under our
partnership agreement.

Our historical financial data below were derived from the AHGP Partnerships audited consolidated
financial statements as of and for the years ended December 31, 2009, 2008, 2007, 2006 and 2005.



45



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|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|----------------------------------------------------------------------- | ---- | ----------------------- | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - | ---- | - | ---------- | - |  | - | ---------- | -
|(in millions, except per unit and per ton data)                         |      | Year Ended December 31, |           
|                                                                        | 2009 |                         |            | 2008 |  |   | 2007       |   |  | 2006 |            |   | 2005 |  
|                                                                        |      |                         |            |      | 
|Statements of Income                                                    |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Sales and operating revenues:                                           |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Coal sales                                                              |      | $                       | 1,163.9    |      |  | $ | 1,093.1    |   |  | $    | 960.3      |   |      | $ | 895.8      |   |  | $ | 768.9      |  
|Transportation revenues                                                 |      |                         | 45.7       |      |  |   | 44.7       |   |  |      | 37.7       |   |      |   | 39.9       |   |  |   | 39.1       |  
|Other sales and operating revenues                                      |      |                         | 21.0       |      |  |   | 18.3       |   |  |      | 35.0       |   |      |   | 31.5       |   |  |   | 30.7       |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Total revenues                                                          |      |                         | 1,230.6    |      |  |   | 1,156.1    |   |  |      | 1,033.0    |   |      |   | 967.2      |   |  |   | 838.7      |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Expenses:                                                               |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Operating expenses (excluding depreciation, depletion and amortization) |      |                         | 797.6      |      |  |   | 801.9      |   |  |      | 685.1      |   |      |   | 627.8      |   |  |   | 521.5      |  
|Transportation expenses                                                 |      |                         | 45.7       |      |  |   | 44.7       |   |  |      | 37.7       |   |      |   | 39.9       |   |  |   | 39.1       |  
|Outside coal purchases                                                  |      |                         | 7.5        |      |  |   | 23.8       |   |  |      | 22.0       |   |      |   | 19.2       |   |  |   | 15.1       |  
|General and administrative                                              |      |                         | 42.9       |      |  |   | 38.9       |   |  |      | 36.7       |   |      |   | 32.1       |   |  |   | 33.5       |  
|Depreciation, depletion and amortization                                |      |                         | 117.5      |      |  |   | 105.3      |   |  |      | 85.3       |   |      |   | 66.5       |   |  |   | 55.6       |  
|Gain from sale of coal reserves                                         |      |                         |           |      |  |   | (5.2       | ) |  |      |           |   |      |   |           |   |  |   |           |  
|Net gain from insurance settlement and other (1)                        |      |                         |           |      |  |   | (2.8       | ) |  |      | (11.5      | ) |      |   |           |   |  |   |           |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Total operating expenses                                                |      |                         | 1,011.2    |      |  |   | 1,006.6    |   |  |      | 855.3      |   |      |   | 785.5      |   |  |   | 664.8      |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Income from operations                                                  |      |                         | 219.4      |      |  |   | 149.5      |   |  |      | 177.7      |   |      |   | 181.7      |   |  |   | 173.9      |  
|Interest expense (net of interest capitalized)                          |      |                         | (30.8      | )    |  |   | (22.1      | ) |  |      | (11.6      | ) |      |   | (12.2      | ) |  |   | (14.6      | )
|Interest income                                                         |      |                         | 1.1        |      |  |   | 3.7        |   |  |      | 1.7        |   |      |   | 3.0        |   |  |   | 2.8        |  
|Other income                                                            |      |                         | 1.2        |      |  |   | 0.9        |   |  |      | 1.4        |   |      |   | 0.9        |   |  |   | 0.6        |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Income before income taxes and cumulative effect of accounting change   |      |                         | 190.9      |      |  |   | 132.0      |   |  |      | 169.2      |   |      |   | 173.4      |   |  |   | 162.7      |  
|Income tax expense (benefit)                                            |      |                         | 0.7        |      |  |   | (0.5       | ) |  |      | 1.7        |   |      |   | 3.0        |   |  |   | 2.7        |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Income before cumulative effect of accounting change                    |      |                         | 190.2      |      |  |   | 132.5      |   |  |      | 167.5      |   |      |   | 170.4      |   |  |   | 160.0      |  
|Cumulative effect of accounting change (2)                              |      |                         |           |      |  |   |           |   |  |      |           |   |      |   | 0.1        |   |  |   |           |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Net income                                                              |      |                         | 190.2      |      |  |   | 132.5      |   |  |      | 167.5      |   |      |   | 170.5      |   |  |   | 160.0      |  
|Income attributable to noncontrolling interests                         |      |                         | (76.0      | )    |  |   | (51.3      | ) |  |      | (79.6      | ) |      |   | (84.8      | ) |  |   | (84.4      | )
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Net income attributable to Alliance Holdings GP, L.P. (AHGP)          |      | $                       | 114.2      |      |  | $ | 81.2       |   |  | $    | 87.9       |   |      | $ | 85.7       |   |  | $ | 75.6       |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Basic and diluted net income of AHGP per limited partner unit           |      | $                       | 1.91       |      |  | $ | 1.36       |   |  | $    | 1.47       |   |      | $ | 1.55       |   |  | $ | 1.60       |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Distributions paid per limited partner unit                             |      | $                       | 1.685      |      |  | $ | 1.3175     |   |  | $    | 1.03       |   |      | $ | 0.33785    |   |  | $ |           |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Weighted average number of units outstanding-basic and diluted          |      |                         | 59,863,000 |      |  |   | 59,863,000 |   |  |      | 59,863,000 |   |      |   | 55,445,192 |   |  |   | 47,363,000 |  
|                                                                        |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Balance Sheet Data:                                                     |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Working capital                                                         |      | $                       | 56.9       |      |  | $ | 240.8      |   |  | $    | 26.0       |   |      | $ | 37.2       |   |  | $ | 76.1       |  
|Total assets                                                            |      |                         | 1,054.3    |      |  |   | 1,032.6    |   |  |      | 702.5      |   |      |   | 635.5      |   |  |   | 532.8      |  
|Long-term obligations (3)                                               |      |                         | 422.5      |      |  |   | 440.8      |   |  |      | 137.1      |   |      |   | 127.5      |   |  |   | 144.0      |  
|Total liabilities (4)                                                   |      |                         | 731.6      |      |  |   | 741.5      |   |  |      | 384.6      |   |      |   | 386.3      |   |  |   | 376.9      |  
|Partners capital (4)                                                   |      |                         | 322.7      |      |  |   | 291.2      |   |  |      | 317.8      |   |      |   | 249.2      |   |  |   | 155.9      |  
|Other Operating Data:                                                   |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Tons sold                                                               |      |                         | 25.0       |      |  |   | 27.2       |   |  |      | 24.7       |   |      |   | 24.4       |   |  |   | 22.8       |  
|Tons produced                                                           |      |                         | 25.8       |      |  |   | 26.4       |   |  |      | 24.3       |   |      |   | 23.7       |   |  |   | 22.3       |  
|Revenues per ton sold (5)                                               |      | $                       | 47.40      |      |  | $ | 40.86      |   |  | $    | 40.30      |   |      | $ | 38.00      |   |  | $ | 35.07      |  
|Cost per ton sold (6)                                                   |      | $                       | 33.92      |      |  | $ | 31.78      |   |  | $    | 30.11      |   |      | $ | 27.83      |   |  | $ | 25.00      |  
|Other Financial Data:                                                   |      |                         |            |      |  |   |            |   |  |      |            |   |      |   |            |   |  |   |            |  
|Net cash provided by operating activities                               |      | $                       | 280.8      |      |  | $ | 259.3      |   |  | $    | 241.6      |   |      | $ | 249.2      |   |  | $ | 193.6      |  
|Net cash used in investing activities                                   |      |                         | (320.1     | )    |  |   | (184.1     | ) |  |      | (178.7     | ) |      |   | (137.7     | ) |  |   | (110.2     | )
|Net cash provided by (used in) financing activities                     |      |                         | (183.7     | )    |  |   | 169.7      |   |  |      | (98.2      | ) |      |   | (106.6     | ) |  |   | (82.6      | )
|EBITDA (7)                                                              |      |                         | 338.2      |      |  |   | 255.7      |   |  |      | 264.4      |   |      |   | 249.2      |   |  |   | 230.1      |  
|Maintenance capital expenditures (8)                                    |      |                         | 96.1       |      |  |   | 77.7       |   |  |      | 76.3       |   |      |   | 67.8       |   |  |   | 56.7       |  



|(1) | Represents the net gain from the final settlement in 2007 with the ARLP Partnerships insurance underwriters for claims relating to a fire at the Dotiki mine and a
fire at MC Mining (MC Mining Fire Incident) and a realized gain in 2008 of $2.8 million on settlement of the ARLP Partnerships claim against the third-party that provided security services at the time of the MC Mining Fire Incident
(Please see Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsAnalysis of Historical Results of OperationsMC Mining Mine Fire).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Represents the cumulative effect of the accounting change attributable to the adoption of FASB ASC 718, Compensation-Stock Compensation (SFAS No. 123R,
ShareBased Payments), on January 1, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Long-term obligations include long-term portions of debt and capital lease obligations.
|--- | ---------------------------------------------------------------------------------------



|(4) | On January 1, 2009, we adopted FASB ASC 810-10-65 and 810-10-45-16 (SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements), which
amended accounting and reporting standards for noncontrolling ownership interests in subsidiaries. As a result of the adoption of the FASB ASC 810-10-65 and 810-10-45-16 amendments, noncontrolling ownership interest in consolidated subsidiaries is
now presented in the consolidated balance sheet within partners capital as a separate component from the parents equity. Consolidated net income now includes earnings attributable to both the parent and the noncontrolling interests.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Revenues per ton sold are based on the total of coal sales and other sales and operating revenues divided by tons sold.
|--- | -----------------------------------------------------------------------------------------------------------------------



|(6) | Cost per ton sold is based on the total of operating expenses, outside coal purchases and general and administrative expenses divided by tons sold.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | EBITDA is a non- Generally Accepted Accounting Principles (GAAP) measure and is defined as net income (prior to the allocation of noncontrolling interest)
before income taxes, cumulative effect of accounting change, interest expense, interest income and depreciation, depletion and amortization. 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 the ARLP Partnerships assets without regard to financing methods, capital structure or historical cost basis;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of the ARLP Partnerships assets to generate cash sufficient to pay interest costs and support its indebtedness;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the ARLP Partnerships operating performance and return on investment 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 GAAP. 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).



47



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The following table presents a reconciliation of (a) GAAP Cash Flows Provided by
Operating Activities to a non-GAAP EBITDA and (b) non-GAAP EBITDA to GAAP net income (in thousands):



|                                                                   |  |                         |          |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                   |  | Year Ended December 31, |         
|                                                                   |  | 2009                    |          |   | 2008 |   |          | 2007 |  |   | 2006    |   |  | 2005 |        
|Cash flows provided by operating activities                        |  | $                       | 280,802  |   |      | $ | 259,311  |      |  | $ | 241,552 |   |  | $    | 249,239 |   |  | $ | 193,626 |  
|Non-cash compensation expense                                      |  |                         | (3,582   | ) |      |   | (3,931   | )    |  |   | (3,925  | ) |  |      | (4,112  | ) |  |   | (8,193  | )
|Asset retirement obligations                                       |  |                         | (2,678   | ) |      |   | (2,827   | )    |  |   | (2,419  | ) |  |      | (2,101  | ) |  |   | (1,918  | )
|Coal inventory adjustment to market                                |  |                         | (3,030   | ) |      |   | (452     | )    |  |   | (21     | ) |  |      | (319    | ) |  |   | (573    | )
|Net gain on foreign currency exchange                              |  |                         | 653      |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net gain (loss) on sale of property, plant and equipment           |  |                         | (136     | ) |      |   | 911      |      |  |   | 3,189   |   |  |      | 1,188   |   |  |   | (179    | )
|Gain on sale of coal reserves                                      |  |                         |         |   |      |   | 5,159    |      |  |   |        |   |  |      |        |   |  |   |        |  
|Gain from insurance recoveries for property damage                 |  |                         |         |   |      |   |         |      |  |   | 2,357   |   |  |      |        |   |  |   |        |  
|Gain from insurance settlement proceeds received in a prior period |  |                         |         |   |      |   |         |      |  |   | 5,088   |   |  |      |        |   |  |   |        |  
|Loss on retirement of damaged vertical belt equipment              |  |                         |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   | (1,298  | )
|Other                                                              |  |                         | (537     | ) |      |   | (366     | )    |  |   | (811    | ) |  |      | (1,119  | ) |  |   | (580    | )
|Net effect of working capital changes                              |  |                         | 36,208   |   |      |   | (19,971  | )    |  |   | 7,789   |   |  |      | (5,802  | ) |  |   | 34,767  |  
|Interest expense, net                                              |  |                         | 29,781   |   |      |   | 18,369   |      |  |   | 9,928   |   |  |      | 9,185   |   |  |   | 11,811  |  
|Income tax expense (benefit)                                       |  |                         | 709      |   |      |   | (480     | )    |  |   | 1,670   |   |  |      | 3,013   |   |  |   | 2,682   |  
|                                                                   |  |                         |          |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |  
|EBITDA                                                             |  |                         | 338,190  |   |      |   | 255,723  |      |  |   | 264,397 |   |  |      | 249,172 |   |  |   | 230,145 |  
|Depreciation, depletion and amortization                           |  |                         | (117,524 | ) |      |   | (105,278 | )    |  |   | (85,310 | ) |  |      | (66,497 | ) |  |   | (55,647 | )
|Interest expense, net                                              |  |                         | (29,781  | ) |      |   | (18,369  | )    |  |   | (9,928  | ) |  |      | (9,185  | ) |  |   | (11,811 | )
|Income tax (expense) benefit                                       |  |                         | (709     | ) |      |   | 480      |      |  |   | (1,670  | ) |  |      | (3,013  | ) |  |   | (2,682  | )
|Cumulative effect of accounting change                             |  |                         |         |   |      |   |         |      |  |   |        |   |  |      | 112     |   |  |   |        |  
|                                                                   |  |                         |          |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                                         |  | $                       | 190,176  |   |      | $ | 132,556  |      |  | $ | 167,489 |   |  | $    | 170,589 |   |  | $ | 160,005 |  
|                                                                   |  |                         |          |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |  



|(8) | The ARLP Partnerships maintenance capital expenditures, as defined under the terms of its partnership agreement, are those capital expenditures required to
maintain, over the long-term, the operating capacity of its capital assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

General

The following
discussion of our financial condition and results of operations should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. For more detailed information regarding
the basis of presentation for the following financial information, please see Item 8. Financial Statements and Supplementary Data.Note 1. Organization and Presentation and Note 2. Summary of Significant Accounting
Policies.

Executive Overview

The AHGP Partnership

We have no operating activities apart from those conducted by the ARLP
Partnership, and our cash flows currently consist primarily of distributions from ARLP for our ARLP partnership interests, including the IDRs that we own. We reflect our ownership interest in the ARLP Partnership on a consolidated basis, which means
that our financial results are combined with the ARLP Partnerships financial results and the results of our other subsidiaries. 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. Accordingly, the noncontrolling partners interest in the ARLP Partnership is reflected
as reduction of consolidated net income in our results of operations. In addition to the ARLP Partnership, our historical consolidated results of operations include the results of operations of MGP, our wholly-owned subsidiary.

The AHGP Partnerships results of operations principally reflect the results of operations of the ARLP Partnership adjusted for
noncontrolling partners interest in the ARLP Partnerships net income. Accordingly, the discussion of our financial position and results of operations in this Managements Discussion and Analysis of Financial Condition and
Results of Operations reflects the operating activities and results of operations of the ARLP Partnership.



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Our primary business objective is to increase our cash distributions to our unitholders by
actively assisting ARLP in executing its business strategy. ARLPs business strategy is to create sustainable, capital-efficient growth in available cash to maximize its distribution to its unitholders by:



| |  |  | expanding its operations by adding and developing mines and coal reserves in existing, adjacent or neighboring properties;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | extending the lives of its current mining operations through acquisition and development of coal reserves using its existing infrastructure;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continuing to make productivity improvements to remain a low-cost producer in each region in which it operates;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | strengthening its position with existing and future customers by offering a broad range of coal qualities, transportation alternatives and customized
services; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | developing strategic relationships to take advantage of opportunities created within the coal industry.
| | - |  | -------------------------------------------------------------------------------------------------------

The ARLP Partnership

The ARLP Partnership is a diversified producer and marketer of coal primarily to major U.S. utilities and industrial users. In 2009, its total coal production was 25.8 million tons and total coal sales were 25.0 million tons. The
coal it produced in 2009 was approximately 10.1% low-sulfur coal, 22.5% medium-sulfur coal and 67.4% high-sulfur coal. The ARLP Partnership classifies low-sulfur coal as coal with a sulfur content of less than 1%, medium-sulfur coal as coal with a
sulfur content between 1% and 2%, and high-sulfur coal as coal with a sulfur content of greater than 2%.

The ARLP Partnership
operates nine underground mining complexes, and at December 31, 2009, had approximately 647.2 million tons of proven and probable coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia. The ARLP Partnership
believes it controls adequate reserves to implement its currently contemplated mining plans. The ARLP Partnership recently initiated operations at a newly constructed mining complex in Kentucky which is now the ARLP Partnerships ninth mining
complex and is constructing a new mining complex in West Virginia. The ARLP Partnership also operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. Please see Item 1. BusinessMining Operations for further
discussion of the ARLP Partnership mines.

As discussed in more detail in Item 1A. Risk Factors, the ARLP
Partnerships results of operations could be impacted by prices for fuel, steel, explosives and other supplies, unforeseen geologic conditions or mining and processing equipment failures and unexpected maintenance problems, and by the
availability or reliability of transportation for coal shipments. The ARLP Partnerships results of operations also could be impacted by its ability to obtain and renew permits necessary for its operations, secure or acquire coal reserves, or
find replacement buyers for coal under contracts with comparable terms to existing contracts. Moreover, the regulatory environment has grown increasingly more stringent in recent years. As outlined in Item 1. BusinessRegulation and
Laws a variety of measures taken by regulatory agencies in the U.S. and abroad and legislation pending in the U.S. Congress in response to the perceived threat from climate change attributed to greenhouse gas emissions could substantially
increase compliance costs for the ARLP Partnership and its customers and reduce demand for coal, which could materially and adversely impact the ARLP Partnerships results of operations. For additional information regarding some of the risks
and uncertainties that affect the ARLP Partnerships business and industry in which it operates, see Item 1A. Risk Factors.

The ARLP Partnerships principal expenses related to the production of coal are labor and benefits, equipment, materials and supplies, maintenance, royalties and excise taxes. Unlike many of the ARLP
Partnerships competitors in the eastern U.S., it employs a totally union-free workforce. Many of the benefits of the union-free workforce are not necessarily reflected in direct costs, but the ARLP Partnership believes they relate to higher
productivity. In addition, while the ARLP Partnership does not pay its customers transportation costs, they may be substantial and are often the determining factor in a coal consumers contracting decision. The ARLP Partnerships
mining operations are located near many of the major eastern utility generating plants and on major coal hauling railroads in the eastern U.S.

We have four reportable segments: the Illinois Basin, Central Appalachia, Northern Appalachia and Other and Corporate. The first three segments correspond to the three major coal producing regions in the
eastern U.S. Coal quality, coal seam height, mining and transportation methods and regulatory issues are similar within each of these three segments.



| |  |  | Illinois Basin segment is comprised of Webster County Coals Dotiki mining complex, Gibson County Coals Gibson North mining complex,
Hopkins County Coals Elk Creek mining complex, White County Coals Pattiki mining complex, Warriors mining complex, River Views newly constructed mining complex, which recently initiated operations, the
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | Gibson South property, and certain properties of Alliance Resource Properties, LLC (Alliance Resource Properties). The ARLP Partnership is in the process of permitting the Gibson
South property for future mine development. For more information on the permitting process, and matters that could hinder or delay the process, please read Item 1. Business  Regulation and Laws Mining Permits and
Approvals.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Central Appalachian segment is comprised of Pontikis and MC Minings mining complexes.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Northern Appalachian segment is comprised of Mettiki (MD)s mining complex, Mettiki (WV)s Mountain View mining complex, two small
third-party mining operations (one of which was idled in May 2009), a mining complex currently under construction at Tunnel Ridge and the Penn Ridge property. The ARLP Partnership is in the process of permitting the Penn Ridge property for future
mine development. For more information on the permitting process, and matters that could hinder or delay the process, please read Item 1. Business  Regulation and Laws Mining Permits and Approvals.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other and Corporate segment includes ARLP Partnership and AHGP marketing and administrative expenses, Matrix Design Group, LLC (Matrix
Design), Alliance Design Group, LLC (Alliance Design), the Mt. Vernon dock activities, coal brokerage activity, MAC, and certain properties of Alliance Resource Properties.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

How the ARLP Partnership Evaluates its Performance

The ARLP Partnerships management uses a variety of financial and operational measurements to analyze its performance. Primary measurements include the following: (1) salable tons produced per
unit shift; (2) coal sales price per ton; (3) Segment Adjusted EBITDA Expense per ton; (4) EBITDA; and (5) Segment Adjusted EBITDA

Salable Tons Produced Per Unit Shift. The ARLP Partnership reviews salable tons produced per unit shift as part of its operational analysis to measure the productivity of its operating segments
which is significantly influenced by mining conditions and the efficiency of its preparation plants. Our discussion of mining conditions and preparation plant costs are found below under Analysis of Historical Results of
Operations and therefore provides implicit analysis of saleable tons produced per unit shift.

Coal Sales Price
per Ton. The ARLP Partnership defines coal sales price per ton as total coal sales divided by tons sold. The ARLP Partnership reviews coal sales price per ton to review its marketing efforts and for market demand and trend analysis.

Segment Adjusted EBITDA Expense per Ton. The ARLP Partnership defines Segment Adjusted EBITDA Expense per ton as the sum of
operating expenses, outside coal purchases and other income divided by total tons sold. The ARLP Partnership reviews segment adjusted EBITDA expense per ton for cost trends.

EBITDA. The ARLP Partnership defines EBITDA as net income (prior to the allocation of noncontrolling interest) before net interest
expense, income taxes, and depreciation, depletion and amortization. EBITDA is used as a supplemental financial measure by the ARLP Partnerships management and by external users of its financial statements such as investors, commercial banks,
research analysts and others, to assess:



| |  |  | the financial performance of its assets without regard to financing methods, capital structure or historical cost basis;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of its assets to generate cash sufficient to pay interest costs and support its indebtedness;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | its operating performance and return on investment 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

Segment Adjusted EBITDA. The ARLP Partnership defines Segment Adjusted EBITDA as net income (prior
to the allocation of noncontrolling interest) before net interest expense, income taxes, depreciation, depletion and amortization and corporate general and administrative expenses. 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.



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Sources of the ARLP Partnerships Revenues

In 2009, approximately 91.8% of the ARLP Partnerships sales tonnage was consumed by electric utilities, with the balance shipped to
third-party resellers, industrial consumers and cogeneration plants. In 2009, approximately 92.6% of the ARLP Partnerships sales tonnage, including approximately 95.2% of its medium- and high-sulfur coal sales tonnage, was sold under long-term
contracts. The balance of the ARLP Partnerships sales was made in the spot market. The ARLP Partnerships long-term contracts contribute to its stability and profitability by providing greater predictability of sales volumes and sales
prices. In 2009, approximately 88.5% of the ARLP Partnerships medium- and high-sulfur coal was sold to utility plants with installed pollution control devices. These devices, also known as scrubbers, eliminate substantially all emissions of
sulfur dioxide.

Expiration of Federal Non-Conventional Source Fuel Tax Credit

Historically, the ARLP Partnership received material revenues from coal sales, rental, marketing and other services provided under
synfuel-related agreements at three of its mining operations. As anticipated, operations at these third-party synfuel facilities ended in December 2007 as the federal non-conventional source fuel tax credits expired. As a result, the ARLP
Partnership no longer sells coal to the synfuel operators, but instead sells that coal directly to its customers, including (but not exclusively) Louisville Gas and Electric Company, Seminole Electric Cooperative, Inc., the Tennessee Valley
Authority and VEPCO, each of which individually accounted for at least 10% of the ARLP Partnerships total revenues in 2009. For 2007, the incremental net income benefit from the combination of the various coal synfuel-related agreements was
approximately $28.5 million, assuming that coal pricing would not have increased without the availability of synfuel.

Analysis of
Historical Results of Operations

A comparison of our operating results for the years ended December 31, 2009,
2008 and 2007 was affected by the following significant non-recurring items:

2009



| |  |  | There were no significant non-recurring items for the year ended December 31, 2009.
| | - |  | -----------------------------------------------------------------------------------

2008



| |  |  | Gain on sale of non-core coal reserves of $5.2 million in 2008;
| | - |  | ---------------------------------------------------------------



| |  |  | Gain of $2.8 million on settlement of claims against the third-party that provided security services at the time of the December 2004 MC Mining Fire
Incident was recognized in 2008. Please read MC Mining Mine Fire below; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gain of $1.9 million on settlement of claims relating to the 2005 failure of the vertical belt system (the Vertical Belt Incident) at the
ARLP Partnerships Pattiki mine in 2008 recorded as a reduction to operating expenses. The 2008 gain resulted from a settlement reached with the third-party installer of the vertical belt system and represents a partial recovery of expenses
incurred in 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2007



| |  |  | Realized net income of approximately $28.5 million from various coal synfuel-related agreements. The expiration of the federal non-conventional source
fuel tax credit and its impact on the ARLP Partnerships results of operations are discussed in more detail above; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net gain of $3.2 million realized primarily from sales of surplus surface mining equipment.
| | - |  | -------------------------------------------------------------------------------------------



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2009 Compared with 2008

We reported net income of $190.2 million in 2009, an increase of 43.5% compared to net income of $132.6 million in 2008. The increase of
$57.6 million was principally due to improved contract pricing resulting in an average coal sales price of $46.60 per ton sold, compared to $40.23 per ton sold in 2008, partially offset by lower sales volumes and higher operating expense per ton
sold in 2009. The ARLP Partnership had tons sold of 25.0 million and tons produced of 25.8 million in 2009 compared to 27.2 million tons sold and 26.4 million tons produced in 2008. Unplanned customer outages, contractual
deferrals and weak spot market demand combined to reduce coal sales and production volumes in 2009 compared to 2008. In addition, as discussed above, the 2008 operating results included significant non-recurring gains of $9.9 million. Decreased
operating expenses in the aggregate primarily reflected lower coal production and sales volumes, as well as, reduced materials and supplies expenses, contract mining costs and other factors described below. The significant factors related to
increased operating expense per ton are also included in our analysis below.



|                                              |      |                |           |                |      |           |      |   |       |  |   |      
|--------------------------------------------- | ---- | -------------- | --------- | -------------- | ---- | --------- | ---- | - | ----- |  | - | -----
|                                              |      | December 31,   |           | December 31,  
|                                              | 2009 |                | 2008      |                | 2009 |           | 2008
|                                              |      | (in thousands) |           | (per ton sold)
|Tons sold                                     |      |                | 24,975    |                |      | 27,170    |      |   | N/A   |  |   | N/A  
|Tons produced                                 |      |                | 25,838    |                |      | 26,429    |      |   | N/A   |  |   | N/A  
|Coal sales                                    |      | $              | 1,163,871 |                | $    | 1,093,059 |      | $ | 46.60 |  | $ | 40.23
|Operating expenses and outside coal purchases |      | $              | 805,051   |                | $    | 825,630   |      | $ | 32.23 |  | $ | 30.39

Coal sales.
Coal sales increased 6.5% to $1.2 billion in 2009 from $1.1 billion in 2008. The increase of $0.1 billion reflected the benefit of higher average coal sales prices (contributing an increase of $0.2 billion) partially offset by lower sales volume
(reducing coal sales by $0.1 billion). Average coal sales prices increased $6.37 per ton sold in 2009 to $46.60 per ton compared to 2008, primarily as a result of improved contract pricing on long-term sales contracts, particularly in the Illinois
Basin and Central Appalachian segments described below.

Operating expenses. Operating expenses in the aggregate
decreased 0.5% to $797.5 million in 2009 from $801.9 million in 2008 primarily as a result of decreased tons produced and sold, in addition to various other factors, the most significant of which are discussed below. In addition, factors related to
increased operating expense per ton are also included in our analysis below:



| |  |  | Labor and benefit expenses per ton produced, excluding workers compensation, increased 16.5% to $11.08 per ton in 2009 from $9.51 per ton in
2008. The increase of $1.57 per ton represents pay rate increases and higher benefit expenses, particularly increased health care costs and retirement expenses, and the impact of increased headcount as the ARLP Partnership continues to hire and
train new employees for the River View and Tunnel Ridge mine development projects;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Workers compensation expenses per ton produced increased 23.1% to $0.96 per ton in 2009 from $0.78 per ton in 2008. The increase of $0.18 per ton
primarily reflected a non-cash charge that resulted from a decrease in the discount rate from 6.11% at the end of 2008 to 5.27% at the end of 2009, which increased the accrued liabilities for the present value of estimated future claim payments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Material and supplies expenses per ton produced decreased 2.2% to $9.62 per ton in 2009 from $9.84 per ton in 2008. This decrease of $0.22 per ton
resulted from decreased costs for certain products and services, primarily roof support (decrease of $0.25 per ton), outside expenses including dozer repair and trucking (decrease of $0.12 per ton) and fuel used in the mining process (decrease of
$0.10 per ton). These decreases were offset in part by increased costs in bits and cutter bars (increase of $0.05 per ton), higher power costs (increase of $0.12 per ton), preparation plant costs (increase of $0.09 per ton) reflecting reduced clean
coal recovery and additional supplies associated with disruptions related to an ice storm during the 2009 first quarter in the Illinois Basin region, among other factors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Maintenance expenses per ton produced increased 10.9% to $3.67 per ton in 2009 from $3.31 per ton in 2008. The increase of $0.36 per ton resulted from
higher repair costs related to continuous miners, belt conveyor equipment and other equipment categories;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Mine administration expenses decreased $4.2 million in 2009 compared to 2008, primarily as a result of lower accruals related to estimated regulatory
settlements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Contract mining expenses decreased $5.3 million in 2009 compared to 2008. The decrease reflects a curtailment of third-party mining operations in the
ARLP Partnerships Northern Appalachian segment in response to weak demand in export and spot coal markets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Production taxes and royalties (which were incurred as a percentage of coal sales or based on coal volumes) increased $0.48 per produced ton sold in
2009 compared to 2008, primarily as a result of increased average coal sales prices;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Operating expenses incurred in 2009 relating to the ARLP Partnerships River View and Tunnel Ridge mine development projects increased $18.7
million over 2008. Theses expenses are generally included in the variances discussed above; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2008 operating expenses benefited from a $1.9 million gain on settlement of claims relating to the Vertical Belt Incident at the ARLP
Partnerships Pattiki mine.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Other sales and operating revenues. Other sales and operating
revenues are principally comprised of Mt. Vernon transloading revenues, products and services provided by MAC and Matrix Design, and other outside services. Other sales and operating revenues increased 14.6% to $21.0 million in 2009 from $18.3
million in 2008. The increase of $2.7 million was primarily attributable to increased revenues from Matrix Design product sales and Mt. Vernon transloading revenues partially offset by decreases in ash disposal revenues and MAC product sales.

Outside coal purchases. Outside coal purchases decreased to $7.5 million in 2009 from $23.8 million in 2008. The
decrease of $16.3 million was primarily attributable to a decrease in outside coal purchases in our Central and Northern Appalachian regions in response to a weak demand in export and spot coal markets.

General and administrative. General and administrative expenses in 2009 increased to $42.9 million compared to $38.9 million in 2008.
The increase of $4.0 million was primarily attributable to higher unit-based incentive compensation expense and increased salary and benefit costs primarily related to higher staffing levels.

Depreciation, depletion and amortization. Depreciation, depletion and amortization increased to $117.5 million in 2009 compared to
$105.3 million in 2008. The increase of $12.2 million was primarily attributable to additional depreciation expense associated with continuing capital expenditures related to infrastructure improvements, efficiency projects and expansion of
production capacity.

Interest expense. Interest expense, net of capitalized interest, increased to $30.8 million in
2009 from $22.1 million in 2008. The increase of $8.7 million was principally attributable to the increased interest expense resulting from the $350 million private placement completed in June of 2008, partially offset by reduced interest expense
from the ARLP Partnerships August 2009 principal payment of $18.0 million on its senior notes issued in 1999. The 2008 financing activities are discussed in more detail below under Debt Obligations.

Interest income.Interest income decreased to $1.1 million in 2009 from $3.8 million in 2008. The decrease of $2.7 million resulted
from reduced interest income earned on short-term investments purchased with funds received from the 2008 financing activities, which were substantially liquidated to principally fund increased capital expenditures during 2009.

Transportation revenues and expenses. Transportation revenues and expenses increased 2.0% to $45.7 million in 2009 from $44.8 million
in 2008. The increase of $0.9 million was primarily attributable to an increase in coal sales volumes for which we arranged transportation in 2009 compared to 2008, partially offset by a decrease in average transportation rates of $0.35 per ton in
2009 compared to 2008, primarily due to lower fuel costs. The costs of transportation services are a pass-through to the ARLP Partnerships customers; consequently, the ARLP Partnership does not realize any margin on transportation revenues.

Income tax expense (benefit). Income tax expense increased to $0.7 million in 2009 from an income tax benefit of $0.5
million in 2008. The income tax expense in 2009 and benefit in 2008 were primarily due to operations of Matrix Design.



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Net income attributable to noncontrolling interests.The noncontrolling
interests balance is comprised of non-affiliate and affiliate ownership interests in the net assets of the ARLP Partnership that we consolidate and a third-party ownership interest in MAC. The noncontrolling interest designated as affiliate
represents SGPs 0.01% general partner interest in ARLP and 0.01% general partner interest in the Intermediate Partnership. The noncontrolling interest designated as non-affiliates represents the limited partners interest in ARLP
controlled through the common unit ownership, excluding the 15,544,169 common units of ARLP held by us. The noncontrolling interest designated as MAC represents a 50% third-party interest in MAC. The net income attributable to noncontrolling
interest was $76.0 million and $51.3 million in 2009 and 2008, respectively.The increase in net income attributable to noncontrolling interest is due to an increase in the consolidated net income of the ARLP Partnership due to the changes in
revenues and expenses described above. For more information, please read Item 8. Financial StatementsNote 12. Noncontrolling Interests of this Annual Report on Form 10-K.

Segment Information. Our 2009 Segment Adjusted EBITDA increased 29.4% to $381.1 million from 2008 Segment Adjusted EBITDA of $294.6
million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are as follows (in thousands):



|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|----------------------------------------- |  | ----------------------- | --------- | - | ------------------- | - | --------- | - |  | - | ------- | - |  | ----- | --
|                                          |  | Year Ended December 31, |           |   | Increase (Decrease) |  
|                                          |  | 2009                    |           |   | 2008                |   |          
|Segment Adjusted EBITDA                   |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 315,542   |   |                     | $ | 194,410   |   |  | $ | 121,132 |   |  | 62.3  | % 
|Central Appalachia                        |  |                         | 41,149    |   |                     |   | 52,812    |   |  |   | (11,663 | ) |  | (22.1 | )%
|Northern Appalachia                       |  |                         | 15,552    |   |                     |   | 39,480    |   |  |   | (23,928 | ) |  | (60.6 | )%
|Other and Corporate                       |  |                         | 9,192     |   |                     |   | 7,856     |   |  |   | 1,336   |   |  | 17.0  | % 
|Elimination                               |  |                         | (370      | ) |                     |   | 22        |   |  |   | (392    | ) |  | (1    | ) 
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Total Segment Adjusted EBITDA (2)         |  | $                       | 381,065   |   |                     | $ | 294,580   |   |  | $ | 86,485  |   |  | 29.4  | % 
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Tons sold                                 |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Illinois Basin                            |  |                         | 19,660    |   |                     |   | 20,496    |   |  |   | (836    | ) |  | (4.1  | )%
|Central Appalachia                        |  |                         | 2,641     |   |                     |   | 3,428     |   |  |   | (787    | ) |  | (23.0 | )%
|Northern Appalachia                       |  |                         | 2,660     |   |                     |   | 3,246     |   |  |   | (586    | ) |  | (18.1 | )%
|Other and Corporate                       |  |                         | 14        |   |                     |   |          |   |  |   | 14      |   |  | (1    | ) 
|Elimination                               |  |                         |          |   |                     |   |          |   |  |   |        |   |  |      |   
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Total tons sold                           |  |                         | 24,975    |   |                     |   | 27,170    |   |  |   | (2,195  | ) |  | (8.1  | )%
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Coal sales                                |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 846,940   |   |                     | $ | 715,862   |   |  | $ | 131,078 |   |  | 18.3  | % 
|Central Appalachia                        |  |                         | 179,369   |   |                     |   | 207,339   |   |  |   | (27,970 | ) |  | (13.5 | )%
|Northern Appalachia                       |  |                         | 136,412   |   |                     |   | 169,858   |   |  |   | (33,446 | ) |  | (19.7 | )%
|Other and Corporate                       |  |                         | 1,150     |   |                     |   |          |   |  |   | 1,150   |   |  | (1    | ) 
|Elimination                               |  |                         |          |   |                     |   |          |   |  |   |        |   |  |      |   
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Total coal sales                          |  | $                       | 1,163,871 |   |                     | $ | 1,093,059 |   |  | $ | 70,812  |   |  | 6.5   | % 
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Other sales and operating revenues        |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 1,151     |   |                     | $ | 1,123     |   |  | $ | 28      |   |  | 2.5   | % 
|Central Appalachia                        |  |                         | 191       |   |                     |   | 258       |   |  |   | (67     | ) |  | (26.0 | )%
|Northern Appalachia                       |  |                         | 3,316     |   |                     |   | 4,422     |   |  |   | (1,106  | ) |  | (25.0 | )%
|Other and Corporate                       |  |                         | 38,832    |   |                     |   | 23,138    |   |  |   | 15,694  |   |  | 67.8  | % 
|Elimination                               |  |                         | (22,492   | ) |                     |   | (10,614   | ) |  |   | (11,878 | ) |  | (1    | ) 
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Total other sales and operating revenues  |  | $                       | 20,998    |   |                     | $ | 18,327    |   |  | $ | 2,671   |   |  | 14.6  | % 
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Segment Adjusted EBITDA Expense           |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 532,549   |   |                     | $ | 522,575   |   |  | $ | 9,974   |   |  | 1.9   | % 
|Central Appalachia                        |  |                         | 138,412   |   |                     |   | 157,575   |   |  |   | (19,163 | ) |  | (12.2 | )%
|Northern Appalachia                       |  |                         | 124,176   |   |                     |   | 134,800   |   |  |   | (10,624 | ) |  | (7.9  | )%
|Other and Corporate                       |  |                         | 30,789    |   |                     |   | 20,441    |   |  |   | 10,348  |   |  | 50.6  | % 
|Elimination                               |  |                         | (22,122   | ) |                     |   | (10,636   | ) |  |   | (11,486 | ) |  | (1    | ) 
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   
|Total Segment Adjusted EBITDA Expense (3) |  | $                       | 803,804   |   |                     | $ | 824,755   |   |  | $ | (20,951 | ) |  | (2.5  | )%
|                                          |  |                         |           |   |                     |   |           |   |  |   |         |   |  |       |   



54



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##### Table of Contents

|(1) | Percentage increase or decrease was greater than or equal to 100%.
|--- | ------------------------------------------------------------------



|(2) | Segment Adjusted EBITDA is defined as EBITDA, excluding general and administrative expense. EBITDA is defined as net income (prior to the allocation of noncontrolling
interest) before net interest expense, income taxes, and depreciation, depletion and amortization. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external
users of our financial statements such as investors, commercial banks, research analysts and others, to assess:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial performance of the ARLP Partnerships assets without regard to financing methods, capital structure or historical cost basis;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of the ARLP Partnerships assets to generate cash sufficient to pay interest costs and support its indebtedness;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the ARLP Partnerships operating performance and return on investment 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those
stated in the above explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA allows management 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.

The following is a reconciliation of consolidated
Segment Adjusted EBITDA to net income (in thousands):



|                                         |  |                         |          |   |      |   |          |  
|---------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | -
|                                         |  | Year Ended December 31, |         
|                                         |  | 2009                    |          |   | 2008 |  
|Segment Adjusted EBITDA                  |  | $                       | 381,065  |   |      | $ | 294,580  |  
|General and administrative               |  |                         | (42,875  | ) |      |   | (38,857  | )
|Depreciation, depletion and amortization |  |                         | (117,524 | ) |      |   | (105,278 | )
|Interest expense, net                    |  |                         | (29,781  | ) |      |   | (18,369  | )
|Income tax (expense) benefit             |  |                         | (709     | ) |      |   | 480      |  
|                                         |  |                         |          |   |      |   |          |  
|Net income                               |  | $                       | 190,176  |   |      | $ | 132,556  |  
|                                         |  |                         |          |   |      |   |          |  



|(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. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by the ARLP Partnerships
management to assess the operating performance of the segments. In the ARLP Partnerships evaluation of EBITDA, which is discussed above under  How We Evaluate Our Performance, Segment Adjusted EBITDA Expense is a key
component of EBITDA in addition to coal sales and other sales and operating revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment
operating performance as it primarily relates to operating expenses. Outside coal purchases are included in Segment Adjusted EBITDA Expense because tons sold and coal sales include sales from outside coal purchases.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to operating expense (in thousands):



|                                                                       |  |                         |         |   |      |   |         |  
|---------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                       |  | Year Ended December 31, |        
|                                                                       |  | 2009                    |         |   | 2008 |  
|Segment Adjusted EBITDA Expense                                        |  | $                       | 803,804 |   |      | $ | 824,755 |  
|Outside coal purchases                                                 |  |                         | (7,524  | ) |      |   | (23,776 | )
|Other income                                                           |  |                         | 1,247   |   |      |   | 875     |  
|                                                                       |  |                         |         |   |      |   |         |  
|Operating expense (excluding depreciation, depletion and amortization) |  | $                       | 797,527 |   |      | $ | 801,854 |  
|                                                                       |  |                         |         |   |      |   |         |  



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Illinois Basin  Segment Adjusted EBITDA in 2009 increased 62.3% to $315.5 million from
2008 Segment Adjusted EBITDA of $194.4 million. The increase of $121.1 million was primarily attributable to improved contract pricing resulting in a higher average coal sales price of $43.08 per ton in 2009 compared to $34.93 per ton in 2008. The
benefit of higher average coal sales pricing was partially offset by reduced tons sold due to first quarter 2009 weather disruptions in western Kentucky, particularly at the Dotiki, Warrior and Elk Creek mines, as well as unplanned customer outages
and weakness in the spot market during 2009. Total Segment Adjusted EBITDA Expense in 2009 increased 1.9% to $532.5 million from $522.6 million in 2008. The increase in 2009 Segment Adjusted EBITDA Expense compared to 2008 was primarily the result
of cost increases described above under consolidated operating expenses, the impact of weather disruptions in 2009, in addition to the $1.9 million gain on settlement of claims relating to the Pattiki Vertical Belt Incident in 2008, as discussed
above under Analysis of Historical Results of Operations. Segment Adjusted EBITDA Expense per ton in 2009 increased $1.59 per ton to $27.09 per ton compared to 2008 Segment Adjusted EBITDA Expense of $25.50 per ton.

Central Appalachia  Segment Adjusted EBITDA in 2009 decreased 22.1% to $41.1 million compared to $52.8 million in 2008. The decrease
was primarily the result of lower sales volumes due to contract deferrals and weak coal demand in the spot market during 2009, partially offset by improved contract pricing that resulted in an increase in the average coal sales price of $7.42 per
ton to $67.91 per ton in 2009 compared to $60.49 per ton in 2008. Central Appalachia coal production was also impacted by the idling of one of four continuous mining units at Pontikis Van Lear mine, which reduced coal production by
approximately 140,000 tons. Although lower coal sales volumes resulted in a 12.2% decrease in 2009 Segment Adjusted EBITDA Expense to $138.5 million from $157.6 million in 2008, Segment Adjusted EBITDA Expense per ton sold increased by $6.44 per ton
in 2009 to $52.41 per ton, or 14.0% over 2008 Segment Adjusted EBITDA per ton of $45.97. The increase in the Segment Adjusted EBITDA Expense per ton resulted in part from decreased coal production primarily due to contractual deferrals, lower spot
market demand and reduced clean coal recovery resulting partly from Pontikis transition from the depleted Pond Creek coal seam into the thinner Van Lear coal seam in 2009 in addition to cost per ton increases described above under consolidated
operating expenses. Segment Adjusted EBITDA in 2008 benefited from the $2.8 million gain recognized on settlement of claims from the third-party that provided security services at the time of the MC Mining Fire Incident as discussed below under
MC Mining Mine Fire.

Northern Appalachia  Segment Adjusted EBITDA decreased 60.6% to $15.6
million in 2009 compared to $39.5 million in 2008. This decrease of $23.9 million was primarily the result of lower sales volumes reflecting reduced spot market sales and higher Segment Adjusted EBITDA Expense per ton sold in 2009 of $46.68 per ton,
an increase of $5.15 per ton, or 12.4%, compared to $41.53 per ton in 2008. Increased Segment Adjusted EBITDA Expense per ton in 2009 resulted primarily from lower production which was impacted by increased longwall move days in 2009, increased
longwall maintenance expense per ton, lower clean coal recovery due to mining conditions and a curtailment of third-party mining operations in 2009, as well as the other cost increases described above under consolidated operating expenses, including
increased expenses incurred related the ARLP Partnerships Tunnel Ridge organic growth project. Although Segment Adjusted EBITDA Expense per ton sold increased in 2009, Segment EBITDA Expense in 2009 decreased 7.9% to $124.2 million from $134.8
million in 2008, primarily as a result of lower coal sales volumes offset in part by higher expenses per ton as described above.

Other and Corporate  Segment Adjusted EBITDA increased to $9.2 million in 2009 from $7.9 million in 2008, primarily due to increased Matrix Design and Alliance Design product sales and service revenues and Mt. Vernon transloading
revenue in 2009, partially offset by decreased MAC product sales in 2009 and a $5.2 million gain on sale of non-core coal reserves in 2008. In addition, during 2009, the ARLP Partnership purchased a six-month United Kingdom treasury bill which
matured in October 2009, resulting in a gain of $0.7 million. The increase in Segment Adjusted EBITDA Expense primarily reflects increased costs associated with higher outside services revenue and product sales.



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##### Table of Contents

2008 Compared with 2007

In 2008, we reported net income of $132.6 million, a decrease of 20.9% compared to 2007 net income of $167.5 million. This decrease of $34.9
million was principally due to the significant items discussed above at the beginning of Analysis of Historical Results of Operations, in addition to higher depreciation, depletion and amortization resulting from capital expenditures
associated with the ARLP Partnerships growth initiatives and increased interest expense, net of interest income resulting from its 2008 financing activities, partially offset by improved coal sales. The ARLP Partnership had tons sold and tons
produced of 27.2 million and 26.4 million, respectively, in 2008 compared to 24.7 million tons sold and 24.3 million tons produced in 2007. Operating expenses in 2008 increased primarily as a result of higher coal production and
sales volumes as well as increased labor and labor related expenses, materials and supply costs, maintenance costs, higher regulatory compliance costs and other factors described below.



|                                              |      |                |           |                |      |         |      |   |       |  |   |      
|--------------------------------------------- | ---- | -------------- | --------- | -------------- | ---- | ------- | ---- | - | ----- |  | - | -----
|                                              |      | December 31,   |           | December 31,  
|                                              | 2008 |                | 2007      |                | 2008 |         | 2007
|                                              |      | (in thousands) |           | (per ton sold)
|Tons sold                                     |      |                | 27,170    |                |      | 24,725  |      |   | N/A   |  |   | N/A  
|Tons produced                                 |      |                | 26,429    |                |      | 24,269  |      |   | N/A   |  |   | N/A  
|Coal sales                                    |      | $              | 1,093,059 |                | $    | 960,354 |      | $ | 40.23 |  | $ | 38.84
|Operating expenses and outside coal purchases |      | $              | 825,630   |                | $    | 707,054 |      | $ | 30.39 |  | $ | 28.60

Coal sales.
Coal sales increased 13.8% to $1.1 billion in 2008 from $960.4 million in 2007. The increase of $132.7 million reflected increased sales volumes (contributing $94.9 million of the increase) and higher average coal sales prices (contributing $37.8
million of the increase). Tons sold increased 9.9% to 27.2 million tons in 2008 from 24.7 million tons in 2007. Tons produced increased 8.9% to 26.4 million tons in 2008 from 24.3 million tons in 2007. Average coal sales prices
increased $1.39 per ton sold to $40.23 per ton in 2008 compared to 2007, primarily as a result of improved contract pricing across all operations, as well as from certain higher priced sales in the spot and export markets, particularly in the
Central and Northern Appalachian segments.

Operating expenses. Operating expenses increased 17.0% to $801.9 million in
2008 from $685.1 million in 2007 primarily as a result of increased production and tons sold, as well as the following factors:



| |  |  | Labor and benefit expenses per ton produced, excluding workers compensation costs, increased 7.6% to $9.51 per ton in 2008 from $8.84 per ton in
2007. This increase of $0.67 per ton represents pay rate and benefit increases and increased health care costs, as well as increased headcount due to capacity expansion and increased regulatory compliance;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Material and supplies and maintenance expenses per ton produced increased 10.6% and 8.5%, respectively, to $9.84 and $3.31 per ton, respectively, in
2008 from $8.90 and $3.05 per ton, respectively, in 2007. The respective increases of $0.94 and $0.26 per ton resulted from increased costs for certain products and services (particularly roof support, power, fuel and other consumables) used in the
mining process, as well as higher compliance costs associated with more stringent regulatory enforcement which has also contributed to increased mine administrative expenses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expenses incurred during 2008 relating to the River View and Tunnel Ridge organic growth projects increased $2.6 million over 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Production taxes and royalties (which were incurred as a percentage of coal sales and coal volumes) increased $3.3 million as a result of increased
tons sold and increased average coal sales prices;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduced expenses of $6.0 million in 2008 compared to 2007 were associated with the purchase and sale of coal during 2007 under a settlement agreement
the ARLP Partnership entered into with ICG, Inc. (ICG) in November 2005. Consistent with the guidance in FASB ASC 845, Nonmonetary Transactions (Emerging Issues Task Force (EITF) Issue No. 04-13 Accounting for
Purchases and Sales of Inventory with the Same Counterparty), Pontikis coal sales to ICG and Alliance Coals purchases from ICG pursuant to that settlement agreement were combined. Therefore, the excess of Alliance Coals
purchase price from ICG over Pontikis sales price to ICG was reported as an operating expense. The ARLP Partnership fully satisfied its coal sales agreement with ICG in April 2007;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57



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##### Table of Contents

| |  |  | 2008 benefited from a $1.9 million gain on settlement of claims relating to the Vertical Belt Incident at the ARLP Partnerships Pattiki mine;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2007 included a $0.8 million reduction in operating expenses as a result of the final insurance settlement of the MC Mining Fire Incident; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 2007 operating expenses benefited from net gains of $3.2 million realized from the sale of surplus equipment compared to net gains of $0.9 million
realized in 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other sales and operating revenues. Other sales and operating revenues are
principally comprised of Mt. Vernon transloading revenues, products and services provided by MAC and Matrix Design, and other outside services. The 2007 other sales and operating revenues include rental and service fees from third-party coal synfuel
facilities. Other sales and operating revenues decreased to $18.3 million in 2008 from $34.9 million in 2007. The decrease of $16.6 million was primarily attributable to the loss of synfuel-related benefits due to the expiration of the
non-conventional synfuel tax credits on December 31, 2007, partially offset by increased revenues from transloading services and MAC and Matrix Design product sales. The ARLP Partnerships synfuel-related arrangements are discussed in more
detail above under   Executive Overview.

Outside coal purchases. Outside coal purchases increased
$1.8 million to $23.8 million in 2008 from $22.0 million in 2007. The increase was primarily attributable to an increase in outside coal purchases in the Northern Appalachian region to supply attractive spot and export market opportunities partially
offset by lower purchases in the Illinois Basin and Central Appalachian regions.

General and administrative. General
and administrative expenses for 2008 increased to $38.9 million compared to $36.7 million in 2007. The increase of $2.2 million was primarily attributable to higher salary and benefit costs related to increased staffing levels and higher incentive
compensation expense.

Depreciation, depletion and amortization. Depreciation, depletion and amortization increased to
$105.3 million in 2008 compared to $85.3 million in 2007. The increase of $20.0 million was primarily attributable to additional depreciation expense associated with continuing capital expenditures related to infrastructure improvements, efficiency
projects, reserve acquisitions and expansion of production capacity.

Interest expense.Interest expense, net of
capitalized interest, increased to $22.1 million in 2008 from $11.7 million in 2007. The increase of $10.4 million was principally attributable to interest expense resulting from the ARLP Partnerships 2008 financing activities, partially
offset by reduced interest expense resulting from its August 2008 principal repayment of $18.0 million on its senior notes issued in 1999. The ARLP Partnerships 2008 financing activities are discussed in more detail below under
Debt Obligations.

Interest income.Interest income increased to $3.8 million in 2008 from $1.7
million in 2007. The increase of $2.1 million resulted from increased interest income earned on short-term investments purchased with funds received from the ARLP Partnerships 2008 financing activities.

Transportation revenues and expenses. Transportation revenues and expenses each increased 18.8% to $44.8 million in 2008 compared to
$37.7 million in 2007. The increase of $7.1 million in 2008 was primarily attributable to higher transported coal volumes and higher average per ton transportation rates compared to 2007, primarily reflecting higher fuel costs and the location of
the ARLP Partnerships customers for which it arranged transportation. The costs of transportation services are passed through to the ARLP Partnerships customers; consequently, the ARLP Partnership does not realize any gain or loss on
transportation revenues.

Income tax expense (benefit). Income tax benefit in 2008 was $0.5 million compared to income
tax expense of $1.7 million in 2007. The income tax benefit in 2008 was primarily due to operating losses associated with Matrix Design, a business owned by the ARLP Partnerships subsidiary, Alliance Service, Inc. (Alliance
Service). The 2007 income tax expense was impacted by Alliance Services receipt of a material amount of income from services it provided to a third-party coal synfuel facility, which ceased operations on December 31, 2007 as a
result of the expiration of the synfuel tax credits. The ARLP Partnerships synfuel-related arrangements are discussed in more detail above under   Executive Overview.



58



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Net income attributable to noncontrolling interests.The noncontrolling
interests balance is comprised of non-affiliate and affiliate ownership interests in the net assets of the ARLP Partnership that we consolidate and a third-party ownership interest in MAC. The noncontrolling interest designated as affiliate
represents SGPs 0.01% general partner interest in ARLP and 0.01% general partner interest in the Intermediate Partnership. The noncontrolling interest designated as non-affiliates represents the limited partners interest in ARLP
controlled through the common unit ownership, excluding the 15,544,169 common units of ARLP held by us. The noncontrolling interest designated as MAC represents a 50% third-party interest in MAC. The net income attributable to noncontrolling
interest was $51.3 million and $79.6 million in 2008 and 2007, respectively.The increase in net income attributable to noncontrolling interest is due to an increase in the consolidated net income of the ARLP Partnership due to the changes in
revenues and expenses described above. For more information, please read Item 8. Financial Statements  Note 12. Noncontrolling Interests of this Annual Report on Form 10-K.

Segment Information. Our 2008 Segment Adjusted EBITDA decreased $6.5 million, or 2.2%, to $294.6 million from 2007 Segment Adjusted
EBITDA of $301.1 million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are as follows (in thousands):



|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|----------------------------------------- |  | ----------------------- | --------- | - | ------------------- | - | ------- | - |  | - | ------- | - |  | ----- | --
|                                          |  | Year Ended December 31, |           |   | Increase (Decrease) |  
|                                          |  | 2008                    |           |   | 2007                |   |        
|Segment Adjusted EBITDA                   |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 194,410   |   |                     | $ | 208,658 |   |  | $ | (14,248 | ) |  | (6.8  | )%
|Central Appalachia                        |  |                         | 52,812    |   |                     |   | 58,937  |   |  |   | (6,125  | ) |  | (10.4 | )%
|Northern Appalachia                       |  |                         | 39,480    |   |                     |   | 35,478  |   |  |   | 4,002   |   |  | 11.3  | % 
|Other and Corporate                       |  |                         | 7,856     |   |                     |   | (1,952  | ) |  |   | 9,808   |   |  | (1    | ) 
|Elimination                               |  |                         | 22        |   |                     |   |        |   |  |   | 22      |   |  |      |   
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Total Segment Adjusted EBITDA (2)         |  | $                       | 294,580   |   |                     | $ | 301,121 |   |  | $ | (6,541  | ) |  | (2.2  | )%
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Tons sold                                 |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Illinois Basin                            |  |                         | 20,496    |   |                     |   | 17,970  |   |  |   | 2,526   |   |  | 14.1  | % 
|Central Appalachia                        |  |                         | 3,428     |   |                     |   | 3,455   |   |  |   | (27     | ) |  | (0.8  | )%
|Northern Appalachia                       |  |                         | 3,246     |   |                     |   | 3,300   |   |  |   | (54     | ) |  | (1.6  | )%
|Other and Corporate                       |  |                         |          |   |                     |   |        |   |  |   |        |   |  |      |   
|Elimination                               |  |                         |          |   |                     |   |        |   |  |   |        |   |  |      |   
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Total tons sold                           |  |                         | 27,170    |   |                     |   | 24,725  |   |  |   | 2,445   |   |  | 9.9   | % 
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Coal sales                                |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 715,862   |   |                     | $ | 612,850 |   |  | $ | 103,012 |   |  | 16.8  | % 
|Central Appalachia                        |  |                         | 207,339   |   |                     |   | 193,104 |   |  |   | 14,235  |   |  | 7.4   | % 
|Northern Appalachia                       |  |                         | 169,858   |   |                     |   | 147,315 |   |  |   | 22,543  |   |  | 15.3  | % 
|Other and Corporate                       |  |                         |          |   |                     |   | 7,085   |   |  |   | (7,085  | ) |  | (1    | ) 
|Elimination                               |  |                         |          |   |                     |   |        |   |  |   |        |   |  |      |   
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Total coal sales                          |  | $                       | 1,093,059 |   |                     | $ | 960,354 |   |  | $ | 132,705 |   |  | 13.8  | % 
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Other sales and operating revenues        |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 1,123     |   |                     | $ | 25,371  |   |  | $ | (24,248 | ) |  | (95.6 | )%
|Central Appalachia                        |  |                         | 258       |   |                     |   | 99      |   |  |   | 159     |   |  | (1    | ) 
|Northern Appalachia                       |  |                         | 4,422     |   |                     |   | 4,201   |   |  |   | 221     |   |  | 5.3   | % 
|Other and Corporate                       |  |                         | 23,138    |   |                     |   | 10,076  |   |  |   | 13,062  |   |  | (1    | ) 
|Elimination                               |  |                         | (10,614   | ) |                     |   | (4,802  | ) |  |   | (5,812  | ) |  | (1    | ) 
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Total other sales and operating revenues  |  | $                       | 18,327    |   |                     | $ | 34,945  |   |  | $ | (16,618 | ) |  | (47.6 | )%
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Segment Adjusted EBITDA Expense           |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Illinois Basin                            |  | $                       | 522,575   |   |                     | $ | 429,563 |   |  | $ | 93,012  |   |  | 21.7  | % 
|Central Appalachia                        |  |                         | 157,575   |   |                     |   | 145,759 |   |  |   | 11,816  |   |  | 8.1   | % 
|Northern Appalachia                       |  |                         | 134,800   |   |                     |   | 116,037 |   |  |   | 18,763  |   |  | 16.2  | % 
|Other and Corporate                       |  |                         | 20,441    |   |                     |   | 19,112  |   |  |   | 1,329   |   |  | 7.0   | % 
|Elimination                               |  |                         | (10,636   | ) |                     |   | (4,802  | ) |  |   | (5,834  | ) |  | (1    | ) 
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   
|Total Segment Adjusted EBITDA Expense (3) |  | $                       | 824,755   |   |                     | $ | 705,669 |   |  | $ | 119,086 |   |  | 16.9  | % 
|                                          |  |                         |           |   |                     |   |         |   |  |   |         |   |  |       |   



|(1) | Percentage increase or decrease was greater than or equal to 100%.
|--- | ------------------------------------------------------------------



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|(2) | Segment Adjusted EBITDA is defined as EBITDA, excluding general and administrative expense. EBITDA is defined as net income (prior to the allocation of noncontrolling
interest) before net interest expense, income taxes, and depreciation, depletion and amortization. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external
users of our financial statements such as investors, commercial banks, research analysts and others, to assess:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial performance of the ARLP Partnerships assets without regard to financing methods, capital structure or historical cost basis;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of the ARLP Partnerships assets to generate cash sufficient to pay interest costs and support its indebtedness;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the ARLP Partnerships operating performance and return on investment 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those
stated in the above explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA allows management 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.

The following is a reconciliation of consolidated
Segment Adjusted EBITDA to net income (in thousands):



|                                         |  |                         |          |   |      |   |         |  
|---------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | -
|                                         |  | Year Ended December 31, |         
|                                         |  | 2008                    |          |   | 2007 |  
|Segment Adjusted EBITDA                  |  | $                       | 294,580  |   |      | $ | 301,121 |  
|General and administrative               |  |                         | (38,857  | ) |      |   | (36,724 | )
|Depreciation, depletion and amortization |  |                         | (105,278 | ) |      |   | (85,310 | )
|Interest expense, net                    |  |                         | (18,369  | ) |      |   | (9,928  | )
|Income tax (expense) benefit             |  |                         | 480      |   |      |   | (1,670  | )
|                                         |  |                         |          |   |      |   |         |  
|Net income                               |  | $                       | 132,556  |   |      | $ | 167,489 |  
|                                         |  |                         |          |   |      |   |         |  



|(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, consequently it does not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by the ARLP Partnerships management to
assess the operating performance of the segments. In the ARLP Partnerships evaluation of EBITDA, which is discussed above under  How We Evaluate Our Performance, Segment Adjusted EBITDA Expense is a key component of
EBITDA in addition to coal sales and other sales and operating revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment operating
performance as it primarily relates to operating expenses. Outside coal purchases are included in Segment Adjusted EBITDA Expense because tons sold and coal sales include sales from outside coal purchases.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to operating expense (in thousands):



|                                                                       |  |                         |         |   |      |   |         |  
|---------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                       |  | Year Ended December 31, |        
|                                                                       |  | 2008                    |         |   | 2007 |  
|Segment Adjusted EBITDA Expense                                        |  | $                       | 824,755 |   |      | $ | 705,669 |  
|Outside coal purchases                                                 |  |                         | (23,776 | ) |      |   | (21,969 | )
|Other income                                                           |  |                         | 875     |   |      |   | 1,385   |  
|                                                                       |  |                         |         |   |      |   |         |  
|Operating expense (excluding depreciation, depletion and amortization) |  | $                       | 801,854 |   |      | $ | 685,085 |  
|                                                                       |  |                         |         |   |      |   |         |  



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Illinois Basin  Segment Adjusted EBITDA decreased 6.8% in 2008 to $194.4 million,
compared to 2007 Segment Adjusted EBITDA of $208.7 million. The decrease of $14.3 million is primarily attributable to the loss of synfuel benefits and higher operating expenses partially offset by increased coal sales and a $1.9 million gain on
settlement of claims relating to the Pattiki Vertical Belt Incident. Other sales and operating revenues decreased by $24.2 million due to the expiration of the non-conventional synfuel tax credits on December 31, 2007 and the resulting loss of
benefits derived from supplying third-party coal synfuel facilities with coal feedstock and related services. The ARLP Partnerships synfuel-related arrangements are discussed in more detail above under Executive Overview.
Illinois Basin coal sales in 2008 increased by $103.0 million to $715.9 million compared to $612.9 million in 2007, primarily as a result of increased tons sold of 2.5 million tons (contributing $86.0 million of the increase in coal sales)
reflecting increased production capacity at the Elk Creek and Warrior mines and increased production at the Dotiki and Gibson mines. Additionally, increased coal sales in 2008 resulted from a higher average coal sales price per ton, which increased
2.4% to $34.93 per ton in 2008 compared to $34.10 per ton in 2007 (contributing $17.0 million of the total increase in coal sales). The 2008 average coal sales prices benefited from improved long-term contract realizations. Total Segment Adjusted
EBITDA Expense in 2008 increased 21.7% to $522.6 million from $429.6 million in 2007, primarily as a result of production costs and sales related expenses associated with increased tons sold, as well as the impact of the cost increases described
above under consolidated operating expenses. The 2007 Segment Adjusted EBITDA Expense also benefited from certain favorable operating tax adjustments. On a per ton sold basis, 2008 Segment Adjusted EBITDA Expense increased $1.60 to $25.50 per ton
compared to the 2007 Segment Adjusted EBITDA Expense of $23.90 per ton.

Central Appalachia  Segment Adjusted EBITDA in
2008 decreased 10.4% to $52.8 million, compared to 2007 Segment Adjusted EBITDA of $58.9 million. The $6.1 million decrease was primarily the result of the net gain from insurance settlement of approximately $11.5 million and a reduction in
operating expenses of approximately $0.8 million in 2007 related to the MC Mining Fire Incident, compared to a $2.8 million gain recognized in 2008 on settlement of claims from the third-party that provided security services at the time of the fire.
Please read  MC Mining Mine Fire below. Central Appalachia coal sales in 2008 and 2007 were $207.3 million and $193.1 million, respectively, an increase of $14.2 million primarily resulting from a higher average coal sales
price per ton, which increased $4.60 to $60.49 per ton in 2008 compared to $55.89 per ton in 2007 (contributing $15.7 million of the total increase in coal sales). Higher 2008 average coal sales prices reflect both improved contract sales prices, as
well as certain higher priced sales in the spot and export markets. Segment Adjusted EBITDA Expense in 2008 increased 8.1% to $157.6 million, compared to $145.8 million in 2007. Segment Adjusted EBITDA Expense per ton increased $3.78 to $45.97 per
ton in 2008, compared to $42.19 per ton in 2007 resulting from a lower percentage of salable tons recovered from raw production, increased labor and benefits expense, as well as other cost increases described above under consolidated operating
expenses.

Northern Appalachia  Segment Adjusted EBITDA in 2008 increased 11.3% to $39.5 million, compared to 2007
Segment Adjusted EBITDA of $35.5 million. The increase of $4.0 million in Segment Adjusted EBITDA was primarily attributable to a higher average sales price of $52.33 per ton during 2008 compared to $44.64 per ton during 2008, resulting from
improved pricing on long-term sales contracts and certain higher priced sales in the spot and export markets. Segment Adjusted EBITDA Expense per ton sold during 2008 of $41.53 per ton was an increase of $6.37 per ton compared to $35.16 per ton in
2007. The increase in Segment Adjusted EBITDA Expense per ton sold was primarily a result of higher purchased coal expense, lower production in 2008 and increased power costs, coal transportation costs, water treatment costs and contract mining
expenses. The decreased production in 2008 reflects adverse mining conditions and reduced salable coal recoveries compared to 2007.

Other and Corporate  Segment Adjusted EBITDA increased to $7.9 million in 2008 from a loss of $1.9 million in 2007, primarily due to the $5.2 million gain on sale of non-core coal reserves and increased outside services revenue and
product sales in 2008. The increase in Segment Adjusted EBITDA Expense primarily reflects increased expenses associated with higher outside services revenue and product sales.



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Elimination  The increase is primarily comprised of the elimination of sales and
operating expenses between MAC and Matrix Design and the ARLP Partnerships operating mines.

MC Mining Mine Fire

On June 18, 2007, the ARLP Partnership agreed to a full and final resolution of its insurance claims relating to the MC
Mining Fire Incident. This resolution included settlement of all expenses, losses and claims the ARLP Partnership incurred for the aggregate amount of $31.6 million, inclusive of $8.2 million of various deductibles and co-insurance, netting to $23.4
million of insurance proceeds paid to the ARLP Partnership. In June 2007, as a result of this final resolution, the ARLP Partnership received additional cash payments of $7.2 million and recognized a net gain from insurance settlement of
approximately $11.5 million, as well as a reduction in operating expenses of approximately $0.8 million. In May 2008, the ARLP Partnership realized a $2.8 million gain on settlement of its claims against the third-party that provided security
services at the time of the fire.

Ongoing Acquisition Activities

Consistent with its business strategy, from time to time the ARLP Partnership engages in discussions with potential sellers regarding
possible acquisitions of certain assets and/or companies of the sellers.

Liquidity and Capital Resources

Liquidity

Our only cash generating assets are limited and general partnership interests in the ARLP Partnership, including IDRs, from which we receive quarterly distributions. We currently have no independent operations separate from those of the
ARLP Partnership. We rely on distributions from the ARLP Partnership to fund our cash requirements.

The ARLP Partnership has
historically satisfied its working capital requirements and funded its capital expenditures and debt service obligations from cash generated from operations, cash provided by the issuance of debt or equity and borrowings under revolving credit
facilities. The ARLP Partnership believes that the current cash on hand, cash generated from operations, cash from borrowings under its current credit facility, and cash provided from the issuance of debt or equity will be sufficient to meet its
working capital requirements, anticipated capital expenditures, scheduled debt payments and distribution payments. The ARLP Partnerships ability to satisfy its obligations and planned expenditures will depend upon its future operating
performance and access to and cost of financing sources, which will be affected by prevailing economic conditions generally and in the coal industry specifically, which are beyond its control. Based on the ARLP Partnerships recent operating
results, current cash position, anticipated future cash flows and sources of financing that it expects to have available, it does not anticipate any significant liquidity constraints in the foreseeable future. However, to the extent operating cash
flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. Please see Item 1A. Risk Factors above.

Cash Flows

Cash provided by operating activities was $280.8 million in 2009, compared to $259.3 million in 2008. The increase in cash provided by operating activities was principally attributable to higher net income, partially offset by reduced cash
flow related to increases in certain operating assets, such as trade receivables and inventories and decreases in certain operating liabilities, such as account payable.

Net cash used in investing activities was $320.1 million in 2009, compared to $184.1 million in 2008. The increase in cash used for investing activities was primarily attributable to an increase in
capital expenditures for the continuing mine development at the River View and Tunnel Ridge growth projects. There were no significant acquisitions or sales of coal reserves and other assets in 2009 compared to $29.8 million net use of cash on such
transactions in 2008.

Net cash used in financing activities was $183.7 million in 2009, compared to net cash provided by
financing activities of $169.7 million in 2008. The decrease in cash provided by financing activities was primarily attributable to an absence of additional proceeds from borrowings in 2009 compared to proceeds in 2008 that included issuance of the
of the $350 million of senior notes in a private placement (see  Debt Obligations) in addition to increased distributions paid to partners in 2009.



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The ARLP Partnership has various commitments primarily related to long-term debt, including
capital leases, operating lease commitments related to buildings and equipment, obligations for estimated asset retirement obligations costs, workers compensation and pneumoconiosis, capital project commitments and pension funding. The ARLP
Partnership expects to fund these commitments with cash on hand, cash generated from operations and borrowings under its revolving credit facility. The following table provides details regarding the ARLP Partnerships contractual cash
obligations as of December 31, 2009 (in thousands):



|                                                    |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        
|--------------------------------------------------- |  | ----- | --------- | --------------- | - | -------- |  | -------- | ------- | ---------------- | - | ------- |  | - | -------
|Contractual Obligations                             |  | Total |           | Less than 1year |   | 1-3years |  | 3-5years |         | More than5 years
|Long-term debt                                      |  | $     | 440,000   |                 | $ | 18,000   |  | $        | 36,000  |                  | $ | 36,000  |  | $ | 350,000
|Future interest obligations on senior notes         |  |       | 175,817   |                 |   | 30,097   |  |          | 55,707  |                  |   | 49,723  |  |   | 40,290 
|Operating leases                                    |  |       | 9,331     |                 |   | 5,059    |  |          | 2,161   |                  |   | 734     |  |   | 1,377  
|Capital leases(1)                                   |  |       | 1,577     |                 |   | 504      |  |          | 788     |                  |   | 285     |  |   |       
|Reclamation obligations(2)                          |  |       | 123,891   |                 |   | 2,735    |  |          | 4,541   |                  |   | 5,325   |  |   | 111,290
|Purchase obligations for capital projects           |  |       | 85,903    |                 |   | 85,903   |  |          |        |                  |   |        |  |   |       
|Workers compensation and pneumoconiosis benefit(2) |  |       | 248,621   |                 |   | 12,987   |  |          | 19,307  |                  |   | 16,137  |  |   | 200,190
|                                                    |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        
|                                                    |  | $     | 1,085,140 |                 | $ | 155,285  |  | $        | 118,504 |                  | $ | 108,204 |  | $ | 703,147
|                                                    |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        



|(1) | Includes amounts classified as interest and maintenance cost.
|--- | -------------------------------------------------------------



|(2) | Future commitments for reclamation obligations, workers compensation and pneumoconiosis are shown at undiscounted amounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------

The ARLP Partnership expects to contribute $9.8 million to the defined benefit pension plan (Pension Plan) during 2010. The ARLP
Partnership estimates its income tax cash requirements to be approximately $0.8 million in 2010.

Off-Balance Sheet
Arrangements

In the normal course of business, the ARLP Partnership is a party to certain off-balance sheet arrangements.
These arrangements include related party guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and surety bonds. Liabilities related to these arrangements are not reflected in our consolidated balance
sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

The ARLP Partnership uses a combination of surety bonds and letters of credit to secure its financial obligations for reclamation,
workers compensation and other obligations as follows as of December 31, 2009 (in thousands):



|                  |  |                       |        |                                |   |        |  |       |       |  |   |       
|----------------- |  | --------------------- | ------ | ------------------------------ | - | ------ |  | ----- | ----- |  | - | ------
|                  |  | ReclamationObligation |        | WorkersCompensationObligation |   | Other  |  | Total
|Surety bonds      |  | $                     | 62,511 |                                | $ | 22,024 |  | $     | 2,251 |  | $ | 86,786
|Letters of credit |  |                       |       |                                |   | 44,847 |  |       | 9,548 |  |   | 54,395

Capital
Expenditures

Capital expenditures increased to $328.2 million in 2009 compared to $176.5 million in 2008. See our
discussion of Cash Flows above concerning this increase in capital expenditures.

The ARLP Partnership currently
projects average estimated annual maintenance capital expenditures of approximately $4.00 per ton produced. The ARLP Partnerships anticipated total capital expenditures for 2010 are estimated in a range of $275 to $315 million. Management
anticipates funding 2010 capital requirements with the ARLP Partnerships December 31, 2009 cash and cash equivalents of $21.6 million, cash flows provided by operations and borrowing available under its revolving credit facility, as
discussed below. The ARLP Partnership will continue to have significant capital requirements over the long-term, which may require it to incur debt or seek additional equity capital. The availability and cost of additional capital to the ARLP
Partnership will depend upon prevailing market conditions, the market price of ARLPs common units and several other factors over which the ARLP Partnership has limited control, as well as its financial condition and results of operations.



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Insurance

During September 2009, the ARLP Partnership completed its annual property and casualty insurance renewal with various insurance coverages
effective October 1, 2009. As in past years, the ARLP Partnership has elected to retain a participating interest in its commercial property insurance program at an average rate of approximately 14.7% in the overall $75.0 million of coverage,
representing 22% of the primary $50.0 million layer. The ARLP Partnership does not participate in the second layer of $25.0 million in excess of $50.0 million.

The 14.7% participation rate for this years renewal is consistent with the ARLP Partnerships prior year participation. The aggregate maximum limit in the commercial property program is $75.0
million per occurrence, of which, as a result of its participation, the ARLP Partnership is responsible for a maximum amount of $11.0 million for each occurrence, excluding a $1.5 million deductible for property damage, a $5.0 million aggregate
deductible for extra expense and a 60-day waiting period for business interruption. The ARLP Partnership can make no assurances that it will not experience significant insurance claims in the future, which as a result of its level of participation
in the commercial property program, could have a material adverse effect on the ARLP Partnerships business, financial condition, results of operations and ability to purchase property insurance in the future.

Debt Obligations

Alliance Holdings GP, L.P.

We have a $2.0 million revolving credit facility (AHGP Credit Facility)
with C-Holdings, LLC (C-Holdings), which owns 100% of the members interest of our general partner, AGP, and is controlled by Mr. Craft. The AHGP Credit Facility matures March 31, 2011 and is available for general
partnership purposes. Any borrowings under the facility, as extended, bear interest at the London Interbank Offered Rate (LIBOR) plus 2.0%. We are not required to pay a commitment fee to C-Holdings on the unused portion of the facility.
At December 31, 2009, we had no borrowings outstanding under the AHGP Credit Facility. There are no material operating and financial restrictions and covenants in the AHGP Credit Facility. C-Holdings may terminate the facility and demand
payment of any amounts outstanding in the event we have a change of control.

Alliance Resource Partners, L.P.

ARLP Credit Facility. The Intermediate Partnership has a $150.0 million revolving credit facility
(ARLP Credit Facility) dated September 25, 2007, which matures in 2012. On September 30, 2009, the Intermediate Partnership entered into Amendment No. 2 (the Credit Amendment) to the ARLP Credit Facility. The
Credit Amendment increased the annual capital expenditure limits under the ARLP Credit Facility. The new limits, excluding capital expenditures related to acquisitions, were $425.0 million for 2009, $375.0 million for 2010, $350.0 million for 2011
and $250.0 million for 2012. The amount of any annual limit in excess of actual capital expenditures for that year carries forward and is added to the annual limit of the subsequent year. As a result, the capital expenditure limit for 2010 is
approximately $471.8 million.

Pursuant to the Credit Amendment, the applicable margin for LIBOR borrowings under the ARLP
Credit Facility was increased from a range of 0.625% to 1.150% (depending on the Intermediate Partnerships leverage margin) to a range of 1.115% to 2.000%, and the annual commitment fee was increased from a range of 0.15% to 0.35% (also
depending on the Intermediate Partnerships leverage margin) to a range of 0.25% to 0.50%. In addition, the Credit Amendment includes certain changes relating to a defaulting lender, including changes which clarify that the overall
ARLP Credit Facility commitment would be reduced by the commitment share of a defaulting lender but also provides the Intermediate Partnership with more flexibility in replacing a defaulting lender.

At December 31, 2009, the ARLP Partnership had $23.3 million of letters of credit outstanding with $126.7 million available for
borrowing under the ARLP Credit Facility. The ARLP Partnership had no borrowings outstanding under the ARLP Credit Facility as of December 31, 2009. The ARLP Partnership incurs an annual commitment fee of 0.375% on the undrawn portion of the
ARLP Credit Facility.



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Lehman Commercial Paper, Inc. (Lehman), a subsidiary of Lehman Brothers Holding,
Inc., holds a 5%, or $7.5 million, commitment in the $150 million ARLP Credit Facility. The ARLP Credit Facility is underwritten by a syndicate of twelve financial institutions including Lehman with no individual institution representing more than
11.3% of the $150 million revolving credit facility. Lehman filed for protection under Chapter 11 of the Federal Bankruptcy Code in early October 2008. In the event Lehman, or any other financial institution in the ARLP Partnerships syndicate,
does not fund its future borrowing requests, the ARLP Partnerships borrowing availability under the ARLP Credit Facility would be reduced. The obligations of the lenders under the ARLP Credit Facility are individual obligations and the failure
of one or more lenders does not relieve the remaining lenders of their funding obligations. On February 11, 2010, the ARLP Partnership gave its lenders a notice of borrowing under the ARLP Credit Facility and, in response to that notice, Lehman
notified the ARLP Partnership that it would not fund its proportionate share of the borrowing. As a result, as of February 11, 2010, Lehman became a defaulting lender and availability for borrowing under the ARLP Credit Facility was reduced by
$7.5 million, unless and until the ARLP Partnership replaces Lehman as a lender.

Senior Notes. The
Intermediate Partnership has $90.0 million principal amount of 8.31% senior notes due August 20, 2014, payable in five remaining equal annual installments of $18.0 million with interest payable semi-annually (ARLP Senior Notes).

Series A Senior Notes. On June 26, 2008, the Intermediate Partnership entered into a Note Purchase
Agreement (the 2008 Note Purchase Agreement) with a group of institutional investors in a private placement offering. The Intermediate Partnership issued $205.0 million of Series A Senior Notes, which bear interest at 6.28% and mature on
June 26, 2015 with interest payable semi-annually.

Series B Senior Notes.On June 26, 2008, the
Intermediate Partnership issued under the 2008 Note Purchase Agreement $145.0 million of Series B Senior Notes, which bear interest at 6.72% and mature on June 26, 2018 with interest payable semi-annually.

The proceeds from the Series A and Series B Senior Notes (collectively, the 2008 Senior Notes) were used to repay $21.5 million
outstanding under the ARLP Credit Facility and pay expenses associated with the offering of the 2008 Senior Notes. The remaining proceeds were primarily used to fund the development of the River View and Tunnel Ridge mining complexes and for other
general working capital requirements. The ARLP Partnership incurred debt issuance costs of approximately $0.3 million in 2009 associated with the ARLP Credit Facility and $1.7 million in 2008 associated with the 2008 Senior Notes, which have been
deferred and are being amortized as a component of interest expense over the term of the respective notes.

The ARLP Credit
Facility, Senior Notes and 2008 Senior Notes (collectively, ARLP Debt Arrangements) are guaranteed by all of the direct and indirect subsidiaries of the Intermediate Partnership. The ARLP Debt Arrangements contain various covenants
affecting the Intermediate Partnership and its subsidiaries restricting, among other things, the amount of distributions by the Intermediate Partnership, the incurrence of additional indebtedness and liens, the sale of assets, the making of
investments, the entry into mergers and consolidations and the entry into transactions with affiliates, in each case subject to various exceptions. The ARLP Debt Arrangements also require the Intermediate Partnership to remain in control of a
certain amount of mineable coal reserves relative to its annual production. In addition, the ARLP Debt Arrangements require the Intermediate Partnership to maintain (i) a minimum debt to cash flow ratio of not more than 3.0 to 1.0, (ii) a
ratio of cash flow to interest expense of not less than 4.0 to 1.0, in each case, during the four most recently ended fiscal quarters and (iii) maximum annual capital expenditures, excluding acquisitions, as described above. The Credit
Amendment did not change the required minimum debt to cash flow or cash flow to interest expense ratios. The debt to cash flow ratio, cash flow to interest expense ratio and actual capital expenditures were 1.3 to 1.0, 10.8 to 1.0, and $328.2
million for the trailing twelve months ended December 31, 2009. The ARLP Partnership was in compliance with the covenants of the ARLP Debt Arrangements as of December 31, 2009.

Other. In addition to the letters of credit available under the ARLP Credit Facility discussed above, the ARLP Partnership
also has agreements with two banks to provide additional letters of credit in an aggregate amount of $31.1 million to maintain surety bonds to secure certain asset retirement obligations and its obligations for workers compensation benefits.
At December 31, 2009, the ARLP Partnership had $31.1 million in letters of credit outstanding under agreements with these two banks. SGP guarantees $5.0 million of these outstanding letters of credit.

On March 19, 2007, MAC entered into a secured line of credit (LOC) which was scheduled to expire on March 19, 2008. In
September 2007, MAC entered into a $1.5 million Revolving Credit Agreement (Revolver) with ARLP. Concurrent with the execution of the Revolver, MAC repaid all amounts outstanding under the LOC. By amendment effective April 1, 2008,
the term of the Revolver was extended to June 30, 2009. On November 17, 2009, MAC entered into Amendment No. 2, effective June 30, 2009,



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which increased the Revolver to $1.75 million. The Revolver is scheduled to expire on December 31, 2010. Due to the consolidation of MAC in accordance with FASB ASC 810, the intercompany
transactions associated with the Revolver are eliminated for our financials presented.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon
our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our consolidated financial statements requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We discuss these
estimates and judgments with AGPs Audit Committee periodically. Actual results may differ from these estimates. We have provided a description of all significant accounting policies in the notes to our consolidated financial statements. The
following critical accounting policies are materially impacted by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:

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, administrative
service revenues from mine safety services and products, rock dust sales and other handling and service fees. For 2007, non-coal sales revenues included rental and service fees from third-party coal synfuel facilities, agreements related to these
services expired on December 31, 2007 in conjunction with the expiration of non-conventional synfuel tax credits. These non-coal sales revenues are recognized when the following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the sellers price to the buyer is fixed or determinable; and collectability is reasonably assured.

Coal Reserve Values

All of the reserves presented in this Annual Report on
Form 10-K constitute proven and probable reserves. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond the ARLP Partnerships control. Estimates of coal reserves necessarily depend upon
a number of variables and assumptions, any one of which may vary considerably from actual results. These factors and assumptions relate to:



| |  |  | geological and mining conditions, which may not be fully identified by available exploration data and/or differ from the ARLP Partnerships
experiences in areas where it currently mines;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the percentage of coal in the ground ultimately recoverable;
| | - |  | ------------------------------------------------------------



| |  |  | historical production from the area compared with production from other producing areas;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the assumed effects of regulation and taxes by governmental agencies; and
| | - |  | -------------------------------------------------------------------------



| |  |  | assumptions concerning future coal prices, operating costs, capital expenditures, severance and excise taxes and development and reclamation costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

For these reasons, estimates of the recoverable quantities of coal attributable to any particular group of
properties, classifications of reserves based on risk of recovery and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary substantially. Actual
production, revenue and expenditures with respect to the ARLP Partnerships reserves will likely vary from estimates, and these variations may be material. Certain account classifications within our financial statements such as depreciation,
depletion, and amortization and certain liability calculations such as asset retirement obligations may depend upon estimates of coal reserve quantities and values. Accordingly, when actual coal reserve quantities and values vary significantly from
estimates, certain accounting estimates and amounts within our consolidated financial statements may be materially impacted. Coal reserve values are reviewed annually, at a minimum, for consideration in our consolidated financial statements.



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Workers Compensation and Pneumoconiosis (Black Lung) Benefits

The ARLP Partnership provides income replacement and medical treatment for work-related traumatic injury claims as
required by applicable state laws. The ARLP Partnership generally provides for these claims through self-insurance programs. Workers compensation laws also compensate survivors or workers who suffer employment related deaths. The liability for
traumatic injury claims is the ARLP Partnerships estimate of the present value of current workers compensation benefits, based on its actuary estimates. The ARLP Partnerships actuarial calculations are based on a blend of actuarial
projection methods and numerous assumptions including development patterns, mortality, medical costs and interest rates. The ARLP Partnership had accrued liabilities of $63.2 million and $56.7 million for these costs at December 31, 2009 and
2008, respectively. A one-percentage-point reduction in the discount rate would have increased the liability at December 31, 2009 approximately $4.4 million, which would have a corresponding increase in operating expenses.

Coal mining companies are subject to CMHSA, as amended, and various state statutes for the payment of medical and disability benefits to
eligible recipients related to coal workers pneumoconiosis or black lung. The ARLP Partnership provides for these claims through self-insurance programs. The black lung benefits liability is calculated using the service cost method
based on the actuarial present value of the estimated black lung obligation. The ARLP Partnerships actuarial calculations are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents
and interest rates. The ARLP Partnership had accrued liabilities of $34.9 million and $32.0 million for these benefits at December 31, 2009 and 2008, respectively. A one-percentage-point reduction in the discount rate would have increased the
expense recognized for the year ended December 31, 2009 by approximately $0.8 million. Under the service cost method used to estimate the black lung benefits liability, actuarial gains or losses attributable to changes in actuarial assumptions,
such as the discount rate, are amortized over the remaining service period of active miners.

Defined Benefit Plan

Eligible employees at certain of the ARLP Partnerships mining operations participate in a Pension Plan that it sponsors.
The benefit formula for the Pension Plan is a fixed dollar unit based on years of service. The calculation of the net periodic benefit cost (pension expense) and benefit obligation (pension liability) associated with the Pension Plan requires the
use of a number of assumptions. Changes in these assumptions can result in materially different pension expense and pension liability amounts. In addition, actual experiences can differ materially from the assumptions. Significant assumptions used
in calculating pension expense and pension liability are as follows:



| |  |  | The ARLP Partnerships expected long-term rate of return assumption is based on broad equity and bond indices, the investment goals and
objectives, the target investment allocation and on the long term historical rates of return for each asset class. The expected long-term rate of return used to determine the pension liability and pension expense was 8.35% for the years ended
December 31, 2009 and 2008, determined by the above factors and an asset allocation assumption of 70.0% invested in domestic equity securities with an expected long-term rate of return of 9.25%, 10.0% invested in international equities with an
expected long-term rate of return of 6.45% and 20.0% invested in fixed income securities with an expected long-term rate of return of 6.10%. The ARLP Partnerships expected long-term rate of return is based on a 20 year average annual total
return for each investment group. Additionally, the ARLP Partnership bases its determination of pension expense on a smoothed market-related valuation of assets equal to the fair value of assets, which immediately recognizes all investment gains or
losses The ARLP Partnerships actual return gain/(loss) on plan assets was 23.7% and (27.2)% for the years ended December 31, 2009 and 2008, respectively. Lowering the expected long-term rate of return assumption by 1.0% (from 8.35% to
7.35%) at December 31, 2008 would have increased pension expense for the year ended December 31, 2009 by approximately $0.3 million;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The ARLP Partnerships weighted average discount rate used to determine its pension liability was 5.88% and 6.15% at December 31, 2009 and
2008, respectively. The weighted average discount rate used to determine pension expense was 6.15% and 6.70% at December 31, 2009 and 2008, respectively. The discount rate that the ARLP Partnership utilizes for determining its future pension
obligation is based on a review of currently available high-quality fixed-income investments that receive one of the two highest ratings given by a recognized rating agency. The ARLP Partnership has historically used the average monthly yield for
December of an A-rated utility bond index as the primary benchmark for establishing the discount rate. Lowering the discount rate assumption by 0.5% (from 6.15% to 5.65%) at December 31, 2008 would have increased pension expense for the year
ended December 31, 2009 by approximately $0.5 million;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Long-Lived Assets

We review 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. Long-lived assets and certain intangibles are not reviewed for impairment unless an impairment indicator is noted. Several examples of impairment indicators include:



| |  |  | A significant decrease in the market price of a long-lived asset;
| | - |  | -----------------------------------------------------------------



| |  |  | A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | A significant adverse change in the extent or manner in which a long-lived is being used or in its physical condition.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

The above factors are not all inclusive, and management must continually evaluate whether other factors are present that would indicate a
long-lived asset may be impaired. The amount of impairment is measured by the difference between the carrying value and the fair value of the asset. We have not recorded an impairment loss for any of the periods presented.

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. The ARLP Partnerships estimate of when construction of the mine
for economic extraction is substantially complete is based upon a number of assumptions, such as expectations regarding the economic recoverability of reserves, the type of mine under development, and completion of certain mine requirements, such as
ventilation. 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. Amortization of capitalized mine development is computed based on the
estimated life of the mine and commences when production, other than production incidental to the mine development process, begins. At December 31, 2009 and 2008, mine development costs include $16.4 million and $17.5 million, respectively,
representing the carrying value of development costs attributable to properties where the ARLP Partnership is not currently engaged in mining operations or leasing to third-parties, and therefore, the mine development costs are not currently being
depleted. The ARLP Partnership believes that the carrying value of these development costs will be recovered.

Asset
Retirement Obligations

SMCRA and similar state statutes require that mined property be restored in accordance with
specified standards and an approved reclamation plan. A liability is recorded for the estimated cost of future mine asset retirement and closing procedures on a present value basis when incurred 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. Accrued liabilities of $55.9
million and $58.6 million for these costs are recorded at December 31, 2009 and 2008, respectively. The liability for asset retirement and closing procedures is sensitive to changes in cost estimates and estimated mine lives.

On at least an annual basis, the ARLP Partnerships reviews its entire asset retirement obligation liability and makes necessary
adjustments for permit changes as granted by state authorities, changes in the timing of reclamation activities, and revisions to cost estimates and productivity assumptions, to reflect current experience. Adjustments to the liability resulted in a
decrease of $4.9 million for the year ended December 31, 2009 and an increase in the liability of $0.3 million for the year ended December 31, 2008. These adjustments to the liability for the years ended December 31, 2009 and 2008
were primarily attributable to decreased refuse site



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reclamation disturbances at Hopkins County Coal and White County Coal operations and the impact of favorable permit requirements regarding reduced liner and cover necessary for refuse storage at
Gibson County Coal, as well as overall general changes in inflation and discount rates, current estimates of the costs and scope of remaining reclamation work, and fluctuations in projected mine life estimates for coal reserve increases and
decreases across all operations offset in part by increased surface disturbances as a result of the new mine development work at Tunnel Ridge and River View.

While the precise amount of these future costs cannot be determined with certainty, the ARLP Partnership has estimated the costs and timing of future asset retirement obligations escalated for inflation,
then discounted and recorded at the present value of those estimates. Discounting resulted in reducing the accrual for asset retirement obligations by $68.0 million and $65.2 million at December 31, 2009 and 2008. The ARLP Partnership estimates
that the aggregate undiscounted cost of final mine closure is approximately $123.9 million at December 31, 2009. If the ARLP Partnerships assumptions differ from actual experiences, or if changes in the regulatory environment occur, its
actual cash expenditures and costs that it incurs could be materially different than currently estimated.

Contingencies

We are currently involved in certain legal proceedings. Our estimates of the probable costs and probability of resolution
of these claims are based upon a number of assumptions, which we have developed in consultation with legal counsel involved in the defense of these matters and based upon an analysis of potential results, assuming a combination of litigation and
settlement strategies. Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations
or liquidity. However, if the results of these matters were different from managements current opinion and in amounts greater than our accruals, then they could have a material adverse effect.

Resale Shelf

In June 2007,
we filed with the SEC a shelf registration statement registering the resale of an aggregate of 47,363,000 outstanding units of equity securities of which 249,999 have been sold by certain common unitholders.

Related Party Transactions

ARLP Omnibus Agreement

Pursuant to the terms of an amended omnibus agreement, AHGP agreed, and caused its
controlled affiliates to agree, for so long as management controls MGP through its ownership of AHGP, not to engage in the business of mining, marketing or transporting coal in the U.S., unless ARLP is first offered the opportunity to engage in the
potential activity or acquire a potential business, and the MGP Board of Directors with the concurrence of the conflicts committee of MGP (MGP Conflicts Committee), elects to cause ARLP not to pursue such opportunity or acquisition. The
amended omnibus agreement provides, among other things, that ARLP will be presumed to desire to acquire the assets until such time as it advises AHGP that it has abandoned the pursuit of such business opportunity, and AHGP may not pursue the
acquisition of such assets prior to that time. This restriction does not apply to: any business owned or operated by AHGP and its affiliates at the closing of the IPO; any acquisition by AHGP or its affiliates, so long as the majority of the value
of the acquisition does not derive from a restricted business and ARLP is offered the opportunity to purchase the restricted business following its acquisition; or any business conducted by AHGP or our affiliates with the approval of the MGP Board
of Directors or MGP Conflicts Committee. Except as provided in the amended omnibus agreement, we and our affiliates are not prohibited from engaging in activities that directly compete with ARLP and our affiliates are not prohibited from engaging in
activities that compete directly with us.

Registration Rights

In connection with the IPO, we agreed to register for sale under the Securities Act and applicable state securities laws, subject to certain
limitations, any common units proposed to be sold by SGP and the former owners of MGP or any of their respective affiliates. These registration rights required us to file one registration statement for each of these groups. We also agreed to include
any securities held by the owners of SGP and the former owners of MGP or any of their respective affiliates in any registration statement that we file to offer securities for cash, except an offering relating solely to an employee benefit plan and
other similar exceptions. We satisfied our requirement by registering 47,363,000 outstanding common units on Form S-3 filed with the SEC on June 1, 2007, declared outstanding effective on June 27, 2007, of which 249,999 have been sold. A
prospectus supplement was filed with the SEC on December 18, 2007. These registration rights are in addition to the registration rights that we agreed to provide AGP and its affiliates pursuant to our limited partnership agreement.



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AGP

Our partnership agreement requires us to reimburse AGP for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our
general partner in connection with operating our business. The amounts billed by AGP include $0.5 million, $0.3 million and $0.3 million, respectively, for the years ended December 31, 2009, 2008 and 2007, respectively, for costs principally
related to the Directors Annual Retainer and Deferred Compensation Plan.

C-Holdings

At the closing of our IPO, we entered into the AHGP Credit Facility with C-Holdings, an entity controlled by Mr. Craft, as the lender.
For the years ended December 31, 2009 and 2008, we did not incur any interest expense or commitment fees to C-Holdings. For the year ended December 31, 2007, we incurred interest expense to C-Holdings of $1,200 and commitment fees of
$2,900.

Option Agreements

On July 31, 2008, August 6, 2008 and August 7, 2008, we entered into agreements with certain current and former members of management of the ARLP Partnership giving us the option to
purchase 1,095,317 of our common units for the price of $29.98 per common unit at any time prior to October 28, 2008. We paid $0.02 per common unit for such option. On October 28, 2008, the option agreements expired and were not exercised.

The ARLP Partnerships Related-Party Transactions

The MGP Board of Directors and the MGP Conflicts Committee review each of the ARLP Partnerships related-party transactions to determine
that such transaction reflects market-clearing terms and conditions customary in the coal industry. As a result of these reviews, the MGP Board of Directors and MGP Conflicts Committee approved each of the transactions described below as fair and
reasonable to the ARLP Partnership and its limited partners.

Administrative Services

In connection with our IPO, we entered into an Administrative Services Agreement with ARLP, the Intermediate Partnership, MGP, AGP and ARH
II, the indirect parent of SGP. Under the Administrative Services Agreement, certain personnel of the ARLP Partnership, including some executive officers, provide administrative services to us, MGP, AGP and ARH II and our respective affiliates. The
ARLP Partnership is reimbursed for services rendered by its employees on behalf of these affiliates as provided under the Administrative Services Agreement. On a consolidated basis, the ARLP Partnership billed and recognized administrative service
revenue under this agreement of $0.5 million for each of the years ended December 31, 2009 and 2008, respectively, and $0.4 million from ARH II for the year ended December 31, 2007. This administrative service revenue is included in other
sales and operating revenues in our consolidated statements of income.

Affiliate Contribution

During 2008 and 2007, an affiliated entity controlled by Mr. Craft contributed to us 25,898 and 50,980, respectively, of our common
units, valued at approximately $0.6 million and $1.1 million, respectively, at the time of contribution and $0.8 million of cash for each of the years 2008 and 2007 for the purpose of funding certain expenses associated with the ARLP
Partnerships employee compensation programs. Upon our receipt of the contributions, we immediately contributed the same to our subsidiary and ARLPs managing general partner, MGP, which in turn contributed the same to Alliance Coal.
Concurrent with these contributions, Alliance Coal distributed the common units to certain employees and recognized compensation expense of $1.4 million and $1.9 million in 2008 and 2007, respectively. The ARLP Partnership made a special allocation
to MGP of certain general and administrative expenses equal to the amount of the contributions, MGP made an identical expense allocation to us, and we then made the same expense allocation to the affiliated entity controlled by Mr. Craft.



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SGP Land, LLC

On May 2, 2007, SGP Land, LLC (SGP Land), a subsidiary of SGP controlled by Mr. Craft, entered into a time sharing
agreement with Alliance Coal concerning the use of aircraft owned by SGP Land. In accordance with the provisions of the time sharing agreement as amended, the ARLP Partnership reimbursed SGP Land $0.7 million for the years ended December 31,
2009 and 2008, respectively, and $0.3 million for the year ended December 31, 2007 for use of the aircraft.

On
January 28, 2008, effective January 1, 2008, the ARLP Partnership acquired, through its subsidiary Alliance Resource Properties, additional rights to approximately 48.2 million tons of coal reserves located in western Kentucky from
SGP Land. The purchase price was $13.3 million. At the time of the ARLP Partnerships acquisition, these reserves were leased by SGP Land to the ARLP Partnerships subsidiaries, Webster County Coal, Warrior and Hopkins County Coal through
the mineral leases and sublease agreements described below. Those mineral leases and sublease agreements between SGP Land and the ARLP Partnerships subsidiaries were assigned to Alliance Resource Properties by SGP Land in this transaction. The
recoupable balances of advance minimum royalties and other payments at the time of this acquisition, other than $0.4 million to the base lessors, are eliminated in our consolidated financial statements as of December 31, 2009 and 2008.

In 2000, Webster County Coal entered into a mineral lease and sublease with SGP Land, requiring annual minimum royalty
payments of $2.7 million, payable in advance through 2013 or until $37.8 million of cumulative annual minimum and/or earned royalty payments have been paid. Webster County Coal paid royalties of $2.7 million for the year ended December 31,
2007 and had recouped all but $3.2 million of the advance royalty payments made under the lease. As described above, this mineral lease and sublease is now with Alliance Resource Properties.

In 2001, Warrior entered into a mineral lease and sublease with SGP Land. Under the terms of the lease, Warrior paid in arrears an annual
minimum royalty of $2.3 million until $15.9 million of cumulative annual minimum and/or earned royalty payments were paid. The annual minimum royalty periods expired on September 30, 2007. In 2006, Warriors cumulative total of annual
minimum royalties and/or earned royalty payments exceeded $15.9 million, and therefore the annual minimum royalty payment of $2.3 million was no longer required. Warrior paid royalties of $1.3 million for the year ended December 31, 2007 and
had recouped all advance royalty payments made in accordance with these lease terms. As described above, this mineral lease and sublease is now with Alliance Resource Properties.

In 2005, Hopkins County Coal entered into a mineral lease and sublease with SGP Land encompassing the Elk Creek reserves, and the parties
also entered into a Royalty Agreement (collectively, the Coal Lease Agreements) in connection therewith. The Coal Lease Agreements extend through December 2015, with the right to renew for successive one-year periods for as long as
Hopkins County Coal is mining within the coal field, as such term is defined in the Coal Lease Agreements. The Coal Lease Agreements provide for five annual minimum royalty payments of $0.7 million beginning in December 2005. The annual minimum
royalty payments, together with cumulative option fees of $3.4 million previously paid prior to December 2005 by Hopkins County Coal to SGP Land, are fully recoupable against future earned royalty payments. Hopkins County Coal paid to SGP Land
advance minimum royalties and/or option fees of $0.7 million for the year ended December 31, 2007 and had recouped all but $4.4 million under the Coal Lease Agreements. As described above, this mineral lease and sublease is now with Alliance
Resource Properties.

Under the terms of the mineral lease and sublease agreements described above, Webster County Coal,
Warrior and Hopkins County Coal also reimburse SGP Land for its base lease obligations. The ARLP Partnership reimbursed SGP Land $6.1 million for the year ended December 31, 2007, for the base lease obligations.

In 2001, SGP Land, as successor in interest to an unaffiliated third-party, entered into an amended mineral lease with MC Mining. Under the
terms of the lease, MC Mining has paid and will continue to pay an annual minimum royalty of $0.3 million until $6.0 million of cumulative annual minimum and/or earned royalty payments have been paid. MC Mining paid royalties of $0.3 million during
each of the years ended December 31, 2009, 2008 and 2007, respectively. As of December 31, 2009, $1.8 million of advance minimum royalties paid under the lease is available for recoupment, and management expects that it will be recouped
against future production.

SGP

In January 2005, the ARLP Partnership acquired Tunnel Ridge from ARH. In connection with this acquisition, the ARLP Partnership assumed a coal lease with SGP. Under the terms of the lease, Tunnel Ridge
has paid and will continue to pay an annual minimum royalty of $3.0 million until the earlier of January 1, 2033 or the exhaustion of the mineable and merchantable leased coal.



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Tunnel Ridge paid advance minimum royalties of $3.0 million during each of the years ended December 31, 2009, 2008 and 2007. As of December 31, 2009, $15.0 million of advance minimum
royalties paid under the lease is available for recoupment and management expects that it will be recouped against future production.

Tunnel Ridge also controls surface land and other tangible assets under a separate lease agreement with SGP. Under the terms of the lease agreement, Tunnel Ridge has paid and will continue to pay SGP an annual lease payment of $0.2 million.
The lease agreement has an initial term of four years, which may be extended to match the term of the coal lease. Lease expense was $0.2 million for each of the years ended December 31, 2009, 2008 and 2007, respectively.

The ARLP Partnership has a noncancelable operating lease arrangement with SGP for the coal preparation plant and ancillary facilities at the
Gibson County Coal mining complex. Based on the terms of the lease, the ARLP Partnership will make monthly payments of approximately $0.2 million through January 2011. Lease expense incurred for each of the years ended December 31, 2009, 2008
and 2007 was $2.6 million, respectively.

The ARLP Partnership has agreements with two banks to provide letters of credit in
an aggregate amount of $31.1 million. At December 31, 2009, the ARLP Partnership had $31.1 million in outstanding letters of credit under these agreements. SGP guarantees $5.0 million of these outstanding letters of credit. SGP does not charge
the ARLP Partnership for this guarantee. Since the guarantee is made on behalf of entities within the consolidated partnership, the guarantee has no fair value under FASB ASC 460, Guarantees(FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others), and does not impact our consolidated financial statements.

Accruals of Other Liabilities

The ARLP Partnership had accruals for other liabilities, including current obligations, totaling $170.3 million and $162.0 million at December 31, 2009 and 2008. These accruals were chiefly comprised of workers compensation
benefits, black lung benefits, and costs associated with asset retirement obligations. These obligations are self-insured. The accruals of these items were based on estimates of future expenditures based on current legislation, related regulations
and other developments. Thus, from time to time, the ARLP Partnerships results of operations may be significantly affected by changes to these liabilities. Please see Item 8. Financial Statements and Supplementary Data - Note 16. Asset
Retirement Obligations and Note 17. Accrued Workers Compensation and Pneumoconiosis (Black Lung) Benefits.

Pension
Plan

The ARLP Partnership maintains a Pension Plan, which covers employees at certain of its mining operations.

The ARLP Partnerships pension expense was $4.6 million, $1.9 million and $3.3 million for the years ended
December 31, 2009, 2008 and 2007. The ARLP Partnerships pension expense is based upon a number of actuarial assumptions, including an expected long-term rate of return on the Pension Plan assets of 8.35% and discount rates of 6.15% and
6.70% for the years ended December 31, 2009 and 2008, respectively. The ARLP Partnerships actual return gain/(loss) on plan assets was 23.7% and (27.2)% for the years ended December 31, 2009 and 2008, respectively. Additionally, the
ARLP Partnership bases its determination of pension expense on a smoothed market-related valuation of assets equal to the fair value of assets, which immediately recognizes all investment gains or losses.

The expected long-term rate of return assumption is based on broad equity and bond indices. At December 31, 2009, the ARLP
Partnerships expected long-term rate of return assumption was 8.35% determined by the above factors and based on an asset allocation assumption of 70.0% invested in domestic equity securities, with an expected long-term rate of return of
9.25%, 10.0% invested in international equities with an expected long-term rate of return of 6.45% and 20.0% invested in fixed income securities, with an expected long-term rate of return of 6.10%. The ARLP Partnership, along with its Pension Plan
investment manager and trustee and the compensation committee of the board of directors of its managing general partner (MGP Compensation Committee) regularly review our actual asset allocation in accordance with our investment
guidelines and periodically rebalance our investments to our targeted allocation when considered appropriate.

The discount
rate that the ARLP Partnership utilizes for determining its future pension obligation is based on a review of currently available high-quality fixed-income investments that receive one of the two highest ratings given by a recognized rating agency.
The ARLP Partnership has historically used the average monthly yield for December of an A-rated utility bond index as the



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primary benchmark for establishing the discount rate. At December 31, 2009, the discount rate was determined using high quality bond yield curves adjusted to reflect the plans
estimated payout. The discount rate determined on this basis decreased from 6.15% at December 31, 2008 to 5.88% at December 31, 2009.

As of December 31, 2009, the Pension Plan was underfunded by approximately $20.0 million. The ARLP Partnership estimates that its Pension Plan expense and cash contributions will be approximately
$3.6 million and $9.8 million, respectively, in 2010. Future actual pension expense and contributions will depend on future investment performance, changes in future discount rates and various other factors related to the employees participating in
the Pension Plan.

Lowering the expected long-term rate of return assumption by 1.0% (from 8.35% to 7.35%) at
December 31, 2008 would have increased the ARLP Partnerships pension expense for the year ended December 31, 2009 by approximately $0.3 million. Lowering the discount rate assumption by 0.5% (from 6.15% to 5.65%) at December 31,
2008 would have increased pension expense for the year ended December 31, 2009 by approximately $0.5 million.

Inflation

At times, the ARLP Partnerships results have been significantly impacted by price increases affecting many of the
components of its operating expenses such as fuel, steel, maintenance expense and labor. The impact of recent governmental initiatives to stimulate economies worldwide remains unclear. Any resulting inflationary or deflationary pressures could
adversely affect the results of the ARLP Partnerships operations. Please see Item 1A. Risk Factors.

New Accounting
Standards

New Accounting Standards Issued and Adopted

In June 2009, we adopted amendments to FASB ASC 105, Generally Accepted Accounting Principles(SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting PrinciplesA Replacement of FASB Statement No. 162), effective for interim periods ending after September 15, 2009. These amendments establish
the FASB ASC as the only source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC
under federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB ASC 105 is not intended to change GAAP. All references to GAAP standards include both the FASB ASC reference in addition to the previously disclosed GAAP
standard references as appropriate. The adoption of FASB ASC 105 had no impact on our financial position or results of operations.

In September 2009, the FASB issued Accounting Standards Update (ASU) 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities.ASU 2009-06 amended
guidance on certain aspects of FASB ASC 740, Income Taxes,including application to nonpublic entities, as well as application guidance on the accounting for income tax uncertainties for all entities.The amendments are applicable to
all entities that apply FASB ASC 740 as well as those that historically had not, such as pass-through and tax-exempt not-for-profit entities. The amendments clarify that an entitys tax status as a pass-through or tax-exempt not-for-profit
entity is a tax position subject to the recognition requirements of FASB ASC 740 and therefore, these entities must use the recognition and measurement guidance in FASB ASC 740 when assessing their tax positions. The ASU 2009-06 amendments are
effective for interim and annual periods ending after September 15, 2009. The adoption of the ASU 2009-06 amendments for the year ended December 31, 2009 did not have a material impact on our consolidated financial statements.

On January 1, 2009, we adopted amendments to FASB ASC 805, Business Combinations(SFAS No. 141R, Business
Combinations), issued by the FASB in December 2007. The FASB ASC 805 amendments apply to all business combinations and establish guidance for recognizing and measuring identifiable assets acquired, liabilities assumed, noncontrolling interests
in the acquiree and goodwill. Most of these items are recognized at their full fair value on the acquisition date, including acquisitions where the acquirer obtains control but less than 100% ownership in the acquiree. The FASB ASC 805 amendments
also require expensing restructuring and acquisition-related costs as incurred and establish disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. Per FASB ASC 805-10-65-1, these amendments
to FASB ASC 805 are effective for business combinations with an acquisition date in fiscal years beginning after December 15, 2008. We did not complete any business acquisitions during the year ended December 31, 2009.



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On January 1, 2009, we adopted FASB ASC 810-10-65 and 810-10-45-16 (SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements), which amended accounting and reporting standards for noncontrolling ownership interests in subsidiaries. As a result of the adoption of the FASB ASC 810-10-65 and 810-10-45-16
amendments, noncontrolling ownership interests in consolidated subsidiaries is now presented in the consolidated balance sheet within total partners capital as a separate component from the parents equity. Consolidated net income now
includes earnings attributable to both the parent and the noncontrolling interests. Earnings per unit is based on earnings attributable to only the parent company and did not change upon adoption. In addition, FASB ASC 810-10-65 provides guidance on
accounting for changes in the parents ownership interest in a subsidiary, including transactions where control is retained and where control is relinquished and requires additional disclosure of information related to amounts attributable to
the parent for income from continuing operations, discontinued operations, extraordinary items and reconciliations of the parent and noncontrolling interests equity of a subsidiary. The provisions are applied prospectively to transactions
involving noncontrolling interests, including noncontrolling interests that arose prior to the effective date, as of the beginning of 2009, the year of adoption. However, the presentation of noncontrolling interests within partners capital and
the inclusion of earnings attributable to the noncontrolling interests in consolidated net income requires retrospective application to all periods presented. The adoption of FASB ASC 810-10-65 and FASB ASC 810-10-45-16 for the years ended
December 31, 2009, 2008 and 2007 had a material impact on our consolidated financial statements. For more information, please read Item 8. Financial StatementsNote 12. Noncontrolling Interest of this Annual Report on Form
10-K.

Beginning with the quarterly interim period ended June 30, 2009, we adopted amendments to FASB ASC 855,
Subsequent Events(SFAS No. 165, Subsequent Events), issued by the FASB in May 2009. The amendments to FASB ASC 855 establish the accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The amendments to FASB ASC 855 also required disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the
date the financial statements were issued or were available to be issued. In February 2010, the FASB issued FASB ASU 2010-09, which amended the guidance in FASB ASC 855 and removed the requirement to disclose the date through which an entity
evaluated its subsequent events. The adoption of the FASB ASC 855 and FASB ASU 2010-09 amendments did not impact our consolidated financial statements.

In December 2008, FASB ASC 715, Compensation-Retirement Benefits was amended (FASB Staff Position SFAS No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan
Assets) to require more detailed annual disclosures about employers plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. These amendments were effective for our
fiscal year ending December 31, 2009. The requirements did not have a material impact on our consolidated financial statements. For more information, please read Item 8. Financial Statements and Supplementary DataNote 13. Employee
Benefit Plans of this Annual Report on Form 10-K.

New Accounting Standards Issued and Not Yet Adopted

In June 2009, the FASB issued amendments to FASB ASC 810, Consolidation (SFAS No. 167, Amendments to FASB
Interpretation No. 46(R)),which changes the consolidation guidance applicable to a variable interest entity (VIE). These amendments also update the guidance governing the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the
power to direct the activities of the entity that most significantly impact the entitys economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the
VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, FASB ASC 810 required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when
specific events had occurred. Qualifying special purpose entities, which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes effective. These amendments also require
enhanced disclosures about an enterprises involvement with a VIE. The provisions of these amendments are effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009. Based on our evaluation of
the requirements of the amendments to FASB ASC 810, the ARLP Partnership will deconsolidate MAC upon adoption, effective January 1, 2010. The deconsolidation of MAC subsequent to December 31, 2009 will not have a material impact on our
consolidated financials.



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|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

The ARLP Partnership has significant long-term coal supply agreements. Virtually all of the long-term coal supply agreements are subject to price adjustment provisions, which permit an increase or
decrease periodically in the contract price to principally reflect changes in specified price indices or items such as taxes, royalties or actual production costs resulting from regulatory changes. For additional discussion of coal supply
agreements, please see Item 1. BusinessCoal Marketing and Sales and Item 8. Financial Statements and Supplementary DataNote 20. Concentration of Credit Risk and Major Customers.

Almost all of the ARLP Partnerships transactions are denominated in U.S. dollars and, as a result, neither we nor the ARLP Partnership
have material exposure to currency exchange-rate risks. During 2009, the ARLP Partnership entered into a contract to purchase longwall shields for its Tunnel Ridge mine from a foreign supplier for approximately £10.2 million. The ARLP
Partnership paid £7.1 million to this foreign supplier through December 31, 2009, with the remaining balance to be paid out through 2011. The ARLP Partnership does not have any interest rate or commodity price-hedging transactions
outstanding.

Borrowings under the ARLP Credit Facility are at variable rates and, as a result, the ARLP Partnership has
interest rate exposure. Historically, the ARLP Partnerships earnings have not been materially affected by changes in interest rates. There were no borrowings outstanding under the ARLP Credit Facility at December 31, 2009.

AHGP had no borrowings outstanding under the AHGP Credit Facility at December 31, 2009.

The table below provides information about the ARLP Partnerships market sensitive financial instruments and constitutes a
forward-looking statement. The fair values of long-term debt are estimated using discounted cash flow analyses, based upon the ARLP Partnerships current incremental borrowing rates for similar types of borrowing arrangements as of
December 31, 2009 and 2008. The carrying amounts and fair values of financial instruments are as follows (in thousands):



|                                                |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |                            |         |   |  |   |         |  |   |        
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ------ | ----- |  | -------------------------- | ------- | - |  | - | ------- |  | - | -------
|Expected Maturity Dates as of December 31, 2009 |  | 2010 |        |   | 2011 |   |        | 2012 |  |   | 2013   |   |  | 2014 |        |   | Thereafter |   |        | Total |  | Fair ValueDecember 31,2009
|ARLP fixed rate debt                            |  | $    | 18,000 |   |      | $ | 18,000 |      |  | $ | 18,000 |   |  | $    | 18,000 |   |            | $ | 18,000 |       |  | $                          | 350,000 |   |  | $ | 440,000 |  | $ | 460,739
|Weighted average interest rate                  |  |      | 6.82   | % |      |   | 6.75   | %    |  |   | 6.68   | % |  |      | 6.61   | % |            |   | 6.52   | %     |  |                            | 6.65    | % |  |   |         |  |   |        
|                                                |  |      |        |   |      |   |        |     
|Expected Maturity Dates as of December 31, 2008 |  | 2009 |        |   | 2010 |   |        | 2011 |  |   | 2012   |   |  | 2013 |        |   | Thereafter |   |        | Total |  | Fair ValueDecember
31,2008
|ARLP fixed rate debt                            |  | $    | 18,000 |   |      | $ | 18,000 |      |  | $ | 18,000 |   |  | $    | 18,000 |   |            | $ | 18,000 |       |  | $                          | 368,000 |   |  | $ | 458,000 |  | $ | 362,824
|Weighted average interest rate                  |  |      | 6.88   | % |      |   | 6.82   | %    |  |   | 6.75   | % |  |      | 6.68   | % |            |   | 6.61   | %     |  |                            | 6.60    | % |  |   |         |  |   |        



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of the

General Partner and the Partners of

Alliance
Holdings GP, L.P.:

We have audited the accompanying consolidated balance sheets of Alliance Holdings GP, L.P. and subsidiaries (the AHGP
Partnership) as of December 31, 2009 and 2008, and the related consolidated statements of income, cash flows and Partners capital for each of the three years in the period ended December 31, 2009. Our audits also included
the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the AHGP Partnerships management. Our responsibility is to express an opinion
on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our
opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Alliance Holdings GP, L.P. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Notes 2 and 12 to the consolidated financial statements, the AHGP Partnership changed its financial statement presentation of noncontrolling interests in 2009 and retrospectively applied
to the 2008 and 2007 periods.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the AHGP Partnerships internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 3, 2010 expressed an unqualified opinion on the AHGP Partnerships internal control over financial reporting.

/s/ Deloitte & Touche LLP

Tulsa, Oklahoma

March 3, 2010



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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
2009 AND 2008

(In thousands, except unit data)



|                                                                                 |  |              |           |   |      |   |           |  
|-------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                 |  | December 31, |          
|                                                                                 |  | 2009         |           |   | 2008 |  
|ASSETS                                                                           |  |              |           |   |      |   |           |  
|CURRENT ASSETS:                                                                  |  |              |           |   |      |   |           |  
|Cash and cash equivalents                                                        |  | $            | 24,361    |   |      | $ | 246,708   |  
|Trade receivables                                                                |  |              | 91,223    |   |      |   | 87,922    |  
|Other receivables                                                                |  |              | 3,159     |   |      |   | 6,021     |  
|Inventories                                                                      |  |              | 64,357    |   |      |   | 26,510    |  
|Advance royalties                                                                |  |              | 3,629     |   |      |   | 3,200     |  
|Prepaid expenses and other assets                                                |  |              | 8,889     |   |      |   | 10,162    |  
|                                                                                 |  |              |           |   |      |   |           |  
|Total current assets                                                             |  |              | 195,618   |   |      |   | 380,523   |  
|PROPERTY, PLANT AND EQUIPMENT:                                                   |  |              |           |   |      |   |           |  
|Property, plant and equipment, at cost                                           |  |              | 1,378,914 |   |      |   | 1,085,214 |  
|Less accumulated depreciation, depletion and amortization                        |  |              | (556,370  | ) |      |   | (468,784  | )
|                                                                                 |  |              |           |   |      |   |           |  
|Total property, plant and equipment, net                                         |  |              | 822,544   |   |      |   | 616,430   |  
|OTHER ASSETS:                                                                    |  |              |           |   |      |   |           |  
|Advance royalties                                                                |  |              | 26,802    |   |      |   | 23,828    |  
|Other long-term assets                                                           |  |              | 9,303     |   |      |   | 11,845    |  
|                                                                                 |  |              |           |   |      |   |           |  
|Total other assets                                                               |  |              | 36,105    |   |      |   | 35,673    |  
|                                                                                 |  |              |           |   |      |   |           |  
|TOTAL ASSETS                                                                     |  | $            | 1,054,267 |   |      | $ | 1,032,626 |  
|                                                                                 |  |              |           |   |      |   |           |  
|LIABILITIES AND PARTNERS CAPITAL                                                |  |              |           |   |      |   |           |  
|CURRENT LIABILITIES:                                                             |  |              |           |   |      |   |           |  
|Accounts payable                                                                 |  | $            | 63,496    |   |      | $ | 63,991    |  
|Due to affiliates                                                                |  |              | 27        |   |      |   | 54        |  
|Accrued taxes other than income taxes                                            |  |              | 10,792    |   |      |   | 11,235    |  
|Accrued payroll and related expenses                                             |  |              | 22,101    |   |      |   | 20,555    |  
|Accrued interest                                                                 |  |              | 2,918     |   |      |   | 3,454     |  
|Workers compensation and pneumoconiosis benefits                                |  |              | 9,886     |   |      |   | 9,377     |  
|Current capital lease obligation                                                 |  |              | 324       |   |      |   | 351       |  
|Other current liabilities                                                        |  |              | 11,205    |   |      |   | 12,671    |  
|Current maturities, long-term debt                                               |  |              | 18,000    |   |      |   | 18,000    |  
|                                                                                 |  |              |           |   |      |   |           |  
|Total current liabilities                                                        |  |              | 138,749   |   |      |   | 139,688   |  
|LONG-TERM LIABILITIES:                                                           |  |              |           |   |      |   |           |  
|Long-term debt, excluding current maturities                                     |  |              | 422,000   |   |      |   | 440,000   |  
|Pneumoconiosis benefits                                                          |  |              | 34,344    |   |      |   | 31,436    |  
|Accrued pension benefit                                                          |  |              | 19,696    |   |      |   | 19,952    |  
|Workers compensation                                                            |  |              | 53,845    |   |      |   | 47,828    |  
|Asset retirement obligations                                                     |  |              | 53,116    |   |      |   | 56,204    |  
|Due to affiliates                                                                |  |              | 314       |   |      |   | 103       |  
|Long-term capital lease obligation                                               |  |              | 460       |   |      |   | 784       |  
|Other liabilities                                                                |  |              | 9,043     |   |      |   | 5,459     |  
|                                                                                 |  |              |           |   |      |   |           |  
|Total long-term liabilities                                                      |  |              | 592,818   |   |      |   | 601,766   |  
|                                                                                 |  |              |           |   |      |   |           |  
|Total liabilities                                                                |  |              | 731,567   |   |      |   | 741,454   |  
|                                                                                 |  |              |           |   |      |   |           |  
|COMMITMENTS AND CONTINGENCIES                                                    |  |              |           |   |      |   |           |  
|PARTNERSCAPITAL:                                                                |  |              |           |   |      |   |           |  
|Alliance Holdings GP, L.P. (AHGP) Partners Capital:                           |  |              |           |   |      |   |           |  
|Limited Partners - Common Unitholders 59,863,000 units outstanding, respectively |  |              | 269,742   |   |      |   | 256,395   |  
|Accumulated other comprehensive loss                                             |  |              | (7,465    | ) |      |   | (8,673    | )
|                                                                                 |  |              |           |   |      |   |           |  
|Total AHGP Partners Capital                                                     |  |              | 262,277   |   |      |   | 247,722   |  
|Noncontrolling interests                                                         |  |              | 60,423    |   |      |   | 43,450    |  
|                                                                                 |  |              |           |   |      |   |           |  
|Total Partners Capital                                                          |  |              | 322,700   |   |      |   | 291,172   |  
|                                                                                 |  |              |           |   |      |   |           |  
|TOTAL LIABILITIES AND PARTNERS CAPITAL                                          |  | $            | 1,054,267 |   |      | $ | 1,032,626 |  
|                                                                                 |  |              |           |   |      |   |           |  

See notes to consolidated financial statements.



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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

(In thousands, except unit and per unit data)



|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                        |  | Year Ended December 31, |           
|                                                                                        |  | 2009                    |            |   | 2008 |   |            | 2007 | 
|SALES AND OPERATING REVENUES:                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Coal sales                                                                              |  | $                       | 1,163,871  |   |      | $ | 1,093,059  |      |  | $ | 960,354    |  
|Transportation revenues                                                                 |  |                         | 45,733     |   |      |   | 44,755     |      |  |   | 37,688     |  
|Other sales and operating revenues                                                      |  |                         | 20,998     |   |      |   | 18,327     |      |  |   | 34,945     |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Total revenues                                                                          |  |                         | 1,230,602  |   |      |   | 1,156,141  |      |  |   | 1,032,987  |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|EXPENSES:                                                                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Operating expenses (excluding depreciation, depletion and amortization)                 |  |                         | 797,527    |   |      |   | 801,854    |      |  |   | 685,085    |  
|Transportation expenses                                                                 |  |                         | 45,733     |   |      |   | 44,755     |      |  |   | 37,688     |  
|Outside coal purchases                                                                  |  |                         | 7,524      |   |      |   | 23,776     |      |  |   | 21,969     |  
|General and administrative                                                              |  |                         | 42,875     |   |      |   | 38,857     |      |  |   | 36,724     |  
|Depreciation, depletion and amortization                                                |  |                         | 117,524    |   |      |   | 105,278    |      |  |   | 85,310     |  
|Gain from sale of coal reserves                                                         |  |                         |           |   |      |   | (5,159     | )    |  |   |           |  
|Net gain from insurance settlement and other                                            |  |                         |           |   |      |   | (2,790     | )    |  |   | (11,491    | )
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                |  |                         | 1,011,183  |   |      |   | 1,006,571  |      |  |   | 855,285    |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|INCOME FROM OPERATIONS                                                                  |  |                         | 219,419    |   |      |   | 149,570    |      |  |   | 177,702    |  
|Interest expense (net of interest capitalized of $1,291, $808 and $1,237, respectively) |  |                         | (30,847    | ) |      |   | (22,145    | )    |  |   | (11,660    | )
|Interest income                                                                         |  |                         | 1,066      |   |      |   | 3,776      |      |  |   | 1,732      |  
|Other income                                                                            |  |                         | 1,247      |   |      |   | 875        |      |  |   | 1,385      |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|INCOME BEFORE INCOME TAXES                                                              |  |                         | 190,885    |   |      |   | 132,076    |      |  |   | 169,159    |  
|INCOME TAX EXPENSE (BENEFIT)                                                            |  |                         | 709        |   |      |   | (480       | )    |  |   | 1,670      |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|NET INCOME                                                                              |  |                         | 190,176    |   |      |   | 132,556    |      |  |   | 167,489    |  
|LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS                               |  |                         | (75,960    | ) |      |   | (51,342    | )    |  |   | (79,624    | )
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|NET INCOME ATTRIBUTABLE TO ALLIANCE HOLDINGS GP, L.P. (NET INCOME OF AHGP)            |  | $                       | 114,216    |   |      | $ | 81,214     |      |  | $ | 87,865     |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|BASIC AND DILUTED NET INCOME OF AHGP PER LIMITED PARTNER UNIT                           |  | $                       | 1.91       |   |      | $ | 1.36       |      |  | $ | 1.47       |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|DISTRIBUTIONS PAID PER LIMITED PARTNER UNIT                                             |  | $                       | 1.685      |   |      | $ | 1.3175     |      |  | $ | 1.03       |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING  BASIC AND DILUTED                        |  |                         | 59,863,000 |   |      |   | 59,863,000 |      |  |   | 59,863,000 |  
|                                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  

See notes to consolidated financial statements.



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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

(In thousands)



|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                         |  | Year Ended December 31, |         
|                                                                                         |  | 2009                    |          |   | 2008 |   |          | 2007 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                               |  | $                       | 190,176  |   |      | $ | 132,556  |      |  | $ | 167,489  |  
|Adjustments to reconcile net income to net cash provided by operating activities:        |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation, depletion and amortization                                                 |  |                         | 117,524  |   |      |   | 105,278  |      |  |   | 85,310   |  
|Non-cash compensation expense                                                            |  |                         | 3,582    |   |      |   | 3,931    |      |  |   | 3,925    |  
|Asset retirement obligations                                                             |  |                         | 2,678    |   |      |   | 2,827    |      |  |   | 2,419    |  
|Coal inventory adjustment to market                                                      |  |                         | 3,030    |   |      |   | 452      |      |  |   | 21       |  
|Net gain on foreign currency transaction                                                 |  |                         | (653     | ) |      |   |         |      |  |   |         |  
|Net (gain) loss on sale of property, plant and equipment                                 |  |                         | 136      |   |      |   | (911     | )    |  |   | (3,189   | )
|Gain from sale of coal reserves                                                          |  |                         |         |   |      |   | (5,159   | )    |  |   |         |  
|Gain from insurance settlement proceeds received in a prior period                       |  |                         |         |   |      |   |         |      |  |   | (5,088   | )
|Gain from insurance recoveries for property damage                                       |  |                         |         |   |      |   |         |      |  |   | (2,357   | )
|Other                                                                                    |  |                         | 537      |   |      |   | 366      |      |  |   | 811      |  
|Changes in operating assets and liabilities:                                             |  |                         |          |   |      |   |          |      |  |   |          |  
|Trade receivables                                                                        |  |                         | (3,301   | ) |      |   | 4,745    |      |  |   | 3,891    |  
|Other receivables                                                                        |  |                         | 2,841    |   |      |   | (1,714   | )    |  |   | 1,236    |  
|Inventories                                                                              |  |                         | (40,917  | ) |      |   | (960     | )    |  |   | (6,484   | )
|Prepaid expenses and other assets                                                        |  |                         | 1,273    |   |      |   | (881     | )    |  |   | (862     | )
|Advance royalties                                                                        |  |                         | (3,403   | ) |      |   | (4,244   | )    |  |   | (2,724   | )
|Accounts payable                                                                         |  |                         | (6,222   | ) |      |   | 5,730    |      |  |   | (6,615   | )
|Due to affiliates                                                                        |  |                         | 184      |   |      |   | (1,186   | )    |  |   | 79       |  
|Accrued taxes other than income taxes                                                    |  |                         | (443     | ) |      |   | 144      |      |  |   | (3,527   | )
|Accrued payroll and related benefits                                                     |  |                         | 1,546    |   |      |   | 5,375    |      |  |   | 482      |  
|Pneumoconiosis benefits                                                                  |  |                         | 2,908    |   |      |   | 2,044    |      |  |   | 3,230    |  
|Workers compensation                                                                    |  |                         | 6,526    |   |      |   | 4,931    |      |  |   | 5,929    |  
|Other                                                                                    |  |                         | 2,800    |   |      |   | 5,987    |      |  |   | (2,424   | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Total net adjustments                                                                    |  |                         | 90,626   |   |      |   | 126,755  |      |  |   | 74,063   |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                |  |                         | 280,802  |   |      |   | 259,311  |      |  |   | 241,552  |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Property, plant and equipment:                                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Capital expenditures                                                                     |  |                         | (328,162 | ) |      |   | (176,482 | )    |  |   | (119,590 | )
|Changes in accounts payable and accrued liabilities                                      |  |                         | 5,727    |   |      |   | 10,046   |      |  |   | (7,094   | )
|Proceeds from sale of property, plant and equipment                                      |  |                         | 8        |   |      |   | 2,708    |      |  |   | 6,770    |  
|Proceeds from sale of coal reserves                                                      |  |                         |         |   |      |   | 7,159    |      |  |   |         |  
|Proceeds from insurance settlement for replacement assets                                |  |                         |         |   |      |   |         |      |  |   | 2,511    |  
|Purchase of marketable securities                                                        |  |                         | (4,527   | ) |      |   |         |      |  |   |         |  
|Proceeds from marketable securities                                                      |  |                         | 4,527    |   |      |   |         |      |  |   | 260      |  
|Payment for acquisition of coal reserves and other assets                                |  |                         |         |   |      |   | (29,800  | )    |  |   | (53,309  | )
|Advances on Gibson rail project                                                          |  |                         |         |   |      |   |         |      |  |   | (8,212   | )
|Receipts on prior advances on Gibson rail project                                        |  |                         | 2,295    |   |      |   | 2,244    |      |  |   |         |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                                    |  |                         | (320,132 | ) |      |   | (184,125 | )    |  |   | (178,664 | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from issuance of long-term debt                                                 |  |                         |         |   |      |   | 350,000  |      |  |   |         |  
|Payments on long-term debt                                                               |  |                         | (18,000  | ) |      |   | (18,000  | )    |  |   | (18,000  | )
|Borrowings under revolving credit facilities                                             |  |                         |         |   |      |   | 88,850   |      |  |   | 195,925  |  
|Payments under revolving credit facilities                                               |  |                         |         |   |      |   | (116,850 | )    |  |   | (167,925 | )
|Payments on capital lease obligation                                                     |  |                         | (351     | ) |      |   | (377     | )    |  |   | (339     | )
|Payment of debt issuance costs                                                           |  |                         | (339     | ) |      |   | (1,721   | )    |  |   | (264     | )
|Contribution by limited partner - affiliate                                              |  |                         |         |   |      |   | 816      |      |  |   | 813      |  
|Purchase of options on limited partner common units                                      |  |                         |         |   |      |   | (22      | )    |  |   |         |  
|Net settlement of employee withholding taxes on vesting of ARLP Long-Term Incentive Plan |  |                         | (791     | ) |      |   |         |      |  |   |         |  
|Contributions to consolidated partnership from affiliate noncontrolling interest         |  |                         |         |   |      |   | 1        |      |  |   | 1        |  
|Distributions paid by consolidated partnership to noncontrolling interests               |  |                         | (63,320  | ) |      |   | (54,089  | )    |  |   | (46,726  | )
|Distributions paid to Partners                                                           |  |                         | (100,869 | ) |      |   | (78,869  | )    |  |   | (61,659  | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                         | (183,670 | ) |      |   | 169,739  |      |  |   | (98,174  | )
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|EFFECT OF CURRENCY TRANSLATION ON CASH                                                   |  |                         | 653      |   |      |   |         |      |  |   |         |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                                  |  |                         | (222,347 | ) |      |   | 244,925  |      |  |   | (35,286  | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         |  |                         | 246,708  |   |      |   | 1,783    |      |  |   | 37,069   |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               |  | $                       | 24,361   |   |      | $ | 246,708  |      |  | $ | 1,783    |  
|                                                                                         |  |                         |          |   |      |   |          |      |  |   |          |  

See notes to consolidated financial statements, including Note 15 for supplement cash flow information.



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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF PARTNERS CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007

(In thousands, except unit data)



|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|-------------------------------------------------------------------------------- |  | ----------------------------- |  | ----------------------- | -------- | - | ------------------------------------------ | - | ------ | ---------------------- |  | - | ---------------------- | - |  | - | -------- | -
|                                                                                 |  | Alliance Holdings GP, L.P.    |  |                         |          |   |                                            |   |       
|                                                                                 |  | Number ofLimitedPartner Units |  | LimitedPartnersCapital |          |   | AccumulatedOtherComprehensiveIncome (Loss) |   |        | NoncontrollingInterest |  |   | Total PartnersCapital |  
|Balance at January 1, 2007                                                       |  | 59,863,000                    |  | $                       | 234,321  |   |                                            | $ | (3,047 | )                      |  | $ | 17,891                 |   |  | $ | 249,165  |  
|Comprehensive income:                                                            |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Net income                                                                       |  |                              |  |                         | 87,865   |   |                                            |   |       |                        |  |   | 79,624                 |   |  |   | 167,489  |  
|Other comprehensive income                                                       |  |                              |  |                         |         |   |                                            |   | 3,095  |                        |  |   | 3,970                  |   |  |   | 7,065    |  
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Total comprehensive income                                                       |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   | 174,554  |  
|Vesting of ARLP Long-Term Incentive Plan                                         |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (2,227                 | ) |  |   | (2,227   | )
|Common unit-based compensation under ARLP Long-Term Incentive Plan               |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | 2,820                  |   |  |   | 2,820    |  
|Contributions to consolidated partnership from affiliate noncontrolling interest |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | 1                      |   |  |   | 1        |  
|Contribution by limited partneraffiliate                                        |  |                              |  |                         | 1,918    |   |                                            |   |       |                        |  |   |                       |   |  |   | 1,918    |  
|Distributions on ARLP common unit-based compensation                             |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (489                   | ) |  |   | (489     | )
|Distribution to AHGP Partners                                                    |  |                              |  |                         | (61,659  | ) |                                            |   |       |                        |  |   |                       |   |  |   | (61,659  | )
|Distributions paid by consolidated partnership to noncontrolling interest        |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (46,237                | ) |  |   | (46,237  | )
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Balance at December 31, 2007                                                     |  | 59,863,000                    |  |                         | 262,445  |   |                                            |   | 48     |                        |  |   | 55,353                 |   |  |   | 317,846  |  
|Comprehensive income:                                                            |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Net income                                                                       |  |                              |  |                         | 81,214   |   |                                            |   |       |                        |  |   | 51,342                 |   |  |   | 132,556  |  
|Other comprehensive loss                                                         |  |                              |  |                         |         |   |                                            |   | (8,721 | )                      |  |   | (11,287                | ) |  |   | (20,008  | )
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Total comprehensive income                                                       |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   | 112,548  |  
|Vesting of ARLP Long-Term Incentive Plan                                         |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (1,181                 | ) |  |   | (1,181   | )
|Common unit-based compensation under ARLP Long-Term Incentive Plan               |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | 3,311                  |   |  |   | 3,311    |  
|Common control acquisition (Note 3)                                              |  |                              |  |                         | (9,809   | ) |                                            |   |       |                        |  |   |                       |   |  |   | (9,809   | )
|Purchase of options on limited partner common units                              |  |                              |  |                         | (22      | ) |                                            |   |       |                        |  |   |                       |   |  |   | (22      | )
|Contributions to consolidated partnership from affiliate noncontrolling interest |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | 1                      |   |  |   | 1        |  
|Contribution by limited partner  affiliate                                      |  |                              |  |                         | 1,436    |   |                                            |   |       |                        |  |   |                       |   |  |   | 1,436    |  
|Distributions on ARLP common unit-based compensation                             |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (793                   | ) |  |   | (793     | )
|Distribution to AHGP Partners                                                    |  |                              |  |                         | (78,869  | ) |                                            |   |       |                        |  |   |                       |   |  |   | (78,869  | )
|Distributions paid by consolidated partnership to noncontrolling interest        |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (53,296                | ) |  |   | (53,296  | )
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Balance at December 31, 2008                                                     |  | 59,863,000                    |  |                         | 256,395  |   |                                            |   | (8,673 | )                      |  |   | 43,450                 |   |  |   | 291,172  |  
|Comprehensive income:                                                            |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Net income                                                                       |  |                              |  |                         | 114,216  |   |                                            |   |       |                        |  |   | 75,960                 |   |  |   | 190,176  |  
|Other comprehensive income                                                       |  |                              |  |                         |         |   |                                            |   | 1,208  |                        |  |   | 1,542                  |   |  |   | 2,750    |  
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Total comprehensive income                                                       |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   | 192,926  |  
|Vesting of ARLP Long-Term Incentive Plan                                         |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (791                   | ) |  |   | (791     | )
|Common unit-based compensation under ARLP Long-Term Incentive Plan               |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | 3,582                  |   |  |   | 3,582    |  
|Distributions on ARLP common unit-based compensation                             |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (1,026                 | ) |  |   | (1,026   | )
|Distribution to AHGP Partners                                                    |  |                              |  |                         | (100,869 | ) |                                            |   |       |                        |  |   |                       |   |  |   | (100,869 | )
|Distributions paid by consolidated partnership to noncontrolling interest        |  |                              |  |                         |         |   |                                            |   |       |                        |  |   | (62,294                | ) |  |   | (62,294  | )
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  
|Balance at December 31, 2009                                                     |  | 59,863,000                    |  | $                       | 269,742  |   |                                            | $ | (7,465 | )                      |  | $ | 60,423                 |   |  | $ | 322,700  |  
|                                                                                 |  |                               |  |                         |          |   |                                            |   |        |                        |  |   |                        |   |  |   |          |  

See notes to consolidated financial statements.



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ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007



|1. | ORGANIZATION AND PRESENTATION
|-- | -----------------------------

Significant Relationships Referenced in Notes to Consolidated Financial Statements



| |  |  | References to we, us, our or AHGP mean Alliance Holdings GP, L.P., individually as the parent company,
and not on a consolidated basis.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to AHGP Partnership mean the business and operations of Alliance Holdings GP, L.P., the parent company, as well as its
consolidated subsidiaries, which include Alliance Resource Management GP, LLC and Alliance Resource Partners, L.P. and its consolidated subsidiaries.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to AGP mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P., also referred to as our general partner.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to ARLP Partnership mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its
consolidated subsidiaries.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to ARLP mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to MGP mean Alliance Resource Management GP, LLC, the managing general partner of Alliance Resource Partners, L.P.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to SGP mean Alliance Resource GP, LLC, the special general partner of Alliance Resource Partners, L.P.
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | References to Intermediate Partnership mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource
Partners, L.P.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | References to Alliance Coal mean Alliance Coal, LLC, the holding company for the operations of Alliance Resource Operating Partners, L.P.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

Organization and Formation

We are a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol AHGP. We own directly and indirectly 100% of the members interest in MGP,
ARLPs managing general partner. The ARLP Partnership is a diversified producer and marketer of coal to major U.S. utilities and industrial users. ARLP conducts substantially all of its business through its wholly-owned subsidiary, the
Intermediate Partnership. ARLP and the Intermediate Partnership were formed in May 1999, to acquire upon completion of ARLPs initial public offering on August 19, 1999, certain coal and marketing assets of Alliance Resource Holdings, Inc.
(ARH), a Delaware Corporation. We and ARH, through its wholly-owned subsidiary, SGP, maintain general partner interests in ARLP and the Intermediate Partnership. In June 2006, ARH and its parent company became wholly-owned, directly and
indirectly, by Joseph W. Craft, III, the Chairman, President and Chief Executive Officer of AGP and a Director and the President and Chief Executive Officer of MGP.

We are owned 100% by limited partners. Our general partner, AGP, has a non-economic interest in us and is owned by Mr. Craft.

Alliance Resource Management GP, LLC, a Delaware limited liability company, and ARM GP Holdings, Inc, a Delaware corporation, are our direct
subsidiaries. The Delaware limited partnerships, limited liability companies and corporation that comprise the ARLP Partnership, which we consolidate, are as follows: ARLP, Intermediate Partnership, Alliance Coal, Alliance Design Group, LLC
(Alliance Design), Alliance Land, LLC, Alliance Properties, LLC, Alliance Resource Properties, LLC, (Alliance Resource Properties), Alliance Service, Inc. (Alliance Service), Backbone Mountain, LLC, Excel Mining,
LLC (Excel), Gibson County Coal, LLC (Gibson County Coal), Gibson County Coal (South), LLC (Gibson South), Hopkins County Coal, LLC (Hopkins County Coal), Matrix Design Group, LLC (Matrix
Design), MC Mining, LLC (MC Mining), Mettiki Coal, LLC (Mettiki (MD)), Mettiki Coal (WV), LLC (Mettiki (WV)), Mt. Vernon Transfer Terminal, LLC (Mt. Vernon), Penn Ridge Coal, LLC (Penn
Ridge), Pontiki Coal, LLC (Pontiki), River View Coal, LLC (River View), Tunnel Ridge, LLC (Tunnel Ridge), Warrior Coal, LLC (Warrior), Webster County Coal, LLC (Webster County Coal),
and White County Coal, LLC (White County Coal).



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Initial Public Offering and Concurrent Transactions

On May 15, 2006, we completed our initial public offering (IPO) of 12,500,000 common units representing limited partner
interests in us at a price of $25.00 per unit. In connection with the IPO, Alliance Management Holdings, LLC (AMH) and AMH II, LLC (AMH II) (which were the previous owners of MGP), AHGP and SGP entered into a contribution
agreement (Contribution Agreement) pursuant to which 100% of the members interest in MGP (which includes ARLPs incentive distribution rights (IDRs) and MGPs general partner interests in ARLP), 15,550,628 of
ARLPs common units and a 0.001% managing interest in Alliance Coal were contributed to us. As consideration for this contribution and in accordance with the terms of the Contribution Agreement, we distributed substantially all of the proceeds
from our IPO to AMH and AMH II and issued 6,863,470, 19,858,362 and 20,641,168 of AHGPs common units to AMH, AMH II and SGP, respectively. In June 2006, subsequent to the IPO, the AHGP common units and substantially all of the IPO proceeds
distributed to AMH and AMH II were distributed to the individual members of AMH and AMH II. On April 26, 2007, our 0.001% managing interest in Alliance Coal was transferred to our subsidiary, MGP.

Contributions to ARLP

During 2008 and 2007, an affiliated entity controlled by Mr. Craft contributed to us 25,898 and 50,980, respectively, of our common units valued at approximately $0.6 million and $1.1 million, respectively, at the time of contribution
and $0.8 million of cash for each of the years 2008 and 2007 for the purpose of funding certain expenses associated with the ARLP Partnerships employee compensation programs. Upon our receipt of the contributions, we immediately contributed
the same to our subsidiary and ARLPs managing general partner, MGP, which in turn contributed the same to Alliance Coal. Concurrent with these contributions, Alliance Coal distributed the common units to certain employees and recognized
compensation expense of $1.4 million and $1.9 million in 2008 and 2007, respectively. The ARLP Partnership made a special allocation to MGP of certain general and administrative expenses equal to the amount of the contributions, MGP made an
identical expense allocation to us, and we then made the same expense allocation to the affiliated entity controlled by Mr. Craft (Note 18).

In November 2006, we contributed 6,459 common units of ARLP to MGP, and MGP contributed these ARLP units to ARLP in exchange for a general partner interest in its Intermediate Partnership. The unit
contribution by MGP was necessary to maintain its 1.0001% general partner interest in the Intermediate Partnership. Therefore, as of December 31, 2009 and 2008, we owned 15,544,169 common units of ARLP representing approximately 42.4% of the
total outstanding common units of ARLP.

Basis of Presentation

The accompanying consolidated financial statements include the accounts and operations of the AHGP Partnership and present our financial
position as of December 31, 2009 and 2008, and results of our operations, cash flows and changes in partners capital for each of the three years in the period ended December 31, 2009. All of our intercompany transactions and accounts
have been eliminated.

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 (Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations), the transfer of assets was accounted for at historical cost, in a manner similar to a pooling of interests. Consequently, our financial statements are presented as though the transfer of assets occurred on January 1, 2006 and
the financial statements for prior years were previously restated to furnish comparative information.

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, (b) additional general and administrative costs and taxes attributable to us, and (c) debt and interest expense
attributable to borrowings under our credit



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facility. 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 administrative services agreement (Administrative Services Agreement) and amounts billed by, and reimbursed to, AGP under our partnership agreement (Note 18).



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

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.

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. We evaluate our financial
interests in companies to determine if they represent a variable interest entity (VIE) and whether we are the primary beneficiary. If such criteria are met, we consolidate the financial statements of such businesses with those of our
own.

The non-controlling interest on our consolidated balance sheet reflects the outside ownership interest in ARLP as well
as Mid-America Carbonates, LLC (MAC). See Basis of Presentation under Note 1 for information regarding our consolidation of ARLP. See also Note 12. Noncontrolling Interests.

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 distribution-bearing 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.

Fair Value of Financial InstrumentsThe carrying amounts
for accounts receivable, marketable securities, and accounts payable approximate fair value because of the short maturity of those instruments. At December 31, 2009 and 2008, the estimated fair value of the ARLP Partnerships long-term
debt, including current maturities, was approximately $460.7 million and $362.8 million, respectively (Note 9).

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. We had no restricted cash and cash equivalents at December 31,
2009 and 2008.

Cash ManagementThe ARLP Partnership presented book overdrafts of $10.0 million at
December 31, 2008 in accounts payable in the consolidated balance sheets. The cash flows from operating activities section of our Consolidated Statements of Cash Flows reflect this adjustment for book overdrafts. The ARLP Partnership had no
book overdrafts at December 31, 2009.

InventoriesCoal inventories are stated at the lower of
cost or market on a first-in, first-out basis. Supply inventories are stated at the lower of cost or market on an average cost basis, less a reserve for obsolete and surplus items.

Property, Plant and EquipmentExpenditures which extend the useful lives of existing plant and equipment assets
are capitalized. 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. Depreciation and amortization are computed principally on the straight-line method based upon the estimated useful lives of the assets or the estimated
life of each mine, whichever is less, ranging from 1 to 16 years. Depreciable lives for mining equipment and processing facilities range from 1 to 16 years. Depreciable lives for land and depletable lives for mineral rights range from 2 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 current operations. 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, 2009 and 2008, land and mineral rights include $22.5 million and $27.1 million, respectively, representing the carrying value of coal reserves attributable to properties where the ARLP Partnership is 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 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. Amortization of capitalized mine development is computed based on the estimated life of the mine and commences when production, other than production incidental to the mine development process, begins. At December 31, 2009 and 2008, mine
development costs include $16.4 million and $17.5 million, respectively, representing the carrying value of development costs attributable to properties where we are not currently engaged in mining operations or leasing to third-parties, and
therefore, the mine development costs are not currently being depleted. We believe that the carrying value of these development costs will be recovered.

Long-Lived AssetsWe review 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. The amount of impairment is measured by the difference between the carrying value and the fair value of the asset. The AHGP Partnership has not recorded an impairment
loss for any of the periods presented.

Intangible AssetsCosts allocated to contracts with
covenants not to compete (Non-Compete Agreements) are amortized on a straight-line basis over the life of the Non-Compete Agreements. Amortization expense associated with Non-Compete Agreements was $0.5 million, $0.5 million and $0.3
million for the years ending December 31, 2009, 2008 and 2007, respectively. The Non-Compete Agreements are included in other long-term assets on the consolidated balance sheets at December 31, 2009 and 2008. The ARLP Partnerships
Non-Compete Agreements at December 31, are summarized as follows (in thousands):



|                                      |  |      |        |   |      |   |       |  
|------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                                      |  | 2009 |        |   | 2008 |  
|Non-Compete Agreements, original cost |  | $    | 4,153  |   |      | $ | 4,153 |  
|Accumulated amortization              |  |      | (1,330 | ) |      |   | (851  | )
|                                      |  |      |        |   |      |   |       |  
|Non-Compete Agreements, net           |  | $    | 2,823  |   |      | $ | 3,302 |  
|                                      |  |      |        |   |      |   |       |  

Amortization expense related to Non-Compete Agreements is estimated to be $0.5 million in 2010 and $0.4
million per year in 2011-2014.

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 advanced royalties at December 31, are summarized as follows (in thousands):



|                                        |  |      |        |      |   |       
|--------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                        |  | 2009 |        | 2008
|Advance royalties, affiliates (Note 18) |  | $    | 16,811 |      | $ | 13,530
|Advance royalties, third-parties        |  |      | 13,620 |      |   | 13,498
|                                        |  |      |        |      |   |       
|Total advance royalties                 |  | $    | 30,431 |      | $ | 27,028
|                                        |  |      |        |      |   |       

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 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



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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. Amortization of the related asset is recorded on a units of production method generally based upon the estimated life of the mine
(Note 16).

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 actuarial determined calculations (Note 17).

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 subsidiary, Alliance Service, is subject to federal and state income taxes. 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 the AHGP Partnerships classification as a partnership for federal income tax purposes.

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(SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R)and SFAS No. 87, Employers Accounting for Pensions). Pension cost and obligations are actuarially determined and are affected by assumptions including expected return on plan
assets, discount rates, compensation increases, employee turnover rates and health care cost trend rates. The ARLP Partnership evaluates its assumptions periodically and makes adjustments to these assumptions and the recorded liability as necessary
(Note 13).

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, rock dust sales and other handling and service fees. For 2007, non-coal sales revenues included rental and service
fees from third-party coal synfuel facilities, agreements related to these services expired on December 31, 2007 in conjunction with the expiration of non-conventional synfuel tax credits. 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, 2009 and 2008, respectively.

Common Unit-Based CompensationThe ARLP
Partnership accounts for compensation expense attributable to non-vested restricted common units granted under the Long-Term Incentive Plan (ARLP LTIP) based on the requirements of FASB ASC 718, Compensation-Stock Compensation
(SFAS No. 123R, Share-Based Payment). Accordingly, the fair value of award grants are determined on the grant date of the award and this value is recognized as compensation expense on a pro-rata basis, as appropriate over the requisite
service period, and the corresponding liability is classified as equity and included in the Non-Affiliate component of noncontrolling interest in the consolidated financial statements (Note 14).

New Accounting Standards Issued and AdoptedIn June 2009, we adopted amendments to FASB ASC 105, Generally
Accepted Accounting Principles (SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally



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Accepted Accounting PrinciplesA Replacement of FASB Statement No. 162), effective for interim periods ending after September 15, 2009. FASB ASC 105-10-05-1 establishes the
FASB ASC as the only source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under
federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB ASC 105 is not intended to change GAAP. All references to GAAP standards include both the FASB ASC reference in addition to the previously disclosed GAAP
standard references as appropriate. The adoption of FASB ASC 105 had no impact on our financial position or results of operations.

In September 2009, the FASB issued Accounting Standards Update (ASU) 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities.ASU 2009-06
amended guidance on certain aspects of FASB ASC 740, Income Taxes,including application to nonpublic entities, as well as application guidance on the accounting for income tax uncertainties for all entities.The amendments are
applicable to all entities that apply FASB ASC 740 as well as those that historically had not, such as pass-through and tax-exempt not-for-profit entities. The amendments clarify that an entitys tax status as a pass-through or tax-exempt
not-for-profit entity is a tax position subject to the recognition requirements of FASB ASC 740 and therefore, these entities must use the recognition and measurement guidance in FASB ASC 740 when assessing their tax positions. The ASU 2009-06
amendments are effective for interim and annual periods ending after September 15, 2009. The adoption of the ASU 2009-06 amendments for the year ended December 31, 2009 did not have a material impact on our consolidated financial
statements.

On January 1, 2009, we adopted amendments to FASB ASC 805, Business Combinations (SFAS No. 141R,
Business Combinations), issued by the FASB in December 2007. The FASB ASC 805 amendments apply to all business combinations and establish guidance for recognizing and measuring identifiable assets acquired, liabilities assumed, noncontrolling
interests in the acquiree and goodwill. Most of these items are recognized at their full fair value on the acquisition date, including acquisitions where the acquirer obtains control but less than 100% ownership in the acquiree. The FASB ASC 805
amendments also require expensing restructuring and acquisition-related costs as incurred and establish disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. Per FASB ASC 805-10-65-1, these
amendments to FASB ASC 805 are effective for business combinations with an acquisition date in fiscal years beginning after December 15, 2008. We did not complete any business acquisitions during the year ended December 31, 2009.

On January 1, 2009, we adopted FASB ASC 810-10-65 and 810-10-45-16 (SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements), which amended accounting and reporting standards for noncontrolling ownership interests in subsidiaries (Note 12). As a result of the adoption of the FASB ASC 810-10-65 and 810-10-45-16 amendments,
noncontrolling ownership interest in consolidated subsidiaries is now presented in the consolidated balance sheet within partners capital as a separate component from the parents equity. Consolidated net income now includes earnings
attributable to both the parent and the noncontrolling interests. Earnings per unit is based on earnings attributable to only the parent company and did not change upon adoption. In addition, FASB ASC 810-10-65 provides guidance on accounting for
changes in the parents ownership interest in a subsidiary, including transactions where control is retained and where control is relinquished and requires additional disclosure of information related to amounts attributable to the parent for
income from continuing operations, discontinued operations, extraordinary items and reconciliations of the parent and noncontrolling interests equity of a subsidiary. The provisions are applied prospectively to transactions involving
noncontrolling interests, including noncontrolling interests that arose prior to the effective date, as of the beginning of 2009, the year of adoption. However, the presentation of noncontrolling interests within partners capital and the
inclusion of earnings attributable to the noncontrolling interests in consolidated net income requires retrospective application to all periods presented. The adoption of FASB ASC 810-10-65 and FASB ASC 810-10-45-16 for the years ended
December 31, 2009, 2008 and 2007 had a material impact on our consolidated financial statements.

Beginning with the
quarterly interim period ended June 30, 2009, we adopted amendments to FASB ASC 855, Subsequent Events (SFAS No. 165, Subsequent Events), issued by the FASB in May 2009. The amendments to FASB ASC 855 establish the accounting
for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The amendments to FASB ASC 855 also required disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. In February 2010, the FASB issued FASB ASU 2010-09, which amended the guidance in FASB
ASC 855 and removed the requirement to disclose the date through which an entity evaluated its subsequent events. The adoption of FASB ASC 855 and FASB ASU 2010-09 amendments did not impact our consolidated financial statements.



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In December 2008, FASB ASC 715, Compensation-Retirement Benefits, was amended (FASB
Staff Position SFAS No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets) to require more detailed annual disclosures about employers plan assets, concentrations of risk within plan assets and
valuation techniques used to measure the fair value of plan assets. These amendments were effective for our fiscal year ending December 31, 2009. The requirements did not have a material impact on our consolidated financial statements (Note
13).

New Accounting Standards Issued and Not Yet AdoptedIn June 2009, the FASB issued amendments
to FASB ASC 810, Consolidation (SFAS No. 167, Amendments to FASB Interpretation No. 46(R)),which changes the consolidation guidance applicable to a VIE. These amendments also update the guidance governing the
determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among
other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entitys economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE
that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, FASB ASC 810 required reconsideration of whether an enterprise was the
primary beneficiary of a VIE only when specific events had occurred. Qualifying special purpose entities, which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes
effective. These amendments also require enhanced disclosures about an enterprises involvement with a VIE. The provisions of these amendments are effective as of the beginning of interim and annual reporting periods that begin after
November 15, 2009. Based on our evaluation of the requirements of the amendments to FASB ASC 810, the ARLP Partnership will deconsolidate MAC upon adoption, effective January 1, 2010 (Note 12). The deconsolidation of MAC subsequent to
December 31, 2009 will not have a material impact on our consolidated financials.



|3. | ACQUISITIONS
|-- | ------------

SGP Land Acquisition

On January 28, 2008, effective January 1, 2008, the ARLP Partnership, through its subsidiary Alliance Resource
Properties, acquired additional rights to approximately 48.2 million tons of coal reserves located in western Kentucky from SGP Land, LLC (SGP Land). SGP Land is a subsidiary of SGP and is indirectly owned by Mr. Craft. Because
the acquisition was between entities under common control, it was accounted for at historical cost. At the time of the ARLP Partnerships acquisition, these reserves were leased by SGP Land to the ARLP Partnerships subsidiaries, Webster
County Coal, Warrior and Hopkins County Coal through mineral leases and sublease agreements, pursuant to which the ARLP Partnership had paid advance royalties of approximately $8.0 million that had not yet been recouped against production royalties.
Those mineral leases and sublease agreements between SGP Land and the ARLP Partnerships subsidiaries were assigned to Alliance Resource Properties by SGP Land in this transaction. The recoupable balances of advance minimum royalties and other
payments at the time of this acquisition, other than $0.4 million paid to the base lessors, were eliminated upon consolidation of the ARLP Partnerships financial statements. The purchase price of $13.3 million cash paid at closing was
primarily attributable to the historical cost basis of the mineral rights included in property, plant and equipment. The ARLP Partnership financed this acquisition using a combination of existing cash on hand and borrowings under its revolving
credit facility.

The SGP Land transaction was a related-party transaction and, as such, was reviewed by the board of
directors of MGP (MGP Board of Directors) and its conflicts committee (MGP Conflicts Committee). Based upon the review, the MGP Board of Directors and MGP Conflicts Committee determined that this transaction reflected
market-clearing terms and conditions customary in the coal industry. As a result, the MGP Board of Directors and the MGP Conflicts Committee approved the SGP Land transaction as fair and reasonable to the ARLP Partnership and its limited partners.
Because the SGP Land acquisition was between entities under common control, it was accounted for at historical cost.

Illinois Basin
Reserve Acquisition

In June 2007, the ARLP Partnership acquired, through its subsidiary Alliance Resource Properties, the
rights to approximately 78.4 million tons of high-sulfur coal reserves in Webster and Hopkins County, Kentucky from Island Creek Coal Company, a subsidiary of CONSOL Energy Inc. The purchase price of $53.3 million cash paid at closing was
primarily allocated to owned and leased coal rights. The ARLP Partnership financed the purchase using a combination of existing cash on hand and borrowings under



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the ARLP Partnerships revolving credit facility. The ARLP Partnership is mining these reserves from its adjacent Dotiki and Warrior mining complexes. As a result of the purchase, the ARLP
Partnership reclassified 8.4 million tons of high-sulfur, non-reserve coal deposits as reserves. This acquisition represented an approximate 14% increase in the ARLP Partnerships reserves at the acquisition date. During 2008, the ARLP
Partnership received a return of purchase price of $1.1 million due to title failures on a portion of these coal reserves and consequently, the ARLP Partnership reduced its cost basis in these coal reserves.



|4. | MC MINING MINE FIRE
|-- | -------------------

On
June 18, 2007, the ARLP Partnership agreed to a full and final resolution of its insurance claims relating to a mine fire that occurred on or about December 25, 2004 at its MC Minings Excel No. 3 mine. This resolution included
settlement of all expenses, losses and claims the ARLP Partnership incurred for the aggregate amount of $31.6 million, inclusive of $8.2 million of various deductibles and co-insurance, netting to $23.4 million of insurance proceeds paid to the ARLP
Partnership. In June 2007, as a result of this final resolution, the ARLP Partnership received additional cash payments of $7.2 million and recognized a net gain from insurance settlement of approximately $11.5 million, as well as a reduction in
operating expenses of approximately $0.8 million. In May 2008, the ARLP Partnership realized a $2.8 million gain on settlement of the ARLP Partnerships claim against the third-party that provided security services at the time of the fire.



|5. | INVENTORIES
|-- | -----------

Inventories
consist of the following at December 31, (in thousands):



|                                                                              |  |      |        |      |   |       
|----------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                              |  | 2009 |        | 2008
|Coal                                                                          |  | $    | 45,504 |      | $ | 9,186 
|Supplies (net of reserve for obsolescence of $1,372 and $1,332, respectively) |  |      | 18,853 |      |   | 17,324
|                                                                              |  |      |        |      |   |       
|Total inventory                                                               |  | $    | 64,357 |      | $ | 26,510
|                                                                              |  |      |        |      |   |       



|6. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------

Property, plant and equipment consist of the following at December 31, (in thousands):



|                                                          |  |      |           |   |      |   |           |  
|--------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                          |  | 2009 |           |   | 2008 |  
|Mining equipment and processing facilities                |  | $    | 890,582   |   |      | $ | 660,636   |  
|Land and mineral rights                                   |  |      | 117,380   |   |      |   | 116,881   |  
|Buildings, office equipment and improvements              |  |      | 136,713   |   |      |   | 120,296   |  
|Construction in progress                                  |  |      | 94,901    |   |      |   | 73,479    |  
|Mine development costs                                    |  |      | 139,338   |   |      |   | 113,922   |  
|                                                          |  |      |           |   |      |   |           |  
|Property, plant and equipment, at cost                    |  |      | 1,378,914 |   |      |   | 1,085,214 |  
|Less accumulated depreciation, depletion and amortization |  |      | (556,370  | ) |      |   | (468,784  | )
|                                                          |  |      |           |   |      |   |           |  
|Total property, plant and equipment, net                  |  | $    | 822,544   |   |      | $ | 616,430   |  
|                                                          |  |      |           |   |      |   |           |  

Equipment leased by the ARLP Partnership under lease agreements which are determined to be capital leases
are stated at an amount equal to the present value of the minimum lease payments during the lease term, less accumulated amortization. Equipment under capital leases totaling $1.9 million included in mining equipment and processing facilities is
amortized on the straight-line method over the shorter of its useful life or the related lease term. The provision for amortization of leased properties is included in depreciation, depletion and amortization expense. Accumulated amortization
related to the ARLP Partnerships capital lease was $0.8 million and $0.6 million as of December 31, 2009 and 2008, respectively, and amortization expense was $0.2 million, $0.3 million and $0.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively.



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|7. | GIBSON RAIL ADVANCES
|-- | --------------------

In
2007, Gibson County Coal, one of the ARLP Partnerships subsidiaries, entered into contracts with CSX Transportation, Inc. (CSX) and Norfolk Southern Railway Company (NS), pursuant to which Gibson County Coal constructed
a rail loop and the railroads constructed connections and siding facilities, in order to provide Gibson County Coal access to CSX and NS railways. Although these connections and siding facilities are assets of the respective rail companies, Gibson
County Coal advanced $8.2 million on a combined basis to CSX and NS during 2007 toward the cost of construction of their infrastructure. In 2009 and 2008, advances of $2.3 million and $2.2 million were repaid to Gibson County Coal by rebates from
CSX and NS as coal was shipped on their respective railways. The $3.7 million and $6.0 million of advances not yet repaid as of December 31, 2009 and 2008, respectively, are recorded in other receivables and other long-term assets in our
consolidated balance sheet. Gibson County Coal also received additional rebates from both CSX and NS that were not recoupment of advances.



|8. | LONG-TERM DEBT
|-- | --------------

Long-term
debt consists of the following at December 31, (in thousands):



|                           |  |      |         |   |      |   |         |  
|-------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                           |  | 2009 |         |   | 2008 |  
|AHGP Credit facility       |  | $    |        |   |      | $ |        |  
|ARLP Credit facility       |  |      |        |   |      |   |        |  
|ARLP Senior notes          |  |      | 90,000  |   |      |   | 108,000 |  
|ARLP Series A senior notes |  |      | 205,000 |   |      |   | 205,000 |  
|ARLP Series B senior notes |  |      | 145,000 |   |      |   | 145,000 |  
|                           |  |      |         |   |      |   |         |  
|                           |  |      | 440,000 |   |      |   | 458,000 |  
|Less current maturities    |  |      | (18,000 | ) |      |   | (18,000 | )
|                           |  |      |         |   |      |   |         |  
|Total long-term debt       |  | $    | 422,000 |   |      | $ | 440,000 |  
|                           |  |      |         |   |      |   |         |  

AHGP Partnership.We have a $2.0 million revolving credit facility (AHGP Credit
Facility) with C-Holdings, LLC (C-Holdings) which owns 100% of the members interest of our general partner, AGP, and is controlled by Mr. Craft, Chairman, President and Chief Executive Officer of AGP. The AHGP Credit
Facility matures March 31, 2011 and is available for general partnership purposes. Any borrowings under the facility, as extended, bear interest at the London Interbank Offered Rate (LIBOR) plus 2.0%. We are not required to pay a
commitment fee to C-Holdings on the unused portion of the facility. At December 31, 2009 and 2008, we had no borrowings outstanding under the AHGP Credit Facility. There are no material operating and financial restrictions and covenants in the
AHGP Credit Facility. C-Holdings may terminate the facility and demand payment of any amounts outstanding in the event we have a change of control.

ARLP Credit Facility.The Intermediate Partnership has a $150.0 million revolving credit facility (ARLP Credit Facility) dated September 25, 2007, which matures in
2012. On September 30, 2009, the Intermediate Partnership entered into Amendment No. 2 (the Credit Amendment) to the ARLP Credit Facility. The Credit Amendment increased the annual capital expenditure limits under the ARLP
Credit Facility. The new limits, excluding capital expenditures related to acquisitions, were $425.0 million for 2009, $375.0 million for 2010, $350.0 million for 2011 and $250.0 million for 2012. The amount of any annual limit in excess of actual
capital expenditures for that year carries forward and is added to the annual limit of the subsequent year. .As a result, the capital expenditure limit for 2010 is approximately $471.8 million

Pursuant to the Credit Amendment, the applicable margin for LIBOR borrowings under the ARLP Credit Facility was increased from a range of
0.625% to 1.150% (depending on the Intermediate Partnerships leverage margin) to a range of 1.115% to 2.000%, and the annual commitment fee was increased from a range of 0.15% to 0.35% (also depending on the Intermediate Partnerships
leverage margin) to a range of 0.25% to 0.50%. In addition, the Credit Amendment includes certain changes relating to a defaulting lender, including changes which clarify that the overall ARLP Credit Facility commitment would be reduced
by the commitment share of a defaulting lender but also provides the Intermediate Partnership with more flexibility in replacing a defaulting lender.

At December 31, 2009, the ARLP Partnership had $23.3 million of letters of credit outstanding with $126.7 million available for borrowing under the ARLP Credit Facility. The ARLP Partnership had no
borrowings outstanding under the ARLP Credit Facility as of December 31, 2009 and 2008. The ARLP Partnership incurs an annual commitment fee of 0.375% on the undrawn portion of the ARLP Credit Facility.



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Lehman Commercial Paper, Inc. (Lehman), a subsidiary of Lehman Brothers Holding,
Inc., holds a 5%, or $7.5 million, commitment in the $150 million ARLP Credit Facility. The ARLP Credit Facility is underwritten by a syndicate of twelve financial institutions including Lehman with no individual institution representing more than
11.3% of the $150 million revolving credit facility. Lehman filed for protection under Chapter 11 of the Federal Bankruptcy Code in early October 2008. In the event Lehman, or any other financial institution in the ARLP Partnerships syndicate,
does not fund its future borrowing requests, the ARLP Partnerships borrowing available under the ARLP Credit Facility would be reduced. The obligations of the lenders under the ARLP Credit Facility are individual obligations and the failure of
one or more lenders does not relieve the remaining lenders of their funding obligations. On February 11, 2010, the ARLP Partnership gave its lenders a notice of borrowing under the ARLP Credit Facility and, in response to that notice, Lehman
notified the ARLP Partnership that it would not fund its proportionate share of the borrowing. As a result, as of February 11, 2010, Lehman became a defaulting lender and availability for borrowing under the ARLP Credit Facility was reduced by
$7.5 million, unless and until the ARLP Partnership replaces Lehman as a lender.

Senior Notes. The Intermediate
Partnership has $90.0 million principal amount of 8.31% senior notes due August 20, 2014, payable in five remaining equal annual installments of $18.0 million with interest payable semi-annually (ARLP Senior Notes).

Series A Senior Notes. On June 26, 2008, the Intermediate Partnership entered into a Note Purchase Agreement (the
2008 Note Purchase Agreement) with a group of institutional investors in a private placement offering. The Intermediate Partnership issued $205.0 million of Series A Senior Notes, which bear interest at 6.28% and mature on June 26,
2015 with interest payable semi-annually.

Series B Senior Notes.On June 26, 2008, the Intermediate
Partnership issued under the 2008 Note Purchase Agreement $145.0 million of Series B Senior Notes, which bear interest at 6.72% and mature on June 26, 2018 with interest payable semi-annually.

The proceeds from the Series A and Series B Senior Notes (collectively, the 2008 Senior Notes) were used to repay $21.5 million
outstanding under the ARLP Credit Facility and pay expenses associated with the offering of the 2008 Senior Notes. The remaining proceeds were primarily used to fund the development of the River View and Tunnel Ridge mining complexes and for other
general working capital requirements. The ARLP Partnership incurred debt issuance costs of approximately $0.3 million in 2009 associated with the ARLP Credit Facility and $1.7 million in 2008 associated with the 2008 Senior Notes, which have been
deferred and are being amortized as a component of interest expense over the term of the respective notes.

The ARLP Credit
Facility, Senior Notes and 2008 Senior Notes (collectively, the ARLP Debt Arrangements) are guaranteed by all of the direct and indirect subsidiaries of the Intermediate Partnership. The ARLP Debt Arrangements contain various covenants
affecting the Intermediate Partnership and its subsidiaries restricting, among other things, the amount of distributions by the Intermediate Partnership, the incurrence of additional indebtedness and liens, the sale of assets, the making of
investments, the entry into mergers and consolidations and the entry into transactions with affiliates, in each case subject to various exceptions. The ARLP Debt Arrangements also require the Intermediate Partnership to remain in control of a
certain amount of mineable coal reserves relative to its annual production. In addition, the ARLP Debt Arrangements require the Intermediate Partnership to maintain (i) a minimum debt to cash flow ratio of not more than 3.0 to 1.0, (ii) a
ratio of cash flow to interest expense of not less than 4.0 to 1.0 in each case, during the four most recently ended fiscal quarters and (iii) maximum annual capital expenditures, excluding acquisitions, as described above. The Credit Amendment
did not change the required minimum debt to cash flow or cash flow to interest expense ratios. The debt to cash flow ratio, cash flow to interest expense ratio and actual capital expenditures were 1.3 to 1.0, 10.8 to 1.0 and $328.2 million,
respectively, for the trailing twelve months ended December 31, 2009. The ARLP Partnership was in compliance with the covenants of the ARLP Debt Arrangements as of December 31, 2009.

Other. In addition to the letters of credit available under the ARLP Credit Facility discussed above, the ARLP Partnership
also has agreements with two banks to provide additional letters of credit in an aggregate amount of $31.1 million to maintain surety bonds to secure certain asset retirement obligations and its obligations for workers compensation benefits.
At December 31, 2009, the ARLP Partnership had $31.1 million in letters of credit outstanding under agreements with these two banks. SGP guarantees $5.0 million of these outstanding letters of credit (Note 18).



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Aggregate maturities of long-term debt are payable as follows (in thousands):



|                         |  |   |        
|------------------------ |  | - | -------
|Year Ending December 31, |  |  
|2010                     |  | $ | 18,000 
|2011                     |  |   | 18,000 
|2012                     |  |   | 18,000 
|2013                     |  |   | 18,000 
|2014                     |  |   | 18,000 
|Thereafter               |  |   | 350,000
|                         |  |   |        
|                         |  | $ | 440,000
|                         |  |   |        



|9. | FAIR VALUE MEASUREMENTS
|-- | -----------------------

We apply the provisions of FASB ASC 820, Fair Value Measurements and Disclosures (SFAS No. 157, Fair Value Measurements) which, among other things, defines fair value, requires enhanced disclosures about assets and
liabilities carried at fair value and establishes a hierarchal disclosure framework based upon the quality of inputs used to measure fair value. We elected to defer the application of FASB ASC 820 to nonfinancial assets and liabilities that are
recognized or disclosed at fair value on a nonrecurring basis until our fiscal year beginning January 1, 2009, as permitted by FASB ASC 820-10-15-1A (FSP No. SFAS 157-2, Effective Date of FASB Statement No. 157). The application of
FASB ASC 820 to nonfinancial assets and liabilities on January 1, 2009 did not have a material impact on our consolidated financial statements as of December 31, 2009.

Valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect our own market assumptions. These two types of inputs create the following fair value hierarchy:



| |  |  | Level 1Quoted prices for identical instruments in active markets.
| | - |  | ------------------------------------------------------------------



| |  |  | Level 2Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not
active; and model derived valuations whose inputs are observable or whose significant value drivers are observable.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3Instruments whose significant value drivers are unobservable.
| | - |  | ---------------------------------------------------------------------

The carrying amounts for accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments.
At December 31, 2009 and 2008, the estimated fair value of the ARLP Partnerships fixed rate term debt, including current maturities, was approximately $460.7 million and $362.8 million, respectively, based on interest rates that it
believes is currently available to it for issuance of debt with similar terms and remaining maturities (see Note 8).



|10. | DISTRIBUTIONS OF AVAILABLE CASH
|--- | -------------------------------

We distribute 100% of our available cash (including any held by MGP) within 50 days after the end of each quarter to unitholders of record. Available cash is generally defined in the partnership agreement as all cash and cash equivalents of
AHGP and its direct subsidiaries on hand at the end of each quarter less reserves established by AGP in its reasonable discretion for future cash requirements. These reserves are retained to provide for the conduct of our business, the payment of
debt principal and interest and to provide funds for future distributions.

Our cash generating assets currently consist
entirely of our partnership interests in ARLP, from which we receive quarterly cash distributions. At December 31, 2009, our assets consisted of the following partnership interests in ARLP: a 1.98% general partner interest in ARLP, which we
hold through our 100% ownership interest in MGP; the IDRs in ARLP, which we hold through our 100% ownership interest in MGP; 15,544,169 common units of ARLP, representing approximately 42.4% of the common units of ARLP; and a 0.001% managing
interest in Alliance Coal.



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The following table summarizes the quarterly per unit distribution paid during the
respective quarter:



|               |  |      |        |      |   |        |  |   |       
|-------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|               |  | Year
|               |  | 2009 |        | 2008 |   | 2007  
|First Quarter  |  | $    | 0.4025 |      | $ | 0.2875 |  | $ | 0.2500
|Second Quarter |  | $    | 0.4150 |      | $ | 0.2875 |  | $ | 0.2500
|Third Quarter  |  | $    | 0.4275 |      | $ | 0.3525 |  | $ | 0.2650
|Fourth Quarter |  | $    | 0.4400 |      | $ | 0.3900 |  | $ | 0.2650

On January 27,
2010, we declared a quarterly distribution of $0.4525 per unit, totaling approximately $27.1 million, which was paid on February 19, 2010, to all unitholders of record on February 12, 2010.



|11. | INCOME TAXES
|--- | ------------

ARLPs
indirect subsidiary, Alliance Service, is subject to federal and state income taxes. Alliance Services income in 2009 and losses in 2008 were principally due to its subsidiary, Matrix Design. Alliance Services income in 2007 consisted
primarily of rental and service fees provided to an independent coal synfuel producer at Warrior (Note 2). Alliance Service has minor temporary differences between Matrix Designs financial reporting basis and the tax basis of its assets and
liabilities. Components of income tax expense (benefit) are as follows (in thousands):



|                             |  |                         |     |   |      |   |      |      |  |   |       |  
|---------------------------- |  | ----------------------- | --- | - | ---- | - | ---- | ---- |  | - | ----- | -
|                             |  | Year Ended December 31, |    
|                             |  | 2009                    |     |   | 2008 |   |      | 2007 | 
|Current:                     |  |                         |     |   |      |   |      |      |  |   |       |  
|Federal                      |  | $                       | 620 |   |      | $ | (312 | )    |  | $ | 1,468 |  
|State                        |  |                         | 119 |   |      |   | (30  | )    |  |   | 276   |  
|                             |  |                         |     |   |      |   |      |      |  |   |       |  
|                             |  |                         | 739 |   |      |   | (342 | )    |  |   | 1,744 |  
|Deferred:                    |  |                         |     |   |      |   |      |      |  |   |       |  
|Federal                      |  |                         | (25 | ) |      |   | (109 | )    |  |   | (61   | )
|State                        |  |                         | (5  | ) |      |   | (29  | )    |  |   | (13   | )
|                             |  |                         |     |   |      |   |      |      |  |   |       |  
|                             |  |                         | (30 | ) |      |   | (138 | )    |  |   | (74   | )
|                             |  |                         |     |   |      |   |      |      |  |   |       |  
|Income tax expense (benefit) |  | $                       | 709 |   |      | $ | (480 | )    |  | $ | 1,670 |  
|                             |  |                         |     |   |      |   |      |      |  |   |       |  

Reconciliations from the provision for income taxes at the U.S. federal statutory tax rate to the effective tax rate for the
provision for income taxes are as follows (in thousands):



|                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                       |  | Year Ended December 31, |        
|                                                                                       |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Income taxes at statutory rate                                                         |  | $                       | 67,570  |   |      | $ | 46,940  |      |  | $ | 59,922  |  
|Less: Income taxes at statutory rate on Partnership income not subject to income taxes |  |                         | (66,939 | ) |      |   | (47,402 | )    |  |   | (58,420 | )
|Increase/(decrease) resulting from:                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|State taxes, net of federal income tax                                                 |  |                         | 70      |   |      |   | (6      | )    |  |   | 183     |  
|Other                                                                                  |  |                         | 8       |   |      |   | (12     | )    |  |   | (15     | )
|                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Income tax expense (benefit)                                                           |  | $                       | 709     |   |      | $ | (480    | )    |  | $ | 1,670   |  
|                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  



|12. | NONCONTROLLING INTERESTS
|--- | ------------------------

We apply the provisions of FASB ASC 810, Consolidation, which were amended on January 1, 2009 by ASC 810-10-65 and FASB ASC 810-10-45-16 (SFAS No. 160) (Note 2). As required by FASB ASC 810, our noncontrolling ownership
interest in consolidated subsidiaries is presented in the consolidated balance sheet within partners capital as a separate component from the parents equity. In addition, consolidated net income includes earnings attributable to both the
parent and the noncontrolling interests.



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The noncontrolling interests balance is comprised of non-affiliate and affiliate ownership
interests in the net assets of the ARLP Partnership which we consolidate (Note 1) and a third-party ownership interest in MAC. The following table summarizes the components of noncontrolling interests recorded in Partners Capital with
retrospective application due to the adoption of FASB ASC 810-10-65 and FASB ASC 810-10-45-16 for the periods indicated (in thousands):



|                                                                              |  |              |          |   |      |   |          |  
|----------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                              |  | December 31, |         
|                                                                              |  | 2009         |          |   | 2008 |  
|Noncontrolling interests reflected in Partners Capital:                      |  |              |          |   |      |   |          |  
|Affiliate (SGP)                                                               |  | $            | (303,830 | ) |      | $ | (303,824 | )
|Non-Affiliates (ARLPs non-affiliate limited partners)                        |  |              | 372,820  |   |      |   | 357,573  |  
|MAC                                                                           |  |              | 1,117    |   |      |   | 927      |  
|Accumulated other comprehensive loss attributable to noncontrolling interests |  |              | (9,684   | ) |      |   | (11,226  | )
|                                                                              |  |              |          |   |      |   |          |  
|Total noncontrolling interests                                                |  | $            | 60,423   |   |      | $ | 43,450   |  
|                                                                              |  |              |          |   |      |   |          |  

The noncontrolling interest designated as Affiliate represents SGPs 0.01% general partner interest in
ARLP and 0.01% general partner interest in the Intermediate Partnership.

The noncontrolling interest designated as
Non-Affiliates represents the limited partners interest in ARLP controlled through the common unit ownership, excluding the 15,544,169 common units of ARLP held by us. The total obligation associated with ARLPs LTIP is also included in
the Non-Affiliates component of noncontrolling interest (Note 14). Concurrent with the adoption of FASB ASC 810-10-65 and FASB ASC 810-10-45-16, we allocated accumulated other comprehensive income between controlling and noncontrolling interests
that resulted in an impact of $11.2 million between accumulated other comprehensive income (loss) and noncontrolling interests at December 31, 2008.

The noncontrolling interest designated as MAC represents a 50% third-party interest in MAC. White County Coal entered into a limited liability company agreement with a third-party in 2006 to form MAC,
which manufactures and sells rock dust. We consolidate MACs financial results in accordance with FASB ASC 810, Consolidation (FIN No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51).
Based on the guidance in FASB ASC 810, we concluded that MAC is a VIE and the ARLP Partnership is the primary beneficiary. Effective January 1, 2010, we will adopt the amendments to FASB ASC 810, Consolidation (SFAS No. 167), issued
in June 2009. Based on our evaluation of these amendments, the ARLP Partnership will deconsolidate MAC effective January 1, 2010 (Note 2).

On March 19, 2007, MAC entered into a secured line of credit (LOC) which was scheduled to expire on March 19, 2008. In September 2007, MAC entered into a $1.5 million Revolving
Credit Agreement (Revolver) with ARLP. Concurrent with the execution of the Revolver, MAC repaid all amounts outstanding under the LOC. By amendment effective April 1, 2008 the term of the Revolver was extended to June 30,
2009. On November 17, 2009, MAC entered into Amendment No. 2 effective June 30, 2009 which increased the Revolver to $1.75 million. The Revolver is scheduled to expire on December 31, 2010. Due to the consolidation of MAC in
accordance with FASB ASC 810, the intercompany transactions associated with the Revolver are eliminated for our financials presented.

The following table summarizes net income attributable to each component of the noncontrolling interests for the periods indicated (in thousands):



|                                                       |  |                          |        |      |   |        |  |   |        |  
|------------------------------------------------------ |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------ | -
|                                                       |  | Years Ended December 31, |       
|                                                       |  | 2009                     |        | 2008 |   | 2007   | 
|Net income attributable to noncontrolling interest:    |  |                          |        |      |   |        |  |   |        |  
|Affiliate (SGP)                                        |  | $                        | 27     |      | $ | 18     |  | $ | 29     |  
|Non-Affiliates (ARLPs non-affiliate limited partners) |  |                          | 75,743 |      |   | 50,904 |  |   | 79,927 |  
|MAC                                                    |  |                          | 190    |      |   | 420    |  |   | (332   | )
|                                                       |  |                          |        |      |   |        |  |   |        |  
|                                                       |  | $                        | 75,960 |      | $ | 51,342 |  | $ | 79,624 |  
|                                                       |  |                          |        |      |   |        |  |   |        |  



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The following table summarizes cash distributions paid by ARLP to each component of the
noncontrolling interests for the periods indicated (in thousands):



|                                                           |  |                          |        |      |   |        |  |   |       
|---------------------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------
|                                                           |  | Years Ended December 31,
|                                                           |  | 2009                     |        | 2008 |   | 2007  
|Distributions paid to noncontrolling interests:            |  |                          |        |      |   |        |  |   |       
|Affiliate (SGP) (1)                                        |  | $                        | 33     |      | $ | 27     |  | $ | 23    
|Non-Affiliates (ARLPs non-affiliate limited partners) (1) |  |                          | 63,287 |      |   | 54,062 |  |   | 46,703
|                                                           |  |                          |        |      |   |        |  |   |       
|                                                           |  | $                        | 63,320 |      | $ | 54,089 |  | $ | 46,726
|                                                           |  |                          |        |      |   |        |  |   |       



|(1) | Distributions paid to noncontrolling Interest, in the table above, represent ARLPs quarterly distributions in accordance with the ARLP Partnership agreement.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

The Affiliate component of noncontrolling interests represents SGPs cumulative investment basis in the
net assets of the ARLP Partnership. After the consummation of the various transactions associated with the ARLP Partnerships formation and initial public offering transaction in 1999 (which included the contribution of net assets by SGP to the
ARLP Partnership, the retention by SGP of debt borrowings assumed by ARLP and a distribution by ARLP to SGP), SGPs investment basis in ARLP totaled $(303.9) million. SGPs investment basis as of December 31, 2009 and 2008 also
reflects the cumulative amount of nominal ARLP income allocations and distributions to SGP and nominal contributions by SGP to ARLP and the Intermediate Partnership to maintain its general partner interests.



|13. | EMPLOYEE BENEFIT PLANS
|--- | ----------------------

Defined Contribution PlansThe ARLP Partnerships eligible employees currently participate in a defined contribution profit sharing and savings plan (PSSP) that it sponsors. The PSSP covers substantially all
regular full-time employees. PSSP participants may elect to make voluntary contributions to this plan up to a specified amount of their compensation. The ARLP Partnership makes matching contributions based on a percent of an employees eligible
compensation and also makes an additional nonmatching contribution. The ARLP Partnerships contribution expense for the PSSP was approximately $11.2 million, $8.0 million and $5.6 million for the years ended December 31, 2009, 2008 and
2007, respectively. The increase from 2008 to 2009 was primarily attributable to a greater number of PSSP participants principally due to changes in the defined benefit plan (the Pension Plan) described below and higher salaries and
wages included in the matching calculation.

Defined Benefit PlanEligible employees at certain of the ALRP
Partnerships mining operations participate in a Pension Plan that it sponsors. The benefit formula for the Pension Plan is a fixed dollar unit based on years of service. Effective during 2008, new employees of these participating operations
are no longer eligible to participate in the Pension Plan, but are eligible to participate in the PSSP that the ARLP Partnership sponsors. Additionally, certain employees participating in the Pension Plan, for some of those participating operations,
had the one-time option during 2008 to remain in the Pension Plan or participate in enhanced benefit provisions under the PSSP. The impact of the amendments to the Pension Plan was not material to the 2008 consolidated financial statements.

Beginning with the year ended December 31, 2009, we adopted amendments to FASB ASC 715, CompensationRetirement
Benefits. These amendments required us to provide more detailed annual disclosures of Pension Plan assets, concentrations of risk within Pension Plan assets, and valuation techniques used to measure the fair value of Pension Plan assets.



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The following sets forth changes in benefit obligations and plan assets for the years ended
December 31, 2009 and 2008 and the funded status of the Pension Plan reconciled with the amounts reported in our consolidated financial statements at December 31, 2009 and 2008, respectively (dollars in thousands):



|                                                                                                         |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                         |  | 2009 |         |   | 2008 |  
|Change in benefit obligations:                                                                           |  |      |         |   |      |   |         |  
|Benefit obligations at beginning of year                                                                 |  | $    | 49,633  |   |      | $ | 39,648  |  
|Service cost                                                                                             |  |      | 2,580   |   |      |   | 2,555   |  
|Interest cost                                                                                            |  |      | 3,083   |   |      |   | 2,726   |  
|Actuarial loss                                                                                           |  |      | 3,369   |   |      |   | 5,467   |  
|Benefits paid                                                                                            |  |      | (875    | ) |      |   | (763    | )
|                                                                                                         |  |      |         |   |      |   |         |  
|Benefit obligation at end of year                                                                        |  |      | 57,790  |   |      |   | 49,633  |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Change in plan assets:                                                                                   |  |      |         |   |      |   |         |  
|Fair value of plan assets at beginning of year                                                           |  |      | 29,681  |   |      |   | 41,647  |  
|Employer contribution                                                                                    |  |      | 2,150   |   |      |   |        |  
|Actual return on plan assets                                                                             |  |      | 7,138   |   |      |   | (11,203 | )
|Benefits paid                                                                                            |  |      | (875    | ) |      |   | (763    | )
|                                                                                                         |  |      |         |   |      |   |         |  
|Fair value of plan assets at end of year                                                                 |  |      | 38,094  |   |      |   | 29,681  |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Funded status at the end of year                                                                         |  | $    | (19,696 | ) |      | $ | (19,952 | )
|                                                                                                         |  |      |         |   |      |   |         |  
|Amounts recognized in balance sheet:                                                                     |  |      |         |   |      |   |         |  
|Non-current liability                                                                                    |  | $    | (19,696 | ) |      | $ | (19,952 | )
|                                                                                                         |  |      |         |   |      |   |         |  
|                                                                                                         |  | $    | (19,696 | ) |      | $ | (19,952 | )
|                                                                                                         |  |      |         |   |      |   |         |  
|Amounts recognized in accumulated other comprehensive income consists of:                                |  |      |         |   |      |   |         |  
|Net actuarial loss                                                                                       |  | $    | (17,149 | ) |      | $ | (19,899 | )
|                                                                                                         |  |      |         |   |      |   |         |  
|Weighted-average assumptions as of December 31,                                                          |  |      |         |   |      |   |         |  
|Discount rate                                                                                            |  |      | 5.88    | % |      |   | 6.15    | %
|Expected rate of return on plan assets                                                                   |  |      | 8.35    | % |      |   | 8.35    | %
|Weighted-average assumptions used to determine net periodic benefit cost for the year ended
December 31, |  |      |         |   |      |   |         |  
|Discount rate                                                                                            |  |      | 6.15    | % |      |   | 6.70    | %
|Expected return on plan assets                                                                           |  |      | 8.35    | % |      |   | 8.35    | %

The actuarial loss
component of the change in benefit obligation in 2009 was primarily attributable to a decrease in the discount rate assumption. The actuarial loss component of the change in benefit obligations in 2008 was primarily attributable to negative returns
on Pension Plan assets during 2008.

The expected long-term rate of return assumption is based on broad equity and bond
indices, the investment goals and objectives, the target investment allocation and on the long term historical rates of return for each asset class. The Pension Plans expected long-term rate of return of 8.35% is determined by the above
factors and an asset allocation assumption of 70.0% invested in domestic equity securities with an expected long-term rate of return of 9.25%, 10.0% invested in international equities with an expected long-term rate of return of 6.45% and 20.0%
invested in fixed income securities with an expected long-term rate of return of 6.10%. Expected long-term rate of return is based on a 20 year average annual total return for each investment group.



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|                                         |  |                |        |   |      |   |        |      |  |   |        |  
|---------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                         |  | 2009           |        |   | 2008 |   |        | 2007 | 
|                                         |  | (in thousands) |       
|Components of net periodic benefit cost: |  |                |        |   |      |   |        |      |  |   |        |  
|Service cost                             |  | $              | 2,580  |   |      | $ | 2,555  |      |  | $ | 3,435  |  
|Interest cost                            |  |                | 3,083  |   |      |   | 2,726  |      |  |   | 2,268  |  
|Expected return on plan assets           |  |                | (2,518 | ) |      |   | (3,368 | )    |  |   | (2,687 | )
|Amortization of net loss                 |  |                | 1,499  |   |      |   | 30     |      |  |   | 258    |  
|                                         |  |                |        |   |      |   |        |      |  |   |        |  
|Net periodic benefit cost                |  | $              | 4,644  |   |      | $ | 1,943  |      |  | $ | 3,274  |  
|                                         |  |                |        |   |      |   |        |      |  |   |        |  



|                                                                                                         |  |                |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                                                         |  | 2009           |        |   | 2008 |  
|                                                                                                         |  | (in thousands) |       
|Other changes in plan assets and benefit obligation recognized in accumulated other comprehensive income |  |                |        |   |      |   |        |  
|Net actuarial (gain) loss                                                                                |  | $              | (1,251 | ) |      | $ | 20,038 |  
|Reversal of amortization item:                                                                           |  |                |        |   |      |   |        |  
|Net actuarial gain                                                                                       |  |                | (1,499 | ) |      |   | (30    | )
|                                                                                                         |  |                |        |   |      |   |        |  
|Total recognized in accumulated other comprehensive (income) loss                                        |  |                | (2,750 | ) |      |   | 20,008 |  
|Net periodic benefit cost                                                                                |  |                | 4,644  |   |      |   | 1,943  |  
|                                                                                                         |  |                |        |   |      |   |        |  
|Total recognized in net periodic benefit cost and accumulated other comprehensive loss                   |  | $              | 1,894  |   |      | $ | 21,951 |  
|                                                                                                         |  |                |        |   |      |   |        |  

Estimated future benefit payments as of December 31, 2009 are as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Year Ending December 31, |  |  
|2010                     |  | $ | 1,384 
|2011                     |  |   | 1,700 
|2012                     |  |   | 2,046 
|2013                     |  |   | 2,422 
|2014                     |  |   | 2,806 
|2015-2017                |  |   | 20,305
|                         |  |   |       
|                         |  | $ | 30,663
|                         |  |   |       

The ARLP Partnership expects to contribute $9.8
million to the Pension Plan in 2010. The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the 2010 fiscal year is $1.1 million.

As permitted under ASC 715, CompensationRetirement Benefits, the amortization of any prior service cost is determined using a
straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the Pension Plan.

The compensation committee of the MGP Board of Directors (MGP Compensation Committee) maintains a Funding and Investment Policy Statement (Policy Statement) for the Pension Plan.
The Policy Statement provides that the assets of the Pension Plan be invested in a prudent manner based on the stated purpose of the Pension Plan and diversified among a broad range of investments including domestic and international equity
securities, domestic fixed income securities and cash equivalents. The Pension Plan allows for the utilization of options in a collar strategy to limit potential exposure to market fluctuations. The investment goal of the Pension Plan is
to ensure that the assets provide sufficient resources to meet or exceed the benefit obligations as determined under terms and conditions of the Pension Plan. The Policy Statement provides that the Pension Plan shall be funded by employer
contributions in amounts determined in accordance with generally accepted actuarial standards. The investment objectives as established by the Policy Statement are, first, to increase the value of the assets under the Pension Plan and, second, to
control the level of risk or volatility of investment returns associated with Pension Plan investments.



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The ARLP Partnership had unfunded benefit obligations of approximately $20.0 million at
December 31, 2009 and 2008. In general, increases in benefit obligations will be offset by employer contributions and market returns. However, general market conditions may result in market losses, as experienced in 2008. When the Pension Plan
experiences market losses, significant variations in the funded status of the Pension Plan can, and often do, occur. Actuarial methods utilized in determining required future employer contributions take into account the long-term effect of market
losses and result in increased future employer contributions, thus offsetting such market losses. Conversely, the long-term effect of market gains will result in decreased future employer contributions. Total account performance is to be reviewed at
least annually, using a dynamic benchmark approach to track investment performance.

The MGP Compensation Committee has
selected an investment manager to implement the selection and on-going evaluation of Pension Plan investments. The investments shall be selected from the following assets classes, which includes mutual funds, collective funds, or the direct
investment in individual stocks, bonds or cash equivalent investments, including: (a) money market accounts, (b) U.S. Government bonds, (c) corporate bonds, (d) large, mid, and small capitalization stocks, and
(e) international stocks. The Policy Statement provides the following guidelines and limitations, subject to exceptions authorized by the MGP Compensation Committee under unusual market conditions: (i) the maximum investment in any one
stock should not exceed 10.0% of the total stock portfolio, (ii) the maximum investment in any one industry should not exceed 30.0% of the total stock portfolio, and (iii) the average credit quality of the bond portfolio should be at least
AA with a maximum amount of non-investment grade debt of 10.0%.

The Policy Statements asset allocation guidelines are
as follows:



|                             |  |                               |   |  |        |   |  |         |  
|---------------------------- |  | ----------------------------- | - |  | ------ | - |  | ------- | -
|                             |  | Percentage of Total Portfolio |  
|                             |  | Minimum                       |   |  | Target |   |  | Maximum |  
|Domestic equity securities   |  | 50                            | % |  | 70     | % |  | 90      | %
|Foreign equity securities    |  | 0                             | % |  | 10     | % |  | 20      | %
|Fixed income securities/cash |  | 5                             | % |  | 20     | % |  | 40      | %

Domestic
equity securities primarily include investments in individual common stocks or registered investment companies that hold positions in companies that are based in the U.S. Foreign equity securities primarily include investments in individual common
stocks or registered investment companies that hold positions in companies based outside the U.S. Fixed income securities primarily include individual bonds or registered investment companies that hold positions in U.S. Treasuries, U.S. government
obligations, corporate bonds, mortgage backed securities and preferred stocks. Short-term market conditions may result in actual asset allocations that fall outside the minimum or maximum guidelines reflected in the Policy Statement.

Asset allocations as of December 31,



|                             |  |      |   |  |      |  
|---------------------------- |  | ---- | - |  | ---- | -
|                             |  | 2009 |   |  | 2008 |  
|Domestic equity securities   |  | 57   | % |  | 46   | %
|Foreign equity securities    |  | 15   | % |  | 12   | %
|Fixed income securities/cash |  | 28   | % |  | 42   | %
|                             |  |      |   |  |      |  
|                             |  | 100  | % |  | 100  | %
|                             |  |      |   |  |      |  

The ARLP Partnership considers multiple factors in its investment strategy. The following factors have been
taken into consideration with respect to the Pension Plans long-term investment goals and objectives and in the establishment of the Pension Plans target investment allocation:



| |  |  | The long-term nature of providing retirement income benefits to Pension Plan participants;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | The projected annual funding requirements necessary to meet the benefit obligations;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | The current level of benefit payments to Pension Plan participants and beneficiaries; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Ongoing analysis of economic conditions and investment markets.
| | - |  | ---------------------------------------------------------------



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As required by FASB ASC 715, the following information discloses the fair values of our
Pension Plan assets, by asset category, consist of the following at December 31, 2009 (in thousands):



|                                   |  |                                                             |        |                                      |   |        |                                        |  |   |  
|---------------------------------- |  | ----------------------------------------------------------- | ------ | ------------------------------------ | - | ------ | -------------------------------------- |  | - | -
|                                   |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |        | SignificantObservableInputs(Level 2) |   |        | SignificantUnobservableInputs(Level 3)
|Cash and cash equivalents          |  | $                                                           | 688    |                                      | $ |       |                                        |  | $ | 
|Equity securities:                 |  |                                                             |        |                                      |   |        |                                        |  |   |  
|U.S. large-cap growth              |  |                                                             | 5,515  |                                      |   |       |                                        |  |   | 
|U.S. large-cap value               |  |                                                             | 5,331  |                                      |   |       |                                        |  |   | 
|International large-cap core       |  |                                                             | 2,702  |                                      |   |       |                                        |  |   | 
|Fixed income securities:           |  |                                                             |        |                                      |   |        |                                        |  |   |  
|U.S. Treasury securities           |  |                                                             | 1,812  |                                      |   |       |                                        |  |   | 
|Corporate bonds                    |  |                                                             | 1,105  |                                      |   |       |                                        |  |   | 
|Preferred stock                    |  |                                                             | 134    |                                      |   |       |                                        |  |   | 
|Taxable municipal bonds            |  |                                                             | 219    |                                      |   |       |                                        |  |   | 
|International bonds                |  |                                                             | 343    |                                      |   |       |                                        |  |   | 
|Equity mutual funds                |  |                                                             |        |                                      |   |        |                                        |  |   |  
|U.S. large-cap value               |  |                                                             |       |                                      |   | 866    |                                        |  |   | 
|U.S. mid-cap growth                |  |                                                             |       |                                      |   | 2,739  |                                        |  |   | 
|U.S. mid-cap value                 |  |                                                             |       |                                      |   | 3,862  |                                        |  |   | 
|U.S. small cap growth              |  |                                                             |       |                                      |   | 1,781  |                                        |  |   | 
|U.S. small cap value               |  |                                                             |       |                                      |   | 1,529  |                                        |  |   | 
|International                      |  |                                                             |       |                                      |   | 2,516  |                                        |  |   | 
|Emerging Markets                   |  |                                                             |       |                                      |   | 517    |                                        |  |   | 
|Fixed income mutual funds:         |  |                                                             |        |                                      |   |        |                                        |  |   |  
|U.S. treasury and agency           |  |                                                             |       |                                      |   | 739    |                                        |  |   | 
|Corporate bond                     |  |                                                             |       |                                      |   | 808    |                                        |  |   | 
|Mortgage backed-securities         |  |                                                             |       |                                      |   | 1,332  |                                        |  |   | 
|Intermediate investment grade bond |  |                                                             |       |                                      |   | 2,804  |                                        |  |   | 
|High yield bond                    |  |                                                             |       |                                      |   | 564    |                                        |  |   | 
|International bond                 |  |                                                             |       |                                      |   | 230    |                                        |  |   | 
|Stock market index options:        |  |                                                             |        |                                      |   |        |                                        |  |   |  
|Puts                               |  |                                                             |       |                                      |   | 26     |                                        |  |   | 
|Calls                              |  |                                                             |       |                                      |   | (68    | )                                      |  |   | 
|                                   |  |                                                             |        |                                      |   |        |                                        |  |   |  
|Total                              |  | $                                                           | 17,849 |                                      | $ | 20,245 |                                        |  | $ | 
|                                   |  |                                                             |        |                                      |   |        |                                        |  |   |  

Pension Plan assets for which the fair value is based
on quoted prices in active markets for identical assets are considered to be valued with Level 1 inputs in the fair value hierarchy. Pension Plan assets for which the fair value is based on quoted prices for similar instruments in active markets or
quoted prices for identical or similar instruments in markets that are not active are considered to be valued with Level 2 inputs in the fair value hierarchy.



|14. | COMPENSATION PLANS
|--- | ------------------

ARLP Partnership

The ARLP Partnership has established the ARLP LTIP for certain employees and officers of MGP and its affiliates who
perform services for the ARLP Partnership. The ARLP LTIP awards are of non-vested restricted units, which upon the satisfaction of vesting requirements, entitle the ARLP LTIP participant to receive ARLP common units. Annual grant levels and vesting
provisions for designated participants are recommended by the President and Chief Executive Officer of MGP, subject to the review and approval of the MGP Compensation Committee. The aggregate number of units reserved for issuance under the ARLP LTIP
was 1.2 million prior to October 23, 2009. On October 23, 2009, the ARLP LTIP was amended to increase the number of common units available for issuance from 1.2 million to 3.6 million.



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On January 27, 2009, the MGP Compensation Committee determined that the vesting
requirements for the 2006 grants of 71,975 restricted units (which is net of 18,725 forfeitures) had been satisfied as of January 1, 2009. As a result of this vesting, on February 12, 2009, the ARLP Partnership issued 47,571 unrestricted
common units to ARLP LTIP participants. The remaining units were settled in cash to satisfy the tax withholding obligations for the ARLP LTIP participants. On February 1, 2010, the MGP Compensation Committee authorized additional grants up to
143,145 restricted units, of which 137,830 were granted.

During the year ended December 31, 2009, the three months ended
December 31, 2008, the nine months ended September 30, 2008 and year ended December 31, 2007, the ARLP Partnership issued grants of 9,625 units, 141,145 units, 93,600 units and 93,475 units, respectively. Grants issued during the year
ended December 31, 2009 and the three months ended December 31, 2008 vest on January 1, 2012. Grants issued during the nine months ended September 30, 2008 and the year ended December 31, 2007 vest on January 1, 2011
and January 1, 2010, respectively. All grants are subject to the satisfaction of certain financial tests that management currently believes it is probable will be satisfied. As of December 31, 2009, 5,000 of these outstanding ARLP LTIP
grants have been forfeited. On January 26, 2010, the MGP Compensation Committee determined that the vesting requirements for the 2007 grants of 88,975 restricted units (which is net of 4,500 forfeitures) had been satisfied as of January 1,
2010. As a result of this vesting, on February 12, 2010, the ARLP Partnership issued 55,826 unrestricted common units to the ARLP LTIP participants. The remaining units were settled in cash to satisfy the individual tax obligations of the ARLP
LTIP participants. After consideration of the January 1, 2010 vesting and subsequent issuance of 55,826 common units, 2.3 million units remain available for issuance in the future, assuming that all grants issued in 2008 and 2009 and
currently outstanding are settled with common units and no future forfeitures occur.

For the years ended December 31,
2009, 2008 and 2007, the ARLP Partnership recorded expense of $3.6 million, $3.3 million and $2.9 million, respectively. The total obligation associated with the ARLP LTIP as of December 31, 2009 and 2008 was $6.8 million and $5.9 million,
respectively, and is included in the noncontrolling interests line item in our consolidated balance sheets.

The fair value of
the 2009, 2008 and 2007 grants is based upon the intrinsic value at the date of grant, which were $25.60, $31.27 and $35.84 per restricted unit, respectively, on a weighted average basis. The ARLP Partnership expects to settle the non-vested ARLP
LTIP grants by delivery of ARLP common units, except for the portion of the grants that will satisfy the minimum statutory tax withholding requirements. As provided under the distribution equivalent rights provision of the ARLP LTIP, all non-vested
grants include contingent rights to receive quarterly cash distributions in an amount equal to the cash distribution the ARLP Partnership makes to unitholders during the vesting period.

A summary of non-vested ARLP LTIP grants as of and for the year ended December 31, 2009 is as follows:



|                                       |  |         |  
|-------------------------------------- |  | ------- | -
|Non-vested grants at January 1, 2009   |  | 395,695 |  
|Granted                                |  | 9,625   |  
|Vested                                 |  | (71,975 | )
|Forfeited                              |  | (500    | )
|                                       |  |         |  
|Non-vested grants at December 31, 2009 |  | 332,845 |  
|                                       |  |         |  

As of December 31, 2009, there was $3.7 million in total unrecognized compensation expense related to
the non-vested ARLP LTIP grants that are expected to vest. That expense is expected to be recognized over a weighted-average period of 1.6 years. As of December 31, 2009, the intrinsic value of the non-vested ARLP LTIP grants was $14.4 million.

The ARLP Partnership has a Supplemental Executive Retirement Plan (the SERP) to provide deferred compensation
benefits for certain officers and key employees. All allocations made to participants under the SERP are made in the form of phantom ARLP units, which upon vesting are paid to participants in cash only. The SERP is administered by the
MGP Compensation Committee. Sponsorship of the SERP was transferred from MGP to Alliance Coal effective May 15, 2006.

For the years ended December 31, 2009, 2008 and 2007, the ARLP Partnership recorded SERP expense (income) of $2.1 million, $(0.5) million and $0.4 million, respectively. The increase in SERP expense in 2009 was principally attributable
to an increase in the market value of ARLPs common units from the beginning of the year to the end of the year. The SERP income for the



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year ended December 31, 2008 resulted from lower unit-based compensation accruals due to a decrease in market value of ARLP common units from the beginning of the year to the end of the
year. The total accrued liability associated with the SERP plan was $4.7 million and $2.6 million as of December 31, 2009 and 2008, respectively, and is included in other long-term liabilities in the consolidated balance sheets.

AHGP Partnership

We have
also adopted a Long-Term Incentive Plan (the AHGP LTIP) for employees, directors and consultants of our general partner and its affiliates, including the ARLP Partnership. Grants under the AHGP LTIP are to be made in AHGP restricted
units, which are phantom units that entitle the grantee to receive either a common unit or equivalent amount of cash upon the vesting of the phantom unit. The aggregate number of common units reserved for issuance under the AHGP LTIP is
5,215,000. There have been no grants under the AHGP LTIP.



|15. | SUPPLEMENTAL CASH FLOW INFORMATION
|--- | ----------------------------------



|                                                                                                                                  |  |                         |        |      |   |        |  |   |       
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                                                                                  |  | Year Ended December 31,
|                                                                                                                                  |  | 2009                    |        | 2008 |   | 2007  
|                                                                                                                                  |  | (in thousands)         
|Cash Paid For:                                                                                                                    |  |                         |        |      |   |        |  |   |       
|Interest                                                                                                                          |  | $                       | 32,186 |      | $ | 22,920 |  | $ | 13,038
|                                                                                                                                  |  |                         |        |      |   |        |  |   |       
|Income taxes                                                                                                                      |  | $                       | 226    |      | $ |       |  | $ | 2,175 
|                                                                                                                                  |  |                         |        |      |   |        |  |   |       
|Non-Cash Activity:                                                                                                                |  |                         |        |      |   |        |  |   |       
|Accounts payable for purchase of property, plant and equipment                                                                    |  | $                       | 20,819 |      | $ | 15,092 |  | $ | 5,046 
|                                                                                                                                  |  |                         |        |      |   |        |  |   |       
|Non-cash contribution by limited partner - affiliate                                                                              |  | $                       |       |      | $ | 620    |  | $ | 1,105 
|                                                                                                                                  |  |                         |        |      |   |        |  |   |       
|Market value of ARLP common units vested in ARLPs Long-Term Incentive Plan before minimum statutory tax withholding
requirements |  | $                       | 2,333  |      | $ | 3,658  |  | $ | 6,674 
|                                                                                                                                  |  |                         |        |      |   |        |  |   |       



|16. | ASSET RETIREMENT OBLIGATIONS
|--- | ----------------------------

The majority of the ARLP Partnerships operations are governed by various state statutes and the Federal Surface Mining Control and Reclamation Act of 1977, which establish reclamation and mine closing standards. These regulations,
among other requirements, require restoration of property in accordance with specified standards and an approved reclamation plan. The ARLP Partnership accounts for its asset retirement obligations in accordance with FASB ASC 410, Asset
Retirement and Environmental Obligations(SFAS No. 143, Accounting for Asset Retirement Obligations),which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it
is incurred. The ARLP Partnership has estimated the costs and timing of future asset retirement obligations escalated for inflation, then discounted and recorded at the present value of those estimates.

Discounting resulted in reducing the accrual for asset retirement obligations by $68.0 million and $65.2 million at December 31, 2009
and 2008, respectively. Estimated payments of asset retirement obligations as of December 31, 2009 are as follows (in thousands):



|                                                    |  |   |         |  
|--------------------------------------------------- |  | - | ------- | -
|Year Ending December 31,                            |  |   |        
|2010                                                |  | $ | 2,735   |  
|2011                                                |  |   | 1,967   |  
|2012                                                |  |   | 2,574   |  
|2013                                                |  |   | 774     |  
|2014                                                |  |   | 4,551   |  
|Thereafter                                          |  |   | 111,290 |  
|                                                    |  |   |         |  
|Aggregate undiscounted asset retirement obligations |  |   | 123,891 |  
|Effect of discounting                               |  |   | (68,040 | )
|                                                    |  |   |         |  
|Total asset retirement obligations                  |  |   | 55,851  |  
|Less: current portion                               |  |   | (2,735  | )
|                                                    |  |   |         |  
|Asset retirement obligations                        |  | $ | 53,116  |  
|                                                    |  |   |         |  



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The following table presents the activity affecting the asset retirement and mine closing
liability (in thousands):



|                                                                                                |  |                        |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                |  | Year endedDecember 31, |       
|                                                                                                |  | 2009                   |        |   | 2008 |  
|Beginning balance                                                                               |  | $                      | 58,589 |   |      | $ | 56,903 |  
|Accretion expense                                                                               |  |                        | 2,678  |   |      |   | 2,827  |  
|Payments                                                                                        |  |                        | (556   | ) |      |   | (1,414 | )
|Allocation of liability associated with acquisition, mine development and change in assumptions |  |                        | (4,860 | ) |      |   | 273    |  
|                                                                                                |  |                        |        |   |      |   |        |  
|Ending balance                                                                                  |  | $                      | 55,851 |   |      | $ | 58,589 |  
|                                                                                                |  |                        |        |   |      |   |        |  

For the year ended December 31, 2009, the allocation of liability associated with acquisition, mine
development and change in assumptions is a net decrease of $4.9 million, and was primarily attributable to decreased refuse site reclamation disturbances at Hopkins County Coal and White County Coal operations and the impact of favorable permit
requirements regarding reduced liner and cover necessary for refuse storage at Gibson County Coal, as well as overall general changes in inflation and discount rates, current estimates of the costs and scope of remaining reclamation work, and
fluctuations in projected mine life estimates for coal reserve increases and decreases across all operations offset in part by increased surface disturbances as a result of the new mine development work at Tunnel Ridge and River View.

For the year ended December 31, 2008, the allocation of liability associated with acquisition, mine development and change in
assumptions is a net increase of $0.3 million, and was primarily attributable to increased surface disturbances as a result of the new mine development work at River View and increased refuse site capacity at the Gibson County Coal and White County
Coal operations, offset by reduced remaining liability estimates at Pontiki operations and a refuse site owned by Hopkins County Coal, as well as overall general changes in current estimates of the costs and scope of remaining reclamation work and
fluctuations in projected mine life estimates for coal reserve increases and decreases.



|17. | ACCRUED WORKERS COMPENSATION AND PNEUMOCONIOSIS (BLACK LUNG) BENEFITS
|--- | ------------------------------------------------------------------------

Certain of the ARLP Partnerships mine operating entities are liable under state statutes and the Federal Coal Mine Health and Safety
Act of 1969, as amended, to pay black lung benefits to eligible employees and former employees and their dependents. In addition, the ARLP Partnership is liable for workers compensation benefits for traumatic injuries. Both black lung and
traumatic claims are covered through the ARLP Partnerships self-insured programs.

The ARLP Partnerships black
lung benefits liability is calculated using the service cost method that considers the calculation of the actuarial present value of the estimated black lung obligation. The ARLP Partnerships actuarial calculations are based on numerous
assumptions including disability incidence, medical costs, mortality, death benefits, dependents and interest rates. Actuarial gains or losses are amortized over the remaining service period of active miners.

The ARLP Partnership provides income replacement and medical treatment for work-related traumatic injury claims as required by applicable
state laws. Workers compensation laws also compensate survivors or workers who suffer employment related deaths. The ARLP Partnerships liability for traumatic injury claims is the estimated present value of current workers
compensation benefits, based on its actuarial estimates. The ARLP Partnerships actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including development patterns, mortality, medical costs and
interest rates. The discount rate used to calculate the estimated present value of future obligations for black lung was 5.80% and 5.89% at December 31, 2009 and 2008, respectively, and for workers compensation was 5.27% and 6.11% at
December 31, 2009 and 2008, respectively.



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The black lung and workers compensation expense consists of the following components
for the year ended December 31, 2009, 2008 and 2007 (in thousands):



|                              |  |      |        |   |      |   |        |      |  |   |       
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|                              |  | 2009 |        |   | 2008 |   |        | 2007
|Black lung benefits:          |  |      |        |   |      |   |        |      |  |   |       
|Service cost                  |  | $    | 2,187  |   |      | $ | 1,415  |      |  | $ | 2,027 
|Interest cost                 |  |      | 1,535  |   |      |   | 1,641  |      |  |   | 1,504 
|Net amortization              |  |      | (536   | ) |      |   | (745   | )    |  |   | 70    
|                              |  |      |        |   |      |   |        |      |  |   |       
|Total black lung              |  |      | 3,186  |   |      |   | 2,311  |      |  |   | 3,601 
|Workers compensation expense |  |      | 21,585 |   |      |   | 18,395 |      |  |   | 17,192
|                              |  |      |        |   |      |   |        |      |  |   |       
|Total expense                 |  | $    | 24,771 |   |      | $ | 20,706 |      |  | $ | 20,793
|                              |  |      |        |   |      |   |        |      |  |   |       

The following is a reconciliation of the changes in
workers compensation liability (including current and long-term liability balances) at December 31, 2009 and 2008 (in thousands):



|                   |  |      |         |   |      |   |         |  
|------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                   |  | 2009 |         |   | 2008 |  
|Beginning balance  |  | $    | 56,671  |   |      | $ | 51,619  |  
|Accruals           |  |      | 18,466  |   |      |   | 16,864  |  
|Payments           |  |      | (12,534 | ) |      |   | (11,653 | )
|Interest accretion |  |      | 3,455   |   |      |   | 3,059   |  
|Valuation gain     |  |      | (2,838  | ) |      |   | (3,218  | )
|                   |  |      |         |   |      |   |         |  
|Ending balance     |  | $    | 63,220  |   |      | $ | 56,671  |  
|                   |  |      |         |   |      |   |         |  

The following is a reconciliation of the changes in black lung benefit obligations at December 31, 2009
and 2008 (in thousands):



|                                         |  |      |        |   |      |   |        |  
|---------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                         |  | 2009 |        |   | 2008 |  
|Benefit obligations at beginning of year |  | $    | 31,970 |   |      | $ | 30,047 |  
|Service cost                             |  |      | 2,187  |   |      |   | 1,415  |  
|Interest cost                            |  |      | 1,535  |   |      |   | 1,641  |  
|Actuarial loss                           |  |      | (536   | ) |      |   | (745   | )
|Benefits and expense paid                |  |      | (301   | ) |      |   | (388   | )
|                                         |  |      |        |   |      |   |        |  
|Benefit obligations at end of year       |  | $    | 34,855 |   |      | $ | 31,970 |  
|                                         |  |      |        |   |      |   |        |  

Summarized below is information about the amounts recognized in the accompanying consolidated balance sheets
for black lung and workers compensation benefits at December 31, 2009 and 2008 (in thousands):



|                             |  |      |        |   |      |   |        |  
|---------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                             |  | 2009 |        |   | 2008 |  
|Black lung claims            |  | $    | 34,855 |   |      | $ | 31,970 |  
|Workers compensation claims |  |      | 63,220 |   |      |   | 56,671 |  
|                             |  |      |        |   |      |   |        |  
|Total obligations            |  |      | 98,075 |   |      |   | 88,641 |  
|Less current portion         |  |      | (9,886 | ) |      |   | (9,377 | )
|                             |  |      |        |   |      |   |        |  
|Non-current obligations      |  | $    | 88,189 |   |      | $ | 79,264 |  
|                             |  |      |        |   |      |   |        |  

Both the black lung and workers compensation obligations were unfunded at December 31, 2009 and
2008.

As of December 31, 2009 and 2008, the ARLP Partnership had $66.9 million and $54.8 million, respectively, in
surety bonds and letters of credit outstanding to secure its workers compensation obligations.



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|18. | RELATED-PARTY TRANSACTIONS
|--- | --------------------------

ARLP Omnibus AgreementPursuant to the terms of an amended omnibus agreement, AHGP agreed, and caused its controlled affiliates to agree, for so long as management controls MGP through its ownership of AHGP, not to
engage in the business of mining, marketing or transporting coal in the U.S., unless ARLP is first offered the opportunity to engage in the potential activity or acquire a potential business, and the MGP Board of Directors with the concurrence of
the MGP Conflicts Committee, elects to cause ARLP not to pursue such opportunity or acquisition. The amended omnibus agreement provides, among other things, that ARLP will be presumed to desire to acquire the assets until such time as it advises
AHGP that it has abandoned the pursuit of such business opportunity, and AHGP may not pursue the acquisition of such assets prior to that time. This restriction does not apply to: any business owned or operated by AHGP and its affiliates at the
closing of the IPO; any acquisition by AHGP or its affiliates, so long as the majority of the value of the acquisition does not derive from a restricted business and ARLP is offered the opportunity to purchase the restricted business following its
acquisition; or any business conducted by AHGP or our affiliates with the approval of the MGP Board of Directors or MGP Conflicts Committee.

Registration RightsIn connection with the Contribution Agreement, we agreed to register for sale under the Securities Act of 1933 (Securities Act) and applicable
state securities laws, subject to certain limitations, any common units proposed to be sold by SGP and the former owners of MGP or any of their respective affiliates. These registration rights required us to file one registration statement for each
of these groups. We also agreed to include any securities held by the owners of SGP and the former owners of MGP or any of their respective affiliates in any registration statement that we file to offer securities for cash, except an offering
relating solely to an employee benefit plan and other similar exceptions. We satisfied our requirement by registering 47,863,000 outstanding common units on Form S-3 filed with the U.S. Securities and Exchange Commission (SEC) on
June 1, 2007, declared outstanding effective on June 27, 2007. A prospectus supplement was filed with the SEC on December 18, 2007. These registration rights are in addition to the registration rights that we agreed to provide AGP and
its affiliates pursuant to our limited partnership agreement.

AGPOur partnership agreement
requires us to reimburse AGP for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business. The amounts
billed by AGP include $0.5 million, $0.3 million and $0.3 million, respectively, for the years ended December 31, 2009, 2008 and 2007, for costs principally related to the Directors Annual Retainer and Deferred Compensation Plan.

C-HoldingsAt the closing of our IPO, we entered into the AHGP Credit Facility with C-Holdings, an entity
controlled by Mr. Craft, as the lender (Note 8). For the years ended December 31, 2009 and 2008, we did not incur any interest expense or commitment fees to C-Holdings. For the year ended December 31, 2007, we incurred interest
expense to C-Holdings of $1,200 and commitment fees of $2,900.

Option AgreementsOn July 31,
2008, August 6, 2008 and August 7, 2008, we entered into agreements with certain current and former members of management of the ARLP Partnership giving us the option to purchase 1,095,317 of our common units for the price of $29.98
per common unit at any time prior to October 28, 2008. We paid $0.02 per common unit for such option. On October 28, 2008, the option agreements expired and were not exercised.

The ARLP Partnerships Related-Party Transactions

The MGP Board of
Directors and MGP Conflicts Committee review each of the ARLP Partnerships related-party transactions to determine that such transactions reflect market-clearing terms and conditions customary in the coal industry. As a result of these
reviews, the MGP Board of Directors and MGP Conflicts Committee approved each of the transactions described below as fair and reasonable to us and our limited partners.

Administrative ServicesIn connection with our IPO, we entered into an Administrative Services Agreement with ARLP, the Intermediate Partnership, MGP, AGP and Alliance Resource
Holdings II, Inc. (ARH II), the indirect parent of SGP. Under the Administrative Services Agreement, certain personnel of the ARLP Partnership, including some executive officers, provide administrative services to us, MGP, AGP and ARH II
and our respective affiliates. The ARLP Partnership is reimbursed for services rendered by its employees on behalf of these affiliates as provided under the Administrative Services Agreement. On a consolidated basis, the ARLP Partnership billed and
recognized administrative service revenue under this agreement of $0.5 million for each of the years ended December 31, 2009 and 2008, and $0.4 million from ARH II for the year ended December 31, 2007. This administrative service revenue
is included in other sales and operating revenues in the consolidated statements of income.



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Affiliate Contribution During 2008 and 2007, an affiliated entity
controlled by Mr. Craft contributed to us 25,898 and 50,980, respectively, of our common units valued at approximately $0.6 million and $1.1 million, respectively, at the time of contribution and $0.8 million of cash for each of the years 2008
and 2007 for the purpose of funding certain expenses associated with the ARLP Partnerships employee compensation programs. Upon our receipt of the contributions, we immediately contributed the same to our subsidiary and ARLPs managing
general partner, MGP, which in turn contributed the same to Alliance Coal. Concurrent with these contributions, Alliance Coal distributed the common units to certain employees and recognized compensation expense of $1.4 million and $1.9 million in
2008 and 2007, respectively. The ARLP Partnership made a special allocation to MGP of certain general and administrative expenses equal to the amount of the contributions, MGP made an identical expense allocation to us, and we then made the same
expense allocation to the affiliated entity controlled by Mr. Craft.

SGP Land, LLCOn
May 2, 2007 SGP Land, a subsidiary of SGP controlled by Mr. Craft, entered into a time sharing agreement with Alliance Coal concerning the use of aircraft owned by SGP Land. In accordance with the provisions of the time sharing agreement
as amended, the ARLP Partnership reimbursed SGP Land $0.7 million for each of the years ended December 31, 2009 and 2008, respectively, and $0.3 million for the year ended December 31, 2007 for use of the aircraft.

On January 28, 2008, effective January 1, 2008, the ARLP Partnership acquired, through its subsidiary Alliance Resource
Properties, additional rights to approximately 48.2 million tons of coal reserves located in western Kentucky from SGP Land. The purchase price was $13.3 million. At the time of the ARLP Partnerships acquisition, these reserves were
leased by SGP Land to the ARLP Partnerships subsidiaries, Webster County Coal, Warrior and Hopkins County Coal through the mineral leases and sublease agreements described below. Those mineral leases and sublease agreements between SGP Land
and the ARLP Partnerships subsidiaries were assigned to Alliance Resource Properties by SGP Land in this transaction. The recoupable balances of advance minimum royalties and other payments at the time of this acquisition, other than $0.4
million to the base lessors, are eliminated in our consolidated financial statements as of December 31, 2009 and 2008.

In 2000, Webster County Coal entered into a mineral lease and sublease with SGP Land requiring annual minimum royalty payments of $2.7 million, payable in advance through 2013 or until $37.8 million of cumulative annual minimum and/or
earned royalty payments have been paid. Webster County Coal paid royalties of $2.7 million for the year ended December 31, 2007 and had recouped all but $3.2 million of the advance royalty payments made under the lease. As described above, this
mineral lease and sublease is now with Alliance Resource Properties.

In 2001, Warrior entered into a mineral lease and
sublease with SGP Land. Under the terms of the lease, Warrior paid in arrears an annual minimum royalty of $2.3 million until $15.9 million of cumulative annual minimum and/or earned royalty payments were paid. The annual minimum royalty periods
expired on September 30, 2007. In 2006, Warriors cumulative total of annual minimum royalties and/or earned royalty payments exceeded $15.9 million, and therefore the annual minimum royalty payment of $2.3 million was no longer required.
Warrior paid royalties of $1.3 million for the year ended December 31, 2007 and had recouped all advance royalty payments in accordance with these lease terms. As described above, this mineral lease and sublease is now with Alliance Resource
Properties.

In 2005, Hopkins County Coal entered into a mineral lease and sublease with SGP Land encompassing the Elk Creek
reserves, and the parties also entered into a Royalty Agreement (collectively, the Coal Lease Agreements) in connection therewith. The Coal Lease Agreements extend through December 2015, with the right to renew for successive one-year
periods for as long as Hopkins County Coal is mining within the coal field, as such term is defined in the Coal Lease Agreements. The Coal Lease Agreements provide for five annual minimum royalty payments of $0.7 million beginning in December 2005.
The annual minimum royalty payments, together with cumulative option fees of $3.4 million previously paid prior to December 2005 by Hopkins County Coal to SGP Land, are fully recoupable against future earned royalty payments. Hopkins County Coal
paid to SGP Land advance minimum royalties and/or option fees of $0.7 million for the year ended December 31, 2007 and had recouped all but $4.4 million under the Coal Lease Agreements. As described above, this mineral lease and sublease is now
with Alliance Resource Properties.

Under the terms of the mineral lease and sublease agreements described above, Webster
County Coal, Warrior and Hopkins County Coal also reimburse SGP Land for its base lease obligations. The ARLP Partnership reimbursed SGP Land $6.1 million for the year ended December 31, 2007, for the base lease obligations.



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In 2001, SGP Land, as successor in interest to an unaffiliated third-party, entered into an
amended mineral lease with MC Mining. Under the terms of the lease, MC Mining has paid and will continue to pay an annual minimum royalty of $0.3 million until $6.0 million of cumulative annual minimum and/or earned royalty payments have been paid.
MC Mining paid royalties of $0.3 million during each of the years ended December 31, 2009, 2008 and 2007, respectively. As of December 31, 2009, $1.8 million of advance minimum royalties paid under the lease is available for recoupment,
and management expects that it will be recouped against future production.

SGPIn January 2005, the
ARLP Partnership acquired Tunnel Ridge from ARH. In connection with this acquisition, the ARLP Partnership assumed a coal lease with the SGP. Under the terms of the lease, Tunnel Ridge has paid and will continue to pay an annual minimum royalty of
$3.0 million until the earlier of January 1, 2033 or the exhaustion of the mineable and merchantable leased coal. Tunnel Ridge paid advance minimum royalties of $3.0 million during each of the years ended December 31, 2009, 2008 and 2007.
As of December 31, 2009, $15.0 million of advance minimum royalties paid under the lease is available for recoupment and management expects that it will be recouped against future production.

Tunnel Ridge also controls surface land and other tangible assets under a separate lease agreement with SGP. Under the terms of the lease
agreement, Tunnel Ridge has paid and will continue to pay SGP an annual lease payment of $0.2 million. The lease agreement has an initial term of four years, which may be extended to match the term of the coal lease. Lease expense was $0.2 million
for each of the years ended December 31, 2009, 2008 and 2007.

The ARLP Partnership has a noncancelable operating lease
arrangement with SGP for the coal preparation plant and ancillary facilities at the Gibson County Coal mining complex. Based on the terms of the lease, the ARLP Partnership will make monthly payments of approximately $0.2 million through January
2011. Lease expense incurred for each of the years ended December 31, 2009, 2008 and 2007 was $2.6 million.

The ARLP
Partnership has agreements with two banks to provide letters of credit in an aggregate amount of $31.1 million (Note 8). At December 31, 2009, the ARLP Partnership had $31.1 million in outstanding letters of credit under these agreements. SGP
guarantees $5.0 million of these outstanding letters of credit. SGP does not charge the ARLP Partnership for this guarantee. Since the guarantee is made on behalf of entities within the consolidated partnership, the guarantee has no fair value under
FASB ASC 460, Guarantees(FIN No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others), and does not impact our consolidated financial
statements.



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|19. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

CommitmentsThe ARLP Partnership leases buildings and equipment under operating lease agreements that provide for the payment of both minimum and contingent rentals. The ARLP Partnership also has a noncancelable
lease with SGP (Note 18) and a noncancelable lease for equipment under a capital lease obligation. Future minimum lease payments are as follows (in thousands):



|                                               |  |              |      |   |                        |   |        |  |       |       |  |   |      
|---------------------------------------------- |  | ------------ | ---- | - | ---------------------- | - | ------ |  | ----- | ----- |  | - | -----
|                                               |  |              |      |   | Other Operating Leases
|Year Ending December 31,                       |  | CapitalLease |      |   | Affiliate              |   | Others |  | Total
|2010                                           |  | $            | 383  |   |                        | $ | 2,835  |  | $     | 2,224 |  | $ | 5,059
|2011                                           |  |              | 334  |   |                        |   | 216    |  |       | 1,182 |  |   | 1,398
|2012                                           |  |              | 130  |   |                        |   |       |  |       | 763   |  |   | 763  
|2013                                           |  |              | 72   |   |                        |   |       |  |       | 367   |  |   | 367  
|2014                                           |  |              | 12   |   |                        |   |       |  |       | 367   |  |   | 367  
|Thereafter                                     |  |              |     |   |                        |   |       |  |       | 1,377 |  |   | 1,377
|                                               |  |              |      |   |                        |   |        |  |       |       |  |   |      
|Total future minimum lease payments            |  | $            | 931  |   |                        | $ | 3,051  |  | $     | 6,280 |  | $ | 9,331
|                                               |  |              |      |   |                        |   |        |  |       |       |  |   |      
|Less: amount representing interest             |  |              | (147 | ) |                        |   |        |  |       |       |  |   |      
|                                               |  |              |      |   |                        |   |        |  |       |       |  |   |      
|Present value of future minimum lease payments |  |              | 784  |   |                        |   |        |  |       |       |  |   |      
|Less: current portion                          |  |              | (324 | ) |                        |   |        |  |       |       |  |   |      
|                                               |  |              |      |   |                        |   |        |  |       |       |  |   |      
|Long-term capital lease obligation             |  | $            | 460  |   |                        |   |        |  |       |       |  |   |      
|                                               |  |              |      |   |                        |   |        |  |       |       |  |   |      

Rental expense (including rental expense incurred under operating lease agreements) was $6.0
million, $5.6 million and $5.4 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The ARLP
Partnerships subsidiary, Mettiki (WV), entered into a capital lease agreement with Joy Technologies Inc., d/b/a Joy Mining Machinery, a Delaware corporation, on May 22, 2006, with an in-service date of November 20, 2006. The lease is
a 5-year noncancelable lease with monthly rental payments of $41,985 and has one renewal period for 2 years with monthly rental payments of $23,735. The effective interest rate on the capital lease is 6.195%.

Contractual CommitmentsIn connection with planned capital projects, the ARLP Partnership had contractual commitments of
approximately $85.9 million at December 31, 2009.

General LitigationWe are not engaged in any
material litigation. The ARLP Partnership is involved in various lawsuits, claims and regulatory proceedings incidental to its business. The ARLP Partnership records an accrual for a potential loss related to these matters when, in managements
opinion, such loss is probable and reasonably estimable. Based on known facts and circumstances, the ARLP Partnership believes the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse
effect on its financial condition, results of operations or liquidity. However, if the results of these matters were different from managements current opinion and in amounts greater than the ARLP Partnerships accruals, then they could
have a material adverse effect.

The matters referenced in the previous paragraph include, but are not limited to, the
Rector v. White County Coal, LLC lawsuit, which is a royalty dispute involving certain coal leases that had previously terminated. Plaintiffs have alleged damages of $33.0 million or more and have also asserted a claim for punitive damages.
The ARLP Partnership believes the plaintiffs claims are without merit, have accrued no loss and are vigorously defending the litigation. This legal matter is also discussed in Part I, Item 3. Legal Proceedings.

OtherDuring September 2009, the ARLP Partnership completed its annual property and casualty insurance renewal with
various insurance coverages effective October 1, 2009. As in past years, the ARLP Partnership has elected to retain a participating interest in its commercial property insurance program at an average rate of approximately 14.7% in the overall
$75.0 million of coverage, representing 22% of the primary $50.0 million layer. The ARLP Partnership does not participate in the second layer of $25.0 million in excess of $50.0 million.

The 14.7% participation rate for this years renewal is consistent with the ARLP Partnerships prior year participation. The
aggregate maximum limit in the commercial property program is $75.0 million per occurrence, of which, as a result of its



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participation, the ARLP Partnership is responsible for a maximum amount of $11.0 million for each occurrence, excluding a $1.5 million deductible for property damage, a $5.0 million aggregate
deductible for extra expense and a 60-day waiting period for business interruption. The ARLP Partnership can make no assurances that it will not experience significant insurance claims in the future, which as a result of its level of participation
in the commercial property program, could have a material adverse effect on the ARLP Partnerships business, financial condition, results of operations and ability to purchase property insurance in the future.

At certain of the ARLP Partnerships operations, property tax assessments for several years are under audit by various state tax
authorities. The ARLP Partnership believes that it has recorded adequate liabilities based on reasonable estimates of any property tax assessments that may be ultimately assessed as a result of these audits.



|20. | CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
|--- | ------------------------------------------------

The ARLP Partnership has significant long-term coal supply agreements, some of which contain prospective price adjustment provisions designed to reflect changes in market conditions, labor and other
production costs and, in the infrequent circumstance when the coal is sold other than free on board the mine, changes in transportation rates. Total revenues from major customers, including transportation revenues, which are at least ten percent of
total revenues, are as follows (in thousands):



|           |  |                     |  |                         |         |      |   |         |  |   |        
|---------- |  | ------------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|           |  |                     |  | Year Ended December 31,
|           |  | Segment (Note 21)   |  | 2009                    |         | 2008 |   | 2007   
|Customer A |  | Illinois Basin      |  | $                       | 140,921 |      | $ | 131,198 |  | $ | 65,660 
|Customer B |  | Northern Appalachia |  |                         | 129,265 |      |   | 161,359 |  |   | 24,446 
|Customer C |  | Illinois Basin      |  |                         | 122,961 |      |   | 121,550 |  |   | 115,796
|Customer D |  | Illinois Basin      |  |                         | 120,915 |      |   | 127,439 |  |   | 75,373 

Trade accounts
receivable from these customers totaled approximately $38.0 million and $42.1 million at December 31, 2009 and 2008, respectively. The ARLP Partnerships bad debt experience has historically been insignificant. Financial conditions of the
ARLP Partnerships customers could result in a material change to its bad debt expense in future periods. The ARLP Partnership has various coal agreements with its significant customers with expiration dates ranging from 2013 to 2016.



|21. | 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 have four reportable segments: the Illinois Basin, Central Appalachia, Northern Appalachia and Other and Corporate. The
first three segments correspond to the three major coal producing regions in the eastern U.S. Coal quality, coal seam height, mining and transportation methods and regulatory issues are similar for the operating mines within each of these three
segments.

The Illinois Basin segment is comprised of Webster County Coals Dotiki mining complex, Gibson County
Coals Gibson North mining complex, Hopkins County Coals Elk Creek mining complex, White County Coals Pattiki mining complex, Warriors mining complex, River Views newly constructed mining complex which recently initiated
operations, the Gibson South property and certain properties of Alliance Resource Properties. The ARLP Partnership is in the process of permitting the Gibson South property for future mine development.

The Central Appalachian segment is comprised of Pontikis and MC Minings mining complexes.

The Northern Appalachian segment is comprised of Mettiki (MD)s mining complex, Mettiki (WV)s Mountain View mining complex, two
small third-party mining operations (one of which idled in May 2009), a mining complex currently under construction at Tunnel Ridge and the Penn Ridge property. The ARLP Partnership is in the process of permitting the Penn Ridge property for future
mine development.



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Other and Corporate includes ARLP Partnership and AHGP marketing and administrative
expenses, Matrix Design, Alliance Design, the Mt. Vernon dock activities, coal brokerage activity, MAC and certain properties of Alliance Resource Properties. Segment results as of and for the years ended December 31, 2009, 2008 and 2007 are
presented below:



|                                                                                |  |                |         |                   |   |                    |  |                    |         |  |                |         |   |              |   |         |   |  |   |          
|------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | ------------------ |  | ------------------ | ------- |  | -------------- | ------- | - | ------------ | - | ------- | - |  | - | ---------
|                                                                                |  | IllinoisBasin  |         | CentralAppalachia |   | NorthernAppalachia |  | Other andCorporate |         |  | Elimination(1) |         |   | Consolidated
|                                                                                |  | (in thousands)
|                                                                                |  |               
|Operating segment results for the year ended December 31, 2009 were as follows: |  |                |         |                   |   |                    |  |                   
|                                                                                |  |                |         |                   |   |                   
|Total revenues (2)                                                              |  | $              | 883,800 |                   | $ | 181,029            |  | $                  | 148,253 |  | $              | 40,012  |   |              | $ | (22,492 | ) |  | $ | 1,230,602
|Segment Adjusted EBITDA Expense (3)                                             |  |                | 532,549 |                   |   | 138,412            |  |                    | 124,176 |  |                | 30,789  |   |              |   | (22,122 | ) |  |   | 803,804  
|Segment Adjusted EBITDA (4)                                                     |  |                | 315,542 |                   |   | 41,149             |  |                    | 15,552  |  |                | 9,192   |   |              |   | (370    | ) |  |   | 381,065  
|Total assets                                                                    |  |                | 725,243 |                   |   | 86,011             |  |                    | 199,443 |  |                | 45,999  |   |              |   | (2,429  | ) |  |   | 1,054,267
|Capital expenditures                                                            |  |                | 228,522 |                   |   | 14,895             |  |                    | 81,009  |  |                | 3,736   |   |              |   |        |   |  |   | 328,162  
|                                                                                |  |               
|Operating segment results for the year ended December 31, 2008 were as follows: |  |                |         |                   |   |                    |  |                   
|                                                                                |  |                |         |                   |   |                   
|Total revenues (2)                                                              |  | $              | 748,369 |                   | $ | 207,645            |  | $                  | 187,603 |  | $              | 23,138  |   |              | $ | (10,614 | ) |  | $ | 1,156,141
|Segment Adjusted EBITDA Expense (3)                                             |  |                | 522,575 |                   |   | 157,575            |  |                    | 134,800 |  |                | 20,441  |   |              |   | (10,636 | ) |  |   | 824,755  
|Segment Adjusted EBITDA (4)                                                     |  |                | 194,410 |                   |   | 52,812             |  |                    | 39,480  |  |                | 7,856   |   |              |   | 22      |   |  |   | 294,580  
|Total assets                                                                    |  |                | 543,175 |                   |   | 88,745             |  |                    | 136,515 |  |                | 264,264 |   |              |   | (73     | ) |  |   | 1,032,626
|Capital expenditures (5)                                                        |  |                | 141,843 |                   |   | 11,303             |  |                    | 19,986  |  |                | 3,350   |   |              |   |        |   |  |   | 176,482  
|                                                                                |  |               
|Operating segment results for the year ended December 31, 2007 were as follows: |  |                |         |                   |   |                    |  |                   
|                                                                                |  |                |         |                   |   |                   
|Total revenues (2)                                                              |  | $              | 662,643 |                   | $ | 194,635            |  | $                  | 163,351 |  | $              | 17,160  |   |              | $ | (4,802  | ) |  | $ | 1,032,987
|Segment Adjusted EBITDA Expense (3)                                             |  |                | 429,563 |                   |   | 145,759            |  |                    | 116,037 |  |                | 19,112  |   |              |   | (4,802  | ) |  |   | 705,669  
|Segment Adjusted EBITDA (4)                                                     |  |                | 208,658 |                   |   | 58,937             |  |                    | 35,478  |  |                | (1,952  | ) |              |   |        |   |  |   | 301,121  
|Total assets                                                                    |  |                | 450,047 |                   |   | 105,826            |  |                    | 128,557 |  |                | 18,131  |   |              |   | (73     | ) |  |   | 702,488  
|Capital expenditures (5)                                                        |  |                | 87,118  |                   |   | 13,313             |  |                    | 16,024  |  |                | 3,135   |   |              |   |        |   |  |   | 119,590  



|(1) | The elimination column represents the elimination of intercompany transactions and is primarily comprised of sales from Matrix Design, Alliance Design and MAC to the
ARLP Partnerships mining operations. On January 1, 2010, the ARLP Partnership will deconsolidate MAC due to amendments of FASB ASC 810 (Note 12).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Revenues included in the Other and Corporate column are primarily attributable to Matrix Design revenues, Alliance Design revenues, Mt. Vernon transloading revenues,
MAC rock dust revenues and brokerage sales (2009 and 2007 only).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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) (in thousands):



|                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                        |  | Year Ended December 31, |        
|                                                                        |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Segment Adjusted EBITDA Expense                                         |  | $                       | 803,804 |   |      | $ | 824,755 |      |  | $ | 705,669 |  
|Outside coal purchases                                                  |  |                         | (7,524  | ) |      |   | (23,776 | )    |  |   | (21,969 | )
|Other income                                                            |  |                         | 1,247   |   |      |   | 875     |      |  |   | 1,385   |  
|                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating expenses (excluding depreciation, depletion and amortization) |  | $                       | 797,527 |   |      | $ | 801,854 |      |  | $ | 685,085 |  
|                                                                        |  |                         |         |   |      |   |         |      |  |   |         |  



|(4) | Segment Adjusted EBITDA is defined as net income (prior to the allocation of noncontrolling interest) before income taxes, net interest expense, depreciation, depletion
and amortization, and general and administrative expenses. 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 below (in thousands).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                         |  |                         |          |   |      |   |          |      |  |   |         |  
|---------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                         |  | Year Ended December 31, |         
|                                         |  | 2009                    |          |   | 2008 |   |          | 2007 | 
|Consolidated Segment Adjusted EBITDA     |  | $                       | 381,065  |   |      | $ | 294,580  |      |  | $ | 301,121 |  
|General and administrative               |  |                         | (42,875  | ) |      |   | (38,857  | )    |  |   | (36,724 | )
|Depreciation, depletion and amortization |  |                         | (117,524 | ) |      |   | (105,278 | )    |  |   | (85,310 | )
|Interest expense, net                    |  |                         | (29,781  | ) |      |   | (18,369  | )    |  |   | (9,928  | )
|Income tax (expense) benefit             |  |                         | (709     | ) |      |   | 480      |      |  |   | (1,670  | )
|                                         |  |                         |          |   |      |   |          |      |  |   |         |  
|Net income                               |  | $                       | 190,176  |   |      | $ | 132,556  |      |  | $ | 167,489 |  
|                                         |  |                         |          |   |      |   |          |      |  |   |         |  



|(5) | Capital expenditures do not include acquisitions of coal reserves and other assets in the Illinois Basin of $29.8 million and $53.3 million for the years ended
December 31, 2008 and 2007, respectively, separately reported in our consolidated statements of cash flows.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|22. | SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- | ---------------------------------------------

A summary of our consolidated quarterly operating results in 2009 and 2008 is as follows (in thousands, except unit and per unit data):



|                                                                 |  |               |            |                  |   |                   |  |                      |            |  |   |           
|---------------------------------------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------------- |  | -------------------- | ---------- |  | - | ----------
|                                                                 |  | Quarter Ended
|                                                                 |  | March 31,2009 |            | June 30,2009     |   | September 30,2009 |  | December 31,2009
(1)
|Revenues                                                         |  | $             | 329,191    |                  | $ | 303,798           |  | $                    | 299,537    |  | $ | 298,076   
|Income from operations                                           |  |               | 79,698     |                  |   | 48,250            |  |                      | 44,002     |  |   | 47,469    
|Net income                                                       |  |               | 72,164     |                  |   | 41,141            |  |                      | 35,989     |  |   | 40,882    
|Net income of AHGP                                               |  |               | 38,826     |                  |   | 25,709            |  |                      | 23,689     |  |   | 25,992    
|Basic and diluted net income per limited partner unit            |  | $             | 0.65       |                  | $ | 0.43              |  | $                    | 0.40       |  | $ | 0.43      
|Weighted average number of units outstanding  basic             |  |               | 59,863,000 |                  |   | 59,863,000        |  |                      | 59,863,000 |  |   | 59,863,000
|                                                                 | 
|                                                                 |  | Quarter Ended
|                                                                 |  | March 31,2008 |            | June 30,2008 (2) |   | September 30,2008 |  | December 31,2008    
|Revenues                                                         |  | $             | 283,491    |                  | $ | 276,120           |  | $                    | 285,686    |  | $ | 310,844   
|Income from operations                                           |  |               | 44,740     |                  |   | 38,935            |  |                      | 34,681     |  |   | 31,214    
|Net income                                                       |  |               | 42,730     |                  |   | 36,214            |  |                      | 28,819     |  |   | 24,793    
|Net income of AHGP                                               |  |               | 23,025     |                  |   | 21,701            |  |                      | 18,520     |  |   | 17,968    
|Basic and diluted net income per limited partner unit            |  | $             | 0.38       |                  | $ | 0.36              |  | $                    | 0.31       |  | $ | 0.30      
|Weighted average number of units outstanding  basic and diluted |  |               | 59,863,000 |                  |   | 59,863,000        |  |                      | 59,863,000 |  |   | 59,863,000



|(1) | The comparability of our December 31, 2009 quarterly results were affected by a $6.4 million decrease in the ARLP Partnerships workers compensation
liability, excluding discount rate changes, due to the completion of its annual actuarial study, which reflected a favorable development in the ARLP Partnerships disability emergence patterns and claims estimates, as well as improved
visibility of our Mettiki (WV) claims experience.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | The comparability of our June 30, 2008 quarterly results were affected by the following items: i) gain on sale of non-core coal reserves of $5.2 million, ii) gain
of $1.9 million on settlement of claims relating to the 2005 failure of the vertical belt system at the ARLP Partnerships Pattiki mine and iii) gain of $2.8 million on settlement of claims against the third-party that provided security
services at the time of the MC Mining Mine Fire (Note 4).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|23. | SUBSEQUENT EVENTS
|--- | -----------------

Other
than those events described in Notes 10, 12 and 14, there were no other subsequent events.



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SCHEDULE II

ALLIANCE HOLDINGS GP, L.P. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007



|                                |  |                            |   |                           |   |            |  |                       |   |  |   |  
|------------------------------- |  | -------------------------- | - | ------------------------- | - | ---------- |  | --------------------- | - |  | - | -
|                                |  | Balance AtBeginningof Year |   | AdditionsCharged toIncome |   | Deductions |  | Balance AtEnd of Year
|                                |  | (in thousands)            
|2009                            |  |                            |   |                           |   |            |  |                       |   |  |   |  
|Allowance for doubtful accounts |  | $                          |  |                           | $ |           |  | $                     |  |  | $ | 
|                                |  |                            |   |                           |   |            |  |                       |   |  |   |  
|2008                            |  |                            |   |                           |   |            |  |                       |   |  |   |  
|Allowance for doubtful accounts |  | $                          |  |                           | $ |           |  | $                     |  |  | $ | 
|                                |  |                            |   |                           |   |            |  |                       |   |  |   |  
|2007                            |  |                            |   |                           |   |            |  |                       |   |  |   |  
|Allowance for doubtful accounts |  | $                          |  |                           | $ |           |  | $                     |  |  | $ | 
|                                |  |                            |   |                           |   |            |  |                       |   |  |   |  



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | -----------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in the reports we file with the SEC is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosures. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act), was performed as of the end of the period
covered by the report. This evaluation was performed by our management, with the participation of our Chief Executive Officer and Chief Financial Officer. Based on this evaluation of our disclosure controls and procedures as of the end of the period
covered by this report, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures are effective.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls over financial reporting (Internal
Controls) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the AHGP Partnership have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that simple errors or
mistakes can occur. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based, in part, upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our
disclosure controls and internal controls and make modifications as necessary; our intent in this regard is that the disclosure controls and the internal controls will be maintained as systems change and conditions warrant.



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Managements Annual Report on Internal Control over Financial Reporting.
Management of the AHGP Partnership is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. The AHGP Partnerships internal control over financial
reporting is designed to provide reasonable assurance to our management and Board of Directors of our general partner regarding the preparation and fair presentation of published financial statements. Our controls are designed to provide reasonable
assurance that the AHGP Partnerships assets are protected from unauthorized use and that transactions are executed in accordance with established authorizations and properly recorded. The internal controls are supported by written policies and
are complemented by a staff of competent business process owners and an internal auditor supported by competent and qualified external resources used to assist in testing the operating effectiveness of the AHGP Partnerships internal control
over financial reporting. Management concluded that the design and operations of our internal controls over financial reporting at December 31, 2009 are effective and provide reasonable assurance the books and records accurately reflect the
transactions of the AHGP Partnership.

Because of our inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework. Based on our assessment, management concluded
that, as of December 31, 2009, the AHGP Partnerships internal control over financial reporting was effective based on those criteria, and management believes that we have no material internal control weaknesses in our financial reporting
process.

Deloitte & Touche LLP, an independent registered public accounting firm, has made an independent assessment
of the effectiveness of our internal control over financial reporting as of December 31, 2009, as stated in their report which is included herein.

Changes in Internal Controls Over Financial Reporting. There has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) in the three months
ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of the

General Partner
and the Partners of

Alliance Holdings GP, L.P.:

We have audited the internal control over financial reporting of Alliance Holdings GP, L.P. and subsidiaries (the AHGP Partnership) as of December 31, 2009, based on criteria established
in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The AHGP Partnerships management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the AHGP Partnerships internal control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and
principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the AHGP Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in
Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have
also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2009 of the AHGP
Partnership and our report dated March 3, 2010 expressed an unqualified opinion on those financial statements and financial statement schedule, and included an explanatory paragraph regarding the AHGP Partnerships change in financial
statement presentation of noncontrolling interests in 2009 and retrospectively applied to the 2008 and 2007 periods.



|                         
|-------------------------
|/s/ Deloitte & Touche LLP
|                         
|Tulsa, Oklahoma          
|March 3, 2010            



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|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE GENERAL PARTNER
|-------- | -----------------------------------------------------------------------------

As is commonly the case with publicly-traded limited partnerships, we are managed and operated by our general partner. The following table
shows information for current executive officers and members of the Board of Directors of our general partner. Executive officers and directors are elected until death, resignation, retirement, disqualification, or removal.



|                        |  |     |  |                                                             
|----------------------- |  | --- |  | ------------------------------------------------------------
|Name                    |  | Age |  | Position With Our General Partner 1                         
|Joseph W. Craft III     |  | 59  |  | Chairman of the Board, President and Chief Executive Officer
|Brian L. Cantrell       |  | 50  |  | Senior Vice President and Chief Financial Officer           
|R. Eberley Davis        |  | 52  |  | Senior Vice President, General Counsel and Secretary        
|Robert G. Sachse        |  | 61  |  | Executive Vice PresidentMarketing                          
|Charles R. Wesley       |  | 55  |  | Executive Vice President                                    
|Thomas M. Wynne         |  | 53  |  | Senior Vice President and Chief Operating Officer           
|Thomas M. Davidson, Sr. |  | 73  |  | Director and Member of Audit and Conflicts* Committees      
|Robert J. Druten        |  | 62  |  | Director and Member of Audit and Conflicts Committees       
|Michael J. Hall         |  | 65  |  | Director and Member of Audit* Committee                     



|* | Indicates Chairman of Committee
|- | -------------------------------



|1 | Messrs. Sachse, Wesley and Wynne are officers of subsidiaries of our general partner as noted in their biographies below.
|- | -------------------------------------------------------------------------------------------------------------------------

Joseph W. Craft III has been Chairman of the Board, President and Chief Executive Officer since November 2005.
Mr. Craft has majority ownership of MGP, ARLPs managing general partner, and owns indirectly ARLPs special general partner and our general partner. Mr. Craft has served as President, Chief Executive Officer and a Director of
MGP since 1999. Previously Mr. Craft served as President of MAPCO Coal Inc. since 1986. During that period, he also was Senior Vice President of MAPCO Inc. and had previously been that companys General Counsel and Chief Financial Officer.
He is a former Chairman of the National Coal Council, a Board and Executive Committee Member and Chairman of the Safety, Health and Human Resources Committee of the National Mining Association, a Director of American Coalition for Clean Coal
Electricity, a Director of BOK Financial Corporation (NASDAQ: BOKF) since April of 2007, a member of the Board of Trustees for the University of Tulsa and a Director of the Tulsa Community Foundation. Mr. Craft holds a Bachelor of Science
degree in Accounting and a Juris Doctorate degree from the University of Kentucky. Mr. Craft also is a graduate of the Senior Executive Program of the Alfred P. Sloan School of Management at Massachusetts Institute of Technology. The specific
experience, qualifications, attributes or skills that led to the conclusion Mr. Craft should serve as a Director include his long history of significant involvement in the coal industry, his demonstrated business acumen and his exceptional
leadership of the Partnership since its inception.

Brian L. Cantrell has been Senior Vice President and Chief
Financial Officer since November 2005. Mr. Cantrell also has served as Senior Vice President and Chief Financial Officer of MGP, the general partner of ARLP, since October 2003. Prior to his current position, Mr. Cantrell was President of
AFN Communications, LLC from November 2001 to October 2003 where he had previously served as Executive Vice President and Chief Financial Officer after joining AFN in September 2000. Mr. Cantrells previous positions include Chief
Financial Officer, Treasurer and Director with Brighton Energy, LLC from August 1997 to September 2000; Vice President  Finance of KCS Medallion Resources, Inc.; and Vice PresidentFinance, Secretary and Treasurer of Intercoast Oil and
Gas Company. Mr. Cantrell is a Certified Public Accountant and holds a Masters of Accountancy and Bachelor of Accountancy from the University of Oklahoma.



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R. Eberley Davis has been Senior Vice President, General Counsel and Secretary since
February 2007. Mr. Davis also has served as Senior Vice President, General Counsel and Secretary of MGP, the managing general partner of ARLP, since February 2007. Mr. Davis has over 25 years experience in the coal and energy industries.
From 2003 to February 2007, Mr. Davis practiced law in the Lexington, Kentucky office of Stoll Keenon Ogden PLLC. Prior to joining Stoll Keenon Ogden, Mr. Davis was Vice President, General Counsel and Secretary of Massey Energy Company for
one year. Mr. Davis also served in various positions, including Vice President and General Counsel, for Lodestar Energy, Inc. from 1993 to 2002. Mr. Davis is an alumnus of the University of Kentucky, where he received a Bachelor of Arts
degree in Economics and his Juris Doctorate degree. He also holds a Masters of Business Administration degree from the University of Kentucky. Mr. Davis is a Trustee of the Energy and Mineral Law Foundation, and a member of the American,
Kentucky and Fayette County Bar Associations.

Robert G. Sachse has been Executive Vice President of MGP since August
2000. Effective November 1, 2006, Mr. Sachse assumed responsibility for our coal marketing, sales and transportation functions. Mr. Sachse was also Vice Chairman of ARLPs managing general partner from August 2000 to January
2007. Mr. Sachse was Executive Vice President and Chief Operating Officer of MAPCO Inc. from 1996 to 1998 when MAPCO merged with The Williams Companies. Following the merger, Mr. Sachse had a two year non-compete consulting agreement with
The Williams Companies. Mr. Sachse held various positions while with MAPCO Coal Inc. from 1982 to 1991, and was promoted to President of MAPCO Natural Gas Liquids in 1992. Mr. Sachse holds a Bachelor of Science degree in Business
Administration from Trinity University and a Juris Doctorate degree from the University of Tulsa.

Charles R. Wesley
became a Director of MGP in January 2009 and has been Executive Vice President of MGP since March 2009. Mr. Wesley has served in a variety of capacities since joining the company in 1974, including as Senior Vice PresidentOperations from
August 1996 through February 2009. Mr. Wesley is Chairman of the Board of Directors of the Kentucky Coal Association and also has served the industry as past President of the West Kentucky Mining Institute and National Mine Rescue Association
Post 11, and as a director of the Kentucky Mining Institute. Mr. Wesley holds a Bachelor of Science degree in Mining Engineering from the University of Kentucky.The specific experience, qualifications, attributes or skills that led to
the conclusion Mr. Wesley should serve as a Director of MGP include his long history of significant involvement in the coal industry, his successful leadership of the Partnerships operations, and his knowledge and technical expertise in
all aspects of producing and marketing coal.

Thomas M. Wynne has been Senior Vice President and Chief Operating
Officer of MGP since March 2009. Mr. Wynne joined the company in 1981 as a mining engineer and has held a variety of positions with the Partnership prior to his appointment in July 1998 as Vice PresidentOperations. Mr. Wynne has
served the coal industry on the National Executive Committee for National Mine Rescue and is currently a member of the Coal Safety Committee for the National Mining Association. Mr. Wynne holds a Bachelor of Science degree in Mining Engineering
from the University of Pittsburgh and a Masters of Business Administration degree from West Virginia University.

Thomas M.
Davidson, Sr.became a Director in March 2006. In 1999, Mr. Davidson founded Davidson Capital Group, a niche investment bank headquartered in the Washington, D.C. area and engaged primarily in assisting enterprises in merger and
acquisition, financing, and other growth initiatives. Mr. Davidson is the President and Senior Managing Director of Davidson Capital Group and has served in such capacity since 1999. From 1986 to 1989, Mr. Davidson was Senior Vice
President and General Counsel of The Peter Kiewit Companies, a coal mining and construction company headquartered in Omaha, Nebraska. From 1982 to 1985, Mr. Davidson was a senior law partner in the corporate group in Akin, Gump, Strauss, Hauer
and Feld in Washington, D.C. From 1977 to 1982, Mr. Davidson was Senior Vice President and General Counsel of MAPCO Inc., a diversified oil and gas and coal company headquartered in Tulsa, Oklahoma, and a former parent of ARLPs
predecessors. From 1974 to 1977, Mr. Davidson was Senior Vice President and General Counsel of Mesa Petroleum Corporation, an oil and gas exploration company headquartered in Amarillo, Texas. Mr. Davidson holds a Bachelor degree in
Political Science from Williams College and a Juris Doctorate degree from Duke University. Mr. Davidson is Chairman of the Conflicts Committee and a member of the Audit Committee. The specific experience, qualifications, attributes or skills
that led to the conclusion Mr. Davidson should serve as Director include his significant experience with both the legal and investment banking aspects of corporate financing and acquisition transactions and his previous service in a management
role in the coal mining industry.



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Robert J. Druten became a Director in January 2007. From September 1994 until his
retirement in August 2006, Mr. Druten served as Executive Vice President and Chief Financial Officer of Hallmark Cards, Inc. Mr. Druten holds a Bachelor of Science degree in Accounting from Kansas University as well as a Masters of
Business Administration from Rockhurst University. Mr. Druten currently serves as a member of the Board of Directors of Kansas City Southern Industries, Inc. (NYSE: KSU), a transportation and financial services company, and is Chairman of its
audit and finance committees. Mr. Druten is also a Trustee and Chairman of the Board of Entertainment Properties Trust (NYSE: EPR), a real estate investment trust focused on the acquisition of movie theatre complexes and other entertainment
related properties, and is a member of its compensation, finance and governance committees. Additionally, Mr. Druten is a member of the Board of Directors of American Italian Pasta Company (NASDAQ:AIPC), the largest producer of dry pasta in
North America, and is Chairman of its audit committee and a member of its compensation committee. Mr. Druten is a member of the Audit and Conflicts Committees. The specific experience, qualifications, attributes or skills that led to the
conclusion Mr. Druten should serve as Director are demonstrated by his lengthy and distinguished service as Chief Financial Officer of Hallmark, including direct oversight of a public company subsidiary, and his extensive experience serving as
a director of public companies in multiple industries.

Michael J. Hall became a Director in March 2006. Mr. Hall
is Chairman of the Board of Directors of Matrix Service Company (Matrix) (NASDAQ: MTRX). Previously, Mr. Hall served as President and Chief Executive Officer of Matrix from March 2005 until he retired in November 2006. Mr. Hall
also served as Vice PresidentFinance and Chief Financial Officer, Secretary and Treasurer of Matrix from September 1998 to May 2004. Mr. Hall became a Director of Matrix in October 1998, and was elected Chairman of its Board in November
2006. Matrix is a company which provides general industrial construction and repair and maintenance services principally to the petroleum, petrochemical, power, bulk storage terminal, pipeline and industrial gas industries. Prior to working for
Matrix, Mr. Hall was Vice President and Chief Financial Officer of Pexco Holdings, Inc., Vice PresidentFinance and Chief Financial Officer for Worldwide Sports & Recreation, Inc., an affiliated company of Pexco, and worked for
T.D. Williamson, Inc., as Senior Vice President, Chief Financial and Administrative Officer, and Director of OperationsEurope, Africa and Middle East Region. Mr. Hall is Chairman of the Board of Directors of Integrated Electrical
Services, Inc. (NASDAQ: IESC) and has served in that capacity since May, 2006, and is a member of its audit, compensation and nominating/governance committees. Mr. Hall served as Chairman of the Board of Directors of American Performance Funds,
was a member of its audit and nominating committees and served as independent trustee from July 1990 to May 2008. Mr. Hall holds a Bachelor of Science degree in Accounting from Boston College and a Masters of Business Administration from
Stanford University. Mr. Hall is Chairman of the Audit Committee. Since March 2003, Mr. Hall has also been a Director of MGP, the managing general partner of ARLP. He is currently Chairman of MGPs Audit Committee and a member of the
Compensation Committee. The specific experience, qualifications, attributes or skills that led to the conclusion Mr. Hall should serve as a Director include his long history of service in senior corporate leadership positions, his significant
knowledge of the energy industry, and his extensive expertise and experience in financial reporting matters gained from his service as Chief Financial Officer of public companies.

Board of Directors

The leadership structure of our Board of Directors has
been consistent since the Partnerships inception. Mr. Craft, our President and Chief Executive Officer, is also the Chairman of our Board of Directors. We believe this structure is appropriate given Mr. Crafts significant
ownership position in and proven leadership of the Partnership.

Our Board of Directors generally administers its risk
oversight function through the board as a whole. Our President and Chief Executive Officer, who reports to the Board of Directors, and the other executives named above, who report to our President and Chief Executive Officer, have day-to-day risk
management responsibilities. Each of these executives attends the meetings of our Board of Directors, where the Board of Directors routinely receives reports on our financial results and other aspects of implementation of our business strategy, with
ample opportunity for specific inquiries of management. Our Directors also regularly attend the meetings of the MGP Board of Directors where similar reports regarding the ARLP Partnership, as well as reports regarding the status of the ARLP
Partnership operations and safety performance, are made. In addition, management provides a monthly report of the Partnerships financial and operational performance to each member of the Board of Directors, which often prompts questions or
feedback from the Board of Directors. The Audit Committee provides additional risk oversight through its quarterly meetings, where it receives a report from the Partnerships internal auditor, who reports directly to the Audit Committee, and
reviews the Partnerships contingencies, significant transactions and subsequent events, among other matters, with management and our independent auditors. In addition, meetings of the Audit Committee typically are held concurrently with
meetings of the MGP Audit Committee.



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The Board of Directors has selected as director nominees individuals with experience, skills
and qualifications relevant to the business of the Partnership, such as experience in energy or related industries or with financial markets, expertise in mining, engineering or finance, and a history of service in senior leadership positions. The
Board of Directors has not established a formal process for identifying director nominees, nor does it have a formal policy regarding consideration of diversity in identifying director nominees, but has endeavored to assemble a diverse group of
individuals with the qualities and attributes required to provide effective oversight of the Partnership.

Audit Committee

The Audit Committee comprises three non-employee members of the Board of Directors (currently, Mr. Hall, Mr. Davidson and
Mr. Druten). After reviewing the qualifications of the current members of the Audit Committee, and any relationships they may have with us that might affect their independence, the Board of Directors has determined that all current Audit
Committee members are independent as that concept is defined in Section 10A of the Exchange Act, all current Audit Committee members are independent as that concept is defined in the applicable rules of NASDAQ Stock
Market, LLC, all current Audit Committee members are financially literate, and Mr. Hall qualifies as an audit committee financial expert under the applicable rules promulgated pursuant to the Exchange Act.

Report of the Audit Committee

The Audit Committee of AGP oversees our financial reporting process on behalf of the Board of Directors. Management has primary responsibility for the financial statements and the reporting process
including the systems of internal controls. The Audit Committee has responsibility for the appointment, compensation and oversight of the work of our independent registered public accounting firm and assists the Board of Directors by conducting its
own review of our:



| |  |  | filings with the SEC pursuant to the Securities Act and the Exchange Act (i.e., Forms 10-K, 10-Q, and 8-K);
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | press releases and other communications by us to the public concerning earnings, financial condition and results of operations, including changes in
distribution policies or practices affecting the holders of our units, if such review is not undertaken by the Board of Directors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | systems of internal controls regarding finance and accounting that management and the Board of Directors have established; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | auditing, accounting and financial reporting processes generally.
| | - |  | -----------------------------------------------------------------

In fulfilling its oversight and other responsibilities, the Audit Committee met nine times during 2009. The Audit Committees
activities included, but were not limited to, (a) selecting the independent registered public accounting firm, (b) meeting periodically in executive session with the independent registered public accounting firm, (c) reviewing the
Quarterly Reports on Form 10-Q for the three months ended March 31, June 30, and September 30, 2009, (d) performing a self-assessment of the committee itself, (e) reviewing the Audit Committee charter, and
(f) reviewing the overall scope, plans and findings of our internal auditor. Based on the results of the annual self-assessment, the Audit Committee believes that it satisfied the requirements of its charter. The Audit Committee also reviewed
and discussed with management and the independent registered public accounting firm this Annual Report on Form 10-K, including the audited financial statements.

Our independent registered public accounting firm, Deloitte & Touche LLP, is responsible for expressing an opinion on the conformity of the audited financial statements with generally accepted
accounting principles. The Audit Committee reviewed with Deloitte & Touche LLP its judgment as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit
Committee under generally accepted auditing standards.

The Audit Committee discussed with Deloitte & Touche LLP the
matters required to be discussed by the Statement of Auditing Standards (SAS) 114, The Auditors Communication with Those Charged with Governance, as may be modified or supplemented. The Audit Committee received written
disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communication with the audit committee regarding
independence, and has discussed with Deloitte & Touche LLP its independence from management and the ARLP Partnership.



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Based on the reviews and discussions referred to above, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2009 for filing with the SEC.

Members of the Audit Committee:

Michael J. Hall, Chairman

Thomas M. Davidson, Sr.

Robert J. Druten

Code of
Ethics

We have adopted a code of ethics with which our chief executive officer and our senior financial officers
(including our principal financial officer, and our principal accounting officer or controller) are expected to comply. The code of ethics is publicly available on our website under Investor Information at www.ahgp.com and is
available in print without charge to any unitholder who requests it. Such requests should be directed to Investor Relations at (918) 295-1415. If any substantive amendments are made to the code of ethics or if there is a grant of a waiver,
including any implicit waiver, from a provision of the code to our chief executive officer, chief financial officer, chief accounting officer or controller, we will disclose the nature of such amendment or waiver on our website or in a report on
Form 8-K.

Communications with the Board

Unitholders or other interested parties can contact any director or committee of the board by writing to them c/o Senior Vice President, General Counsel and Secretary, P. O. Box 22027, Tulsa, Oklahoma
74121-2027. Comments or complaints relating to our accounting, internal accounting controls or auditing matters will also be referred to members of the Audit Committee. The Audit Committee has procedures for (a) receipt, retention and treatment
of complaints received by us regarding accounting, internal accounting controls, or auditing matters and (b) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act, as amended, requires directors, executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file
with the SEC initial reports of ownership and reports or changes in ownership of such equity securities. Such persons are also required to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of the
forms furnished to us and written representations from certain reporting persons, we believe that during 2009 none of our officers and directors were delinquent with respect to any of the filing requirements under Rule 16(a).



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Compensation
Discussion and Analysis

Introduction

The executive officers named in our Summary Compensation Table  (i) the President and Chief Executive Officer of our general partner,
our principal executive officer, (ii) the Senior Vice President and Chief Financial Officer of our general partner, our principal financial officer, and (iii) our three most highly compensated executive officers for 2009 (collectively, the
Named Executive Officers)  are also executive officers of MGP, ARLPs managing general partner, of which we own 100% of the members interest. Our Named Executive Officers are also named in the Summary Compensation Table in
Item 11 of the 2009 Form 10-K for ARLP. The compensation of our Named Executive Officers described below is their compensation as executive officers of MGP. We do not provide our Named Executive Officers any additional compensation.



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Our Named Executive Officers spend the majority of their time managing the business of the
ARLP Partnership, and the ARLP Partnership is responsible for the majority of their compensation. Therefore, our Board of Directors has delegated responsibility for decisions related to our Named Executive Officers compensation to the MGP
Compensation Committee. Accordingly, this Compensation Discussion and Analysis primarily addresses the ARLP Partnerships compensation program as it relates to our Named Executive Officers.

We reimburse the ARLP Partnership for a portion of the compensation expense for certain of our Named Executive Officers pursuant to
the Administrative Services Agreement. Based on the estimated time spent managing our affairs, the Board of Directors agreed that 5%, 5% and 8%, respectively, of the 2009 base salaries of Mr. Craft, the President and Chief Executive Officer of
our general partner, Mr. Cantrell, the Senior Vice President and Chief Financial Officer of our general partner, and Mr. Davis, the Senior Vice President, General Counsel and Secretary of our general partner, would be allocated to us. None
of the 2009 base salaries of Messrs. Sachse and Wynne were allocated to us. In addition, for 2009 we paid the ARLP Partnership a stipulated benefit burden equal to 39% of allocated base salary. We believe this percentage allocation is a reasonable
estimation of the ARLP Partnerships overall cost of cash compensation (i.e. compensation other than equity-based compensation) in excess of base salary, including, among other things, benefits, bonus and taxes. The Board of Directors reviews
these allocations annually to determine whether they are appropriate. Please see Item 13.  Certain Relationships and Related Transactions, and Director IndependenceAdministrative Services.

The ARLP Partnerships Compensation Objectives and Philosophy

The compensation of our Named Executive Officers is designed to achieve two key objectives: (i) provide a competitive compensation
opportunity to allow the ARLP Partnership to recruit and retain key management talent, and (ii) motivate and reward the executive officers for creating sustainable, capital-efficient growth in available cash to maximize the ARLP
Partnerships distributions to its unitholders. In making decisions regarding executive compensation, the MGP Compensation Committee reviews current compensation levels of other companies in the coal industry and other peers, considers the
assessment of each of the other executives by MGPs President and Chief Executive Officer, and uses its discretion to determine an appropriate total compensation package of base salary and short-term and long-term incentives. The MGP
Compensation Committee intends for each executive officers total compensation to be competitive in the market place and to effectively motivate the individual. Based upon its review of the ARLP Partnerships overall executive compensation
program, the Board of Directors believes the program is appropriately applied to our Named Executive Officers and is necessary to attract and retain the executive officers who are essential to our continued development and success, to compensate
those executive officers for their contributions and to enhance unitholder value. Moreover, the Board of Directors believes the total compensation opportunities provided to our Named Executive Officers create alignment with our long-term interests
and those of our unitholders. As a result, we do not maintain unit ownership requirements for our Named Executive Officers.

Setting Executive Compensation

Role of the MGP Compensation Committee

The MGP Compensation Committee discharges the MGP Board of Directors responsibilities relating to the ARLP Partnerships executive
compensation program. The MGP Compensation Committee oversees the ARLP Partnerships compensation and benefit plans and policies, administers its incentive bonus and equity participation plans, and reviews and approves annually all compensation
decisions relating to its Named Executive Officers. The MGP Compensation Committee is empowered by the MGP Board of Directors and by the MGP Compensation Committees charter to make all decisions regarding compensation for the Named Executive
Officers without ratification or other action by the MGP Board of Directors. The MGP Compensation Committee has the authority to secure services for executive compensation matters, legal advice, or other expert services, both from within and outside
the company. While the MGP Compensation Committee is empowered to delegate all or a portion of its duties to a subcommittee, it has not done so.

The MGP Compensation Committee is composed of all of directors of MGP who have been determined to be independent by the MGP Board of Directors in accordance with applicable NASDAQ Stock
Market, LLC and SEC regulations.



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Role of Executive Officers

Each year, the President and Chief Executive Officer of MGP submits recommendations to the MGP Compensation Committee for adjustments to the
salary, bonuses and long-term equity incentive awards payable to Named Executive Officers, excluding himself. The President and Chief Executive Officer bases his recommendations on his assessment of the executives performance, experience,
demonstrated leadership, job knowledge and management skills. Historically, and in 2009, the MGP Compensation Committee and the President and Chief Executive Officer have been substantially aligned on decisions regarding compensation of the Named
Executive Officers. As executive officers are promoted or hired during the year, the President and Chief Executive Officer makes compensation recommendations to the MGP Compensation Committee and works closely with the MGP Compensation Committee to
ensure that all compensation arrangements for executive officers are consistent with our compensation philosophy and are approved by the MGP Compensation Committee. At the direction of the MGP Compensation Committee, the President and Chief
Executive Officer and the Senior Vice President, General Counsel and Secretary of MGP attend certain meetings and work sessions of the MGP Compensation Committee.

Role of Compensation Consultants

The MGP Compensation Committee engaged
Mercer (US) Inc. (Mercer) as an outside compensation consultant to assist it in collecting and analyzing peer group compensation information and in assessing the competitiveness of the ARLP Partnerships compensation program in
2009. Mercer took instructions from and reported to the Chairman of the MGP Compensation Committee. Mercer reviewed published survey data and peer group proxy information, and provided a comparative analysis of competitive practices regarding base
salaries, short-term incentives, total cash compensation, long-term incentives and total direct compensation.

Mercer analyzed
multiple survey sources published by Mercer and Watson Wyatt to collect compensation data for companies of similar size based on annual revenue. Mercers peer group proxy analysis included Peabody Energy Corp, CONSOL Energy Inc., Arch Coal,
Inc., Massey Energy Company, Alpha Natural Resources Inc., Foundation Coal Holdings Inc., Patriot Coal Corp., International Coal Group Inc., James River Coal Company and Westmoreland Coal Company. This peer group was selected by Mercer and approved
by the MGP Compensation Committee. Mercer did not provide any non-executive compensation services for ARLP during 2009.

Use of Peer Group Comparisons and Survey Data

The MGP Compensation Committee believes that it is important to
review and compare the ARLP Partnerships performance with that of peer companies in the coal industry, and reviews the composition of the peer group annually. In setting executive compensation for 2009, the MGP Compensation Committee reviewed
the compensation information compiled by Mercer. The MGP Compensation Committee uses the peer group and survey data as a point of reference for comparative purposes, but it is not the determinative factor for the compensation of our Named Executive
Officers. The MGP Compensation Committee exercises discretion in determining the nature and extent of the use of comparative pay data.

Consideration of Equity Ownership

Mr. Craft, the President and Chief Executive Officer, is evaluated and
treated differently with respect to compensation than our other Named Executive Officers. Mr. Craft and his related entities own significant equity positions in us, and therefore the interests of Mr. Craft are directly aligned with those
of our unitholders. Mr. Craft has not received an increase in base salary since 2002 and did not receive a STIP bonus or ARLP LTIP award in 2007, 2008 or 2009.

Compensation Components

Overview

The principal components of compensation for our Named Executive Officers include:



| |  |  | base salary;
| | - |  | ------------



| |  |  | annual cash incentive bonus awards under the STIP; and
| | - |  | ------------------------------------------------------



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| |  |  | awards of restricted common units under the ARLP LTIP.
| | - |  | ------------------------------------------------------

The relative amount of each component is not based on any formula, but rather is based on the recommendation of the President and Chief Executive Officer of MGP, subject to the discretion of the MGP
Compensation Committee to make any modifications it deems appropriate.

Each of our Named Executive Officers also receives
supplemental retirement benefits through the SERP. In addition, all of the executive officers are entitled to customary benefits available to all of our employees, including group medical, dental, and life insurance and participation in our profit
sharing and savings plan (PSSP). The ARLP Partnerships PSSP is a defined contribution plan and includes an employer matching contribution of 75% on the first 3% of eligible compensation (as defined by the IRS) contributed by the
employee, an employer non-matching contribution of 0.75% of eligible compensation, and an employer supplemental contribution of 5% of eligible compensation.

Base Salary

When reviewing base salaries, the MGP Compensation
Committees policy is to consider the individuals experience, tenure and performance, the individuals level of responsibility, the positions complexity and its importance to the ARLP Partnership in relation to other executive
positions, the ARLP Partnerships financial performance, and competitive pay practices. The MGP Compensation Committee also considers comparative compensation data of companies in the ARLP Partnerships peer group and the recommendation of
the President and Chief Executive Officer of MGP. Base salaries are reviewed annually to ensure continuing consistency with market levels, and adjustments to base salaries reflect movement in the competitive market as well as individual performance.

Annual Cash Incentive Bonus Awards

The STIP is designed to assist us in attracting, retaining and motivating qualified personnel by rewarding management, including the Named Executive Officers, and selected other salaried employees with
cash awards for the ARLP Partnership achieving an annual financial performance target. The annual performance target is recommended by the President and Chief Executive Officer of MGP and approved by the MGP Compensation Committee, typically in
January of each year. The performance measure is subject to equitable adjustment in the sole discretion of the MGP Compensation Committee to reflect the occurrence of any significant events during the year.

The performance target historically has been EBITDA-derived, with items added or removed from the EBITDA calculation to ensure that the
performance target reflects the pure operating results of the core mining business. (EBITDA for the ARLP Partnership is defined as net income of ARLP before net interest expense, income taxes, depreciation, depletion and amortization and net income
attributable to noncontrolling interest.) The aggregate cash available for awards under the STIP each year is dependent on the ARLP Partnerships actual financial results for the year compared to the annual performance target, and it increases
in relationship to the ARLP Partnerships adjusted EBITDA exceeding the minimum threshold. The MGP Compensation Committee may determine satisfactory results and adjust the size of the pay-out pool in its sole discretion. For 2009, the MGP
Compensation Committee approved a minimum financial performance target of $336.6 million in EBITDA from the ARLP Partnerships current operations, normalized by excluding any charges for unit-based compensation expense, and the ARLP Partnership
exceeded the minimum target. In addition, the MGP Compensation Committee increased the size of the pay-out pool to reflect ARLPs record financial performance in the extremely difficult economic and market environment of 2009, as well as
ARLPs improved performance relative to coal-industry peers.

Payments to individual Executive Officers each year are
determined by and in the discretion of the MGP Compensation Committee. As it does when reviewing base salaries, in determining individual payments the MGP Compensation Committee considers its assessment of the individuals performance,
comparative compensation data of companies in our peer group and the recommendation of the President and Chief Executive Officer of MGP. The compensation expense associated with STIP awards is recognized by the ARLP Partnership in the year earned,
with the cash awards payable in the first quarter of the following calendar year. Termination of employment of an executive officer for any reason prior to payment of a cash award will result in forfeiture of any right to the award, unless and to
the extent waived by the MGP Compensation Committee in its discretion.

The performance measure for the STIP in 2010 will be
EBITDA for current operations, excluding charges for unit-based compensation and affiliate contributions, if any. As discussed above, the MGP Compensation Committee may, in its discretion, make equitable adjustments to the performance criteria under
the STIP and adjust the amount of the aggregate pay-out. The MGP Compensation Committee believes that the STIP performance criteria for 2010 will be reasonably difficult to achieve and therefore support the key compensation objectives discussed
above.



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Equity Awards under the ARLP LTIP

Equity compensation pursuant to the ARLP LTIP is a key component of the ARLP Partnerships executive compensation program. The ARLP
Partnerships LTIP is sponsored by Alliance Coal. Under the ARLP LTIP, grants may be made of either (a) restricted ARLP units or (b) options to purchase ARLP common units, although to date, no grants of options have been made. The MGP
Compensation Committee has authority to determine the participants to whom restricted units are granted, the number of restricted units to be granted to each such participant, and the conditions under which the restricted units may become vested,
including the duration of any vesting period. Annual grant levels for designated participants (including the Named Executive Officers) are recommended by MGPs President and Chief Executive Officer, subject to review and approval by the MGP
Compensation Committee. Grant levels are intended to support the objectives of the comprehensive compensation package described above. The ARLP LTIP grants provide the Named Executive Officers with the opportunity to achieve a meaningful ownership
stake in the ARLP Partnership, thereby assuring that their interests are aligned with its success. There is no formula for determining the size of awards to any individual recipient and, as it does when reviewing base salaries and individual STIP
payments, the MGP Compensation Committee considers its assessment of the individuals performance, compensation levels at peer companies in the coal industry and the recommendation of the President and Chief Executive Officer. Amounts realized
from prior grants, including amounts realized due to changes in the value of ARLPs common units, are not considered in setting grant levels or other compensation for Named Executive Officers.

Restricted units granted under the ARLP LTIP vest at the end of a stated period from the grant date (which is currently approximately three
years for all outstanding restricted units), provided the ARLP Partnership achieves an aggregate performance target for that period. The performance target is based on a normalized EBITDA measure, with that measure typically being the same as the
STIP measure for the year of the grant. The target, however, requires achieving an aggregate performance level for the three-year period compared to aggregate budgeted performance for that period. Historically, the ARLP Partnership has issued grants
under the ARLP LTIP at the beginning of each year, with the exceptions of new employees who begin employment with the ARLP Partnership at some other time and job promotions that may occur at some other time. In 2008, the ARLP Partnership also issued
grants in October in lieu of issuing grants at the beginning of 2009. The compensation expense associated with ARLP LTIP grants is recognized by the ARLP Partnership over the vesting period in accordance with FASB ASC 718, CompensationStock
Compensation(SFAS No. 123R).

The policy of the MGP Compensation Committee is to grant restricted common units
pursuant to the ARLP LTIP to serve as a means of incentive compensation for performance. Therefore, no consideration will be payable by the plan participants upon receipt of the common units. Common units to be delivered upon the vesting of
restricted units or to be issued upon exercise of a unit option will be acquired by the ARLP Partnership in the open market at a price equal to the then prevailing price, or will be units already owned or newly issued by the ARLP Partnership, or any
combination of the foregoing. If the ARLP Partnership issues new common units upon payment of the restricted units or unit options instead of purchasing them, the total number of common units outstanding will increase.

The most recent grants under the ARLP LTIP, made February 1, 2010, will cliff vest on January 1, 2013 provided the ARLP
Partnership achieves a target level of aggregate EBITDA for current operations, excluding charges for unit-based compensation, if any, for the period January 1, 2010 through December 31, 2012. The ARLP LTIP provides the MGP Compensation
Committee with discretion to determine the conditions for vesting (as well as all other terms and conditions) associated with any award under the plan, and to amend any of those conditions so long as an amendment does not materially reduce the
benefit to the participant. The MGP Compensation Committee believes the conditions for vesting of all outstanding awards under the ARLP LTIP will be reasonably difficult to satisfy and therefore support the key compensation objectives discussed
above.

Restricted Units. Restricted units will vest at the end of a period of time as determined by
the MGP Compensation Committee, which is currently approximately three years after the grant date for all outstanding restricted units, provided the ARLP Partnership achieves the aggregate performance target for that period. However, if a
grantees employment is terminated for any reason prior to the vesting of any restricted units, those restricted units will be automatically forfeited, unless the MGP Compensation Committee, in its sole discretion, determines otherwise. The
number of units actually distributed upon satisfaction of the applicable vesting requirements is reduced to cover the minimum statutory income tax withholding requirement for each individual participant based upon the fair market value of the common
units as of the date of distribution. Pursuant to the distribution equivalent rights provision of the ARLP LTIP, all grants of restricted units include the contingent right to receive quarterly cash distributions in an amount equal to the cash
distributions ARLP makes to unitholders during the vesting period.



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Unit Options. The ARLP Partnership has not made any grants of unit
options. The MGP Compensation Committee, in the future, may decide to make unit option grants to employees and directors on terms determined by the MGP Compensation Committee. When granted, unit options will have an exercise price set by the MGP
Compensation Committee which may be above, below or equal to the fair market value of a common unit on the date of grant. If a grantees employment is terminated for any reason prior to the vesting of any unit options, those unit options will
be automatically forfeited, unless the MGP Compensation Committee, in its sole discretion, provides otherwise.

Grant Timing. The MGP Compensation Committee does not time, nor has the MGP Compensation Committee in the past timed, the grant of long-term equity incentive awards in coordination with the release of material non-public information.
Instead, long-term equity incentive awards are granted only at the time or times dictated by the ARLP Partnerships normal compensation process as developed by the MGP Compensation Committee.

Effect of a Change in Control. Upon a change in control as defined in the ARLP LTIP, all awards of restricted units
and options under the ARLP LTIP shall automatically vest and become payable or exercisable, as the case may be, in full. In this regard, all restricted periods shall terminate and all performance criteria, if any, shall be deemed to have been
achieved at the maximum level. The ARLP LTIP defines a change in control as one of the following: (1) any sale, lease, exchange or other transfer of all or substantially all of the ARLP Partnerships assets or MGPs assets to any
person; (2) the consolidation or merger of MGP with or into another person pursuant to a transaction in which the outstanding voting interests of MGP is changed into or exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding voting interests of MGP are changed into or exchanged for voting stock or interests of the surviving corporation or its parent and (b) the holders of the voting interests of MGP immediately prior to
such transaction own, directly or indirectly, not less than a majority of the voting stock or interests of the surviving corporation or its parent immediately after such transaction; or (3) a person or group being or becoming the beneficial
owner of more than 50% of all voting interests of MGP then outstanding.

Amendments and Termination.
The MGP Board of Directors or the MGP Compensation Committee may, in its discretion, terminate the ARLP LTIP at any time with respect to any common units for which a grant has not previously been made. Except as required by the rules of the exchange
on which the common units may be listed at that time, the MGP Board of Directors or the MGP Compensation Committee may alter or amend the ARLP LTIP in any manner from time to time; provided, however, that no change in any outstanding grant may be
made that would materially impair the rights of the participant without the consent of the affected participant. In addition, the MGP Board of Directors or the MGP Compensation Committee may, in its discretion, establish such additional compensation
and incentive arrangements as it deems appropriate to motivate and reward employees of the ARLP Partnership.

AHGP LTIP

We have also adopted the AHGP LTIP for employees, directors and consultants of our general partner and its affiliates,
including the ARLP Partnership. Grants under the AHGP LTIP are to be made in AHGP restricted units, which are phantom units that entitle the grantee to receive either a common unit or equivalent amount of cash upon the vesting of the
phantom unit. The aggregate number of common units reserved for issuance under the AHGP LTIP is 5,215,000. There have been no grants under the AHGP LTIP.

Supplemental Executive Retirement Plan

The ARLP Partnership maintains the
SERP to help attract and motivate key employees, including the Named Executive Officers. The SERP is sponsored by Alliance Coal. Participation in the SERP aligns the interest of each Named Executive Officer with the interests of ARLPs
unitholders because all allocations made to participants under the SERP are made in the form of notional common units of ARLP, defined in the SERP as phantom units. The MGP Compensation Committee approves the SERP participants and their
percentage allocations, and can amend or terminate the plan at any time.



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Under the terms of the SERP, participants are entitled to receive on December 31 of
each year an allocation of phantom units having a fair market value equal to his or her percentage allocation multiplied by the sum of base salary and cash bonus received that year, then reduced by any supplemental contribution that was made to the
ARLP Partnerships defined contribution PSSP for the participant that year. A participants cumulative notional phantom unit account balance earns the equivalent of common unit distributions. The calculated distributions are added to the
notional account balance in the form of additional phantom units. All amounts granted under the SERP vest immediately and are paid out upon the participants termination or death in cash equal to then current fair market value of the phantom
units credited to the participants notional account under the SERP. The fair market value of a phantom unit is the average closing price of ARLPs common units for the ten trading days immediately preceding the applicable allocation or
distribution date.

Upon any recapitalization, reorganization, reclassification, split of common units, distribution or
dividend of securities on common units, or consolidation or merger, or sale of all or substantially all of the ARLP Partnerships assets or other similar transaction which is effected in such a way that holders of common units are entitled to
receive (either directly or upon subsequent liquidation) cash, securities or assets with respect to or in exchange for common units, the MGP Compensation Committee shall, in its sole discretion (and upon the advice of financial advisors as may be
retained by the MGP Compensation Committee), immediately adjust the notional balance of phantom units in each Named Executive Officers SERP account to equitably credit the fair value of the change in the common units and/or the distributions
(of cash, securities or other assets) received or economic enhancement realized by the holders of the common units.

An
executive officer who participates in the SERP shall be entitled to receive an allocation under the SERP for the year in which his employment is terminated on the occurrence of any of the following events:



| | (1) | the executive officers employment is terminated other than for cause;
| | --- | ----------------------------------------------------------------------



| | (2) | the executive officer terminates employment for good reason;
| | --- | ------------------------------------------------------------



| | (3) | a change of control of the ARLP Partnership or MGP occurs and, as a result, an executive officers employment is terminated (whether voluntary or involuntary);
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | death of the executive officer;
| | --- | -------------------------------



| | (5) | attaining retirement age of 65 years for any executive officer; and
| | --- | -------------------------------------------------------------------



| | (6) | incurring a total and permanent disability, which shall be deemed to occur if an executive officer is eligible to receive benefits under the terms of the long-term
disability program maintained by the ARLP Partnership.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This allocation for the year in which an executive
officers termination occurs shall equal the executive officers eligible compensation for such year (including any severance amount, if applicable) multiplied by his percentage allocation under the SERP, reduced by any supplemental
contribution that was made to the ARLP Partnerships defined contribution PSSP for the participant that year.

Trading
in Derivatives

It is MGPs policy that directors and all officers, including the Named Executive Officers, may not
purchase or sell options on ARLPs common units. In addition, it is our general partners policy that directors and all officers, including the Named Executive Officers, may not purchase or sell options on AHGPs common units absent
approval by our general partner.

Board of Directors Compensation Report

The Board of Directors has submitted the following report for inclusion in this Annual Report on Form 10-K:

Our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis contained in this Annual Report on Form 10-K with
management. Based on our Board of Directors review of and the discussions with management with respect to the Compensation Discussion and Analysis, our Board of Directors recommends that the Compensation Discussion and Analysis be included in
this Annual Report on Form 10-K for the fiscal year ended December 31, 2009.



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The foregoing report is provided by the following directors, who constitute all the members
of the Board of Directors:

Members of the Board of Directors:

Joseph W. Craft III

Michael J. Hall

Thomas M. Davidson, Sr.

Robert J. Druten

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act or the Exchange Act, that incorporate future filings, including this Annual Report on Form 10-K, in whole or in part, the foregoing
Board of Directors Compensation Report shall not be deemed to be filed with the SEC or incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by
reference.

Summary Compensation Table for 2009

The following table provides a summary of the total compensation paid to our Named Executive Officers by the ARLP Partnership for 2009. We do not provide our Named Executive Officers any additional
compensation. Please see footnote (2) below for an explanation of the compensation amounts we reimburse to the ARLP Partnership.



|                                                                      |      |      |  |           |         |          |         |               |  |                 |         |                                         |   |                                                                       |  |                          |         |       |   |   |  |         |         |  |         |        
|--------------------------------------------------------------------- | ---- | ---- |  | --------- | ------- | -------- | ------- | ------------- |  | --------------- | ------- | --------------------------------------- | - | --------------------------------------------------------------------- |  | ------------------------ | ------- | ----- | - | - |  | ------- | ------- |  | ------- | -------
|Name and Principal Position                                           |      | Year |  | Salary(2) |         | Bonus(3) |         | UnitAwards(4) |  | OptionAwards(1) |         | Non-EquityIncentive PlanCompensation(5) |   | Change inPension ValueandNonqualifiedDeferredCompensationEarnings (1) |  | All OtherCompensation(6) |         | Total
|Joseph W. Craft III, President, Chief Executive Officer and Director  |      | 2009 |  | $         | 341,267 |          | $       |              |  | $               |        |                                         | $ |                                                                      |  | $                        |        |       | $ |  |  | $       | 197,634 |  | $       | 538,901
|                                                                      | 2008 |      |  | 334,828   |         |          |        |               |  |                |         |                                         |  |                                                                       |  |                         |         |       |  |   |  | 163,909 |         |  | 498,737
|                                                                      | 2007 |      |  | 334,828   |         |          |        |               |  |                |         |                                         |  |                                                                       |  |                         |         |       |  |   |  | 139,989 |         |  | 474,817
|                                                                      |      |      |  |           |         |          |         |               | 
|Brian L. Cantrell, Senior Vice President - Chief Financial Officer    |      | 2009 |  |           | 233,873 |          |         |              |  |                 |        |                                         |   |                                                                      |  |                          | 175,000 |       |   |  |  |         | 40,724  |  |         | 449,597
|                                                                      | 2008 |      |  | 218,619   |         |          |        |               |  | 409,482         |         |                                         |  |                                                                       |  | 170,000                  |         |       |  |   |  | 33,848  |         |  | 831,949
|                                                                      | 2007 |      |  | 210,000   |         |          |        |               |  | 206,712         |         |                                         |  |                                                                       |  | 100,000                  |         |       |  |   |  | 30,218  |         |  | 546,930
|R. Eberley Davis Senior Vice President, General Counsel and Secretary |      | 2009 |  |           | 254,442 |          |         | 70,000        |  |                 |        |                                         |   |                                                                      |  |                          | 185,000 |       |   |  |  |         | 56,906  |  |         | 566,348
|                                                                      | 2008 |      |  | 236,369   |         |          | 70,000  |               |  | 409,482         |         |                                         |  |                                                                       |  | 180,000                  |         |       |  |   |  | 46,510  |         |  | 942,361
|                                                                      | 2007 |      |  | 194,616   |         |          |        |               |  | 206,712         |         |                                         |  |                                                                       |  | 95,000                   |         |       |  |   |  | 21,703  |         |  | 518,031
|                                                                      |      |      |  |           |         |          |         |               | 
|Robert G. Sachse, Executive Vice President-Marketing                  |      | 2009 |  |           | 280,148 |          |         |              |  |                 |        |                                         |   |                                                                       |  |                          | 220,000 |       |   |  |  |         | 75,349  |  |         | 575,497
|                                                                      | 2008 |      |  | 261,971   |         |          |        |               |  | 409,482         |         |                                         |  |                                                                       |  | 190,000                  |         |       |  |   |  | 52,412  |         |  | 913,865
|                                                                      | 2007 |      |  | 250,000   |         |          | 185,000 |               |  | 206,712         |         |                                         |  |                                                                       |  | 110,000                  |         |       |  |   |  | 65,816  |         |  | 817,528
|Thomas M. Wynne, Senior Vice President and Chief Operating Officer    |      | 2009 |  |           | 264,807 |          |         |              |  |                 | 175,988 |                                         |   |                                                                       |  |                          | 200,000 |       |   |  |  |         | 54,387  |  |         | 695,182
|                                                                      | 2008 |      |  | 197,992   |         |          |        |               |  |                |         |                                         |  |                                                                       |  | 155,000                  |         |       |  |   |  | 30,417  |         |  | 383,409
|                                                                      | 2007 |      |  | 176,854   |         |          |        |               |  | 131,868         |         |                                         |  |                                                                       |  | 107,500                  |         |       |  |   |  | 26,108  |         |  | 442,330



|(1) | Column is not applicable.
|--- | -------------------------



|(2) | The table below reflects the portion of the Named Executive Officers total compensation expense for 2009 allocated to us by the ARLP Partnership. Based on the
estimated time each executive officer spent managing our affairs in 2009, Board of Directors agreed that 5%, 5% and 8%, respectively, of the beginning of the year base salaries of Messrs. Craft, Cantrell and Davis would be allocated to us. In
addition, for 2009, we were billed by the ARLP Partnership a stipulated benefit burden of 39% of allocated base salary. We believe this percentage allocation is a reasonable estimation of the ARLP Partnerships overall cost of cash compensation
(i.e. compensation other than equity-based compensation) in excess of base salary, including, among other things, benefits, bonus and taxes. Pursuant to the Administrative Services Agreement, this percentage allocation is applied to the total
allocated base salary cost of all employees of the ARLP Partnership who provide services to us, not just our Named Executive Officers, and is applied without regard to the amount of actual bonus, if any, received by any particular employee.
Accordingly, the amounts shown are not indicative of the actual bonus, if any, received by Mr. Craft, Mr. Cantrell or Mr. Davis.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                    |  |                 |        |                         |   |                                      |  |                                                      |        |  |      |  
|------------------- |  | --------------- | ------ | ----------------------- | - | ------------------------------------ |  | ---------------------------------------------------- | ------ |  | ---- | -
|Name                |  | AllocatedSalary |        | AllocatedBenefit Burden |   | Total Allocationof Compensationto Us |  | Allocated Salaryas a % ofTotal AllocatedCompensation |       
|Joseph W. Craft III |  | $               | 17,064 |                         | $ | 6,655                                |  | $                                                    | 23,719 |  | 71.9 | %
|Brian L. Cantrell   |  |                 | 11,694 |                         |   | 4,561                                |  |                                                      | 16,255 |  | 71.9 | %
|R. Eberley Davis    |  |                 | 20,355 |                         |   | 7,938                                |  |                                                      | 28,293 |  | 71.9 | %



|(3) | Amounts represent a retention bonus paid to Mr. Davis in 2009 and 2008 and Mr. Sachse in 2007.
|--- | ----------------------------------------------------------------------------------------------



|(4) | The Unit Awards represent the aggregate grant date fair value of equity awards granted to each Named Executive Officer in the respective year. Please see Item 11.
Compensation Discussion and AnalysisCompensation Program ComponentsEquity Awards under the ARLP LTIP. Messrs. Cantrell, Davis and Sachse received awards in January 2008 and October 2008. The MGP Compensation Committee
approved the awards in October 2008 in lieu of making awards in January 2009. The October 2008 awards increased the 2008 Unit Awards total for each of Messrs. Cantrell, Davis and Sachse by $199,928, based on the grant date fair value.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Amounts represent the STIP bonus earned for the respective year. STIP payments are made in the first quarter of the year following the year in which they are earned.
Other than this bonus, there were no other applicable bonuses earned or deferred associated with year 2009. Please see Item 11. Compensation Discussion and AnalysisCompensation Program ComponentsAnnual Incentive Bonus
Awards.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | For all Named Executive Officers, the amounts represent the sum of the (a) SERP phantom unit contributions valued at the market closing price on the date the
phantom unit was granted, (b) profit sharing savings plan employer contribution and (c) perquisites in excess of $10,000. A reconciliation of the amounts shown is as follows:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |      |      |  |         |         |                                         |        |                |  |        |        |  |         |        
|----------------- | ---- | ---- |  | ------- | ------- | --------------------------------------- | ------ | -------------- |  | ------ | ------ |  | ------- | -------
|                  |      | Year |  | SERP    |         | Profit SharingPlan EmployerContribution |        | Perquisites(a) |  | Total 
|Joseph W. Craft   |      | 2009 |  | $       | 178,034 |                                         | $      | 19,600         |  | $      |       |  | $       | 197,634
|                  | 2008 |      |  | 145,627 |         |                                         | 18,282 |                |  |       |        |  | 163,909
|                  | 2007 |      |  | 121,989 |         |                                         | 18,000 |                |  |       |        |  | 139,989
|Brian L. Cantrell |      | 2009 |  |         | 22,014  |                                         |        | 18,710         |  |        |       |  |         | 40,724 
|                  | 2008 |      |  | 18,064  |         |                                         | 15,784 |                |  |       |        |  | 33,848 
|                  | 2007 |      |  | 14,963  |         |                                         | 15,255 |                |  |       |        |  | 30,218 
|R. Eberley Davis  |      | 2009 |  |         | 37,306  |                                         |        | 19,600         |  |        |       |  |         | 56,906 
|                  | 2008 |      |  | 29,208  |         |                                         | 17,302 |                |  |       |        |  | 46,510 
|                  | 2007 |      |  | 8,124   |         |                                         | 13,579 |                |  |       |        |  | 21,703 
|Robert G. Sachse  |      | 2009 |  |         | 41,854  |                                         |        | 19,600         |  |        | 13,895 |  |         | 75,349 
|                  | 2008 |      |  | 34,012  |         |                                         | 18,400 |                |  |       |        |  | 52,412 
|                  | 2007 |      |  | 36,343  |         |                                         | 18,000 |                |  | 11,473 |        |  | 65,816 
|Thomas M. Wynne   |      | 2009 |  |         | 22,582  |                                         |        | 19,600         |  |        | 12,205 |  |         | 54,387 
|                  | 2008 |      |  | 16,810  |         |                                         | 13,607 |                |  |       |        |  | 30,417 
|                  | 2007 |      |  | 12,737  |         |                                         | 13,371 |                |  |       |        |  | 26,108 



| | a) | For Mr. Sachse, the 2009 amount includes perquisites and other personal benefits totaling $13,895, comprising club dues of $8,150 and tax preparation fees of
$5,745. For Mr. Sachse, the 2007 amount includes perquisites and other personal benefits totaling $11,473, comprising club dues of $7,473 and tax preparation fees of $4,000. For Mr. Wynne, the 2009 amount includes perquisites and other
personal benefits totaling $12,205, all of which were tax preparation fees.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Narrative Disclosure Relating to the Summary Compensation Table

Annual Cash Incentive Bonus Awards

Under the STIP, the Named Executive Officers are eligible for cash awards for the ARLP Partnership achieving an annual financial performance target. The annual performance target is recommended by the
MGPs President and Chief Executive Officer and approved by the MGP Compensation Committee, typically in January of each year. The performance target historically has been EBITDA-derived, with items added or removed from the EBITDA calculation
to ensure that the performance target reflects the pure operating results of the core mining business. (The ARLP Partnerships EBITDA is calculated as net income of ARLP before net interest expense, income taxes, depreciation, depletion and
amortization and net income attributable to noncontrolling interest.) The aggregate cash available for awards under the STIP each year is dependent on the ARLP Partnerships actual financial results for the year compared to the annual
performance target. The cash available generally increases in relationship to the ARLP Partnerships adjusted EBITDA exceeding the minimum financial performance target and is subject to adjustment by the MGP Compensation Committee in its
discretion. Please see Item 11. Compensation Discussion and AnalysisCompensation ComponentsAnnual Incentive Bonus Awards.

Long Term Incentive Plan

Under the ARLP LTIP, grants may be made of either
(a) restricted ARLP units or (b) options to purchase ARLP common units, although to date, no grants of options have been made. Annual grant levels for designated participants (including the Named Executive Officers) are recommended by
MGPs President and Chief Executive Officer, subject to the review and approval of the MGP Compensation Committee. Restricted units granted under the ARLP LTIP vest at the end of a stated period from the grant date (which is currently
approximately three years for all outstanding restricted units), provided the ARLP Partnership achieves an aggregate performance target for that period. The performance target is based on a normalized EBITDA measure, with that measure typically
being the same as the STIP measure for the year of the grant. The target, however, requires achieving an aggregate performance level for the three-year period as compared to aggregate budgeted performance for the period. Please see Item 11.
Compensation Discussion and AnalysisCompensation ComponentsEquity Awards under the ARLP LTIP.

Supplemental Executive Retirement Plan

Under the terms of the SERP, participants are entitled to
receive on December 31 of each year an allocation of phantom ARLP units having a fair market value equal to his or her percentage allocation multiplied by the sum of base salary and cash bonus received that year, then reduced by any
supplemental contribution that was made to the ARLP Partnerships defined contribution PSSP for the participant that year. A participants cumulative notional phantom unit account balance earns the equivalent of common unit distributions.
The calculated distributions are added to the notional account balance in the form of additional phantom units. All amounts granted under the SERP vest immediately and are paid out upon the participants termination or death in cash equal to
then current fair market value of the phantom units credited to the participants notional account under the SERP. The fair market value of a phantom unit is the average closing price of ARLPs common units for the ten trading days
immediately preceding the applicable allocation or distribution date. Please see Item 11. Compensation Discussion and AnalysisCompensation ComponentsSupplemental Executive Retirement Plan.

Director Compensation

The compensation of the directors of our general partner, AGP, is set by the Board of Directors. Mr. Craft, our only employee director, receives no director compensation. The directors of AGP devote
100% of their time as directors of AGP to the business of the AHGP Partnership.



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Director Compensation Table for 2009



|                   |  |                                  |         |                    |   |                     |  |                                             |   |                                                                             |   |                             |  |           |   |  |   |       |  |   |        
|------------------ |  | -------------------------------- | ------- | ------------------ | - | ------------------- |  | ------------------------------------------- | - | --------------------------------------------------------------------------- | - | --------------------------- |  | --------- | - |  | - | ----- |  | - | -------
|Name               |  | Fees earnedor Paid inCash ($)(2) |         | UnitAwards ($) (3) |   | OptionAwards ($)(1) |  | Non-EquityIncentive PlanCompensation ($)(1) |   | Change in PensionValue and NonqualifiedDeferred CompensationEarnings
($)(1) |   | All OtherCompensation($)(4) |  | Total ($)
|Michael J. Hall    |  | $                                | 75,000  |                    | $ | 17,209              |  | $                                           |  |                                                                             | $ |                            |  | $         |  |  | $ |      |  | $ | 92,209 
|Thomas M. Davidson |  |                                  | 115,000 |                    |   | 34,354              |  |                                             |  |                                                                             |   |                            |  |           |  |  |   |      |  |   | 149,354
|Robert J. Druten   |  |                                  | 115,000 |                    |   | 29,804              |  |                                             |  |                                                                             |   |                            |  |           |  |  |   | 4,900 |  |   | 149,704



|(1) | Column is not applicable.
|--- | -------------------------



|(2) | Amounts represent annual retainer paid in cash. Each non-employee director is eligible to defer all or part of the annual retainer pursuant to a deferred compensation
plan that is administered by the Board of Directors. Please see Narrative to Directors Compensation Table, below.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Amounts represent the grant date fair value of equity awards in 2009 related to deferrals of annual retainer and automatically deferred compensation. Please see
Narrative to Director Compensation Table, below. At December 31, 2009, each director had the following number of phantom AHGP common units credited to his notional account under the deferred compensation plan:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                   |  |                                    
|------------------ |  | -----------------------------------
|Name               |  | DeferredCompensationPlan (in Units)
|Michael J. Hall    |  | 1,630                              
|Thomas M. Davidson |  | 3,255                              
|Robert J. Druten   |  | 6,586                              



|(4) | Matching charitable contribution. We match individual contributions of $25 or more to educational institutions and not-for-profit organizations on a one-to-one basis up
to $5,000 per individual, per calendar year.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Narrative to Directors Compensation Table

Our directors compensation includes an annual cash retainer paid quarterly in advance on a pro rata basis (the Annual
Retainer). The Annual Retainer for calendar year 2009 was $115,000. Directors have the option to defer all or part of the Annual Retainer pursuant to AGPs Amended and Restated Annual Retainer and Deferred Compensation Plan (the
Deferred Compensation Plan) by completing an election form prior to the beginning of each calendar year. In addition to the Annual Retainer, 2009 Directors received equity-based compensation that is automatically deferred under the
Deferred Compensation Plan. The equity-based compensation for 2009 was $20,000 for each director other than Mr. Hall, with an additional $10,000 for each Committee Chairman, other than Mr. Hall (without duplication), and is credited
quarterly in advance on a pro rata basis. At Mr. Halls request, his Annual Retainer for 2009 remained the same as 2008, comprising Annual Retainer of $75,000 and equity-based compensation of $15,000. Mr. Hall, who is Chairman of our
Audit Committee, is also a Director and Chairman of the audit committee of MGP, the general partner of ARLP, and received like compensation for his service in those roles.

Pursuant to the Deferred Compensation Plan, for both deferred amounts of Annual Retainer and automatic deferrals of equity-based
compensation, a notional account is established and credited with notional common units of AHGP, described in the plan as phantom units. The number of phantom units credited is determined by dividing the amount deferred by
the average closing unit price for the ten trading days immediately preceding the deferral date. When quarterly cash distributions are made with respect to AHGP common units, an amount equal to such quarterly distribution is credited to the notional
account as additional phantom units. Accounts under the Deferred Compensation Plan will be paid in cash equal to the number of phantom units then credited to the directors account multiplied by the average closing unit price for
the ten trading days immediately preceding the payment date.

The Deferred Compensation Plan was amended effective
October 28, 2008 to provide that, for plan years beginning on or after January 1, 2009, directors may elect to receive payment of the account resulting from deferrals during that plan year either (a) on



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the January 1 on or next following his or her separation from service as a director or (b) on the earlier of a specified January 1 or the January 1 on or next following his or
her separation from service. The payment election must be made prior to each plan year; if no election is made, the account will be paid on the January 1 on or next following the Directors separation from service. In addition, provision
was made for a special, one-time election with respect to all pre-2009 plan year account balances. For those accounts, directors were permitted to elect, on or before December 31, 2008, to receive payment of all or part of the balances either
(a) on the January 1 on or next following his or her separation from service as a director, or (b) on the earlier of a specified January 1 or the January 1 on or next following his or her separation from service, or
(c) in up to 10 annual installments beginning January 1, 2009 (with any unpaid balance paid upon separation from service).

The Deferred Compensation Plan is administered by the Board of Directors, and the Board of Directors may change or terminate the plan at any time; provided, however, that accrued benefits under the plan cannot be impaired.

Upon any recapitalization, reorganization, reclassification, split of common units, distribution or dividend of securities on AHGP common
units, our consolidation or merger, or sale of all or substantially all of our assets or other similar transaction which is effected in such a way that holders of common units are entitled to receive (either directly or upon subsequent liquidation)
cash, securities or assets with respect to or in exchange for AHGP common units, the Board of Directors shall, in its sole discretion (and upon the advice of financial advisors as may be retained by the Board of Directors), immediately adjust the
notional balance of phantom units in each directors account under the Deferred Compensation Plan to equitably credit the fair value of the change in the AHGP common units and/or the distributions (of cash, securities or other assets) received
or economic enhancement realized by the holders of the AHGP common units.

Our Board of Directors has established a policy
that each non-employee director will attain, by January 1, 2014 or five years following such persons election to the Board of Directors, and thereafter maintain during service on the Board of Directors, ownership of equity of AHGP
(including phantom equity ownership under the Deferred Compensation Plan) with value equal to or greater than three times the Annual Retainer amount.

Compensation Committee Interlocks and Insider Participation

With the exception of MGP, none of our executive
officers serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the Board of Directors of our general partner.



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|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS
|-------- | ---------------------------------------------------------------------------------------------

The following table sets forth certain information as of February 26, 2010, regarding the beneficial ownership of both our common units
and the common units of ARLP by (a) each director of our general partner, (b) each executive officer identified in the Summary Compensation Table included in Item 11 above, (c) all such directors of our general partner and such
executive officers as a group, and (d) each person or group known by our general partner to be the beneficial owner of more than 5% of our common units. Our general partner is owned by C-Holdings, which is wholly-owned by Mr. Craft. As of
February 26, 2010, AHGP owns 42.3% of the outstanding common units of ARLP, and AHGP owns, directly or indirectly, all of the outstanding limited liability company interests of MGP, the managing general partner of ARLP. The address of each of
ARLP, C-Holdings, AGP and, unless otherwise indicated in the footnotes to the table below, each of the directors and executive officers reflected in the table below is 1717 South Boulder Avenue, Suite 400, Tulsa, Oklahoma 74119. Unless otherwise
indicated in the footnotes to the table below, our common units and the common units of ARLP reflected as being beneficially owned by the listed directors and executive officers are held directly by such directors and officers. The percentage of our
common units beneficially owned is based on 59,863,000 common units outstanding as of February 26, 2010, and the percentage of common units of ARLP beneficially owned is based on 36,716,855 common units outstanding as of February 26, 2010.



|                                                            |  |                               |  |                                            |                                  |  |                              |  |                                            |  
|----------------------------------------------------------- |  | ----------------------------- |  | ------------------------------------------ | -------------------------------- |  | ---------------------------- |  | ------------------------------------------ | -
|                                                            |  | Alliance Holdings GP, L.P.    |  |                                            | Alliance Resource Partners, L.P. | 
|Name of Beneficial Owner                                    |  | Common UnitsBeneficiallyOwned |  | Percentage ofCommon UnitsBeneficiallyOwned |                                  |  | CommonUnitsBeneficiallyOwned |  | Percentage ofCommon UnitsBeneficiallyOwned |  
|Directors and Executive Officers                            |  |                               |  |                                            |                                  |  |                              |  |                                            |  
|Joseph W. Craft III (1)(2)(5)                               |  | 47,536,123                    |  | 79.41                                      | %                                |  | 15,902,620                   |  | 43.31                                      | %
|Thomas Davidson, Sr.                                        |  |                              |  | *                                          |                                  |  |                             |  | *                                          |  
|Robert J. Druten                                            |  | 5,000                         |  | *                                          |                                  |  |                             |  | *                                          |  
|Michael J. Hall                                             |  |                              |  | *                                          |                                  |  | 29,951                       |  | *                                          |  
|Brian L. Cantrell (3)                                       |  | 6,500                         |  | *                                          |                                  |  | 20,843                       |  | *                                          |  
|R. Eberley Davis                                            |  |                              |  | *                                          |                                  |  | 3,671                        |  | *                                          |  
|Robert G. Sachse                                            |  |                              |  | *                                          |                                  |  | 22,096                       |  | *                                          |  
|Thomas M. Wynne (2)                                         |  | 1,304,372                     |  | *                                          |                                  |  | 21,455                       |  | *                                          |  
|All directors and executive officers as a group (8 persons) |  | 47,547,623                    |  | 79.43                                      | %                                |  | 16,000,636                   |  | 43.58                                      | %
|5% Common Unitholders                                       |  |                               |  |                                            |                                  |  |                              |  |                                            |  
|Management Group (4)                                        |  | 47,536,123                    |  | 79.41                                      | %                                |  | N/A                          |  | N/A                                        |  
|Alliance Holdings GP, L.P.                                  |  | N/A                           |  | N/A                                        |                                  |  | 15,544,169                   |  | 42.34                                      | %



|* | Less than one percent
|- | ---------------------

Footnote related to
AHGP Common Units Beneficial Ownership



|(1) | The AHGP common units attributed to Mr. Craft consist of (i) 5,193,759 AHGP common units held by the JWC III Revocable Trust of which Mr. Craft is
trustee, (ii) 20,641,168 AHGP common units held by SGP, of which Mr. Craft is the indirect sole owner and President, Chief Executive Officer and sole director, (iii) 523,122 AHGP common units held by Alliance Management Holdings III,
LLC (AMH III), of which Mr. Craft may be deemed to be beneficial owner by virtue of his status as President and sole director of AMH III, and (iv) 21,178,074 AHGP common units held by certain current and former members of
management of ARLP other than Mr. Craft with whom he may be deemed to comprise a group under Rule 13d-5(b) of the Exchange Act, as more fully described in footnote (3) below. Of the common units referenced in clause (ii) of this
footnote, 5,200,000 common units are subject to a pledge granted by SGP under a Pledge Agreement, dated October 1, 2008, in favor of Bank of Oklahoma, N.A. The filing of this report shall not be deemed an admission that Mr. Craft
beneficially owns the AHGP common units referenced in clauses (iii) and (iv) of this footnote.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Mr. Wynne is part of the current and former members of management of ARLP with whom Mr. Craft may be deemed to comprise a group under Rule
13d-5(b) of the Exchange Act, as more fully described in clause (iv) of footnote (1) above and in footnote (4) below. The 1,304,372 AHGP common units collectively held, directly and through family trusts, by Mr. Wynne represent a
portion of the 21,178,074 AHGP common units attributed to Mr. Craft as referenced in clause (iv) of footnote
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (1) above. Accordingly, in order to avoid double counting, those 1,304,372 AHGP common units were not included in the line item of the above table entitled All directors and executive
officers as a group (8 persons) for the calculation of the aggregate number of AHGP common units beneficially owned by the listed officers and directors, and the corresponding percentage calculation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The AHGP common units and 14,170 of the ARLP common units are subject to a pledge granted by Mr. Cantrell in favor of Wachovia Bank, N.A. as lender under a Loan
Agreement, dated as of July 9, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Members of the Management Group are parties to a Transfer Restrictions Agreement which contains certain provisions (e.g., drag-along rights granted to Mr. Craft)
that, pursuant to Exchange Act Rule 13d-5(b), may cause the Management Group to be deemed to comprise a group under Exchange Act Rule 13d-5(b). Accordingly, without affirming the existence of an Exchange Act Rule 13d-5(b) group, the Management Group
made a Schedule 13D filing pursuant to Exchange Act requirements. The Management Groups 47,536,123 AHGP common units listed in the table above consist of (i) 26,358,049 AHGP common units owned, directly or indirectly, or attributed to
Mr. Craft as described in clauses (i) through (iii) in footnote (1) above, and (ii) 21,178,074 AHGP common units held by the members of the Management Group other than Mr. Craft, as described in clause (iv) of
footnote (1) above.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | In addition to Mr. Craft, two other members of the Management Group, Thomas L. Pearson and Charles R. Wesley, individually hold more than 5% of AHGPs common
units. Mr. Pearson directly holds 3,574,271 AHGP common units, representing 5.97% of the AHGP common units outstanding. Mr. Wesley holds directly and through a family trust 3,699,080 AHGP common units, representing 6.18% of the AHGP common
units outstanding. The reference in clause (ii) of footnote (4) above to 21,178,074 AHGP common units held by members of the Management Group other than Mr. Craft, includes the 3,574,271 and 3,699,080 AHGP common units held by
Mr. Pearson and Mr. Wesley.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Footnotes related to ARLP Common Units Beneficial Ownership



|(5) | Mr. Crafts ARLP common units consist of (i) 357,451 ARLP common units held directly by him, (ii) 1,000 ARLP common units held by his son, and
(iii) 15,544,169 ARLP common units held by AHGP. Mr. Craft is a director and, through his ownership of C-Holdings, the indirect sole owner of AGP, the general partner of AHGP, and he holds, directly or indirectly, or may be deemed to be
the beneficial owner of, a majority of the outstanding common units of AHGP (as described in footnote (1) above). As of February 26, 2010, AHGP owns 42.3% of ARLPs common units. Mr. Craft disclaims beneficial ownership of the
ARLP common units held by AHGP except to the extent of his pecuniary interest therein.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Equity Compensation Plan Information



|                                                   |  |                                                                                                                    |  |                                                                          |  |                                                                                                             |    
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------- | ---
|Plan Category                                      |  | Number of units to beissued upon exercise/vesting of outstandingoptions, warrants andrights as ofDecember 31, 2009 |  | Weighted-average exerciseprice of outstandingoptions, warrants andrights |  | Number of units remainingavailable for futureissuance under equitycompensation plans as ofDecember 31, 2009 |    
|Equity compensation plans approved by unitholders: |  |                                                                                                                    |  |                                                                          |  |                                                                                                             |    
|ARLP Long-Term Incentive Plan                      |  | 332,845                                                                                                            |  | N/A                                                                      |  | 2,398,295                                                                                                   | (1)
|AHGP Long-Term Incentive Plan                      |  |                                                                                                                   |  | N/A                                                                      |  | 5,215,000                                                                                                   |    



|(1) | On October 23, 2009, the ARLP LTIP was amended to increase the number of common units available for issuance from 1.2 million to 3.6 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

Certain Relationships and Related Transactions

As of December 31,
2009, we owned 15,544,169 common units of ARLP, representing 42.4% of its outstanding common units. In addition, as of December 31, 2009 the Management Group owned approximately 44.9% of our outstanding common units, and ARLPs special
general partner owned approximately 34.5%.

Certain of the officers and directors of our general partner are also officers
and/or directors of ARLPs managing general partner, including Mr. Craft, the Chairman, President and Chief Executive Officer of our general partner, Mr. Hall, a Director and Chairman of our general partners Audit Committee,
Mr. Cantrell, the Senior Vice President and Chief Financial Officer of our general partner, and Mr. Davis, the Senior Vice President, General Counsel and Secretary of our general partner.

Omnibus Agreement

Pursuant to the terms of an amended omnibus agreement, AHGP agreed, and caused its controlled affiliates to agree, for so long as management controls MGP through its ownership of AHGP, not to engage in the business of mining, marketing or
transporting coal in the U.S., unless ARLP is first offered the opportunity to engage in the potential activity or acquire a potential business, and the MGP Board of Directors with the concurrence of its conflicts committee, elects to cause ARLP not
to pursue such opportunity or acquisition. The ARLP amended omnibus agreement provides, among other things, that ARLP will be presumed to desire to acquire the assets until such time as it advises AHGP that it has abandoned the pursuit of such
business opportunity, and AHGP may not pursue the acquisition of such assets prior to that time. This restriction does not apply to: any business we or our affiliates owned or operated at the closing of our IPO; any acquisition by us or our
affiliates so long as the majority of the value of the acquisition does not derive from a restricted business and ARLP is offered the opportunity to purchase the restricted business following its acquisition; or any business conducted by us or our
affiliates with the approval of MGPs Board of Directors or MGPs Conflicts Committee. Except as provided in the amended omnibus agreement, we and our affiliates are not prohibited from engaging in activities that directly compete with
ARLP. In addition, our affiliates are not prohibited from engaging in activities that compete directly with us.

Transactions Between Us,
ARLP, SGP, SGP Land, AGP, C-Holdings, ARH, and ARH II

The Board of Directors of our general partner and its conflicts
committee review each of our related-party transactions to determine that each such transaction reflects market-clearing terms and conditions customary in the coal industry. As a result of these reviews, the Board of Directors and its conflicts
committee approved each of the transactions described below as fair and reasonable to us and our limited partners.

AGP

Our partnership agreement requires us to reimburse AGP for all direct and indirect expenses it incurs or payments it makes
on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform
services for us or on our behalf and expenses allocated to AGP by its affiliates. The amount billed by AGP totaled $0.5 million for the year ended December 31, 2009, for costs principally related to the Deferred Compensation Plan.

C-Holdings

At the closing of our IPO, we entered into the AHGP Credit Facility with C-Holdings, an entity controlled by Mr. Craft, as the lender. The AHGP Credit Facility is available to us for our general partnership purposes. The facility will
expire on March 31, 2011 and borrowings under the facility will bear interest at LIBOR plus 2.0%. We are not required to pay a commitment fee to C-Holdings on the unused portion of the facility. We had no borrowings under the AHGP Credit
Facility during the year ended December 31, 2009.



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Administrative Services

In connection with our IPO, we entered into an Administrative Services Agreement with our general partner, MGP, ARLP, the Intermediate
Partnership and ARH II. Under the Administrative Services Agreement, certain employees of Alliance Coal, including some executive officers, provide administrative services for us and ARH II and our affiliates. We reimburse the ARLP Partnership for
services rendered for us by those employees as provided under the Administrative Services Agreement. We paid the ARLP Partnership $0.4 million under this agreement for the year ended December 31, 2009.

The ARLP Partnerships Related-Party Transactions

The MGP Board of Directors and its conflicts committee review each of the ARLP Partnerships related-party transactions to determine that each such transaction reflects market-clearing terms and
conditions customary in the coal industry. As a result of these reviews, the MGP Board of Directors and its conflicts committee approved each of the transactions described below as fair and reasonable to the ARLP Partnership and its limited
partners.

SGP Land, LLC

SGP Land is owned by ARLPs special general partner, which is owned indirectly by Mr. Craft.

On May 2, 2007, Alliance Coal, the ARLP Partnerships operating subsidiary, entered into a time sharing agreement with SGP Land concerning the use of aircraft owned by SGP Land. In accordance
with the provisions of the time sharing agreement as amended, the ARLP Partnership reimbursed SGP Land $0.7 million for the year ended December 31, 2009 for use of the aircraft.

In 2001, SGP Land, as successor in interest to an unaffiliated third-party, entered into an amended mineral lease with MC Mining. Under the
terms of the lease, MC Mining has paid and will continue to pay an annual minimum royalty of $0.3 million until $6.0 million of cumulative annual minimum and/or earned royalty payments have been paid. MC Mining paid royalties of $0.3 million during
the year ended December 31, 2009. As of December 31, 2009, $1.8 million of advance minimum royalties paid under the lease is available for recoupment.

SGP

In 2005, Tunnel Ridge entered into a coal lease agreement with the
SGP, ARLPs special general partner, requiring advance minimum royalty payments of $3.0 million per year. As of December 31, 2009, Tunnel Ridge had paid $15.0 million of advance minimum royalty payments pursuant to the lease. The advance
royalty payments are fully recoupable against earned royalties. Tunnel Ridge also controls surface land and other tangible assets under a separate lease agreement with the SGP. Under the terms of the lease agreement, Tunnel Ridge has paid and will
continue to pay the SGP an annual lease payment of $0.2 million. The lease agreement has an initial term of four years, which may be extended to be coextensive with the term of the coal lease. Lease expense was $0.2 million for the year ended
December 31, 2009.

The ARLP Partnership has a noncancelable operating lease arrangement with the SGP for the coal
preparation plant and ancillary facilities at the Gibson mining complex. Under the terms of the lease, the ARLP Partnership will make monthly payments of approximately $0.2 million through January 2011. Lease expense incurred for the year ended
December 31, 2009 was $2.6 million.

The ARLP Partnership has agreements with two banks to provide letters of credit in
an aggregate amount of $31.1 million. At December 31, 2008, the ARLP Partnership had $31.1 million in outstanding letters of credit under these agreements. The SGP guarantees $5.0 million of these outstanding letters of credit. The SGP does not
charge the ARLP Partnership for this guarantee.

Director Independence

As a publicly traded limited partnership listed on the NASDAQ Global Select Market, we are required to maintain a sufficient number of
independent directors on the board of our general partner to satisfy the audit committee requirement set forth in NASDAQ Rule 4350(d)(2). Rule 4350(d)(2) requires us to maintain an audit committee of at least three members, each of whom must, among
other requirements, be independent as defined under NASDAQ Rule 4200(a)(15) and meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act (subject to the exemptions provided in Rule 10A-3(c)).



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In 2009, the Board of Directors of our general partner affirmatively determined that the
members of the Audit Committee of our general partnerMessrs. Hall, Davidson and Drutenare independent directors as defined under applicable NASDAQ and Exchange Act rules. Please see Item 10. Directors, Executive Officers and
Corporate Governance of the Managing General PartnerAudit Committee.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The firm of Deloitte & Touche LLP is our independent registered public accounting firm. Fees paid to Deloitte & Touche LLP during the last two fiscal years were as follows:

Audit Fees. Fees for audit services provided during each of the years ended December 31, 2009 and 2008 were $0.2
million, respectively. Audit services consist primarily of the audit and quarterly reviews of the consolidated financial statements, but can also be related to statutory audits of subsidiaries required by governmental or regulatory bodies,
attestation services required by statute or regulation, comfort letters, consents, assistance with and review of documents filed with the SEC, work performed by tax professionals in connection with the audit and quarterly reviews, and accounting and
financial reporting consultations and research work necessary to comply with GAAP.

Audit-Related Fees. There
were no audit-related fees for the years ended December 31, 2009 and 2008, respectively.

Tax Fees. There
were no fees for tax services for the years ended December 31, 2009 and 2008, respectively.

All Other
Fees. There were no other fees for the years ended December 31, 2009 and 2008, respectively.

In addition, ARLP paid
audit, audit-related and tax fees of $0.8 million, respectively, for each of the years ended December 31, 2009 and 2008.

The charter of the Audit Committee provides that the committee is responsible for the pre-approval of all auditing services and permitted non-audit services to be performed for us by our independent registered public accounting firm,
subject to the requirements of applicable law. In accordance with such charter, the Audit Committee may delegate the authority to grant such pre-approvals to the Audit Committee chairman or a sub-committee of the Audit Committee, which pre-approvals
are then reviewed by the full Audit Committee at its next regular meeting. Typically, however, the Audit Committee itself reviews the matters to be approved. The Audit Committee periodically monitors the services rendered by and actual fees paid to
the independent registered public accounting firm to ensure that such services are within the parameters approved by the Audit Committee.



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PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



|               |  |                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) (1)        |  | Financial Statements.                                                                                                                                                                                                                                                                                                 
|               | 
|               |  | The response to this portion of Item 15 is submitted as a separate section herein under Part II, Item 8. Financial Statements and Supplementary
Data.                                                                                                                                                                
|               | 
|(a)(2)         |  | Financial Statement Schedule.                                                                                                                                                                                                                                                                                         
|               | 
|               |  | Schedule IIValuation and Qualifying AccountsYears ended December 31, 2009, 2008 and 2007, is set forth under Part II Item 8. Financial Statements and
Supplementary Data. All other schedules are omitted because they are not applicable or the information is shown in the financial statements or notes thereto.
|               | 
|(a)(3) and (c) |  | The exhibits listed below are filed as part of this annual report.                                                                                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 2.1                                                                                                                                                                                                                                                                                                                    |  | Contribution Agreement by and among Alliance Holdings GP, L.P., Alliance GP, LLC, Alliance Management Holdings, LLC, AMH II, LLC and Alliance Resources GP, LLC dated
November 18, 2005 (Incorporated by reference to Exhibit 2.1 of Registrants Form S-1 filed with the Commission on November 22, 2005, File No. 333-129883).
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.1                                                                                                                                                                                                                                                                                                                    |  | Amended and Restated Agreement of Limited Partnership of Alliance Holdings GP, L.P., dated as of May 15, 2006 (Incorporated by reference to Exhibit 3.1 of Registrants Current
Report Form 8-K filed with the Commission on May 17, 2006, File No. 000-51952).                                                                 
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.2                                                                                                                                                                                                                                                                                                                    |  | Amended and Restated Limited Liability Company Agreement of Alliance GP, LLC (Incorporated by reference to Exhibit 3.2 of Registrants Current Report Form 8-K filed with the
Commission on May 17, 2006, File No. 000-51952).                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.3                                                                                                                                                                                                                                                                                                                    |  | Certificate of Limited Partnership of Alliance Holdings GP, L.P. (Incorporated by reference to Exhibit 3.1 of Registrants Form S-1 filed with the Commission on November 22,
2005, File No. 333-129883).                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.4                                                                                                                                                                                                                                                                                                                    |  | Certificate of Formation of Alliance GP, LLC (Incorporated by reference to Exhibit 3.3 of Registrants Form S-1 filed with the Commission on November 22, 2005, File No.
333-129883).                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.5                                                                                                                                                                                                                                                                                                                    |  | Second Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P. (Incorporated by reference to Exhibit 3.1 of Alliance Resource Partners, L.P.s
Form 8-K filed with the Commission on October 27, 2005, File No. 000-26823).                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.6                                                                                                                                                                                                                                                                                                                    |  | Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P. (Incorporated by reference to Exhibit 3.2 of Alliance Resource Partners,
L.P.s Annual Report on Form 10-K for the year ended December 31, 1999, File No. 000-26823).                                                       
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.7                                                                                                                                                                                                                                                                                                                    |  | Certificate of Limited Partnership of Alliance Resource Partners, L.P. (Incorporated by reference to Exhibit 3.6 of Alliance Resource Partners, L.P.s Registration Statement on
Form S-1 filed with the Commission on May 20, 1999 (Reg. No. 333-78845)).                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                       
|               |  | 3.8                                                                                                                                                                                                                                                                                                                    |  | Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P. (Incorporated by reference to Exhibit 3.8 of Alliance Resource Partners, L.P.s Registration
Statement on Form S-1/A filed with the Commission on July 20, 1999 (Reg. No. 333-78845)).                                                         



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| |  |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |        
| |  | 3.9     |  | Certificate of Formation of Alliance Resource Management GP, LLC (Incorporated by reference to Exhibit 3.7 of Alliance Resource Partners, L.P.s Registration Statement on Form
S-1/A filed with the Commission on July 23, 1999 (Reg. No. 333-78845)).                                                                                                                                                                                                                                         
| |  |        
| |  | 3.10    |  | Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC (Incorporated by reference to Exhibit 3.4 of Alliance Resource Partners, L.P.s Registration
Statement on Form S-3 filed with the Commission on April 1, 2002 (Reg. No. 333-85282)).                                                                                                                                                                                                                           
| |  |        
| |  | 3.11    |  | Amendment No. 1 to Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC (Incorporated by reference to Exhibit 3.5 of Alliance Resource Partners,
L.P.s Registration Statement on Form S-3 filed with the Commission on April 1, 2002 (Reg. No. 333-85282)).                                                                                                                                                                                                        
| |  |        
| |  | 3.12    |  | Amendment No. 2 to Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC (Incorporated by reference to Exhibit 3.6 of Alliance Resource Partners,
L.P.s Registration Statement on Form S-3 filed with the Commission on April 1, 2002 (Reg. No. 333-85282)).                                                                                                                                                                                                        
| |  |        
| |  | 3.13    |  | Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L. P. dated October 25, 2007 (Incorporated by reference to Exhibit
3.10 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K filed with the Commission on February 29, 2008, File No. 000-26823).                                                                                                                                                                    
| |  |        
| |  | 3.14    |  | Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Alliance Holdings GP, L.P. (Incorporated by reference to Exhibit 3.14 the Registrants Annual Report
on Form 10-K filed with the Commission on March 7, 2008, File No. 000-51952).                                                                                                                                                                                                                                  
| |  |        
| |  | 4.1     |  | Form of our Common Unit Certificate (Included as Exhibit A to the Amended and Restated Agreement of Limited Partnership of Alliance Holdings GP, L.P.)                                                                                                                                                                                                                                                                                                                                          
| |  |        
| |  | 4.2     |  | Form of Registration Rights Agreement (Incorporated by reference to Exhibit 4.2 of Registrants Form S-1 filed with the Commission on November 22, 2005, File No. 333-129883).                                                                                                                                                                                                                                                                                                                  
| |  |        
| |  | 10.1(1) |  | Alliance Holdings GP, L.P. Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of Registrants Current Report on Form 8-K filed with the Commission on May 17,
2006, File No. 000-51952).                                                                                                                                                                                                                                                                                       
| |  |        
| |  | 10.2    |  | Revolving Credit Agreement dated May 15, 2006 between Alliance Holdings GP, L.P. and C-Holdings, LLC (Incorporated by reference to Exhibit 10.2 of Registrants Current Report
on Form 8-K filed with the Commission on May 17, 2006, File No. 000-51952).                                                                                                                                                                                                                                      
| |  |        
| |  | 10.3    |  | Omnibus Agreement dated August 20, 1999 among Alliance Resource Partners, L.P., Alliance Resource Holdings, Inc., Alliance Resource GP, LLC, Alliance Resource Management GP, LLC and
Alliance Resource Partners, L.P. (Incorporated by reference to Exhibit 10.3 of Registrants Current Report on Form 8-K filed with the Commission on May 17, 2006, File No. 000-51952).                                                                                                                    
| |  |        
| |  | 10.4    |  | Amendment to Omnibus Agreement dated May 8, 2002 among Alliance Resource Partners, L.P., Alliance Resource Holdings, Inc., Alliance Resource GP, LLC, Alliance Resource Management
GP, LLC and Alliance Resource Partners, L.P. (Incorporated by reference to Exhibit 10.4 of Registrants Current Report on Form 8-K filed with the Commission on May 17, 2006, File No. 000-51952).                                                                                                           
| |  |        
| |  | 10.5    |  | Second Amendment dated May 15, 2006 to the Omnibus Agreement amount Alliance Resource Partners, L.P., Alliance Resource Holdings, Inc., Alliance Resource GP, LLC, Alliance Resource
Management GP, LLC, AMH II, LLC, Alliance Resource Holdings II, Inc., Alliance Management Holdings, LLC, Alliance Holdings GP, L.P. and Alliance GP, LLC (Incorporated by reference to Exhibit 10.5 of Registrants Current Report Form 8-K filed
with the Commission on May 17, 2006, File No. 000-51952).



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| |  |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      
| |  | 10.6  |  | Administrative Services Agreement dated May 15, 2006 among Alliance Resource Partners, L.P., Alliance Resource Management GP, LLC, Alliance Resource Holdings II, Inc., Alliance
Holdings GP, L.P. and Alliance GP, LLC (Incorporated by reference to Exhibit 10.6 of Registrants Current Report on Form 8-K filed with the Commission on May 17, 2006, File No. 000-51952).                                                                                      
| |  |      
| |  | 10.7  |  | Registration Rights Agreement dated May 15, 2006 among Alliance Holdings GP, L.P., Alliance GP, LLC and each of the other parties identified on the signature pages (Incorporated by
reference to Exhibit 10.7 of Registrants Quarterly Report on Form 10-Q filed with the Commission on August 14, 2006, File No. 000-51952).                                                                                                                                    
| |  |      
| |  | 10.8  |  | Transfer Restrictions Agreement, dated as of June 13, 2006, by and among Alliance Holdings GP, L.P., Alliance GP, LLC, C-Holdings, LLC, Alliance Resource Holdings II, Inc. Alliance
Resource Holdings, Inc., Alliance Resource GP, LLC, and the individuals and trusts listed on the signature pages thereof (Incorporated by reference to Exhibit 4.1 of Registrants Current Report on Form 8-K filed with the Commission on June 16,
2006, File No. 000-51952).
| |  |      
| |  | 10.9  |  | Amended and Restated Registration Rights Agreement, dated as of June 13, 2006, by and among Alliance Holdings GP, L.P., Alliance GP, LLC, Alliance Management Holdings, LLC, AMH II,
LLC, and Alliance Resource GP, LLC (Incorporated by reference to Exhibit 4.2 of Registrants Current Report Form 8-K filed with the Commission on June 16, 2006, File No. 000-51952).                                                                                         
| |  |      
| |  | 10.10 |  | Alliance GP, LLC Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 10.1 of Registrants Quarterly Report on Form 10-Q filed with the Commission on
November 13, 2006, File No. 000-51952).                                                                                                                                                                                                                                            
| |  |      
| |  | 10.11 |  | Amended and Restated Charter for the Audit Committee of the Board of Directors dated March 5, 2009 (Incorporated by reference to Exhibit 10.12 of Registrants Annual Report on
Form 10-K filed with the Commission on March 6, 2009, File No. 000-51952).                                                                                                                                                                                                         
| |  |      
| |  | 10.12 |  | Note Purchase Agreement, dated as of August 16, 1999, among Alliance Resource GP, LLC and the purchasers named therein (Incorporated by reference to Exhibit 10.20 of Alliance
Resource Partners, L.P.s Annual Report on Form 10-K for the year ended December 31, 1999, File No. 000-26823).                                                                                                                                                                     
| |  |      
| |  | 10.13 |  | Letter of Credit Facility Agreement dated as of August 30, 2001, between Alliance Resource Partners, L.P. and Fifth Third Bank (Incorporated by reference to Exhibit 10.23 of
Alliance Resource Partners, L.P.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, File No. 000-26823).                                                                                                                                                      
| |  |      
| |  | 10.14 |  | Amendment No. 1 to Letter of Credit Facility Agreement between Alliance Resource Partners, L.P. and Fifth Third Bank (Incorporated by reference to Exhibit 10.9 of Alliance Resource
Partners, L.P.s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 000-26823).                                                                                                                                                                        
| |  |      
| |  | 10.15 |  | Promissory Note Agreement dated as of October 2, 2001, between Alliance Resource Partners, L.P. and Bank of the Lakes, N.A. (Incorporated by reference to Exhibit 10.26 of Alliance
Resource Partners, L.P.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, File No. 000-26823).                                                                                                                                                         
| |  |      
| |  | 10.16 |  | Guarantee Agreement, dated as of October 2, 2001, between Alliance Resource GP, LLC and Bank of the Lakes, N.A. (Incorporated by reference to Exhibit 10.27 of Alliance Resource
Partners, L.P.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, File No. 000-26823).                                                                                                                                                                     



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| |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |         
| |  | 10.17    |  | Contribution and Assumption Agreement, dated August 16, 1999, among Alliance Resource Holdings, Inc., Alliance Resource Management GP, LLC, Alliance Resource GP, LLC, Alliance
Resource Partners, L.P., Alliance Resource Operating Partners, L.P. and the other parties named therein (Incorporated by reference to Exhibit 10.3 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K for the year ended
December 31, 1999, File No. 000-26823).                                                                                                                                                    
| |  |         
| |  | 10.18    |  | Omnibus Agreement, dated August 16, 1999, among Alliance Resource Holdings, Inc., Alliance Resource Management GP, LLC, Alliance Resource GP, LLC and Alliance Resource Partners,
L.P. (Incorporated by reference to Exhibit 10.4 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K for the year ended December 31, 1999, File No. 000-26823).                                                                                                                                                                                                                                                     
| |  |         
| |  | 10.19(1) |  | Amended and Restated Alliance Coal, LLC 2000 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.17 of Alliance Resource Partners, L.P.s Annual Report on Form
10-K for the year ended December 31, 2003, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                     
| |  |         
| |  | 10.20(1) |  | First Amendment to the Alliance Coal, LLC 2000 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.18 of Alliance Resource Partners, L.P.s Annual Report on Form
10-K for the year ended December 31, 2003, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                   
| |  |         
| |  | 10.21(1) |  | Alliance Coal, LLC Short-Term Incentive Plan (Incorporated by reference to Exhibit 10.12 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K for the year ended
December 31, 1999, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                              
| |  |         
| |  | 10.22(1) |  | Alliance Coal, LLC Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 99.2 of Alliance Resource Partners, L.P.s Registration Statement on Form S-8
filed with the Commission on April 1, 2002 (Reg. No. 333-85258)).                                                                                                                                                                                                                                                                                                                                                                   
| |  |         
| |  | 10.23    |  | Alliance Resource Management GP, LLC Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 99.3 of Alliance Resource Partners, L.P.s Registration
Statement on Form S-8 filed with the Commission on April 1, 2002 (Reg. No. 333-85258)).                                                                                                                                                                                                                                                                                                                                               
| |  |         
| |  | 10.24    |  | Restated and Amended Coal Supply Agreement, dated February 1, 1986, among Seminole Electric Cooperative, Inc., Webster County Coal Corporation and White County Coal Corporation
(Incorporated by reference to Exhibit 10.9 of Alliance Resource Partners, L.P.s Registration Statement on Form S-1/A filed with the Commission on July 20, 1999 (Reg. No. 333-78845)).                                                                                                                                                                                                                                          
| |  |         
| |  | 10.25    |  | Amendment No. 1 to the Restated and Amended Coal Supply Agreement effective April 1, 1996, between MAPCO Coal Inc., Webster County Coal Corporation, White County Coal Corporation,
and Seminole Electric Cooperative, Inc. (Incorporated by reference to Exhibit 10.14 of Alliance Resource Partners, L.P.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File No. 000-26823).                                                                                                                                                                                                             
| |  |         
| |  | 10.26    |  | Amendment No. 4 dated October 25, 2005, between Seminole Electric Cooperative, Inc. and Webster County Coal, LLC (successor-in-interest to Webster County Coal Corporation), White
County Coal, LLC (successor-in-interest to White County Coal Corporation), and Alliance Coal, LLC, as successor-in-interest to Mapco Coal, Inc. and agent for Webster County Coal, LLC and White County Coal, LLC, to the Coal Supply Agreement
(Incorporated by reference to Exhibit 10.3 of Alliance Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on October 26, 2005, File No. 000-26823).
| |  |         
| |  | 10.27    |  | Agreement for the Supply of Coal to the Mt. Storm Power Station, dated June 22, 2005, between Virginia Electric and Power Company and Alliance Coal, LLC (Incorporated by reference
to Exhibit 10.1 of Alliance Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on June 27, 2005, File No. 000-26823).                                                                                                                                                                                                                                                                             



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| |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |         
| |  | 10.28(2) |  | Ancillary Services Agreement, dated June 22, 2005, between Virginia Electric and Power Company and Alliance Coal, LLC (Incorporated by reference to Exhibit 10.2 of Alliance
Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on June 27, 2005, File No. 000-26823).                                                                                                                                                                                                                          
| |  |         
| |  | 10.29(2) |  | Amended and Restated Lease Agreement, dated June 22, 2005, between Virginia Electric and Power Company and Mettiki Coal, LLC (Incorporated by reference to Exhibit 10.3 of Alliance
Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on June 27, 2005, File No. 000-26823).                                                                                                                                                                                                                   
| |  |         
| |  | 10.30(2) |  | Amended and Restated Equipment Lease Agreement (Existing Truck Unloading Facility), dated June 22, 2005, between Virginia Electric and Power Company and Mettiki Coal, LLC
(Incorporated by reference to Exhibit 10.4 of Alliance Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on June 27, 2005, File No. 000-26823).                                                                                                                                                                     
| |  |         
| |  | 10.31(2) |  | Amended and Restated Memorandum of Understanding dated as of June 22, 2005, among Virginia Electric and Power Company, Alliance Coal, LLC and Mettiki Coal, LLC (Incorporated by
reference to Exhibit 10.5 of Alliance Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on June 27, 2005, File No. 000-26823).                                                                                                                                                                                
| |  |         
| |  | 10.32(2) |  | Memorandum of Understanding dated January 17, 2005 between VEPCO and Mettiki (Incorporated by reference to Exhibit 10.2 of Alliance Resource Partners, L.P.s Current Report on
Form 8-K filed with the Commission on January 19, 2005, File No. 000-26823).                                                                                                                                                                                                                                                                
| |  |         
| |  | 10.33    |  | Guaranty by Alliance Coal, LLC dated October 25, 2005 (Incorporated by reference to Exhibit 10.28 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K filed with
the Commission on March 16, 2006, File No. 000-26823).                                                                                                                                                                                                                                                                                        
| |  |         
| |  | 10.34(2) |  | Amendment No. 1 to the Agreement for the Supply of Coal to Mt. Storm Power Station, made effective January 1, 2007, between Virginia Electric and Power Company and Alliance Coal,
LLC (Incorporated by reference to Exhibit 10.1 of Alliance Resource Partners, L.P.s Current Report on Form 8-K filed with the Commission on February 20, 2007, File No. 000-26823).                                                                                                                                                     
| |  |         
| |  | 10.35(2) |  | Memorandum of Understanding, made effective January 1, 2007, between Virginia Electric and Power Company, and Alliance Coal, LLC, Mettiki Coal (WV), LLC and Mettiki Coal, LLC
(Incorporated by reference to Exhibit 10.33 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K filed with the Commission on March 1, 2007, File No. 000-26823).                                                                                                                                                                
| |  |         
| |  | 10.36    |  | Amendment No. 2 to Letter of Credit Facility Agreement between Alliance Resource Partners, L.P. and Fifth Third Bank (Incorporated by reference to Exhibit 10.1 of Alliance Resource
Partners, L.P.s Current Report on Form 8-K filed with the Commission on May 16, 2006, File No. 000-26823).                                                                                                                                                                                                                            
| |  |         
| |  | 10.37    |  | Second Amendment to the Omnibus Agreement dated May 15, 2006 by and among Alliance Resource Partners, L.P., Alliance Resource GP, LLC, Alliance Resource Management GP, LLC, Alliance
Resource Holdings, Inc., Alliance Resource Holdings II, Inc., AMH-II, LLC, Alliance Holdings GP, L.P., Alliance GP, LLC and Alliance Management Holdings, LLC (Incorporated by reference to Exhibit 10.1 of Alliance Resource Partners, L.P.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 000-26823).
| |  |         
| |  | 10.38    |  | Administrative Services Agreement dated May 15, 2006 among Alliance Resource Partners, L.P., Alliance Resource Management GP, LLC, Alliance Resource Holdings II, Inc., Alliance
Holdings GP, L.P. and Alliance GP, LLC (Incorporated by reference to Exhibit 10.2 of Alliance Resource Partners, L.P.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 000-26823).                                                                                                                            



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| |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |         
| |  | 10.39(2) |  | Financial Covenants Agreement dated October 25, 2005 by and between Seminole Electric Corporation, Inc. and Alliance Coal, LLC (Incorporated by reference to Exhibit 10.29 of
Alliance Resource Partners, L.P.s Annual Report on Form 10-K filed with the Commission on March 16, 2006, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                             
| |  |         
| |  | 10.40(1) |  | First Amendment to the Amended and Restated Alliance Coal, LLC Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.50 of Alliance Resource Partners,
L.P.s Annual Report on Form 10-K filed with the Commission on March 1, 2007, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |         
| |  | 10.41(1) |  | Second Amendment to the Amended and Restated Alliance Coal, LLC Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.50 of Alliance Resource Partners,
L.P.s Form 10-K filed with the Commission on February 29, 2008, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |         
| |  | 10.42(1) |  | Second Amendment to the Amended and Restated Alliance Coal, LLC Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.51 of Alliance Resource Partners, L.P.s
Annual Report on Form 10-K filed with the Commission on March 1, 2007, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |         
| |  | 10.43(1) |  | First Amendment to the Alliance Coal, LLC Short-Term Incentive Plan (Incorporated by reference to Exhibit 10.52 of Alliance Resource Partners, L.P.s Annual Report on Form 10-K
filed with the Commission on March 1, 2007, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  |         
| |  | 10.44(1) |  | Second Amendment to the Alliance Coal, LLC Short-Term Incentive Plan (Incorporated by reference to Exhibit 10.53 of Alliance Resource Partners, L.P.s Annual Report on Form
10-K filed with the Commission on February 29, 2008, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |         
| |  | 10.45    |  | First Amendment to the Alliance Resource Management GP, LLC Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 10.53 of Alliance Resource Partners,
L.P.s Annual Report on Form 10-K filed with the Commission on March 1, 2007, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |         
| |  | 10.46    |  | Second Amendment to the Alliance Resource Management GP, LLC Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 10.55 of Alliance Resource Partners,
L.P.s Annual Report Form 10-K filed with the Commission on February 29, 2008, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |         
| |  | 10.47    |  | Amendment No. 2 to Letter of Credit Facility Agreement between Alliance Resource Partners, L.P. and Bank of the Lakes, National Association, dated April 13, 2009 (Incorporated by
reference to Exhibit 10.1 of Alliance Resource Partners, L.P.s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2009, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                           
| |  |         
| |  | 10.48    |  | Amendment No. 2, dated as of September 30, 2009, to the Second Amended and Restated Credit Agreement, dated as of September 25, 2007, among Alliance Resource Operating Partners,
L.P. as Borrower, the Initial Lenders, Initial Issuing Banks and Swing Line Bank, in each case as named therein, JPMorgan Chase Bank, N.A. as Paying Agent, Citicorp USA, Inc. and JPMorgan Chase Bank, N.A. as Co-Administrative Agents, and Citigroup
Global Markets Inc. and J.P. Morgan Securities, Inc. as Joint Lend Arrangers and Joint Bookrunners (Incorporated by reference to Exhibit 10.1 of the Registrants Current Report on Form 8-K, filed with the Commission on October 6, 2009, File No.
000-51952).
| |  |         
| |  | 10.49    |  | Amendment No. 1 to Revolving Credit Facility dated March 12, 2007 between Alliance Holdings GP, L.P. and C-Holdings, LLC (Incorporated by reference to Exhibit 10.63 of the
Registrants Annual Report on Form 10-K filed with the Commission on March 15, 2007, File No. 000-51952).                                                                                                                                                                                                                                                                                                                                                                                                                     



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| |  |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |         
| |  | 10.50    |  | Amendment No. 2 to Revolving Credit Facility dated March 5, 2008 between Alliance Holdings GP, L.P. and C-Holdings, LLC (Incorporated by reference to Exhibit 10.67 of the
Registrants Annual Report on Form 10-K filed with the Commission on March 7, 2008, File No. 000-51952).                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |         
| |  | 10.51    |  | First Amendment to the Alliance GP, LLC Directors Annual Retainer and Deferred Compensation Plan (Incorporated by reference to Exhibit 10.68 of the Registrants Annual Report
on Form 10-K filed with the Commission on March 7, 2008, File No. 000-51952).                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |         
| |  | 10.52    |  | Amended and Restated Alliance GP, LLC Directors Annual Retainer and Deferred Compensation Plan (Incorporated by reference to Exhibit 10.60 of the Registrants Annual Report on
Form 10-K filed with the Commission on March 6, 2009, File No. 000-51952).                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |         
| |  | 10.53    |  | Second Amended and Restated Credit Agreement, dated as of September 25, 2007, among Alliance Resource Operating Partners, L.P. as Borrow and the Initial Lenders, Initial Issuing
Banks and Swing Line Bank and JPMorgan Chase Bank, N.A. as Paying Agent and Citicorp USA, Inc. and JP Morgan Chase Bank, N.A. as Co-Administrative Agents and Citigroup Global Markets Inc. and J.P. Morgan Securities In. as Joint Lead Arrangers and
Joint Bookrunners (Incorporated by reference to Exhibit 99.1 of the Registrants Current Report on Form 8-K filed with the Commission on September 27, 2007, File No. 000-51952).                                                                              
| |  |         
| |  | 10.54    |  | Note Purchase Agreement, 6.28% Senior Notes Due June 26, 2015, and 6.72% Senior Notes due June 26, 2018, dated as of June 26, 2008, by and among Alliance Resource Operating
Partners, L.P. and various investors (Incorporated by reference to Exhibit 10.1 of the Registrants Current Report on Form 8-K filed with the Commission on July 1, 2008, File No. 000-51952).                                                                                                                                                                                                                                                                                                                             
| |  |         
| |  | 10.55    |  | First Amendment, dated as of June 26, 2008, to the Note Purchase Agreement, dated August 16, 1999, 8.31% Senior Notes due August 20, 2014, by and among Alliance Resource Operating
Partners, L.P. (as successor to Alliance Resource GP, LLC) and various investors. (Incorporated by reference to Exhibit 10.2 of the Registrants Current Report on Form 8-K filed with the Commission on July 1, 2008, File No.
000-51952).                                                                                                                                                                                                                                                                         
| |  |         
| |  | 10.56    |  | Letter Amendment No. 1, dated as of June 26, 2008, to the Second Amended and Restated Credit Agreement, dated as of September 25, 2007, among Alliance Resource Operating Partners,
L.P. as Borrower, the Initial Lenders, Initial Issuing Banks and Swing Line Bank, in each case as named therein, JPMorgan Chase Bank, N.A. as Paying Agent, Citicorp USA, Inc. and JPMorgan Chase Bank, N.A. as Co-Administrative Agents, and Citigroup
Global Markets Inc. and J.P. Morgan Securities, Inc. as Joint Lead Arrangers and Joint Bookrunners (Incorporated by reference to Exhibit 99.1 of the Registrants Current Report on Form 8-K filed with the Commission on July 1, 2008, File No.
000-51952).
| |  |         
| |  | 10.57(1) |  | Third Amendment to the Amended and Restated Alliance Coal, LLC Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.52 of Alliance Resource Partners, L.P.
Annual Report on Form 10-K filed with the Commission on February 27, 2009, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |         
| |  | 10.58(1) |  | Second Amended and Restated Alliance Resource Management GP, LLC Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 10.53 of Alliance Resource Partners,
L.P. Annual Report on Form 10-K filed with the Commission on March 2, 2009, File No. 000-26823).                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |         
| |  | 10.59(2) |  | Agreement for the Supply of Coal, dated August 20, 2009 between Tennessee Valley Authority and Alliance Coal, LLC (Incorporated by reference to Exhibit 10.2 of the Registrants
Quarterly Report on Form 10-Q filed with the Commission on November 6, 2009, File No. 000-51952).                                                                                                                                                                                                                                                                                                                                                                                                                      



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| |  |       |  |                                                                                                                                                                                                                                                         
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      
| |  | 14.1  |  | Code of Ethics for Principal Executive Officers and Senior Financial Officers (Incorporated by reference to Exhibit 10.63 of the Registrants Annual Report on Form 10-K filed
with the Commission on March 15, 2007, File No. 000-51952).              
| |  |      
| |  | *21.1 |  | List of Subsidiaries.                                                                                                                                                                                                                                   
| |  |      
| |  | *23.1 |  | Consent of Deloitte & Touche LLP regarding Form S-3, Registration Statements No. 333-143463.                                                                                                                                                            
| |  |      
| |  | *31.1 |  | Certification of Joseph W. Craft III, President and Chief Executive Officer of Alliance GP, LLC, the managing general partner of Alliance Holdings GP, L.P., dated March [3], 2010,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.          
| |  |      
| |  | *31.2 |  | Certification of Brian L. Cantrell, Senior Vice President and Chief Financial Officer of Alliance GP, LLC, the managing general partner of Alliance Holdings GP, L.P., dated March
[3], 2010, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |      
| |  | *32.1 |  | Certification of Joseph W. Craft III, President and Chief Executive Officer of Alliance GP, LLC, the managing general partner of Alliance Holdings GP, L.P., dated March [3], 2010,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.          
| |  |      
| |  | *32.2 |  | Certification of Brian L. Cantrell, Senior Vice President and Chief Financial Officer of Alliance GP, LLC, the managing general partner of Alliance Holdings GP, L.P., dated March
[3], 2010, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

|* | Filed herewith (or furnished, in the case of Exhibits 32.1 and 32.2).
|- | ---------------------------------------------------------------------



|(1) | Denotes management contract or compensatory plan or arrangement.
|--- | ----------------------------------------------------------------



|(2) | Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and the
omitted material has been separately filed with the Securities and Exchange Commission.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, in Tulsa, Oklahoma, on March 3, 2010.



ALLIANCE HOLDINGS GP, L.P.By:

Alliance GP, LLCits general partner/s/ Joseph W. Craft IIIJoseph W. Craft IIIPresident, Chief Executive Officer and Director/s/ Brian L. CantrellBrian L. CantrellSenior Vice President and Chief Financial Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.



|                                            |  |                                                                                                |  |              
|------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -------------
|Signature                                   |  | Title                                                                                          |  | Date         
|                                            |  |                                                                                               
|/s/ Joseph W. Craft III Joseph W. Craft III |  | President, Chief Executive Officer, and Director (Principal Executive Officer)                 |  | March 3, 2010
|                                            |  |                                                                                               
|/s/ Brian L. Cantrell Brian L. Cantrell     |  | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 3, 2010
|                                            |  |                                                                                               
|/s/ Michael J. Hall Michael J. Hall         |  | Director                                                                                       |  | March 3, 2010
|                                            |  |                                                                                               
|/s/ Thomas M. Davidson Thomas M. Davidson   |  | Director                                                                                       |  | March 3, 2010
|                                            |  |                                                                                               
|/s/ Robert J. Druten Robert J. Druten       |  | Director                                                                                       |  | March 3, 2010



144