Significant relationships referenced in this management's discussion and analysis of financial condition and results of operations include the following:

• References to "we," "us," "our" or "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., also referred to as our managing general partner.

• References to "SGP" mean Alliance Resource GP, LLC, the special general partner of Alliance Resource Partners, L.P., also referred to as our special general partner.

• References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P., also referred to as our intermediate partnership.

• References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for the operations of Alliance Resource Operating Partners, L.P., also referred to as our operating subsidiary.

• References to "AHGP" mean Alliance Holdings GP, L.P., individually as the parent company, and not on a consolidated basis.

• References to "AGP" mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P.

Summary

We are a diversified producer and marketer of coal primarily to major U.S. utilities and industrial users. We began mining operations in 1971 and, since then, have grown through acquisitions and internal development to become what we believe to be the fifth largest coal producer in the eastern U.S. We operate eight mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. We are constructing two new mining complexes, one in Kentucky and one in West Virginia, and also operate a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. As is customary in the coal industry, we have entered into long-term coal supply agreements with many of our customers.

We have four reportable segments: 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 LLC's Dotiki mining complex, Gibson County Coal, LLC's Gibson North mining complex, Hopkins County Coal LLC's Elk Creek mining complex, White County Coal LLC's ("White County Coal") Pattiki mine and Warrior Coal, LLC's ("Warrior") mining complex, the Gibson County Coal (South), LLC ("Gibson South") property, certain properties of Alliance Resource Properties, LLC ("Alliance Resource Properties") and a mining complex currently under construction at River View Coal, LLC ("River View"). We are in the process of permitting the Gibson South property for future mine development.

• Central Appalachian segment is comprised of Pontiki Coal, LLC's and MC Mining LLC's mining complexes.

• Other and Corporate segment includes marketing and administrative expenses, the Mt. Vernon dock activities, coal brokerage activity, Mid-America Carbonates, LLC, ("MAC") and Matrix Design Group, LLC ("Matrix Design") and certain properties of Alliance Resource Properties.

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

We reported Net Income of ARLP of $72.5 million for the three months ended March 31, 2009 ("2009 Quarter") compared to $43.2 million for the three months ended March 31, 2008 ("2008 Quarter"). This increase of $29.3 million was principally due to improved contract pricing resulting in a record average coal sales price of $48.59 per ton sold. We had tons sold of 6.4 million compared to 7.0 million tons sold for the 2008 Quarter and tons produced were comparable for each of the 2009 and 2008 Quarters at 6.9 million. Increased operating expenses during the 2009 Quarter primarily reflect the increase in labor and labor-related expenses, as well as higher sales-related expenses, material and supply costs and maintenance costs and other factors described below.

                                                        Three Months Ended March 31,
                                                   2009        2008        2009      2008
                                                    (in thousands)         (per ton sold)
 Tons sold                                           6,427       6,994        N/A       N/A
 Tons produced                                       6,871       6,865        N/A       N/A
 Coal sales                                      $ 312,260   $ 269,158   $  48.59   $ 38.48
 Operating expenses and outside coal purchases   $ 201,136   $ 195,521   $  31.30   $ 27.96

Coal sales. Coal sales for the 2009 Quarter increased 16.0% to $312.3 million from $269.2 million for the 2008 Quarter. The increase of $43.1 million in coal sales reflected the benefit of record average coal sales prices (contributing $65.0 million in additional coal sales) partially offset by lower sales volumes (reducing coal sales by $21.9 million). Record average coal sales prices increased $10.11 per ton sold to $48.59 per ton in the 2009 Quarter as compared to the 2008 Quarter, primarily as a result of improved contract pricing across all operations as well as increased price realizations on coal sales of purchased tons in the Central Appalachian and Northern Appalachian regions.

Operating expenses. Operating expenses increased 2.0% to $196.4 million for the 2009 Quarter from $192.6 million for the 2008 Quarter. The increase of $3.8 million resulted from an increase in operating expenses associated with the specific factors listed below partially offset by decreased operating expenses associated with a reduction of 637,000 produced tons sold:

• Labor and benefit expenses per ton produced increased to $10.97 per ton in the 2009 Quarter from $9.38 per ton in the 2008 Quarter. This increase of $1.59 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 we continue to hire and train new employees for the River View and Tunnel Ridge mine development projects;

• Expenses incurred during the 2009 Quarter relating to our River View and Tunnel Ridge organic growth projects increased $1.0 million over the 2008 Quarter; and

• Production taxes and royalties expenses (which were incurred as a percentage of coal sales and coal volumes) increased $2.0 million in the 2009 Quarter as compared to the 2008 Quarter as a result of increased average coal sales prices, partially offset by reduced tons sold.

General and administrative. General and administrative expenses for the 2009 Quarter increased to $9.7 million compared to $8.8 million in the 2008 Quarter. The increase of $0.9 million was primarily due to higher salary and benefit costs related to increased staffing levels and higher incentive compensation expense.

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 and administrative services revenue from affiliates. Other sales and operating revenues increased to $6.1 million for the 2009 Quarter from $3.8 million for the 2008 Quarter. The increase of $2.3 million was primarily attributable to increased revenues from transloading revenues and Matrix Design product sales.

Outside coal purchases. Outside coal purchases increased to $4.8 million for the 2009 Quarter from $2.9 million in the 2008 Quarter. The increase of $1.9 million was primarily attributable to an increase in outside coal purchases in the Central Appalachian region to supply attractive opportunities in the spot market.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $27.4 million for the 2009 Quarter from $23.3 million for the 2008 Quarter. The increase of $4.1 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 $8.0 million for the 2009 Quarter from $3.0 million for the 2008 Quarter. The increase of $5.0 million was principally attributable to increased interest expense resulting from the 2008 financing activities, partially offset by reduced interest expense resulting from our August 2008 principal repayment of $18.0 million on our original senior notes issued in 1999. The 2008 financing activities are discussed in more detail below under "-Debt Obligations."

Interest income. Interest income increased to $0.6 million for the 2009 Quarter from $0.1 million for the 2008 Quarter. The increase of $0.5 million resulted from increased interest income earned on short-term investments purchased with funds received from the 2008 financing activities, which are discussed in more detail below under "-Debt Obligations."

Transportation revenues and expenses. Transportation revenues and expenses each increased to $10.9 million for the 2009 Quarter, which was comparable to $10.6 million for the 2008 Quarter. The cost of transportation services are passed through to our customers. Consequently, we do not realize any gain or loss on transportation revenues.

Income before income taxes. Income before income taxes increased 71.3% to $73.1 million for the 2009 Quarter compared to $42.6 million for the 2008 Quarter. The increase of $30.5 million reflects the impact of the changes in revenues and expenses described above.

Income tax expense (benefit). Income tax expense for the 2009 Quarter was $0.4 compared to an income tax benefit of $0.7 million for the 2008 Quarter. The income tax expense for the 2009 Quarter was primarily due to operating income of Matrix Design, which is owned by our subsidiary, Alliance Services, Inc. ("ASI"). The income tax benefit for the 2008 Quarter was primarily due to operating losses of Matrix Design.

Net income attributable to noncontrolling interest. The noncontrolling interest represents a 50% third-party interest in MAC. The third-party's portion of MAC's net income was $129,000 and $141,000 for the 2009 Quarter and the 2008 Quarter, respectively. For more information about MAC, please read "Item 1. Financial Statements (Unaudited) - Note 11. Noncontrolling Interest" of this Quarterly Report on Form 10-Q.

Segment Adjusted EBITDA. Our 2009 Quarter Segment Adjusted EBITDA increased $39.8 million, or 51.3%, to a record $117.5 million from the 2008 Quarter Segment Adjusted EBITDA of $77.7 million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are (in thousands):

                                                   Three Months Ended
                                                        March 31,
                                                   2009          2008          Increase/(Decrease)
Segment Adjusted EBITDA
Illinois Basin                                   $  90,758     $  57,450     $     33,308       58.0 %
Central Appalachia                                  16,818        11,122            5,696       51.2 %
Northern Appalachia                                  6,712         8,998           (2,286 )    (25.4 )%
Other and Corporate                                  3,212           (26 )          3,238         (1 )
Elimination                                             -            120             (120 )       (1 )

Total Segment Adjusted EBITDA (2)                $ 117,500     $  77,664     $     39,836       51.3 %


Tons sold
Illinois Basin                                       4,963         5,365             (402 )     (7.5 )%
Central Appalachia                                     764           845              (81 )     (9.6 )%
Northern Appalachia                                    700           784              (84 )    (10.7 )%
Other and Corporate                                     -             -                -          -
Elimination                                             -             -                -          -

Total tons sold                                      6,427         6,994             (567 )     (8.1 )%


Coal sales
Illinois Basin                                   $ 221,530     $ 183,903     $     37,627       20.5 %
Central Appalachia                                  53,787        49,110            4,677        9.5 %
Northern Appalachia                                 36,493        36,145              348        1.0 %
Other and Corporate                                    450            -               450         (1 )
Elimination                                             -             -                -          -

Total coal sales                                 $ 312,260     $ 269,158     $     43,102       16.0 %


Other sales and operating revenues
Illinois Basin                                   $     637     $     573     $         64       11.2 %
Central Appalachia                                     128           161              (33 )    (20.5 )%
Northern Appalachia                                    774         1,046             (272 )    (26.0 )%
Other and Corporate                                  9,360         3,945            5,415         (1 )
Elimination                                         (4,749 )      (1,915 )         (2,834 )       (1 )

Total other sales and operating revenues         $   6,150     $   3,810     $      2,340       61.4 %


Segment Adjusted EBITDA Expense
Illinois Basin                                   $ 131,409     $ 127,026     $      4,383        3.5 %
Central Appalachia                                  37,096        38,149           (1,053 )     (2.8 )%
Northern Appalachia                                 30,555        28,193            2,362        8.4 %
Other and Corporate                                  6,599         3,972            2,627       66.1 %
Elimination                                         (4,749 )      (2,036 )         (2,713 )       (1 )

Total Segment Adjusted EBITDA Expense (3)        $ 200,910     $ 195,304     $      5,606        2.9 %

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

• the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

• the ability of our assets to generate cash sufficient to pay interest costs and support its indebtedness;

• our operating performance and return on investment as compared to those of other companies in the coal energy sector, without regard to financing or capital structures; and

• the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

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 and Net Income of ARLP (in thousands):

                                                            Three Months Ended
                                                                 March 31,
                                                            2009          2008
     Segment Adjusted EBITDA                              $ 117,500     $  77,664

     General and administrative                              (9,734 )      (8,831 )
     Depreciation, depletion and amortization               (27,350 )     (23,294 )
     Interest expense, net                                   (7,350 )      (2,890 )
     Income tax (expense) benefit                              (426 )         655

     Net income                                           $  72,640     $  43,304
     Net income attributable to noncontrolling interest        (129 )        (141 )

     Net Income of ARLP                                   $  72,511     $  43,163

(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 our customers, and consequently we do not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by our management to assess the operating performance of our segments. 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 our 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):

                                                                   Three Months Ended
                                                                       March 31,
                                                                  2009           2008
Segment Adjusted EBITDA Expense                                 $ 200,910      $ 195,304

Outside coal purchases                                             (4,760 )       (2,903 )
Other income                                                          226            217

Operating expense (excluding depreciation, depletion and
amortization)                                                   $ 196,376      $ 192,618

Illinois Basin - Segment Adjusted EBITDA, as defined in reference (2) to the table above, increased 58.0% to $90.8 million as compared to $57.5 million in the 2008 Quarter. The $33.3 million increase was primarily attributable to improved contract pricing reflecting a higher average coal sales price of $44.64 per ton during the 2009 Quarter compared to $34.28 per ton for the 2008 Quarter. The benefit of the higher average coal sales price was partially offset by reduced tons sold due to weather disruptions in western Kentucky, particularly at the Dotiki, Warrior and Elk Creek mines, as well as unplanned customer outages during the 2009 Quarter. Total Segment Adjusted EBITDA Expense, defined in reference (3) to the above table, for the 2009 Quarter increased 3.5% to $131.4 million from $127.0 million in the 2008 Quarter, primarily as a result of cost increases described above under consolidated operating expenses and the impact of weather disruptions which were partially offset by lower costs due to reduced tons sold during the 2009 Quarter. On a per ton sold basis, Segment Adjusted Expense for the 2009 Quarter increased $2.80 to $26.48 per ton as compared to the 2008 Quarter Segment Adjusted EDITDA of $23.68 per ton.

Central Appalachia - Segment Adjusted EBITDA, as defined in reference (2) to the table above, increased 51.2% to $16.8 million for the 2009 Quarter compared to $11.1 million in the 2008 Quarter. The increase of $5.7 million was primarily the result of improved contract pricing, resulting in an increase in the average coal sales price of $12.33 per ton to $70.41 per ton in the 2009 Quarter, as compared to $58.08 per ton in the 2008 Quarter. Segment Adjusted EBITDA Expense per ton sold during the 2009 Quarter of $48.56 was an increase of $3.44 per ton as compared to $45.12 per ton sold in the 2008 Quarter, reflecting higher costs per ton resulting from lower production and cost increases described above under consolidated operating expenses, as well as offsetting favorable impacts from certain decreases in compliance related costs, workers compensation costs and reduced outside coal purchase cost per ton during the 2009 Quarter as compared to the 2008 Quarter (for a definition of Segment Adjusted EBITDA Expense, see reference (3) to the above table).

Northern Appalachia - Segment Adjusted EBITDA, as defined in reference (2) to the table above, decreased 25.4% to $6.7 million for the 2009 Quarter as compared to $9.0 million in the 2008 Quarter. The decrease was the result of lower tons sold and higher Segment Adjusted EBITDA Expense per ton sold during the 2009 Quarter of $43.65 per ton, an increase of $7.67 per ton as compared to $35.98 per ton in the 2008 Quarter (for a definition of Segment Adjusted EBITDA Expense, see reference (3) to the above table). The increase in Segment Adjusted EBITDA Expense per ton sold reflects the impact of less favorable mining conditions and reduced recovery during the 2009 Quarter, higher contract mining and purchased coal costs and increased maintenance costs on longwall equipment, as well as the other cost increases described above under consolidated operating expenses. Coal sales benefited from a higher average coal sales price of $52.13 per ton for the 2009 Quarter as compared to $46.12 per ton for the 2008 Quarter partially offset by a 10.7% decrease in tons sold reflecting lower contract shipments.

Other and Corporate - Segment Adjusted EBITDA, as defined in reference (2) to the above table, increased to $3.2 million in the 2009 Quarter from a loss of $26,000 in the 2008 Quarter, primarily due to increased Matrix Design product sales and service revenues and Mt. Vernon transloading revenues. The increase in Segment Adjusted EBITDA Expense, as defined in reference (3) to the above table, primarily reflects increased expenses associated with higher outside services revenue and product sales.

Liquidity and Capital Resources

Liquidity

We have historically satisfied our working capital requirements and funded our 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. We believe that the current cash on hand along with cash generated from operations and our borrowing capacity will be sufficient to meet our working capital requirements, anticipated capital expenditures (other than major capital improvements or acquisitions), scheduled debt payments and distribution payments. Our ability to satisfy our obligations and planned expenditures will depend upon our future operating performance and access to financing sources, which will be affected by prevailing economic conditions generally and in the coal industry specifically, some of which are beyond our control. Based on our recent operating results, current cash position, anticipated future cash flows and sources of financing that we expect to have available, we do not anticipate any significant liquidity constraints in the foreseeable future. However, to the extent operating cash flow is materially lower than expected, including the impact of increases in interest rates, future liquidity may be adversely affected. Please see "Item 1A. Risk Factors" in the Annual Report on Form 10-K for the year ended December 31, 2008.

Cash Flows

Cash provided by operating activities was $75.3 million for the 2009 Quarter compared to $66.4 million for the 2008 Quarter. The increase in cash provided by operating activities was principally attributable to an increase in net income partially offset by unfavorable changes in cash flow for certain operating assets such as trade receivables and inventory.

Net cash used in investing activities was $67.3 million for the 2009 Quarter compared to $43.1 million for the 2008 Quarter. The increase in cash used for investing activities was primarily attributable to an increase in capital expenditures related to the continuing mine development at the River View and Tunnel Ridge growth projects, partially offset by an absence of acquisitions of coal reserves and other assets in the 2009 Quarter as compared to $13.3 million in such acquisitions in the 2008 Quarter. Additionally, timing differences related to payment of accounts payable and accrued liabilities for the 2009 Quarter capital expenditures partially offset the increases in capital expenditures in the 2009 Quarter.

Net cash used in financing activities was $41.0 million for the 2009 Quarter compared to $8.5 million for the 2008 Quarter. The increase in cash used in financing activities was primarily attributable to increased distributions paid to partners in the 2009 Quarter and the benefit in the 2008 Quarter of net borrowings of $22.0 million under our revolving credit facility.

Capital Expenditures

Capital expenditures increased to $85.6 million in the 2009 Quarter from $34.0 million in the 2008 Quarter. See "-Cash Flows" above concerning this increase in capital expenditures. Our anticipated total capital expenditures for the year . . .