Alliance Resources Partners Long Term Changes

This is the minute postal service inwards my Alliance Resources series. The showtime postal service is here. 

When I larn researching a society I convey been known to read very old filings only to run into how describe of piece of work organisation has changed over time. In a illustration similar Alliance Resource Partners this is critical. ARLP is by-far the best performed coal mining society inwards America too it has had the same administration squad since the belatedly 1990s. The changes since that fourth dimension convey all live wrought past times administration too circumstance.

This company's tape is too so extraordinary that it is worth agreement it inwards a really long term manner.

So I started amongst the oldest Alliance Resources 10-K inwards the SEC database.

From the form 10-K for the financial twelvemonth 1999 here are the residuum sheet:

And the P&L

You volition run into that gross works life too equipment was $278 meg amongst $103 meg of accumulated depreciation.

Here is the production information equally given from the same shape 10-K.

In 1999, nosotros produced 14.1 meg tons of coal too sold 15.0 meg tons of coal. The coal nosotros produced inwards 1999 was 19.9% low-sulfur coal, 19.9% medium-sulfur coal too 60.2% high-sulfur coal. In 1999, unopen to 85% of our medium- too high-sulfur coal was sold to utility plants amongst installed pollution command devices, likewise known equally "scrubbers," to take away sulfur dioxide.

We tin operate out that they thence produced 2.8 meg tons of depression sulfur coal, 2.8 meg tons of medium sulfur coal too 8.5 meg tons of high sulfur coal.

The gross works life too equipment needed to create a ton of coal was (278/14.1=) $19.7. In other words each ton of production required $19.7 worth of holding works life too equipment at cost.

The higher upwardly mentioned 10-K gave us some operating information equally well:

In those days revenue per ton of coal was $23.12 too costs per ton was $18.75. The margin was only nether $6 per ton. Maintenance uppercase expenditure was $6 meg - or almost 43c per ton of coal produced.

Depreciation, depletion too amortization was $39.7 meg or $2.82 per ton.

The society likewise gave work data:

EMPLOYEES 

We convey unopen to 1,360 employees, including 100 corporate employees too 1,260 employees involved inwards active mining operations. Our work-force is alone union-free. Relations amongst our employees are mostly good, too at that topographic point convey been no recent operate stoppages or spousal human relationship organizing campaigns amid our employees.

You tin operate out from this that each employee produced 10,367 tons of coal annually, each mine employee roughly 11,200 tons of coal annually.

To run into the changes wrought nosotros take to compare to the latest 10-K.

Here is the most recent residuum sheet:

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In thousands, except unit of measurement data)

		December 31,
		2012			2011
ASSETS
CURRENT ASSETS:
Cash too cash equivalents		$	28,283		$	273,528
Trade receivables			172,724			128,643
Other receivables			1,019			3,525
Due from affiliates			658			5,116
Inventories			46,660			33,837
Advance royalties			11,492			7,560
Prepaid expenses too other assets			20,476			11,945
Total electrical flow assets			281,312			464,154
PROPERTY, PLANT AND EQUIPMENT:
Property, works life too equipment, at cost			2,361,863			1,974,520
Less accumulated depreciation, depletion too amortization			(832,293	)		(793,200	)
Total property, works life too equipment, net			1,529,570			1,181,320
OTHER ASSETS:
Advance royalties			23,267			27,916
Due from affiliate			3,084			—
Equity investments inwards affiliates			88,513			40,118
Other long-term assets			30,226			18,010
Total other assets			145,090			86,044
TOTAL ASSETS		$	1,955,972		$	1,731,518
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable		$	100,174		$	96,869
Due to affiliates			327			494
Accrued taxes other than income taxes			19,998			15,873
Accrued payroll too related expenses			38,501			35,876
Accrued interest			1,435			2,195
Workers' compensation too pneumoconiosis benefits			9,320			9,511
Current uppercase lease obligations			1,000			676
Other electrical flow liabilities			19,572			15,326
Current maturities, long-term debt			18,000			18,000
Total electrical flow liabilities			208,327			194,820
LONG-TERM LIABILITIES:
Long-term debt, excluding electrical flow maturities			773,000			686,000
Pneumoconiosis benefits			59,931			54,775
Accrued pension benefit			31,078			27,538
Workers' compensation			68,786			64,520
Asset retirement obligations			81,644			70,836
Long-term uppercase lease obligations			18,613			2,497
Other liabilities			9,147			6,774
Total long-term liabilities			1,042,199			912,940
Total liabilities			1,250,526			1,107,760
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited Partners—Common Unitholders 36,874,949 too 36,775,741 units outstanding, respectively			1,020,823			943,325
General Partners' deficit			(273,113	)		(279,107	)
Accumulated other comprehensive loss			(42,264	)		(40,460	)
Total Partners' Capital			705,446			623,758
TOTAL LIABILITIES AND PARTNERS' CAPITAL		$	1,955,972		$	1,731,518

   

And hither is the most recent P&L statement:

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010 (In thousands, except unit of measurement too per unit of measurement data)

		Year Ended December 31,
		2012			2011			2010
SALES AND OPERATING REVENUES:
Coal sales		$	1,979,437		$	1,786,089		$	1,551,539
Transportation revenues			22,034			31,939			33,584
Other sales too operating revenues			32,830			25,532			24,942
Total revenues			2,034,301			1,843,560			1,610,065
EXPENSES:
Operating expenses (excluding depreciation, depletion too amortization)			1,303,291			1,131,750			1,009,935
Transportation expenses			22,034			31,939			33,584
Outside coal purchases			38,607			54,280			17,078
General too administrative			58,737			52,334			50,818
Depreciation, depletion too amortization			218,122			160,335			146,881
Asset harm charge			19,031			—			—
Total operating expenses			1,659,822			1,430,638			1,258,296
INCOME FROM OPERATIONS			374,479			412,922			351,769
Interest expense (net of involvement capitalized of $8,436, $14,797 too $888, respectively)			(28,684	)		(21,954	)		(30,062	)
Interest income			229			375			200
Equity inwards loss of affiliates, net			(14,650	)		(3,404	)		—
Other income			3,115			983			851
INCOME BEFORE INCOME TAXES			334,489			388,922			322,758
INCOME TAX EXPENSE (BENEFIT)			(1,082	)		(431	)		1,741
NET INCOME		$	335,571		$	389,353		$	321,017
GENERAL PARTNERS' INTEREST IN NET INCOME		$	106,837		$	86,251		$	73,172
LIMITED PARTNERS' INTEREST IN NET INCOME		$	228,734		$	303,102		$	247,845
BASIC AND DILUTED NET INCOME PER LIMITED PARTNER UNIT		$	6.12		$	8.13		$	6.68
DISTRIBUTIONS PAID PER LIMITED PARTNER UNIT		$	4.1625		$	3.6275		$	3.205
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING—BASIC AND DILUTED			36,863,022			36,769,126			36,710,431

   

And hither is the production data:

 In 2012, nosotros sold a tape 35.2 million tons of coal too produced a tape 34.8 million tons of coal, of which 3.8% was low-sulfur coal, 18.8% was medium-sulfur coal too 77.4% was high-sulfur coal. In 2012, nosotros sold 93.1% of our total tons to electrical utilities, of which 98.7% was sold to utility plants amongst installed pollution command devices.

Again nosotros tin operate out that they produced 1.3 meg tons of depression sulfur coal, 6.5 meg tons of medium sulfur coal too 26.9 meg tons of high sulfur coal.

Note that the (high value) depression sulfur coal has declined inwards both relative too absolute damage too this has larn almost alone a high-sulfur coal society venture subject on plants amongst sulfur scrubbers.

The most profound alter is only how uppercase intensive this describe of piece of work organisation has become. The society has instantly employed $2,362 meg inwards gross property, works life too equipment amongst accumulated depreciation of 823 million.

Bluntly - the sum of uppercase employed hither has risen enormously. The gross property, works life too equipment per ton of coal produced is instantly $67.87 - upwardly a long agency from $19.70 per ton.

The terminal 12 years inwards the US convey non been a menstruum of massive inflation - too the rising inwards uppercase intensity of this describe of piece of work organisation is - good - surprising. The uppercase intensity of this describe of piece of work organisation has gone upwardly 345 percent. The uppercase employed per incremental ton of capacity is really large indeed.

Here are the employee numbers from the last shape 10-K:

To comport our operations, equally of February 1, 2013, nosotros employed 4,345 full-time employees, including 4,091 employees involved inwards active mining operations, 86 employees inwards other operations, too 168 corporate employees. Our operate forcefulness is alone union-free. We believe that relations amongst our employees are mostly good.

From this nosotros run into what I mean value is the most odd affair almost all the giant uppercase pass at Alliance Resource Partners. The huge uppercase equipment pass has non improved project productivity. Production is instantly 8009 tons per employee per twelvemonth - too almost 8500 tons per mining employee per year.

Despite all that uppercase equipment pass project productivity has dropped past times to a greater extent than than twenty percent. Strange.

Moreover the non-mine employees convey risen from to 100 to 254 - a rising somewhat faster than the total production has grown. Labor productivity has dropped too the society has larn more bureaucratic white-collar heavy.

The society likewise publishes a long listing of operating metrics inwards the 10-K.

 Our historical financial information below were derived from our audited consolidated financial statements equally of too for the years ended December 31, 2012, 2011, 2010, 2009 too 2008.

		Year Ended December 31,
(in millions, except unit, per unit and per ton data)		2012			2011			2010			2009			2008
Statements of Income
Sales too operating revenues:
Coal sales		$	1,979.4		$	1,786.1		$	1,551.5		$	1,163.9		$	1,093.1
Transportation revenues			22.0			31.9			33.6			45.7			44.7
Other sales too operating revenues			32.9			25.6			24.9			21.4			18.7
Total revenues			2,034.3			1,843.6			1,610.0			1,231.0			1,156.5
Expenses:
Operating expenses (excluding depreciation, depletion and amortization)			1,303.3			1,131.8			1,009.9			797.6			801.9
Transportation expenses			22.0			31.9			33.6			45.7			44.7
Outside coal purchases			38.6			54.3			17.1			7.5			23.8
General too administrative			58.8			52.3			50.8			41.1			37.2
Depreciation, depletion too amortization			218.1			160.3			146.9			117.5			105.3
Asset harm charge			19.0			—			—			—			—
Gain from sale of coal reserves			—			—			—			—			(5.2	)
Net gain from insurance village too other(1)			—			—			—			—			(2.8	)
Total operating expenses			1,659.8			1,430.6			1,258.3			1,009.4			1,004.9
Income from operations			374.5			413.0			351.7			221.6			151.6
Interest expense (net of involvement capitalized)			(28.7	)		(22.0	)		(30.1	)		(30.8	)		(22.1	)
Interest income			0.2			0.4			0.2			1.0			3.7
Equity inwards loss of affiliates, net			(14.7	)		(3.4	)		—			—			—
Other income			3.2			1.0			0.9			1.3			0.9
Income earlier income taxes			334.5			389.0			322.7			193.1			134.1
Income taxation expense (benefit)			(1.1	)		(0.4	)		1.7			0.7			(0.5	)
Net income		$	335.6		$	389.4		$	321.0		$	192.4		$	134.6
Less: Net loss attributable to noncontrolling interest			—			—			—			(0.2	)		(0.4	)
Net income attributable to Alliance Resource Partners, L.P. ("Net Income of ARLP")		$	335.6		$	389.4		$	321.0		$	192.2		$	134.2
General Partners' involvement inwards Net Income of ARLP		$	106.8		$	86.3		$	73.2		$	60.7		$	45.7
Limited Partners' involvement inwards Net Income of ARLP		$	228.8		$	303.1		$	247.8		$	131.5		$	88.5
Basic too diluted cyberspace income of ARLP per express partner unit(2)		$	6.12		$	8.13		$	6.68		$	3.56		$	2.39
Distributions paid per express partner unit		$	4.1625		$	3.6275		$	3.205		$	2.95		$	2.53
Weighted average issue of units outstanding-basic too diluted			36,863,022			36,769,126			36,710,431			36,655,555			36,604,707
Balance Sheet Data:
Working capital		$	73.0		$	269.3		$	348.7		$	54.9		$	239.8
Total assets			1,956.0			1,731.5			1,501.3			1,051.4			1,030.6
Long-term obligations(3)			791.6			688.5			704.2			422.5			440.8
Total liabilities(4)			1,250.5			1,107.8			1,045.5			730.4			740.4
Partners' capital(4)		$	705.5		$	623.7		$	455.8		$	321.0		$	290.2
Other Operating Data:
Tons sold			35.2			31.9			30.3			25.0			27.2
Tons produced			34.8			30.8			28.9			25.8			26.4
Coal sales per ton sold(5)		$	56.28		$	55.95		$	51.21		$	46.60		$	40.23
Cost per ton sold(6)		$	38.15		$	37.15		$	33.90		$	32.23		$	30.39
Other Financial Data:
Net cash provided past times operating activities		$	555.9		$	574.0		$	520.6		$	282.7		$	261.0
Net cash used inwards investing activities			(623.4	)		(401.1	)		(295.0	)		(320.1	)		(184.1	)
Net cash provided past times (used in) financing activities			(177.7	)		(238.9	)		92.7			(186.6	)		166.8
EBITDA(7)			581.1			570.8			499.5			340.4			257.8
Maintenance uppercase expenditures(8)			282.6			192.7			90.5			96.1			77.7

We tin operate out a few to a greater extent than things hither - for illustration the maintenance uppercase expenditures are instantly 282.6 meg dollars annually. That is $8.12 per ton produced per year. Back inwards 1999 maintenance uppercase expenditure was only 43c per ton produced per year.

That is an eighteen flexure increment inwards maintenance requirements per ton produced per year.

An unmitigated record of operational failure

This is really puzzling indeed. Financially this is the best performed coal performance inwards North America - the stock toll is close the all fourth dimension high. The distributions paid past times this MLP are large too increasing. People sing the praises of this administration squad (particularly on Seeking Alpha but likewise inwards the comments on my blog).

But the operational facts on the dry reason tell a radically dissimilar story. This administration squad demonstrate unparalleled operational failure. The society has radically increased its uppercase expenditure - too the uppercase intensity of the describe of piece of work organisation has gone upwardly roughly 350 percent. This is a big-spending administration team.

Despite that (and despite their non-unionized workforce) project productivity has dropped to a greater extent than than twenty percent. And the workforce has larn more bureaucratic.

Finally all this novel - too seemingly expensive mechanism - needs to live maintained. And the maintenance expenditure which was 1 time only 43c per ton per twelvemonth (less than two per centum of the toll received per ton of coal) is instantly over $8 per ton of output (over xiv per centum of the toll received per ton). This describe of piece of work organisation is agency to a greater extent than expensive to maintain.

On an operational marking this is seemingly the worst run mining performance inwards the U.S. of A. of America (and I am including the bankrupt Patriot Coal). And however the society has had unparalleled financial success.

Why this powerfulness live is the plain of report of a few to a greater extent than posts.






John