Is Alliance Resources Under-Accruing Workers Compensation Obligations?

My last postal service on Alliance Resources explored the differences betwixt Alliance Resources (the best performing coal functioning inward North America) amongst Patriot Coal (famously in addition to massively bankrupt).

Patriot produced alone slightly less coal per worker (a telephone substitution stair out of cost-competitiveness) in addition to it was higher character coal.

Patriot had less debt.

They were nearly the same size - but alas - Patriot was bankrupt in addition to and then hard to run they were closing mines inward bankruptcy.

The differences lay inward the residual canvass where Patriot had large postal service retirement scope goodness obligations in addition to Alliance does non - in addition to Patriot had large workers compensation obligations in addition to Alliance does not.

The foremost 1 I understood. Patriot was heavily unionized. Alliance was not.

However the minute 1 I did non understand. These were multi-mine operations inward like jurisdictions amongst like numbers of employees. They both self-insure workers compensation. Unless 1 functioning is massively safer than the other they should accept like workers compensation obligations.

I was puzzled.

So I went looking.

Here is the flows into in addition to out of the workers compensation provision for the final total (non-bankrupt) twelvemonth at the final 10-K for Patriot Coal...

		December 31,
		2011				2010
		(Dollars inward thousands)
Change inward scope goodness obligation:
Beginning of twelvemonth obligation		$	174,014			$	152,079
Service cost		7,496				9,258
Interest cost		9,492				8,963
Net modify inward actuarial gain		3,536				12,668
Benefit in addition to administrative payments		(8,899		)		(8,954		)
Net obligation at cease of year		185,639				174,014
Change inward conception assets:
Fair value of conception assets at showtime of period		—				—
Employer contributions		8,899				8,954
Benefits paid		(8,899		)		(8,954		)
Fair value of conception assets at cease of period		—				—
Obligation at cease of period		$	185,639			$	174,014

Patriot Coal had $8.889 1000000 inward payments in addition to an estimated total obligation of $185.6 million. The gauge of total obligation is 20.9 times electrical flow payments.

This compares amongst the final 10-K disclosure for Alliance Resources:

	2012	2011
Beginning balance	$73,201.00	$67,687.00
Accruals	$24,812.00	$22,254.00
Payments	($10,477.00)	($11,235.00)
Interest accretion	$2,739.00	$3,174.00
Valuation gain	($13,229.00)	($8,679.00)
Ending balance	$77,046.00	$73,201.00

Payments were $10.48 1000000 - a picayune higher than Patriot. However reserves were alone 77.0 million. The gauge of total obligations is alone 7.35 times.

Alliance Resources is - relatively to Patriot - extremely under-reserved for workers compensation.

If nosotros were to reserve Alliance Resources on the same footing equally Patriot nosotros would accept to add together $141 1000000 to reserves.

This divergence has accumulated over time. If Alliance had used Patriots conservative reserving pre-tax earnings (and thus EBITDA) would live cumulatively $141 1000000 lower than were genuinely recorded. This is clearly business office of the argue why Alliance appears in addition to then profitable relative to the competition.

More importantly because Alliance is an MLP which distributes approximately its EBITDA, if a to a greater extent than conservative reserving had been used Alliance's distributions would cumulatively been nearly $140 1000000 lower.

I wonder how the workers expecting to live paid compensation experience nearly having the coin backing their compensation distributed to MLP unit of measurement holders?

In my crystal ball I come across a bird action.





John



Post script:

Dear Class Action lawyers - in that place is this picayune disclosure inward the 10-K which powerfulness brand whatsoever futurity bird activeness to a greater extent than - good - rewarding. I volition exit it to the unit of measurement holders, their lawyers in addition to the full general partner to translate this:

Your liability equally a limited partner may non live limited, in addition to our unitholders may accept to repay distributions or brand additional contributions to us nether sure as shooting circumstances. 

As a limited partner inward a partnership organized nether Delaware law, yous could live held liable for our obligations to the same extent equally a full general partner if yous participate inward the "control" of our business. Our full general partners by in addition to large accept unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to our full general partners. Additionally, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership accept non been clearly established inward many jurisdictions. 

Under sure as shooting circumstances, our unitholders may accept to repay amounts wrongfully distributed to them. Under Delaware law, nosotros may non brand a distribution to our unitholders if the distribution would crusade our liabilities to overstep the fair value of our assets. Delaware police trace provides that for a menstruum of 3 years from the appointment of the impermissible distribution, partners who received the distribution in addition to who knew at the fourth dimension of the distribution that it violated Delaware police trace volition live liable to the partnership for the distribution amount. Liabilities to partners on employment concern human relationship of their partnership involvement in addition to liabilities that are non-recourse to the partnership are non counted for purposes of determining whether a distribution is permitted.