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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 001-34815

_________________________
Westmoreland Resource Partners, LP
(Exact name of registrant as specified in its charter)
____________________________________________________
Delaware
77-0695453
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
9540 South Maroon Circle, Suite 200, Englewood, CO 801112
(Address of principal executive offices and zip code) 
(855) 922-6463
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ☒    NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ☒    NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer     ☐                                                                                    Accelerated filer                       ☐
Non-accelerated filer       ☐  (Do not check if a smaller reporting company) Smaller reporting company     ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐NO ☒

As of July 23, 2015, 5,711,630 common units representing limited partner interest in our Partnership (the "common units") were outstanding. The common units trade on the New York Stock Exchange under the ticker symbol “WMLP.” 


 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


TABLE OF CONTENTS 
 
TABLE OF CONTENTS
 
 
 
 
PART I. FINANCIAL INFORMATION
Page
 
 
 
ITEM 1.
Condensed Consolidated Financial Statements (Unaudited)
 
Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014
 
Condensed Consolidated Statements of Partners’ Capital for the Six Months Ended June 30, 2015
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014
 
Notes to Condensed Consolidated Financial Statements
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 4.
Controls and Procedures
 
 
 
 
PART II. OTHER INFORMATION
 
ITEM 1.
Legal Proceedings
ITEM 1A.
Risk Factors
ITEM 4.
Mine Safety Disclosures
ITEM 6.
Exhibits


 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


PART I. FINANCIAL INFORMATION
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for unit data)
 
Westmoreland Resource Partners, LP
 
(Successor)
 
As of
June 30,
2015
 
 
As of
December 31, 2014
Assets
(Unaudited)
 
 
 
Current assets:
 
 
 
 
Cash
$
12,766

 
 
$
5,921

Receivables:
 
 
 
 
Trade
14,020

 
 
22,710

Other

 
 
116

 
14,020

 
 
22,826

Inventory
14,870

 
 
14,013

Other current assets
2,264

 
 
1,317

Total current assets
43,920

 
 
44,077

Property, plant and equipment:
 
 
 
 
Land and mineral rights
75,794

 
 
71,715

Plant and equipment
134,291

 
 
134,029

 
210,085

 
 
205,744

Less accumulated depreciation, depletion and amortization
(19,170
)
 
 

Net property, plant and equipment
190,915

 
 
205,744

Advanced coal royalties
10,645

 
 
9,153

Restricted investments and bond collateral
8,307

 
 
10,621

Intangible assets, net of accumulated amortization of $1.0 million and $0 in June 30, 2015 and December 31, 2014, respectively
29,967

 
 
31,000

Deferred financing costs, net
6,195

 
 
6,993

Total Assets
$
289,949

 
 
$
307,588

 
See accompanying notes to condensed consolidated financial statements.




 WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for unit data)
 
Westmoreland Resource Partners, LP
 
(Successor)
 
As of
June 30,
2015
 
 
As of
December 31, 2014
Liabilities and Partners' Capital
(Unaudited)
 
 
 
Current liabilities:
 
 
 
 
Current installments of long-term debt
$
6

 
 
$
6

Accounts payable and accrued expenses:
 
 
 
 
Trade
20,392

 
 
19,135

Production taxes
903

 
 
1,033

Accrued compensation
767

 
 
1,531

Asset retirement obligations
11,547

 
 
7,783

Other current liabilities
1,382

 
 
4,007

Total current liabilities
34,997

 
 
33,495

Long-term debt, less current installments
175,864

 
 
175,029

Asset retirement obligations, less current portion
21,339

 
 
23,902

Warrants
1,504

 
 
1,981

Other liabilities
1,020

 
 
160

Total liabilities
234,724

 
 
234,567

Partners' capital:
 
 
 
 
Limited partners (5,711,630 and 5,505,087 units outstanding as of June 30, 2015 and December 31, 2014, respectively)
21,863

 
 
39,549

General partner (35,291 units outstanding as of June 30, 2015 and December 31, 2014)
33,362

 
 
33,472

Total partners’ capital
55,225

 
 
73,021

Total liabilities and partners’ capital
$
289,949

 
 
$
307,588


See accompanying notes to consolidated financial statements.


4



WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except for unit and per unit data) 
 
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
 
Three Months Ended June 30, 2015
 
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2015
 
 
Six Months Ended June 30, 2014
Revenues:
 
 
 
 
 
 
 
 
 
Coal revenues
$
55,036

 
 
$
79,586

 
$
116,786

 
 
$
156,356

Royalty revenues
1,651

 
 
85

 
3,521

 
 
184

Non-coal revenues
2,828

 
 
2,330

 
6,775

 
 
3,465

Total Revenues
59,515

 
 
82,001

 
127,082

 
 
160,005

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of coal revenues (excluding depreciation, depletion and amortization)
46,866

 
 
67,295

 
101,517

 
 
133,021

Cost of non-coal revenues
235

 
 
369

 
3,390

 
 
771

Depreciation, depletion and amortization
9,563

 
 
10,072

 
19,743

 
 
21,296

Selling and administrative
3,065

 
 
3,270

 
5,613

 
 
6,926

Loss (gain) on sale/disposal of assets
651

 
 
(763
)
 
1,685

 
 
(559
)
Restructuring charges
103

 
 

 
656

 
 
75

Total cost and expenses
60,483

 
 
80,243

 
132,604

 
 
161,530

Operating (loss) income
(968
)
 
 
1,758

 
(5,522
)
 
 
(1,525
)
Other (expense) income:
 
 
 
 
 
 
 
 
 
Interest expense
(5,872
)
 
 
(7,003
)
 
(11,652
)
 
 
(13,873
)
Interest income

 
 
2

 

 
 
3

Change in fair value of warrants
448

 
 
1,885

 
477

 
 
1,470

Total other expenses
(5,424
)
 
 
(5,116
)
 
(11,175
)
 
 
(12,400
)
Net loss
(6,392
)
 
 
(3,358
)
 
(16,697
)
 
 
(13,925
)
Less net loss attributable to noncontrolling interest

 
 
461

 

 
 
842

Net loss attributable to unitholders
(6,392
)
 
 
(2,897
)
 
(16,697
)
 
 
(13,083
)
Less net loss allocated to general partner
(40
)
 
 
(57
)
 
(103
)
 
 
(259
)
Net loss allocated to limited partners
$
(6,352
)
 
 
$
(2,840
)
 
$
(16,594
)
 
 
$
(12,824
)
 
 
 
 
 
 
 
 
 
 
Net loss per limited partner unit:
 
 
 
 
 
 
 
 
 
Basic
$
(1.08
)
 
 
$
(1.32
)
 
$
(2.82
)
 
 
$
(6.24
)
Diluted
$
(1.08
)
 
 
$
(1.32
)
 
$
(2.82
)
 
 
$
(6.24
)

 
 
 
 
 
 
 
 
 
Weighted average number of limited partner units outstanding:
 
 
 
 
 
 
 
 
 
Basic
5,878,187

 
 
2,062,834

 
5,878,187

 
 
2,058,912

Diluted
5,878,187

 
 
2,062,834

 
5,878,187

 
 
2,058,912


 
 
 
 
 
 
 
 
 
Distribution per limited partner unit
$
0.2000

 
 
$

 
$
0.2000

 
 
$

Distribution per general partner unit
$
0.2000

 
 
$

 
$
0.2000

 
 
$


See accompanying notes to condensed consolidated financial statements. 

5



WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(UNAUDITED)
(in thousands, except for unit data) 
 
 
 
Limited Partners
 
 
 
 
 
Total
Partners'
Capital
 
 
Common
 
Liquidation
 
Total
 
General Partner
 
Successor
 
Units
 
Capital
 
Units
 
Capital
 
Units
 
Capital
 
Units
 
Capital
 
Balance at December 31, 2014
 
5,505,087

 
$
39,549

 
856,698

 
$

 
6,361,785

 
$
39,549

 
35,291

 
$
33,472

 
$
73,021

Net loss
 

 
(16,594
)
 

 

 

 
(16,594
)
 

 
(103
)
 
(16,697
)
Common unit distributions to unitholders
 
206,543

 

 

 

 
206,543

 

 

 

 

Cash distribution to unitholders
 

 
(1,176
)
 

 

 

 
(1,176
)
 

 
(7
)
 
(1,183
)
Equity-based compensation
 

 
84

 

 

 

 
84

 

 

 
84

Balance at June 30, 2015
 
5,711,630

 
$
21,863

 
856,698

 
$

 
6,568,328

 
$
21,863

 
35,291

 
$
33,362

 
$
55,225

 
See accompanying notes to condensed consolidated financial statements. 

6



WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) 

 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
(Successor)
 
 
(Predecessor)
 
Six Months Ended June 30, 2015
 
 
Six Months Ended June 30, 2014
Cash flows from operating activities:
 
 
 
 
Net loss
$
(16,697
)
 
 
$
(13,925
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
19,743

 
 
21,296

Accretion of asset retirement obligations
1,630

 
 
1,125

Restructuring charges
656

 
 
75

Equity-based compensation
84

 
 
921

Loss (gain) on sale/disposal of assets
1,685

 
 
(559
)
Non-cash interest expense
2,664

 
 
3,786

Amortization of deferred financing costs
817

 
 
1,923

Other
(477
)
 
 
(1,470
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables, net
8,807

 
 
(1,850
)
Inventories
(857
)
 
 
(505
)
Accounts payable and accrued expenses
1,127

 
 
(1,123
)
Accrued compensation
(765
)
 
 
(2,196
)
Asset retirement obligations
(2,415
)
 
 
(2,115
)
Other assets and liabilities
(2,077
)
 
 
258

Net cash provided by operating activities
13,925

 
 
5,641

Cash flows from investing activities:
 
 
 
 
Additions to property, plant, equipment and other
(6,434
)
 
 
(5,864
)
Change in restricted investments and bond collateral
2,258

 
 
506

Net proceeds from sales of assets
126

 
 
3,599

Net cash used in investing activities
(4,050
)
 
 
(1,759
)
Cash flows from financing activities:
 
 
 
 
Repayments of long-term debt
(1,829
)
 
 
(1,947
)
Borrowings on revolving lines of credit

 
 
13,500

Repayment on revolving lines of credit

 
 
(15,000
)
Debt issuance costs and other refinancing costs
(18
)
 
 
9

Cash distributions to partners
(1,183
)
 
 

Net cash used in by financing activities
(3,030
)
 
 
(3,438
)
Net increase (decrease) in cash
6,845

 
 
444

Cash, beginning of the period
5,921

 
 
3,089

Cash, end of the period
$
12,766

 
 
$
3,533

Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest
$
8,170

 
 
$
8,243

Non-cash transactions:
 
 
 
 
Asset retirement obligations capitalized in mine development
2,533

 
 
2,880

Market value of common units vested in LTIP

 
 
217

 See accompanying notes to condensed consolidated financial statements. 

7

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)


NOTE 1:BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include the accounts and operations of Westmoreland Resources Partners, LP, or the Partnership, and its consolidated subsidiaries and are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and require use of management's estimates. The financial information contained in this Form 10-Q is unaudited, but reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015.
Westmoreland Coal Company's ("WCC") cost of acquiring our General Partner, Westmoreland Resources GP, LLC, ("GP") has been pushed-down to establish a new accounting basis for us beginning in the last minutes of the year ended December 31, 2014, in accordance with ASC 805. Accordingly, the accompanying condensed consolidated financial statements are presented for two periods, Predecessor and Successor, which relate to the accounting periods preceding and succeeding the completion of the transaction. The Predecessor and Successor periods have been separated by a vertical line on the face of the condensed consolidated financial statements to highlight the fact that the financial information for such periods has been prepared under two different historical-cost bases of accounting.
Significant Relationships Referenced in Notes to Consolidated Financial Statements
“We,” “us,” “our,” “or the "Partnership” means the business and operations of Westmoreland Resource Partners, LP, the parent entity, as well as its consolidated subsidiaries.
Our “GP” means Westmoreland Resources GP, LLC, the general partner of Westmoreland Resource Partners, LP.
Organization
Westmoreland Resource Partners, LP is a Delaware limited partnership formed in August 2007. We are a low-cost producer and marketer of high-value thermal coal to United States (“U.S.”) utilities and industrial users, and we are the largest producer of surface‑mined coal in Ohio. We market our coal primarily to large electric utilities with coal-fired, base-load scrubbed power plants under long-term coal sales contracts. We focus on acquiring thermal coal reserves that we can efficiently mine with our large-scale equipment. Our reserves and operations are strategically located to serve our primary market area of the Midwest and northeastern United States. Additionally, we hold a fee simple interest in coal reserves in Lincoln County, Wyoming, for which we have entered into a coal mining lease with a subsidiary of WCC pursuant to which we earn a per ton royalty as these coal reserves are mined.
We operate in a single business segment and have four operating subsidiaries, Oxford Mining Company, LLC(“Oxford Mining”), Oxford Mining Company-Kentucky, LLC (“Oxford Mining Kentucky”), Westmoreland Kemmerer Fee Coal Holdings, LLC ("WKFCH") and Harrison Resources, LLC (“Harrison Resources”). Our operating subsidiaries are primarily in the business of utilizing surface mining techniques to mine domestic coal and prepare it for sale to our customers or leasing our controlled coal reserves to others to mine.
We are managed by WCC through our GP, and all executives, officers and employees who provide services to us are employed by either WCC or our GP. WCC directly owns our GP. WCC’s common stock trades on the NASDAQ Global Market under the symbol “WLB.”
As of July 23, 2015, WCC and its consolidated subsidiaries owned, through their limited and general partner interests in us, an approximate 78% of our common units on a fully diluted basis and, indirectly, all of our incentive distribution rights.
Significant Accounting Policies
There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2014 (the "2014 Form 10-K").

8

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

Special Distribution to Public Unitholders
In January 2015, as previously announced, we made a one-time special distribution of 206,543 common units, representing an approximate 25% distribution, to our public unitholders on a pro rata basis.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-9, Revenue From Contracts With Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to receive in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In April 2015, the FASB agreed to propose a one-year deferral of the revenue recognition standard's effective date. The new guidance is now effective for the interim and annual periods beginning after December 15, 2017; early application is permitted, but not before the original effective date (annual reporting periods beginning after December 15, 2016). We are currently assessing the impact that this standard will have on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previous issued. Management projects the impact to the financial statements resulting in balance sheet reclassification for which the Deferred financing costs, net account is recharacterized as a contra-liability reducing the Long-term debt, less current installments balance for each of the respective periods upon adoption.
In April 2015, the FASB issued ASU 2015-06, Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions a consensus of the Emerging Issues Task Force) (a consensus of the Emerging Issues Task Force). ASU 2015-06 requires a master limited partnership (MLP) to allocate the earnings or losses of a transferred business for periods before the date of a dropdown of net assets accounted for as a common control transaction entirely to the general partner for purposes of calculating historical earnings per unit (EPU). The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those years. The guidance is applied retrospectively and early adoption is permitted.
In April 2014, the FASB issued ASU 2014-8, Presentation of Financial Statements and Property, Plant and Equipment, which changes the presentation of discontinued operations on the statements of operations and other requirements for reporting discontinued operations. Under the new standard, a disposal of a component or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component meets the criteria to be classified as held for sale or is disposed. The amendments in this update also require additional disclosures about discontinued operations and disposal of an individually significant component of an entity that does not qualify for discontinued operations. The new guidance is effective for interim and annual periods beginning after December 15, 2014. We adopted ASU 2014-8 effective January 1, 2015.
In August 2014, the FASB issued ASU 2014-17, Pushdown Accounting, which allows entities to elect pushdown of purchase accounting each time there is a change-in-control event in which an acquirer obtains control of an acquiree. If an acquiree does not initially elect to apply pushdown accounting upon a change-in-control event, it can subsequently elect to apply pushdown accounting to its most recent change-in-control event in a later reporting period as a change in accounting principle. Once made, the election to apply pushdown accounting is irrevocable. Entities applying pushdown accounting are required to measure the individual assets and liabilities of the acquired entity based on the measurement guidance in

9

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

ASC 805, including the recognition of goodwill. However, any bargain purchase gain recognized by the acquirer should not be recognized in the acquiree’s income statement, but rather as an adjustment to additional paid-in capital. Acquisition-related debt is recognized by the acquiree only if the acquired entity is required to recognize a liability for debt in accordance with other applicable guidance. See our application of ASU 2014-17 in Note 2.
Reclassifications
Certain prior-year amounts have been reclassified in our condensed statements of operations and statements of cash flows for the six months ended June 30, 2014 to conform with the financial statement line items used by our GP's parent, WCC.
NOTE 2:    ACQUISITION AND PUSHDOWN ACCOUNTING
Westmoreland Coal Company's Acquisition of our General Partner
On December 31, 2014, pursuant to a Purchase Agreement dated October 16, 2014, WCC acquired, for $33.5 million in cash, 100% of the equity of our GP from (i) the holders of all of our GP’s outstanding Class A Units, AIM Oxford Holdings, LLC ("AIM") and C&T Coal, Inc. ("C&T"), (ii) the holders of all of our GP’s outstanding Class B Units, certain former executives of our GP, and (iii) the holders of all of the outstanding warrants for our GP’s Class B Units (the "Warrantholders"). At the same time, WCC also acquired, for no additional consideration, (i) 100% of the Partnership’s outstanding subordinated units from AIM and C&T, which subordinated units were then converted to liquidation units, and (ii) 100% of the Partnership’s outstanding warrants for subordinated units from the Warrantholders, which warrants were then canceled by WCC.
The purchase consideration for our GP and control of our GP’s consolidated subsidiaries is estimated at $239.2 million, which included $33.5 million paid in cash, plus the assumption of approximately $194.9 million of liabilities. In the second quarter of 2015 we made an immaterial adjustment to the purchase accounting assumptions. Given, the immaterial nature of the adjustment, previously issued financial statements have not been adjusted.
The acquisition of our GP was accounted for by WCC under the acquisition method of accounting that requires the total purchase consideration to be allocated to the assets acquired and liabilities assumed based on estimates of fair value. We have elected to apply pushdown accounting to our consolidated financial statements. By applying pushdown accounting, our financial statements also reflect these adjustments to fair value with a portion allocated to noncontrolling interest for the portion of us that is not owned directly by WCC.
The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates. These adjustments may be significant and will be accounted for retrospectively.

10

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

A summary of the estimated purchase consideration and a preliminary allocation of the estimated purchase consideration is as follows (in millions):
Estimated purchase consideration
 
Market value of limited partners' units
$
10.8

Cash paid
33.5

Total consideration
$
44.3

 
 
Estimated fair value of liabilities assumed:
 
Debt
$
160.1

Asset retirement obligations
31.7

Other liabilities
1.1

Warrants
2.0

Total estimated fair value of liabilities assumed
194.9

Total estimated purchase consideration:
$
239.2

 
 
Preliminary allocation of estimated purchase consideration:
 
Working capital
$
14.7

Land and mineral rights
39.5

Plant and equipment
134.0

Advanced coal royalties
9.2

Restricted investments and bond collateral
10.6

Intangible asset
31.0

Other assets
0.2

Total preliminary allocation of estimated purchase consideration:
$
239.2

Kemmerer Drop-down
On June 1, 2015, we entered into a Contribution Agreement (the “Contribution Agreement”) with WCC pursuant to which, upon satisfaction or waiver of the conditions set forth in the Contribution Agreement, WCC would make a contribution (the “Contribution”) to us of all of the outstanding equity interests in Westmoreland Kemmerer, LLC, a Delaware limited liability company (formerly Westmoreland Kemmerer, Inc., or “Kemmerer”) for aggregate consideration of approximately $230 million. Upon closing the Contribution, WMLP would own 100%of the outstanding equity interests in Kemmerer, which owns and operates the Kemmerer Mine in Lincoln County, Wyoming.
We expect to close the Contribution in the third quarter of 2015. However, there can be no assurance that the Contribution will be completed within the anticipated timeframe, or at all, or that the anticipated benefits will be realized.

11

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

NOTE 3:INVENTORY
Inventory consisted of the following:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
June 30,
 
December 31,
 
2015
 
2014
Coal
$
7,188

 
$
6,590

Fuel inventory
1,583

 
1,860

Materials and supplies
6,099

 
5,563

Total
$
14,870

 
$
14,013

NOTE 4:RESTRUCTURING CHARGES
Concurrent with the WCC transactions completed in December 2014 (the "WCC Transactions"), a restructuring plan was initiated to streamline operations and eliminate duplicate roles and responsibilities between us and WCC. As of December 31, 2014, we recorded restructuring charges for employee termination benefits of $2.8 million and incurred additional restructuring costs of $0.1 million and $0.7 million for the three and six months ended June 30, 2015.
WCC Transactions restructuring accrual activity is summarized as follows:
 
Westmoreland Resource Partners, LP
(Successor)
 
As of December 31, 2014
 
Six Months Ended June 30, 2015
 
As of June 30, 2015
 
Liability
 
Charges
 
Payments
 
Liability
Severance and other termination costs
$
2,783

 
$
656

 
$
(3,188
)
 
$
251

The following table summarizes the total WCC Transactions restructuring charges incurred over the course of the restructuring:
 
Westmoreland Resource Partners, LP
(Successor)
 
Charges
 
 
 
For the Six Months Ended June 30, 2015
 
Incurred Through June 30,
2015
 
Total Expected
Restructuring Expenses
Severance and other termination costs
$
656

 
$
3,439

 
$
3,439


12

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

NOTE 5:OTHER CURRENT ASSETS
Other current assets consisted of the following: 
 
Westmoreland Resource Partners, LP
 
(Successor)
 
June 30,
 
December 31,
 
2015
 
2014
Prepaid Insurance
$
1,649

 
$
418

Other
615

 
899

Total
$
2,264

 
$
1,317

NOTE 6:LONG-TERM DEBT
Debt consisted of the following:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
June 30,
 
 
December 31,
 
2015
 
 
2014
First lien debt:
 
 
 
 
Term loan
$
173,174

 
 
$
175,000

Paid-in-kind interest
2,664

 
 

Total first lien debt
175,838

 
 
175,000

Notes payable
32

 
 
35

Total debt
175,870

 
 
175,035

Less current portion
(6
)
 
 
(6
)
Long-term debt
$
175,864

 
 
$
175,029

Credit Facilities
On December 31, 2014, we closed on a credit facility under a Financing Agreement (the “2014 Financing Agreement”) with the lenders party thereto and U.S. Bank National Association as Administrative and Collateral Agent. The 2014 Financing Agreement includes a $175 million term loan, with an option for up to $120 million in additional term loans for acquisitions if requested by us and approved by the issuing lenders. The credit facility under the 2014 Financing Agreement matures in matures in December 2018. The 2014 Financing Agreement contains customary financial and other covenants. Borrowings under the 2014 Financing Agreement are secured by substantially all of our physical assets. Our initial borrowings under the 2014 Financing Agreement in December 2014 were used to retire our then-existing first and second lien credit facilities and to pay fees and expenses related to the 2014 Financing Agreement, with the remaining amount available as working capital.
As of June 30, 2015, we had a term loan of $175.8 million outstanding under the 2014 Financing Agreement. Borrowings on such term loan bear interest at a variable rate per annum equal to, at our option, the London Interbank Offered Rate (“LIBOR”) (floor of 0.75% plus 8.5%) or the Reference Rate (as defined in the 2014 Financing Agreement). As of June 30, 2015, the 2014 Financing Agreement had a cash interest rate of 9.25%, consisting of the LIBOR floor (0.75%) plus 8.5%.
The 2014 Financing Agreement also provides for “PIK Interest” (as defined in the 2014 Financing Agreement) at a variable rate per annum between 1.00% and 3.00% based on our Consolidated Total Net Leverage Ratio (as defined in the 2014 Financing Agreement). The rate of PIK Interest is recalculated on a quarterly basis with the PIK Interest added quarterly to the then-outstanding principal amount of the term loan under the 2014 Financing Agreement. PIK Interest under the 2014

13

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

Financing Agreement was $1.3 million and $2.7 million for the three and six months ended June 30, 2015, respectively. The outstanding term loan amount represents the principal balance of $173.2 million, plus PIK Interest of 2.7 million.
During the three months ended June 30, 2015, we paid down $1.8 million of the first lien term loan with proceeds from oil and gas royalties received and the granting of a pipeline right-of-way to a third party. The Financing Agreements require mandatory prepayment of principal with proceeds from such events.
As of June 30, 2015, we were in compliance with all covenants under the terms of the 2014 Financing Agreement.
Deferred Financing Costs
We capitalized costs that represented fees paid to lenders and advisors and for legal services included in Deferred financing costs, net. Deferred financing costs are amortized over the life of the agreement, included in interest expense, using the effective interest rate method. Amortization of deferred financing costs was $0.4 million and $0.8 million for the three and six months ended June 30, 2015, respectively and $1.0 million and $1.9 million for the three and six months ended June 30, 2014, respectively.
NOTE 7:     FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash, accounts receivable, restricted investment and bond collateral, and accounts payable are considered to be representative of their respective fair values because of the immediate short-term maturity of these financial instruments. The fair value of the restricted investment and bond collateral and warrants were determined based upon a market approach and approximates the carrying value at June 30, 2015.
The warrants are fair valued at each balance sheet date using the Black-Scholes model. As of June 30, 2015, the fair value of each warrant was $9.03, based on the following assumptions: spot price of $9.15 per unit, exercise price of $0.12 per unit, term of 3.00 years, volatility of 90.4% and a three-year treasury rate of 1.0%.
The fair value of the restricted investment and bond collateral are Level 1 and warrants are a Level 2 measurement. 
NOTE 8:ASSET RETIREMENT OBLIGATIONS 
As of June 30, 2015, our asset retirement obligation ("ARO") totaled $32.9 million, including amounts reported as current liabilities. While the precise amount of these future costs cannot be determined with certainty, we estimate that, as of June 30, 2015, the aggregate undiscounted cost of our final ARO is $42.8 million
Changes in the Partnership's asset retirement obligations were as follows: 
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
(Successor)
 
 
(Predecessor)
 
Six Months Ended   June 30, 2015
 
 
Six Months Ended   June 30, 2014
Asset retirement obligations, January 1,
$
31,685

 
 
$
31,654

Accretion
1,630

 
 
1,125

Changes resulting from additional mines
1,541

 
 
2,702

Changes due to amount and timing of reclamation
992

 
 
149

Payments
(2,962
)
 
 
(2,345
)
Asset retirement obligations, June 30,
32,886

 
 
33,285

Less current portion
(11,547
)
 
 
(9,086
)
Asset retirement obligations, less current portion
$
21,339

 
 
$
24,199

  

14

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

NOTE 9:UNIT-BASED COMPENSATION
We grant employees and non-employee directors restricted common units under our Long-Term Incentive Plan (“LTIP”).
We recognized compensation expense from unit-based arrangements shown in the following table:
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
 
Three Months Ended   June 30, 2015
 
 
Three Months Ended   June 30, 2014
 
Six Months Ended   June 30, 2015
 
 
Six Months Ended   June 30, 2014
Recognition of fair value of restricted common units over the vesting period
$
63

 
 
$
465

 
$
84

 
 
$
921

A summary of restricted common unit award activity for the six months ended June 30, 2015 is as follows:
 
Westmoreland Resource Partners, LP
(Successor)
 
 
Units
 
Weighted Average Grant-Date Fair Value
 
Unamortized Compensation Expense
 
 
 
 
 
 
(in thousands)
 
Non-vested at December 31, 2014

 
$

 
 
 
Granted
21,930

 
11.40

 
 
 
Vested

 

 
 
 
Non-vested at June 30, 2015
21,930

 
$
11.40

 
$
167

1 
1Expected to be recognized over the next 8 months.
NOTE 10:    COMMITMENTS AND CONTINGENCIES
Coal Sales Contracts
We are committed under long-term contracts to sell coal that meets certain quality requirements at specified prices. Many of these prices are subject to cost pass-through or cost adjustment provisions that mitigate some risk from rising costs. Quantities sold under some of these contracts may vary from year to year within certain limits at the option of the customer or us. As of June 30, 2015, the remaining terms of our long-term contracts range from one to three years.
Purchase Commitments 
From time to time, we purchase coal from third parties in order to meet quality or delivery requirements under our customer contracts. We buy coal on the spot market, and the cost of that coal is dependent upon the market price and quality of the coal.
Surety and Performance Bonds
As of June 30, 2015, we had $32.7 million in surety bonds outstanding to secure certain reclamation obligations which were collateralized by cash deposits of $6.9 million. Such cash collateral is included in Restricted investments and bond collateral on our consolidated balance sheets and Change in restricted investments and bond collateral within investing activities on our consolidated statements of cash flow. Additionally, we had road bonds totaling $0.5 million and performance bonds totaling $2.9 million outstanding to secure contractual performance. We believe these bonds will expire without any claims or payments thereon and therefore will not have a material adverse effect on our financial position, liquidity or operations.

15

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

Legal
From time to time, we are involved in various legal proceedings arising in the ordinary course of business. We accrue for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; our experience in contesting, litigating and settling similar matters; and any related insurance coverage. While the ultimate outcome of these proceedings cannot be predicted with certainty, we have accrued $0.6 million to resolve various claims as of June 30, 2015, of which $0.1 million, net, was accrued during 2015.
Guarantees
Our GP and the Partnership guarantee certain obligations of our subsidiaries. We believe that these guarantees will expire without any liability to the guarantors, and therefore will not have a material adverse effect on our financial position, liquidity or operations.
NOTE 11:EARNINGS (LOSSES) PER UNIT
The computation of basic and diluted earnings (losses) per unit under the two class method for limited partner units and general partner units is presented as follows:
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
Westmoreland Resource Partners, LP
 
 
Oxford Resource Partners, LP
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
 
Three Months Ended June 30, 2015
 
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2015
 
 
Six Months Ended June 30, 2014
 
 
 
 
 
 
Limited partner units
 
 
 
 
 
 
 
 
 
Average units outstanding basic and diluted1, 2
5,878,187

 
 
2,062,834

 
5,878,187

 
 
2,058,912

Net loss allocated to limited partners basic and diluted2
$
(6,354
)
 
 
$
(2,848
)
 
$
(16,597
)
 
 
$
(12,862
)
Net loss per limited partner unit basic and diluted2
$
(1.08
)
 
 
$
(1.32
)
 
$
(2.82
)
 
 
$
(6.24
)
 
 
 
 
 
 
 
 
 
 
General partner units
 
 
 
 
 
 
 
 
 
Average units outstanding basic and diluted
35,291

 
 
35,291

 
35,291

 
 
35,291

Net loss allocated to general partners basic and diluted2
$
(38
)
 
 
$
(49
)
 
$
(100
)
 
 
$
(221
)
Net loss per general partner unit basic and diluted
$
(1.08
)
 
 
$
(1.32
)
 
$
(2.82
)
 
 
$
(6.24
)
 
 
 
 
 
 
 
 
 
 
Distribution paid per limited partner unit
$
0.20

 
 
$

 
$
0.20

 
 
$

Distribution paid per general partner unit
$
0.20

 
 
$

 
$
0.20

 
 
$

1Unvested LTIP units are not dilutive units for the years and periods presented herein, but could be in the future. Anti-dilutive units are not used in calculating diluted average units.
2Reflects the impact of the outstanding common unit warrants for the three and six months ended June 30, 2015 and 2014, respectively..
NOTE 12:RELATED PARTY TRANSACTIONS
In connection with our formation in August 2007, the Partnership and Oxford Mining entered into an administrative and operational services agreement (the “Services Agreement”) with our GP, which agreement was amended in February 2015. The Services Agreement is terminable by either party upon thirty days’ written notice. Under the terms of the Services Agreement, our GP provides services through its employees to us and is reimbursed for all related costs incurred on our behalf. Pursuant to the Agreement, the Partnership engaged the GP to continue providing administrative, engineering, operating and other services to the Partnership. Administrative services include without limitation legal, accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human

16

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for unit and per unit data)

resources, credit, payroll, internal audit and tax. The Partnership pays the GP a fixed annual fee of $500,000 for certain administrative services, and reimburses the GP at cost for other expenses and expenditures. The term of the Services Agreement expires on December 31, 2015, and automatically renews for successive one year periods unless terminated. The primary reimbursements to our GP under the Service Agreement during the three and six months ended June 30, 2015, were for costs related to payroll. Reimbursable costs under the Services Agreement totaling $0.8 million and $0.6 million were included in accounts payable as of June 30, 2015 and December 31, 2014, respectively.
Additionally, in December 2014 we entered into a coal mining lease, with a subsidiary of WCC, to mine fee simple interest coal reserves we control at WCC’s Kemmerer Mine in Lincoln County, Wyoming. Under this lease, we earn a per ton royalty as these coal reserves are mined. For the three and six months ended June 30, 2015, we recognized $1.6 million and $3.4 million, respectively, in coal royalty revenue, of which $1.6 million was included in Receivables - trade at June 30, 2015.
Finally, we sold coal to and performed various transportation and operational services for a subsidiary of WCC, which generated $6.5 million and $18.7 million in coal revenues and less than $0.1 million and $2.4 million in non-coal revenues for the three and six months ended June 30, 2015, respectively. As of June 30, 2015 revenues totaling $2.9 million were included in Receivables - trade.
NOTE 13:SEGMENT INFORMATION
We operate in one business segment. We operated surface coal mines in the Illinois Basin through December 2013, and we operate surface coal mines in Northern Appalachia and sell high-value thermal coal to utilities, industrial customers, municipalities and other coal-related entities primarily in the Midwest and northeastern United States. Our operating and executive management makes its decisions based on consolidated reports. Three of our operating subsidiaries extract coal utilizing surface-mining techniques and prepare it for sale to their customers. Such operating subsidiaries share customers and a particular customer may receive coal from any one of such operating subsidiaries. We also lease or sublease coal reserves to others through Oxford Mining and WKFCH in exchange for a per ton royalty rate. 
NOTE 14:SUBSEQUENT EVENTS
Cash Distribution
On July 17, 2015, our GP declared a cash distribution for all of our unitholders and warrant holders of $0.20 per unit for the second quarter ended June 30, 2015.  The distribution will be paid on August 14, 2015 to all unitholders and warrant holders of record as of the close of business on August 7, 2015.




17

 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2014 included in our 2014 Form 10-K and filed with the United States Securities and Exchange Commission (the “SEC”). This discussion contains forward-looking statements that reflect management’s current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements or as a result of certain factors such as those set forth below under “Cautionary Statement About Forward-Looking Statements.”
Cautionary Statement About Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “may,” “plan,” “predict,” “project,” “should,” “could,” “will” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make throughout this report regarding recent significant transactions and their anticipated effects on us, and statements in “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding factors that may cause our results of operation in future periods to differ from our expectations.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include political, economic, business, competitive, market, weather and regulatory conditions and the following:
Our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements;
Inaccuracies in our estimates of our coal reserves;
The effect of consummating financing, acquisition and/or disposition transactions;
Our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses;
The effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers;
The inability to control costs;
Competition within our industry and with producers of competing energy sources;
Our relationships with, and other conditions affecting, our customers;
The availability and costs of key supplies or commodities, such as diesel fuel, steel, explosives and tires;
Potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties;
The inability to renew our mineral leases or material changes in lease royalties;
The effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage;
Existing and future legislation and regulation affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;
The effect of the Environmental Protection Agency’s inquiries into and regulations of the operations of the power plants to which we provide coal;
Our ability to pay our quarterly distributions which substantially depends upon our future operating performance (which may be affected by prevailing economic conditions in the coal industry), debt covenants, and financial, business and other factors, some of which are beyond our control;
Adequacy and sufficiency of our internal controls;

18

 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


Our potential need to recognize additional impairment and/or restructuring expenses associated with our operations, as well as any changes to previously identified impairment or restructuring expense estimates, including additional impairment and restructuring expenses associated with our Illinois Basin operations; and
Other factors that are described in “Risk Factors” in this report and under the heading “Risk Factors” found in our other reports filed with the SEC, including our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q.
Unless otherwise specified, the forward-looking statements in this report speak as of the filing date of this report. Factors or events that could cause our actual results to differ may emerge from time-to-time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether because of new information, future developments or otherwise, except as may be required by law.
Reserve engineering is a process of estimating underground accumulations of coal that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by our reserve engineers. In addition, the results of mining, testing and production activities may justify revision of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development of reserves. Accordingly, reserve estimates may differ from the quantities of coal that are ultimately recovered.
Overview
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 the “Partnership” mean the business and operations of Westmoreland Resource Partners, LP as well as its consolidated subsidiaries.
References to “GP” mean Westmoreland Resources GP, LLC, the general partner of Westmoreland Resource Partners, LP.
References to “WCC” mean Westmoreland Coal Company, which owns 100% of Westmoreland Resources GP, LLC, approximately 78% of the common units of Westmoreland Resource Partners, LP on a fully diluted basis and, indirectly, all of the incentive distribution rights in Westmoreland Resource Partners, LP.
We are a low-cost producer and marketer of high-value thermal coal to U.S. utilities and industrial users, and we are the largest producer of surface mined coal in Ohio. We focus on acquiring thermal coal reserves that we can efficiently mine with our large-scale equipment. Our reserves and operations are strategically located to serve our primary market area of the Midwest and northeastern United States. Additionally, we hold a fee simple interest in coal reserves in Lincoln County, Wyoming, for which we have entered into a coal mining lease with a subsidiary of WCC pursuant to which we earn a per ton royalty as these coal reserves are mined.
We operate in a single business segment and have four operating subsidiaries, Oxford Mining, Oxford Mining Kentucky, WKFCH and Harrison Resources. Our operating subsidiaries are primarily in the business of utilizing surface mining techniques to mine domestic coal and prepare it for sale to our customers or leasing our controlled coal reserves to others to mine. Our WKFCH and Harrison Resources operating subsidiaries own and hold coal reserves. WKFCH’s coal reserves are leased to WCC in exchange for a per ton coal royalty. Harrison Resources' coal reserves are surface mined and marketed by Oxford Mining. Oxford Mining Kentucky is an inactive operating subsidiary holding coal reserves in the Illinois Basin for which surface mining operation ceased in December 2013.
Results of Operations 
Items that Affect Comparability of Our Results
As of December 31, 2014, WCC's cost of acquiring our GP has been pushed-down to establish a new accounting basis for us, in accordance with ASC 805. Accordingly, the accompanying consolidated financial statements are presented for two periods, Predecessor and Successor, which relate to the accounting periods preceding and succeeding the completion of the acquisition. The Predecessor and Successor periods have been separated by a vertical line on the face of the consolidated financial statements to highlight the fact that the financial information for such periods has been prepared under two different historical-cost bases of accounting. The following narrative analysis of results of operations includes a brief discussion of the factors that materially affected our operating results in the Predecessor period of January 1 - December 31, 2014 along with a brief discussion of Successor activity for the last minutes of the day on December 31, 2014 through June 30, 2015.

19

 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


For the three and six months ended June 30, 2015 and 2014, our consolidated results include items that affect comparability of our results. The expense components of these items were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
(in thousands)
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
Restructuring expense
$
103

 
 
$

 
$
656

 
 
$
75

Kemmerer acquisition related costs
1,128

 
 

 
1,128

 
 

WCC push-down acquisition related costs1

 
 

 
1,400

 
 

Impact
$
1,231

 
 
$

 
$
3,184

 
 
$
75

1 Includes acquisition and transition costs included in cost of coal revenue related to the sale of inventory written up to fair value.
Restructuring Expense
Restructuring expense increased $0.1 million and $0.6 million to $0.1 million and $0.7 million, respectively for the three and six months ended June 30, 2015, compared the three and six months ended June 30, 2014. For the three and six months ended June 30, 2015 we incurred $0.1 million and $0.7 million, respectively, in severance payments related to the closing of the corporate offices in Columbus, Ohio and the elimination of other nonessential roles. The six months ended June 30, 2014 included $0.1 million in various immaterial costs associated with the restructuring related to our Illinois Basin operations.
Kemmerer acquisition related costs
On June 1, 2015, we entered into the Contribution Agreement with WCC pursuant to which, upon satisfaction or waiver of the conditions set forth in the Contribution Agreement, WCC would make the Contribution to us of all of the outstanding equity interests in Kemmerer for aggregate consideration of approximately $230 million. Upon closing the Contribution, WMLP would own 100% of the outstanding equity interests in Kemmerer, which owns and operates the Kemmerer Mine in Lincoln County, Wyoming.
We expect to close the Contribution in the third quarter of 2015. However, there can be no assurance that the Contribution will be completed within the anticipated time frame, or at all, or that the anticipated benefits will be realized.
For the three and six months ended June 30, 2015 we have incurred and expensed $1.1 million in acquisition related costs for various legal and investment banking expenses, which were included in Selling and administrative in the consolidated statement of operations.
Acquisition Related Costs
As part of the acquisition method of accounting, coal inventory was accounted for at its estimated fair value on December 31, 2014, increasing the coal inventory by $1.4 million. During the six months ended June 30, 2015, the inventory held at December 31, 2014 was sold and we recognized a $1.4 million non-cash charge to cost of coal revenues related to the acquisition method of accounting adjustment.

20

 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


The Three Months Ended June 30, 2015 (Successor) Compared to the Three Months Ended June 30, 2014 (Predecessor)
Summary
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Total Revenues
$
59,515

 
 
$
82,001

 
$
(22,486
)
 
(27.4
)%
Net loss
(6,392
)
 
 
(3,358
)
 
(3,034
)
 
(90.4
)%
Adjusted EBITDA1
10,238

 
 
12,960

 
(2,722
)
 
(21.0
)%
Distributable Cash Flow2
2,512

 
 
3,833

 
(1,321
)
 
(34.5
)%
Tons sold - millions of equivalent tons
1.1

 
 
1.5

 
(0.4
)
 
(26.7
)%
1Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
2Distributable cash flow a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
We reported total revenues of $59.5 million for the three months ended June 30, 2015 compared to $82.0 million for the three months ended June 30, 2014. The decrease of $22.5 million was principally due to decreased sales and production volumes, which declined to 1.1 million tons sold and produced in the three months ended June 30, 2015, compared to 1.5 million tons sold and produced in the three months ended June 30, 2014. The decrease in tons sold and produced resulted from a decrease in market demand. We reported net loss of $6.4 million for the three months ended June 30, 2015, compared to $3.4 million for the three months ended June 30, 2014. Additionally we reported Adjusted EBITDA of $10.2 million for the three months ended June 30, 2015, compared to $13.0 million for the three months ended June 30, 2014. The average coal sales price per ton sold increased by $0.74 to $53.23 per ton sold in the three months ended June 30, 2015, compared to $52.49 per ton sold in the three months ended June 30, 2014.
Total Revenues
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
Coal revenues
$
55,036

 
 
$
79,586

 
$
(24,550
)
 
(30.8
)%
Royalty revenues
1,651

 
 
85

 
1,566

 
1,842.4
 %
Non-coal revenues
2,828

 
 
2,330

 
498

 
21.4
 %
Total Revenues
$
59,515

 
 
$
82,001

 
$
(22,486
)
 
(27.4
)%
Coal sales revenue was $55.0 million for the three months ended June 30, 2015, a decrease of $24.6 million, or 30.8%, from $79.6 million for the three months ended June 30, 2014. The decrease was primarily attributable to a 31.8% reduction in tons sold due to a decrease in demand in the amount of $25.3 million, partially offset by a $0.74 per ton, or an aggregate $0.8 million, increase in the average sale price per ton for the three months ended June 30, 2015. 
For the three months ended June 30, 2015, we generated $1.7 million in royalty revenues from the receipt of $1.6 million in coal royalty revenues and $0.1 million in oil and gas royalty revenues. In December 2014, pursuant to a contribution agreement, WCC contributed to us 100% of the membership interests in WKFCH. WKFCH holds fee simple interests in 30.4 million tons of coal reserves and related surface lands at WCC’s Kemmerer Mine in Lincoln County, Wyoming. In connection with this contribution, WKFCH entered into a coal mining lease with respect to these coal reserves with a subsidiary of WCC pursuant to which WKFCH earns a per ton royalty as these coal reserves are mined. For the three months ended June 30, 2015 we earned $1.6 million in coal royalty revenues for coal mined by WCC during the period. For the three months ended June 30, 2014 we generated $0.1 million in royalty revenues,which comprised solely oil and gas royalty revenues.

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Non-coal revenues, primarily from clay and limestone sales, and other miscellaneous revenue, were $2.8 million for the three months ended June 30, 2015, an increase of $0.5 million from $2.3 million for the three months ended June 30, 2014. Other miscellaneous revenue increased by $1.5 million to $2.0 million for the three months ended June 30, 2015 from $0.5 million in the prior year, due primarily to generating $1.8 million in lost coal fees for granting a pipeline right-of-way to a third party in June 2015. The $1.5 million increase in miscellaneous revenue was offset in part by a $1.0 million decrease in clay and limestone sales to $0.9 million for the three months ended June 30, 2015, from $1.9 million for the three months ended June 30, 2014.
Cost of Coal Revenues
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Cost of coal revenues (excluding depreciation, depletion and amortization)
$
46,866

 
 
$
67,295

 
$
(20,429
)
 
(30.4
)%
Cost of coal revenues (excluding DD&A) decreased $20.4 million to $46.9 million for the three months ended June 30, 2015 from $67.3 million for the three months ended June 30, 2014, primarily due to decreased coal sales and production volumes. On a per ton basis, cost of coal revenues increased 2.1% to $45.32 per ton sold for the three months ended June 30, 2015 from $44.38 per ton sold for the three months ended June 30, 2014, primarily due to various factors, the most significant of which are discussed below:
Labor and benefit expenses per ton sold increased 22.9% to $9.73 per ton for the three months ended June 30, 2015 from $7.92 per ton for the three months ended June 30, 2014. This increase of $1.81 per ton was attributed to a $1.32 per ton increase in wages and a $0.49 per ton increase in employee benefits. The $1.32 per ton increase in wages is primarily the result of raises implemented in mid-2014 in response to competition in the labor market from the growing oil and gas drilling business in southeastern Ohio. The $0.49 per ton increase in employee benefits is primarily the result of higher health insurance cost per employee.
Equipment repair and maintenance expense per ton sold increased $0.61 per ton to $4.28 per ton for the three months ended June 30, 2015 from $3.67 per ton for the three months ended June 30, 2014. This increase of $0.61 per ton is the result of incurring equipment maintenance costs during the three months ended June 30, 2015, deferred from fiscal 2014, combined with a 31.8% decrease in tons sold for the three months ended June 30, 2015, compared with the three months ended June 30, 2014.
Contract labor expenses per ton sold decreased $1.73 per ton to $0.39 per ton for the three months ended June 30, 2015 from $2.12 per ton for the three months ended June 30, 2014. The decrease of $1.73 per ton was attributed to the 31.8% decrease in tons sold for the three months ended June 30, 2015, compared with the three months ended June 30, 2014.
Transportation expense per ton sold decreased $0.39 per ton to $7.46 per ton for the three months ended June 30, 2015 from $7.85 per ton for the three months ended June 30, 2014. The decrease of $0.39 per ton was attributed to increased efficiency in managing our haul routes.

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Depreciation, Depletion and Amortization
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Depreciation, depletion and amortization
$
9,563

 
 
$
10,072

 
$
(509
)
 
(5.1
)%
Depreciation, depletion and amortization expense decreased to $9.6 million for the three months ended June 30, 2015 from $10.1 million for the three months ended June 30, 2014. The decrease of $0.5 million was primarily attributable to lower production volumes and the decrease in land and mineral rights asset values resulting from the use of the acquisition method of accounting for WCC’s acquisition of 100% of the equity of our GP on December 31, 2014.
Selling and Administrative
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Selling and administrative
$
3,065

 
 
$
3,270

 
$
(205
)
 
(6.3
)%
Selling and administrative expenses for the three months ended June 30, 2015, decreased $0.2 million to $3.1 million compared to $3.3 million for the three months ended June 30, 2014. The decrease of $0.2 million was primarily due to cost savings from the restructuring efforts put in place to streamline operations and eliminate duplicated roles in connection with WCC's acquisition of our GP on December 31, 2014, offset in part by $1.1 million in Kemmerer acquisition costs incurred three months ended June 30, 2015.
Loss (gain) on sale/disposal of assets
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Loss (gain) on sale/disposal of assets
$
651

 
 
$
(763
)
 
$
1,414

 
(185.3
)%
The loss on sale/disposal of assets of $0.7 million for the three months ended June 30, 2015 and the gain on sale/disposal of assets of $0.8 million for the three months ended June 30, 2014, resulted from the disposal of equipment in the normal course of business.
Net Income Attributable to Noncontrolling Interest
 
Three Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Less net loss attributable to noncontrolling interest
$

 
 
$
461

 
$
(461
)
 
(100.0
)%
Effective October 1, 2014, Oxford Mining entered into a membership interest redemption agreement with Harrison Resources and CONSOL of Ohio LLC (“CONSOL”) under which Harrison Resources redeemed all of CONSOL’s interest in

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.


Harrison Resources. Harrison Resources had been a joint venture owned 51% by Oxford Mining and 49% by CONSOL, and as a result of the redemption Oxford Mining owns 100% of Harrison Resources.
Net income attributable to noncontrolling interest of $0.5 million for the three months ended June 30, 2014, relates to the 49% ownership interest in Harrison Resources owned by a subsidiary of CONSOL.
The Six Months Ended June 30, 2015 (Successor) Compared to the Six Months Ended June 30, 2014 (Predecessor)
Summary
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Total Revenues
$
127,082

 
 
$
160,005

 
$
(32,923
)
 
(20.6
)%
Net loss
(16,697
)
 
 
(13,925
)
 
(2,772
)
 
(19.9
)%
Adjusted EBITDA1
19,791

 
 
22,201

 
(2,410
)
 
(10.9
)%
Distributable Cash Flow2
5,706

 
 
5,683

 
23

 
0.4
 %
Tons sold - millions of equivalent tons
2.2

 
 
3.0

 
(0.8
)
 
(10.9
)%
1Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
2Distributable cash flow a non-GAAP measure, is defined and reconciled to net loss at the end of this “Results of Operations” section.
We reported total revenues of $127.1 million for the six months ended June 30, 2015, compared to $160.0 million for the six months ended June 30, 2014. The decrease of $32.9 million was principally due to decreased sales and production volumes, which declined to 2.2 million tons sold and produced in the six months ended June 30, 2015, compared to 3.0 million tons sold and produced in the six months ended June 30, 2014. The decrease in tons sold and produced resulted from a decrease in market demand. We reported net loss of $16.7 million for the six months ended June 30, 2015, compared to $13.9 million for the six months ended June 30, 2014. Additionally we reported Adjusted EBITDA of $19.8 million for the six months ended June 30, 2015, compared to $22.2 million for the six months ended June 30, 2014. The average coal sales price per ton sold increased $0.74 per ton sold to $53.65 per ton sold in the six months ended June 30, 2015, compared to $52.91 per ton sold in the six months ended June 30, 2014.
Total Revenues
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
Coal revenues
$
116,786

 
 
$
156,356

 
$
(39,570
)
 
(25.3
)%
Royalty revenues
3,521

 
 
184

 
3,337

 
1,813.6
 %
Non-coal revenues
6,775

 
 
3,465

 
3,310

 
95.5
 %
Total Revenues
$
127,082

 
 
$
160,005

 
$
(32,923
)
 
(20.6
)%
Coal sales revenue was $116.8 million for the six months ended June 30, 2015, a decrease of $39.6 million, or 25.3%, from $156.4 million for the six months ended June 30, 2014. The decrease was primarily attributable to a 26.3% reduction in tons sold, due to a decrease in demand, in the amount of $41.2 million, partially offset by a $0.74 per ton, or an aggregate $1.6 million, increase in the average sale price per ton for the six months ended June 30, 2015. 
For the six months ended June 30, 2015, we generated $3.5 million in royalty revenues from the receipt of $3.4 million in coal royalty revenues and $0.1 million in oil and gas royalty revenues. In December 2014, pursuant to a contribution agreement, WCC contributed to us 100% of the membership interests in WKFCH. WKFCH holds fee simple interests in 30.4

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WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


million tons of coal reserves and related surface lands at WCC’s Kemmerer Mine in Lincoln County, Wyoming. In connection with this contribution, WKFCH entered into a coal mining lease with respect to these coal reserves with a subsidiary of WCC pursuant to which we earn a per ton royalty as these coal reserves are mined. For the six months ended June 30, 2015 we earned $3.4 million in coal royalty revenues for coal mined by WCC during the period. For the six months ended June 30, 2014 we generated $0.2 million in royalty revenues which comprised solely oil and gas royalty revenues.
Non-coal revenues, primarily from clay and limestone sales, and other miscellaneous revenue were $6.8 million for the six months ended June 30, 2015, an increase of $3.3 million, from $3.5 million for the six months ended June 30, 2014. Other miscellaneous revenue increased by $4.5 million to $5.3 million for the six months ended June 30, 2015 from $0.8 million in the prior year, primarily due to generating $2.4 million in coal handling and transportation services revenue performed on behalf of a subsidiary of WCC, $1.8 million in lost coal fees for granting a pipeline right-of-way to a third party in June 2015 and $0.7 million in one-time coal handling and transportation services revenue performed on behalf of a customer. The $4.5 million increase in miscellaneous revenue was offset in part by a $1.2 million decrease in clay and limestone sales to $1.5 million for the six months ended June 30, 2015 from $2.7 million for the six months ended June 30, 2014.
Cost of Coal Revenues
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Cost of coal revenues (excluding depreciation, depletion and amortization)
$
101,517

 
 
$
133,021

 
$
(31,504
)
 
(23.7
)%
Cost of coal revenues (excluding DD&A) decreased $31.5 million to $101.5 million for the six months ended June 30, 2015, from $133.0 million for the six months ended June 30, 2014, primarily due to decreased coal sales and production volumes. On a per ton basis, cost of coal revenues increased 3.6% to $46.63 per ton sold for the six months ended June 30, 2015 from $45.02 per ton sold for the six months ended June 30, 2014, primarily due to various factors, the most significant of which are discussed below:
Labor and benefit expenses per ton sold increased 14.7% to $9.68 per ton for the six months ended June 30, 2015, from $8.44 per ton for the six months ended June 30, 2014. This increase of $1.24 per ton was attributed to a $0.85 per ton increase in wages and a $0.39 per ton increase in employee benefits. The $0.85 per ton increase in wages is primarily the result of raises implemented in mid-2014 in response to competition in the labor market from the growing oil and gas drilling business in southeastern Ohio. The $0.39 per ton increase in employee benefits is primarily the result of higher health insurance cost per employee.
Equipment repair and maintenance expense per ton sold increased $0.79 per ton to $4.32 per ton for the six months ended June 30, 2015 from $3.53 per ton for the six months ended June 30, 2014. This increase of $0.79 per ton is the result of incurring equipment maintenance costs during the six months ended June 30, 2015, deferred from fiscal 2014, combined with a 26.3% decrease in tons sold for the six months ended June 30, 2015, compared with the six months ended June 30, 2014.
Contract labor expenses per ton sold decreased $1.21 per ton to $0.68 per ton for the six months ended June 30, 2015, from $1.89 per ton for the six months ended June 30, 2014. The decrease of $1.21 per ton was attributed to the 26.3% decrease in tons sold for the six months ended June 30, 2015, compared with the six months ended June 30, 2014.

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Depreciation, Depletion and Amortization
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Depreciation, depletion and amortization
$
19,743

 
 
$
21,296

 
$
(1,553
)
 
(7.3
)%
Depreciation, depletion and amortization expense decreased to $19.7 million for the six months ended June 30, 2015 from $21.3 million for the six months ended June 30, 2014. The decrease of $1.6 million was primarily attributable to lower production volumes and the decrease in land and mineral rights asset values resulting from the use of the acquisition method of accounting for WCC’s acquisition of 100% of the equity of our GP on December 31, 2014.
Selling and Administrative
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Selling and administrative
$
5,613

 
 
$
6,926

 
$
(1,313
)
 
(19.0
)%
Selling and administrative expenses for the six months ended June 30, 2015 decreased $1.3 million to $5.6 million compared to $6.9 million for the six months ended June 30, 2014. The decrease of $1.3 million was primarily due to cost savings from the restructuring efforts put in place to stream line operations and eliminate duplicated roles in connection with WCC's acquisition of our GP, offset in part by $1.1 million in Kemmerer acquisition costs incurred six months ended June 30, 2015
Loss (gain) on sale/disposal of assets
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Loss (gain) on sale/disposal of assets
$
1,685

 
 
$
(559
)
 
$
2,244

 
(401.4
)%
The loss on sale/disposal of assets of $1.7 million for the six months ended June 30, 2015, and the gain on sale/disposal of assets of $0.6 million for the six months ended June 30, 2014, resulted from the disposal of equipment in the normal course of business.
Net Income Attributable to Noncontrolling Interest
 
Six Months Ended June 30,
 
 
 
 
 
 
Increase (Decrease)
 
2015
 
 
2014
 
$
 
%
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
Less net loss attributable to noncontrolling interest
$

 
 
$
842

 
$
(842
)
 
(100.0
)%

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WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


Net income attributable to noncontrolling interest of $0.8 million for the six months ended June 30, 2014 relates to the 49% ownership interest in Harrison Resources owned by a subsidiary of CONSOL.
Adjusted EBITDA
EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance, and we believe that EBITDA and Adjusted EBITDA are useful to an investor in evaluating our operating performance because these measures:
are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; and
help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results.
Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The items excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
do not reflect our cash expenditures or future requirements for capital and major maintenance expenditures or contractual commitments;
do not reflect changes in, or cash requirements for, our working capital needs; and
do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of our debt obligations.
In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.
Distributable Cash Flow
Distributable Cash Flow represents Adjusted EBITDA less cash interest expense (net of interest income), reserve replacement expenditures, maintenance capital expenditures, cash reclamation expenditures and noncontrolling interest. Cash interest expense represents the portion of our interest expense accrued and paid in cash during the reporting periods presented or that we will pay in cash in future periods as the obligations become due. Other maintenance capital expenditures represent expenditures for coal reserve replacement, and for plant, equipment and mine development. Cash reclamation expenditures represent the reduction to our reclamation and mine closure costs resulting from cash payments. Earnings attributable to the noncontrolling interest are not available for distribution to our unitholders and accordingly are deducted.
Distributable Cash Flow should not be considered as an alternative to net income (loss) attributable to our unitholders, income from operations, cash flows from operating activities or any other measure of performance presented in accordance with GAAP. Although Distributable Cash Flow is not a measure of performance calculated in accordance with GAAP, we believe Distributable Cash Flow is useful to investors because this measurement is used by many analysts and others in the industry as a performance measurement tool to evaluate our operating and financial performance, facilitating comparison with the performance of other publicly traded limited partnerships.

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The tables below show how we calculated EBITDA, Adjusted EBITDA and Distributable Cash Flow and reconcile Distributable Cash Flow to net loss, the most directly comparable GAAP financial measure. 
Reconciliation of Net Loss to Distributable Cash Flows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
 
2014
 
2015
 
 
2014
 
(in thousands)
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
 
(Successor)
 
 
(Predecessor)
Reconciliation of Net Loss to Adjusted EBITDA
 
 
 
 
 
 
 
 
Net loss
$
(6,392
)
 
 
$
(3,358
)
 
$
(16,697
)
 
 
$
(13,925
)
Interest expense, net of interest income
5,872

 
 
7,001

 
11,652

 
 
13,870

Depreciation, depletion and amortization
9,563

 
 
10,072

 
19,743

 
 
21,296

Accretion of ARO
826

 
 
560

 
1,630

 
 
1,125

EBITDA
9,869

 
 
14,275

 
16,328

 
 
22,366

Restructuring and impairment charges
103

 
 

 
656

 
 
75

Change in fair value of warrants
(448
)
 
 
(1,885
)
 
(477
)
 
 
(1,470
)
Acquisition related costs1

 
 

 
1,400

 
 

Loss on sale/disposal of assets
651

 
 
(763
)
 
1,685

 
 
(559
)
Unit-based compensation
63

 
 
465

 
84

 
 
921

Other non-recurring costs

 
 
868

 
115

 
 
868

Adjusted EBITDA
10,238

 
 
12,960

 
19,791

 
 
22,201

Noncontrolling interest's Adjusted EBITDA

 
 
(53
)
 

 
 
(147
)
Cash interest expense, net of interest income
(4,123
)
 
 
(4,101
)
 
(8,170
)
 
 
(8,161
)
Other maintenance capital expenditures
(1,598
)
 
 
(3,242
)
 
(2,952
)
 
 
(5,864
)
Reclamation and mine closure costs
(2,005
)
 
 
(1,731
)
 
(2,963
)
 
 
(2,346
)
Distributable Cash Flow
$
2,512

 
 
$
3,833

 
$
5,706

 
 
$
5,683

1 Includes acquisition and transition costs included in cost of coal revenue related to the sale of inventory written up to fair value.
Liquidity and Capital Resources 
Liquidity 
Our business is capital intensive and requires substantial capital expenditures for, among other things, purchasing, maintaining and upgrading equipment used in developing and mining our coal, and acquiring reserves. Our principal liquidity needs are to finance current operations, replace reserves, fund capital expenditures, including costs of acquisitions from time to time, service our debt and pay quarterly cash distributions to our unitholders. Our primary sources of liquidity to meet these needs are cash generated by our operations and borrowings under the 2014 Financing Agreement.
Our ability to satisfy our working capital requirements, meet debt service obligations and fund planned capital expenditures substantially depends upon our future operating performance, which may be affected by prevailing economic conditions in the coal industry. To the extent our future operating cash flow or access to financing sources and the costs thereof are materially different than expected, our future liquidity may be adversely affected. 
As of June 30, 2015, our available liquidity was $12.8 million, which consisted entirely of cash on hand.
Please read "— Capital Expenditures" for a further discussion of the impact on liquidity. 
Debt Obligations 
On December 31, 2014, we entered into the 2014 Financing Agreement with the lenders party thereto and U.S. Bank National Association as Administrative and Collateral Agent. The 2014 Financing Agreement includes a $175 million term loan, with an option for up to $120 million in additional term loans for acquisitions if requested by us and approved by the

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.


issuing lenders. The 2014 Financing Agreement matures in December 2018 and contains customary financial and other covenants. It also permits distributions to our unitholders under specified circumstances. Borrowings under the 2014 Financing Agreement are secured by substantially all of our physical assets. Our initial borrowings under the 2014 Financing Agreement in December 2014 were used to retire our then-existing first and second lien credit facilities and to pay fees and expenses related the 2014 Financing Agreement, with the remaining amount available as working capital.
As of June 30, 2015 the outstanding balance on our 2014 Financing Agreement was $175.8 million. This amount represents the principal balance of $173.2 million, plus PIK Interest of $2.7 million. As of June 30, 2015, our 2014 Financing Agreement had a cash interest rate of 9.25%, consisting of the LIBOR floor (0.75%) plus 8.50%.
Historical Sources and Uses of Cash
The following is a summary of cash provided by or used in each of the indicated types of activities:
 
Six Months Ended June 30,
 
2015
 
 
2014
 
(in thousands)
 
(Successor)
 
 
(Predecessor)
Net cash provided by (used in):
 
 
 
 
Operating activities
$
13,925

 
 
$
5,641

Investing activities
(4,050
)
 
 
(1,759
)
Financing activities
(3,030
)