Alliance Resource Partners, L.P. Announces Record Quarterly Net Income; and Declares Quarterly Cash Distribution of $0.65 Per Unit

Business Wire, Oct 22, 2004

TULSA, Okla. -- Alliance Resource Partners, L.P. (Nasdaq:ARLP) today reported quarterly net income of $25.3 million, or $1.37 per basic limited partner unit, for the third quarter ended September 30, 2004, an increase of approximately 134% over net income of $10.8 million, or $0.59 per basic limited partner unit, reported for the same quarter of 2003. The third quarter 2004 results represent the fourth consecutive quarter the Partnership has reported record quarterly net income.

The Partnership also announced that the Board of Directors of its managing general partner declared a quarterly cash distribution of $0.65 per unit (an annualized rate of $2.60) for the third quarter ended September 30, 2004, payable on November 12, 2004, to all unitholders of record as of November 1, 2004. As previously stated, increases to the quarterly cash distribution are generally considered by the Board of Directors of the Partnership's managing general partner at its January and July meetings. (See ARLP Press Release, dated April 23, 2004.)

"Alliance again delivered solid results this quarter," said Joseph W. Craft III, President and Chief Executive Officer. "We continue to benefit from the robust coal markets and remain committed to maximizing our operating efficiency in the face of cost pressures resulting from higher fuel, power and steel prices."

Several items significantly impacted the third quarter 2004 results. The final settlement with the Partnership's insurance underwriters for claims relating to the Dotiki mine fire earlier this year increased net income in the 2004 third quarter by $18.0 million. (See ARLP Press Releases, dated February 12, March 1, March 8, March 25, April 23, July 22 and September 13, 2004.) The buy-out of several coal sales contracts, which will allow the Partnership to take advantage of anticipated higher spot coal prices in 2005, also reduced net income in the 2004 third quarter by $3.2 million.

Revenues and tons sold for the quarter ended September 30, 2004 were $158.3 million and 5.1 million tons, respectively, compared to $141.8 million and 5.2 million tons in the third quarter of 2003. The increase in revenues was primarily attributable to higher coal sales prices, which increased approximately 11.6% during the 2004 third quarter as compared to the same period in 2003.

Total coal production for the third quarter of 2004 increased approximately 3.3% to 4.9 million tons, compared to 4.7 million tons in the comparable period last year. Increased production at the Partnership's Illinois Basin and MC Mining operations is primarily attributable to the continuing benefits realized from equipment and infrastructure investments made over the last few years. These production increases were partially offset by lower production at the Pontiki mine due to adverse geologic conditions.

Operating expenses in the third quarter of 2004 increased to $108.9 million as compared to $98.5 million for the same period in 2003. In addition to the negative impact resulting from the buy-out of several coal sales contracts, the higher operating expenses are primarily attributable to increased coal production volumes, increased materials and supply costs (particularly fuel, power and steel), sales related expenses and maintenance expense. Partially offsetting these increases was a reduction in operating expenses of approximately $2.8 million due to the final settlement of insurance claims attributable to the Dotiki mine fire. As a result of the settlement, the Partnership also recorded a net gain from insurance settlement of approximately $15.2 million in the current quarter. General and administrative expenses increased $6.2 million during the third quarter of 2004 to $12.7 million as compared to $6.5 million for the same period last year. The increased general and administrative expense was associated primarily with higher incentive compensation expense, which rose by approximately $5.8 million, principally due to the increased market value of the Partnership's common units. The closing price for the Partnership's common units was $55.67 on September 30, 2004.

For the nine months ended September 30, 2004, Partnership net income rose by $33.9 million, an increase of approximately 105%, to $66.4 million, or $3.58 per basic limited partner unit, compared to net income of $32.5 million, or $1.86 per basic limited partner unit, for the same period of 2003. Revenues increased approximately 19.6% to $478.6 million and tons of coal sold rose approximately 7.2% to 15.4 million tons for the first nine months of 2004, compared to $400.2 million and 14.4 million tons for the same period of 2003, respectively.

Increased production and sales volumes, particularly at the Partnership's Warrior, Pattiki, Gibson County, and MC Mining operations, have positively impacted financial results through the first nine months of 2004. Reflecting the improved coal markets, higher average coal sales prices realized by the Partnership have further benefited year-to-date financial results. Proceeds from the previously discussed final settlement of the Dotiki mine fire insurance claim also benefited financial results through the third quarter of 2004. Year-to-date financial results have been negatively impacted by the increases in general and administrative expenses, including higher incentive compensation expense of $14.4 million, and operating expenses as explained above in the review of third quarter 2004 financial results.