SecProbe.io

CORRESP
1
filename1.htm

SEC Letter

 February 14, 2006

 Via EDGAR and Facsimile

 Ms. Kimberly Calder

 United States Securities and Exchange Commission

 Division of Corporation Finance

 100 F Street, N.E.

 Washington, D.C. 20549-7010

RE:
Alliance Resource Partners, L.P.

 Form
10-K, Filed March 15, 2005

 Letter dated January 23, 2006

 File No. 0-26823

 Dear Ms. Calder:

 On
behalf of Alliance Resource Partners, L.P. (the “Partnership”), we are responding to observations made by the accounting staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) transmitted to
Mr. Joseph W. Craft III on January 23, 2006 regarding the above-captioned Form 10-K for the fiscal year ended December 31, 2004, as amended on August 16, 2005 (the “2004 Form 10-K”), which followed the Staff’s
previous letter, dated November 17, 2005, and the Partnership’s response thereto, dated January 9, 2006. We welcome the continued dialogue with the Staff in our collective effort to ensure the Partnership’s compliance with
applicable disclosure requirements and to enhance the overall disclosure in the Partnership’s filings.

 In our response below, we will first address
issues raised by the Staff concerning our 2004 Form 10-K. Second, we will address issues related to our Form 10-K for the fiscal year ended December 31, 2005 (the “2005 Form 10-K”).

 2004 Form 10-K

 As stated in our initial response
letter dated January 9, 2006, while each of the Partnership’s individual mines may be considered a component of the Partnership that engages in business activities from which it earns revenues and incurs expenses and for which discrete
financial information is available, the Partnership’s operating results for 2004 were not regularly reviewed on a mine-by-mine basis by the chief operating

 Kimberly Calder

 Senior Assistant Chief Accountant

 February 14, 2006

  Page
 2
 of 8

decision maker (“CODM”), Mr. Joseph W. Craft III, the Partnership’s President and Chief Executive Officer, to make resource
allocation decisions and assess performance. The CODM’s focus is designed to ensure that the Partnership meets its primary business objective of achieving sustainable, capital-efficient growth in consolidated cash flows that will allow for
increasing distributions by the Partnership to its unitholders. In attempting to meet this objective, the CODM manages the Partnership on an enterprise-wide basis for purposes of allocating resources and assessing performance. The CODM’s
operating decisions are made from a market-based perspective and reflect a long-term view of U.S. coal production in each of the major Eastern U.S. coal fields. The Partnership’s presence in these producing areas allows the CODM to maintain a
macro view of these coal markets as a whole.

 We also noted that the Partnership’s marketing function is centralized rather than conducted on a
mine-by-mine basis and that day-to-day management of the Partnership’s coal production operations is decentralized, with the CODM focusing on key operating metrics to monitor the ability of mine personnel to effectively minimize controllable
costs and maximize productivity.

 Although our CODM manages the Partnership on an enterprise-wide basis for purposes of allocating resources and assessing
performance, as of December 31, 2004, the CODM did receive financial information on a monthly basis which included discrete operating results for each of its eight mines. The CODM’s receipt of reports with discrete financial information
was a matter of convenience since he was using reports prepared in formats that are standard accounting department reports. The CODM used selected information from these reports for the purpose of allocating resources and assessing performance.
Based on the information used by the CODM in his decision making process, our initial response was predicated on the belief that the Partnership’s separate mining operations did not meet the definition of operating segments under the provisions
of paragraph 10 of Statement of Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information (as amended) (“SFAS 131”). Consequently, we did not believe that providing an
aggregation analysis under the provisions of paragraph 17 of SFAS 131 was necessary in our initial response.

 In light of the comments contained in your
January 23, 2006 letter, however, the Partnership now understands that, as of December 31, 2004, the Staff considers each of our eight mines to be operating segments under paragraph 10 of SFAS 131. We believe that the Partnership’s
mining operations were appropriately aggregated in 2004 as a single reportable segment under the provisions of paragraph 17 of SFAS 131. Our analysis supporting this belief is provided below.

 In light of the CODM’s receipt of mine-by-mine discrete operating results (average sales prices and Adjusted EBITDA) as of December 31, 2004, we have
identified eight operating segments (Dotiki complex, Warrior complex, Hopkins County Coal complex, Pattiki complex, Gibson complex, Pontiki complex, MC Mining complex and Mettiki

 Kimberly Calder

 Senior Assistant Chief Accountant

 February 14, 2006

  Page
 3
 of 8

complex) under SFAS 131 and have aggregated these operating segments into one reporting segment under the provisions of paragraph 17 of that statement.

 Paragraph 17 of SFAS 131 states the following:

 “Operating segments often exhibit similar long-term financial performance if they have similar economic characteristics. For example, similar long-term average gross margins for two operating segments would be
expected if their economic characteristics were similar. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the objective and basic principles of this Statement, if the segments have
similar economic characteristics and if the segments are similar in each of the following areas:

a.
The nature of the products and services

b.
The nature of the production processes

c.
The type or class of customer for their products and services

d.
The methods used to distribute their products or provide their services

e.
If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.”

 Our analysis below addresses each of these aggregation criteria in turn:

 Similar Economic Characteristics. Exhibit “A” sets forth, on a mine-by-mine basis, average sales prices and Adjusted EBITDA
Margins for the years 2000 to 2004. As discussed above, although not used as the basis for allocating resources or assessing performance, Adjusted EBITDA Margin is the profitability measure received by the CODM for the years 2000 to 2004. The
Partnership has a strategy of maintaining a significant long-term contract position for both its sales tonnage and total coal sales. While this strategy has enhanced our overall operating efficiency, financial stability and consolidated
profitability by providing greater predictability of coal sales volumes and prices, it also results in variability of average sales prices and Adjusted EBITDA Margins at individual mining operations. The period to period financial results of an
individual mining operation is significantly impacted by the timing of legacy contract renewals, entering into new long-term contracts at current market terms, application of market re-opening provisions in existing long term sales contracts, and
opportunities to sell coal into spot markets. As a result of this mix of legacy and current coal supply agreements, some inherent variability in average sales prices and Adjusted EBITDA Margins between periods at individual mines and between mines
is expected. Despite the variability that may result at individual mining operations, these contract mix and marketing decisions made by the CODM are consistent with his long-term view of the Eastern U.S. coal markets and the objective of generating
sustained growth in consolidated cash flow. Consequently, timing differences in average sales price and Adjusted EBITDA

 Kimberly Calder

 Senior Assistant Chief Accountant

 February 14, 2006

  Page
 4
 of 8

Margins at a particular operation would not change the CODM’s decision process for allocating resources and assessing performance.

 Variability in Adjusted EBITDA Margins between periods and between mines is also attributable to the Partnership’s centralized marketing function. As
previously explained, the centralized marketing function allows the CODM to allocate coal shipments between the Partnership’s various mining operations to meet the demands of customers based on the shipment mix that maximizes consolidated cash
flows. Assigning coal shipments in this manner to maximize overall Partnership financial results can and does result in variability to financial performance as the profitability of an individual mine(s) may be penalized with a corresponding benefit
realized by another mine(s). Consequently, variability in average sales prices and Adjusted EBITDA Margins resulting from the allocation of coal shipments to or from a particular mining operation would not change the CODM’s decision process for
allocating resources and assessing performance.

 An example of the assignment of coal shipments under our centralized marketing function is
the routine reallocation of the Partnership’s various coal supply agreements with the Tennessee Valley Authority (“TVA”). The Partnership has several coal supply agreements with TVA, each with varying terms and conditions. The
shipment of coal sales volumes under these various coal supply agreements are routinely allocated between the Dotiki, Warrior Coal, Hopkins County Coal and Pattiki complexes. With the objective of maximizing the Partnership’s consolidated cash
flows, these allocations are made to address operational or logistical issues that arise from time to time at these complexes. Additionally, allocations between these complexes are made to accommodate requests from TVA that result from operational
or logistical issues that arise at the various TVA power plants serviced by the Partnership.

 In the FASB Implementation Guide, Segment
Information – Guidance on Applying Statement 131, Q&A #8 notes the following:

 “Statement 131 states that operating segments
are considered to be similar if they can be expected to have essentially the same future prospects. Therefore, the similarity of the economic characteristics should be evaluated based on future prospects and not necessarily on the current
indicators only.”

 As noted in Exhibit “A”, the 2000 – 2004 average sales price for six of the Partnership’s mines
are within a very narrow range of $22.89 to $25.66 and the remaining two mines, both of which had average sales prices of approximately $32.00, were considered to be similar to the others. The Adjusted EBITDA Margin for the five years is within a
narrow range for seven of the eight mines,

 Kimberly Calder

 Senior Assistant Chief Accountant

 February 14, 2006

  Page
 5
 of 8

ranging from 4.15 to 7.71. The only mine not within this narrow range is Hopkins, which was temporarily idled as explained on Exhibit “A”.
Therefore, we believe that the long-term Adjusted EBITDA Margin is similar.

 We believe, therefore, that the Partnership’s average
sales prices and Adjusted EBITDA Margins are consistent with expectations for coal production in the Eastern U.S. coal fields and meet the similar economic characteristic criteria. Exhibit “A” is provided under separate cover together with
a request under Regulation 200.83 that such information be held in confidence by the SEC.

 We also believe that qualitative issues should be
considered in assessing the economic characteristics of our coal operations. Our coal operations are operated in a similar manner and face similar competitive and operating risks. Our coal mines all have a high level of fixed and semi-fixed costs.

 Additionally, our coal mines are capital intensive. Significant ongoing capital allocations are required to maintain our existing
facilities and continue coal production. The major pieces of mining equipment require routine replacement and/or significant rebuilds. For example, the cost of each routine rebuild, which are scheduled every two to three years, of a continuous
mining unit approaches $1 million. In addition, the cost of each routine rebuild of support equipment can cost several hundred thousand dollars. Consequently, a significant portion of our annual capital commitments are non-discretionary and are
associated with the CODM’s commitment to maintaining production from each of our existing operating regions.

 The nature of the
products and services. The Partnership produces and markets bituminous coal in the Eastern United States. There is no natural segregation among the way the coal is produced, the type of coal produced, where the coal is produced or to whom
the coal is sold, on a mine-by-mine basis or otherwise, indicating that aggregation of the Partnership’s operations would be appropriate under SFAS 131.

 The nature of the production processes. The Partnership is almost exclusively an underground coal producer, utilizing underground mining processes typical in the Eastern United States All of the
Partnership’s operations are union-free with similar pay and benefit packages. Each of the Partnership’s coal mining operations are subject to similar revenue and/or production based taxes (e.g. black lung tax, reclamation tax and
royalties).

 The Partnership does have two surface operations, both of which are immaterial to its consolidated financial results. One of
the surface operations, at the Hopkins County Coal complex, depleted its active mining area in December 2005. The Hopkins County Coal complex is transitioning to an underground mine, referred to as Elk Creek, in 2006. The other remaining surface
operation is a support mine

 Kimberly Calder

 Senior Assistant Chief Accountant

 February 14, 2006

  Page
 6
 of 8

at the Mettiki complex, which is principally an underground operation, which produced 34,000 and 134,000 tons of coal in 2004 and 2005, respectively, and is
expected to produce of approximately 144,000 tons of coal in 2006.

 The type and class of customer for products and services.
The Partnership’s customers are almost exclusively power generators. In 2004, 79% of the Partnership’s coal sales tonnage was consumed by electric utilities for electricity generation with the remaining coal sales consumed almost entirely
by cogeneration plants and industrial users for power generation. The Partnership’s customers are focused on the delivered cost per million BTU, with the result that the Partnership competes with coal sourced by utilities from various
geographic regions in the United States. In many cases, the Partnership’s customers do not purchase coal from a single mine or group of mines, and, in fact, frequently, production from more than one of the Partnership’s mines may be used
to satisfy any particular customer’s requirements.

 The methods used to distribute products or services. The
Partnership’s coal is shipped by rail, truck or barge or a combination of these means of transportation. The Partnership uses similar methods of transportation at all of its various mining operations to distribute its coal.

 The nature of the regulatory environment. The Partnership’s mining operations are subject to similar local, state and federal
regulatory frameworks. These regulatory frameworks include, but are not limited to, (i) administration of safety and health standards by the Mine Safety and Health Administration and similar regulatory agencies in each state, (ii) the
Surface Mining Control and Reclamation Act that requires that comprehensive environmental protection and reclamation standards be met during the course of and upon completion of mining activities, (iii) the Federal Black Lung Benefit