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EX-32 - EXHIBIT 32 - Westmoreland Resource Partners, LPq32015exhibit_32.htm
EX-31.2 - EXHIBIT 31.2 - Westmoreland Resource Partners, LPq32015exhibit_312.htm
EX-95 - EXHIBIT 95 - Westmoreland Resource Partners, LPq32015exhibit_951.htm
EX-31.1 - EXHIBIT 31.1 - Westmoreland Resource Partners, LPq32015exhibit_311.htm
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 September 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 October 29, 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 September 30, 2015 and December 31, 2014
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014
 
Condensed Consolidated Statements of Partners’ Capital for the Nine Months Ended September 30, 2015
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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)
(Unaudited)
 
Westmoreland Resource Partners, LP
 
(Successor)
 
As of
September 30,
2015
 
As of
December 31, 2014
Assets
 
Current assets:
 
 
 
Cash
$
11,579

 
$
6,004

Receivables:
 
 
 
Trade
33,030

 
40,282

Other
1,530

 
215

 
34,560

 
40,497

Inventory
24,409

 
24,485

Deferred income taxes

 
903

Other current assets
3,285

 
3,673

Total current assets
73,833

 
75,562

Property, plant and equipment:
 
 
 
Land and mineral rights
98,690

 
93,016

Plant and equipment
261,392

 
249,884

 
360,082

 
342,900

Less accumulated depreciation, depletion and amortization
(78,021
)
 
(34,773
)
Net property, plant and equipment
282,061

 
308,127

Advanced coal royalties
9,715

 
9,153

Restricted investments and bond collateral
35,897

 
35,903

Intangible assets, net of accumulated amortization of $1.6 million and $0 in September 30, 2015 and December 31, 2014, respectively
29,450

 
31,000

Deferred income taxes

 
15,477

Deferred financing costs, net
8,706

 
6,993

Total assets
$
439,662

 
$
482,215

 
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
September 30,
2015
 
As of
December 31, 2014
Liabilities and partners' capital
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
2,587

 
$
2,316

Accounts payable and accrued expenses:
 
 
 
Trade
26,531

 
30,192

Deferred revenue

 
2,513

Production taxes
19,188

 
18,190

Accrued compensation
1,120

 
1,531

Postretirement medical benefits

 
436

Asset retirement obligations
11,170

 
10,441

Other current liabilities
2,980

 
4,007

Total current liabilities
63,576

 
69,626

Long-term debt, less current installments
305,602

 
184,350

Postretirement medical benefits, less current portion

 
60,245

Pension obligation

 
17,762

Asset retirement obligations, less current portion
41,496

 
40,104

Warrants
1,196

 
1,981

Other liabilities
1,230

 
160

Total liabilities
413,100

 
374,228

Partners' capital (deficit):
 
 
 
Common Units (5,711,630 and 5,505,087 Common Units outstanding as of September 30, 2015 and December 31, 2014, respectively)
(1,367
)
 
39,549

Series A Convertible Units (15,251,989 and zero units outstanding as of September 30, 2015 and December 31, 2014, respectively)
(6,040
)
 

General partner (35,291 units outstanding as of September 30, 2015 and December 31, 2014, respectively)
34,060

 
33,472

Net investment

 
34,966

Comprehensive income (loss)
(91
)
 

Total partners’ capital
26,562

 
107,987

Total liabilities and partners’ capital
$
439,662

 
$
482,215


See accompanying notes to the condensed 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 September 30, 2015
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
Revenues:
 
 
 
 
 
 
 
 
 
Coal revenues
$
93,000

 
 
$
73,112

 
$
288,827

 
 
$
229,468

Non-coal revenues
1,327

 
 
21,395

 
8,178

 
 
25,044

Total Revenues
94,327

 
 
94,507

 
297,005

 
 
254,512

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of coal revenues (excluding depreciation, depletion and amortization)
77,625

 
 
64,892

 
238,671

 
 
197,913

Cost of non-coal revenues
234

 
 
542

 
3,624

 
 
1,313

Depreciation, depletion and amortization
15,471

 
 
9,236

 
44,281

 
 
30,532

Selling and administrative
4,039

 
 
3,604

 
12,885

 
 
10,530

Loss (gain) on sale/disposal of assets
1,334

 
 

 
3,035

 
 
(559
)
Restructuring charges

 
 

 
656

 
 
75

Total cost and expenses
98,703

 
 
78,274

 
303,152

 
 
239,804

Operating (loss) income
(4,376
)
 
 
16,233

 
(6,147
)
 
 
14,708

Other (expense) income:
 
 
 
 
 
 
 
 
 
Interest expense
(8,731
)
 
 
(7,026
)
 
(20,674
)
 
 
(20,899
)
Interest income
187

 
 
1

 
707

 
 
4

Other income
2

 
 

 
224

 
 

Change in fair value of warrants
308

 
 
151

 
785

 
 
1,621

Total other expenses
(8,234
)
 
 
(6,874
)
 
(18,958
)
 
 
(19,274
)
(Loss) income before income taxes
(12,610
)
 
 
9,359

 
(25,105
)
 
 
(4,566
)
Income tax expense
(112
)
 
 

 
(157
)
 
 

Net (loss) income
(12,722
)
 
 
9,359

 
(25,262
)
 
 
(4,566
)
Less net income attributable to noncontrolling interest

 
 
428

 

 
 
1,270

Net (loss) income attributable to unitholders
(12,722
)
 
 
9,787

 
(25,262
)
 
 
(3,296
)
Less net income (loss) allocated to general partner
135

 
 
193

 
4,189

 
 
(66
)
Net (loss) income allocated to limited partners
$
(12,857
)
 
 
$
9,594

 
$
(29,451
)
 
 
$
(3,230
)
 
 
 
 
 
 
 
 
 
 
Net (loss) income per common limited partner unit:
 
 
 
 
 
 
 
 
 
Basic
$
(1.30
)
 
 
$
4.68

 
$
(4.12
)
 
 
$
(1.56
)
Diluted
$
(1.30
)
 
 
$
4.68

 
$
(4.12
)
 
 
$
(1.56
)

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

 
 
2,066,556

 
5,878,187

 
 
2,059,808

Diluted
5,878,187

 
 
2,066,556

 
5,878,187

 
 
2,059,808


 
 
 
 
 
 
 
 
 
Distribution paid per common limited partner unit
$
0.20

 
 
$

 
$
0.40

 
 
$

Distribution paid per Series A convertible common unit
$

 
 
$

 
$

 
 
$

Distribution paid per general partner unit
$
0.20

 
 
$

 
$
0.40

 
 
$



5



See accompanying notes to condensed consolidated financial statements. 

6



WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(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 September 30, 2015
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
Net loss
$
(12,722
)
 
 
$
9,359

 
$
(25,262
)
 
 
$
(4,566
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
Adjustments to and amortization of accumulated actuarial gain and losses, pension and postretirement medical benefits

 
 

 

 
 

Unrealized and realized gains and losses on available-for-sale securities
(251
)
 
 

 
(751
)
 
 

Transferred to WCC
160

 
 

 
660

 
 

Other comprehensive income (loss)
(91
)
 
 

 
(91
)
 
 

Comprehensive (loss) income attributable to the Partnership
$
(12,813
)
 
 
$
9,359

 
$
(25,353
)
 
 
$
(4,566
)


7



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

 
$
39,549

 

 
$

 
856,698

 
$

 
6,361,785

 
$
39,549

 
35,291

 
$
33,472

 
$

 
$
34,966

 
$
107,987

Net (loss) income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to predecessor WKL
 

 

 

 

 

 

 

 

 

 

 

 
4,335

 
4,335

Attributable to partners
 

 
(23,411
)
 

 
(6,040
)
 

 

 

 
(29,451
)
 

 
(146
)
 

 

 
(29,597
)
Transaction with Parent/affiliate
 

 

 

 

 

 

 

 

 

 
843

 

 
(5,708
)
 
(4,865
)
Net transfers to WCC
 

 

 

 

 

 

 

 

 

 

 

 
66,134

 
66,134

Equity-based compensation
 

 
146

 

 

 

 

 

 
146

 

 

 

 
232

 
378

Other comprehensive income
 

 

 

 

 

 

 

 

 

 

 
(91
)
 
(352
)
 
(443
)
Acquisition of WKL
 

 
98,995

 

 

 

 

 

 
98,995

 

 
612

 

 
(99,607
)
 

Cash paid in the acquisition of WKL
 

 
(114,294
)
 

 

 

 

 

 
(114,294
)
 

 
(706
)
 

 

 
(115,000
)
Series A convertible units issued in the acquisition of WKL
 

 

 
15,251,989

 

 

 

 
15,251,989

 

 

 

 

 

 

Common unit distribution
 
206,543

 

 

 

 

 

 
206,543

 

 

 

 

 

 

Cash distribution to unitholders
 

 
(2,352
)
 

 

 

 

 

 
(2,352
)
 

 
(15
)
 

 

 
(2,367
)
Balance at September 30, 2015
 
5,711,630

 
$
(1,367
)
 
15,251,989

 
$
(6,040
)
 
856,698

 
$

 
21,820,317

 
$
(7,407
)
 
35,291

 
$
34,060

 
$
(91
)
 
$

 
$
26,562

 
See accompanying notes to condensed consolidated financial statements. 

8



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)
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
Cash flows from operating activities:
 
 
 
 
Net loss
$
(25,262
)
 
 
$
(4,566
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
44,281

 
 
30,532

Accretion of asset retirement obligations
3,795

 
 
1,725

Restructuring charges
656

 
 
75

Equity-based compensation
378

 
 
1,383

Loss (gain) on sale/disposal of assets
3,035

 
 
(559
)
Gain on sales of investment securities
(138
)
 
 

Non-cash interest expense
4,617

 
 
5,770

Amortization of deferred financing costs
1,483

 
 
3,010

Other
(785
)
 
 
(1,621
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables, net
5,937

 
 
674

Inventories
76

 
 
(1,756
)
Accounts payable and accrued expenses
(7,198
)
 
 
(1,687
)
Deferred revenue
(2,513
)
 
 

Accrued compensation
(411
)
 
 
(1,110
)
Asset retirement obligations
(4,584
)
 
 
(3,376
)
Accrual for postretirement medical benefit
2,771

 
 

Pension obligation
(219
)
 
 

Other assets and liabilities
2,470

 
 
1,107

Net cash provided by operating activities
28,389

 
 
29,601

Cash flows from investing activities:
 
 
 
 
Additions to property, plant, equipment and other
(14,881
)
 
 
(10,412
)
Change in restricted investments and bond collateral
(9,381
)
 
 
1,892

Net proceeds from sales of assets
308

 
 
3,751

Net proceeds from the sale of investments
9,862

 
 

Cost of acquisition
(115,000
)
 
 

Net cash used in investing activities
(129,092
)
 
 
(4,769
)
Cash flows from financing activities:
 
 
 
 
Borrowings from long-term debt
120,937

 
 

Repayments of long-term debt
(9,096
)
 
 
(18,626
)
Borrowings on revolving lines of credit

 
 
17,500

Repayment on revolving lines of credit

 
 
(19,000
)
Debt issuance costs and other refinancing costs
(3,196
)
 
 
(341
)
Cash distributions to unitholders
(2,367
)
 
 

Net cash provided (used in) by financing activities
106,278

 
 
(20,467
)
Net increase in cash
5,575

 
 
4,365

Cash, beginning of the period
6,004

 
 
3,089

Cash, end of the period
$
11,579

 
 
$
7,454


9



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)
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest
$
12,710

 
 
$
12,304

Non-cash transactions:
 
 
 
 
Property, plant and equipment acquired with debt
5,065

 
 
35

Asset retirement obligations capitalized in mine development
3,778

 
 
4,216

Fair value of Series A Units in excess of net assets received
115,000

 
 

 See accompanying notes to condensed consolidated financial statements. 

10

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 nine months ended September 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, where applicable, certain of 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.
WCC’s Contribution of Westmoreland Kemmerer, LLC
On August 1, 2015, WCC, who owns and controls the GP, contributed 100% of the outstanding equity interests in Westmoreland Kemmerer, LLC ("WKL") to the Partnership in exchange for $230 million in aggregate consideration, composed of $115 million of cash and 15,251,989 Series A Convertible Units of the Partnership (“Series A Units”) with a value of $115 million (the “Drop”). The Drop will be accounted for as a reorganization of entities under common control in accordance with the provisions of Accounting Standards Codification (“ASC”) 805-50, which requires that the transaction be presented as though it occurred at the beginning of the period, and prior years retrospectively adjusted to furnish comparative information similar to the pooling method. Accordingly, our financial statements give retrospective effect to the Drop for periods as of and subsequent to December 31, 2014.
Immediately prior to the Drop and in accordance with the Amended and Restated Contribution Agreement, dated July 31, 2015, between the Partnership and WCC (the “Contribution Agreement”) all employees of WKL were transferred to WCC. WCC assumed all liabilities associated with the transferred employees, including but not limited to all post-retirement pension, medical, other benefits and the related deferred income tax assets and liabilities, which were not contributed as part of the transaction (the “Excluded Liabilities”).
For periods prior to August 1, 2015, WKL files consolidated federal and state tax returns with WCC. As WKL itself is not a taxable entity, WCC’s tax expense for its income tax return group included on WCC’s consolidated income tax return is allocated among the members of that group. This allocation is calculated as if each member were a separate taxpayer. This allocation is reflected by WKL in Income tax expense with the offset in Shareholder's equity. There is no formal tax sharing agreement with WCC.
For periods prior to August 1, 2015, WKL accounts for deferred income taxes using the asset and liability method. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in WKL’s financial statements based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities, as well as net operating loss and tax credit carry-forwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. WKL establishes a valuation allowance against its net deferred tax assets to the extent WKL believes that it is more likely than not (greater than 50%) that a deferred tax asset will not be realized.
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under this guidance, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Guidance is also provided on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. WKL includes interest and penalties related to income tax matters in income tax expense.

11

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

The financial statements of the Partnership, for all periods presented, and WKL, for periods subsequent to August 1, 2015, contained herein are based on the assumption that the Partnership will continue to be treated as a partnership for U.S. federal and state income tax purposes and therefore will not be subject to U.S. federal income taxes or state income taxes.
Our net investment column presented within the Statement of Partner’s Capital consists of the equity related transactions of WKL for the 2015 period prior to the Drop and in connection with the Drop.  Accordingly, our condensed consolidated financial statements include the historical results of WKL for all periods subsequent to December 31, 2014. The amount of the purchase price in excess or in deficit of WCC’s basis in the net assets is recognized as a reduction or an addition to limited partners’ and general partners’ capital. The financial statements of WKL have been prepared from separate records maintained by WCC and may not necessarily be indicative of the conditions that would have existed or the results of operations if WKL had been operated as an unaffiliated entity during the periods reported.
Please refer to Note 2: Acquisition and Pushdown Accounting.
Series A Convertible Common Limited Partnership Units
In connection with the Drop and the issuance of the Series A Convertible Units, the Partnership entered into an amendment to our partnership agreement (the “Amendment”). The Amendment established the terms of the Series A Convertible Units and any additional Series A Convertible Units that may be issued in kind as a distribution (the “Series A PIK Units”), and provided that each Series A Convertible Unit will have the right to share in distributions from us on a pro rata basis with the common units. All or any portion of each distribution payable in respect of the Series A Convertible Units (the “Series A Convertible Unit Distribution”) may, at our election, be paid in Series A PIK Units. To the extent any portion of the Series A Convertible Unit Distribution is paid in Series A PIK Units for any quarter, the distribution to the holders of incentive distribution rights shall be reduced by that portion of the distribution that is attributable to the payment of those Series A PIK Units, as further described in the Amendment. The Series A Convertible Units and the Series A PIK Units will convert into common units at the earlier of the first anniversary of the initial issuance of the Series A Convertible Units, the date on which we first make a regular quarterly cash distribution with respect to any quarter to holders of common units in an amount at least equal to $0.22 per common unit or upon a change of control. The Series A Convertible Units have the same voting rights as if they were outstanding common units and will vote together with the common units as a single class. In addition, the Series A Convertible Units are entitled to vote as a separate class on any matters that materially adversely affect the rights or preferences of the Series A Convertible Units in relation to other classes of partnership interests or as required by law.
Significant Relationships Referenced in Notes to Consolidated Financial Statements
“We,” “us,” “our,” and the "Partnership” means the business and operations of Westmoreland Resource Partners, LP, 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 eastern Ohio and Lincoln County, Wyoming. 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 areas of the Midwest, northeastern U.S. and Wyoming.
We operate in a single business segment and have five operating subsidiaries, Oxford Mining Company, LLC(“Oxford Mining”), Oxford Mining Company-Kentucky, LLC (“Oxford Mining Kentucky”), Westmoreland Kemmerer Fee Coal Holdings, LLC ("WKFCH"), WKL 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

12

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

Market under the symbol “WLB.”
As of October 29, 2015, WCC and its consolidated subsidiaries owned approximate 93.8% of our limited partner interest 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").
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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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

13

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

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 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.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by replacing today’s lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (LIFO) and the retail inventory method (RIM). Entities that use LIFO or RIM will continue to use existing impairment models (e.g., entities using LIFO would apply the lower of cost or market test). The guidance is effective for public business entities for fiscal years beginning after 15 December 2016, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after 15 December 2016, and interim periods within fiscal years beginning after 15 December 2017. Early adoption is permitted as of the beginning of an interim or annual reporting period.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The guidance is effective for public business entities for fiscal years beginning after 15 December 2015, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after 15 December 2016, and interim periods within fiscal years beginning after 15 December 2017. Early adoption is permitted.
Reclassifications
Certain prior-year amounts have been reclassified in our condensed statements of operations and statements of cash flows for the nine months ended September 30, 2014 to conform with the financial statement line items used by our GP's parent, WCC.

14

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

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.

15

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 August 1, 2015, we completed the Drop. Upon closing the Drop, we own 100% of the outstanding equity interests in WKL, which owns and operates the Kemmerer Mine in Lincoln County, Wyoming. The contribution of net assets of WKL was accounted for as a transaction between entities under common control whereby the WKL was recorded at historical book value. As such, the consideration paid in excess of the net assets contributed by WCC amounted to $15.4 million.
This transfer of net assets between entities under common control was accounted for as if the transfer occurred on December 31, 2014, the first point of common control. Accordingly, our condensed consolidated financial statements include the historical results of both the Partnership and WKL for all periods presented while under common control (periods including and subsequent to December 31, 2014). We recognize transfers of net assets between entities under common control at WCC’s basis in the net assets contributed. The amount of the purchase price in excess or in deficit of WCC’s basis in the net assets is recognized as a reduction or an addition to limited partners’ equity. The financial statements of WKL have been prepared from the separate records maintained by WCC and may not necessarily be indicative of the conditions that would have existed or the results of operations if WKL had been operated as an unaffiliated entity during the periods reported.
The assets and liabilities of both the Partnership and WKL are included in the condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014. The following table presents the previously reported December 31, 2014 consolidated balance sheet, condensed and recasted to reflect the Drop:


16

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

As of December 31, 2014:
 
Westmoreland Resource Partners, LP (Condensed, as previously reported on Form 10-K filed on March 6, 2015)
 
Westmoreland Kemmerer LLC
 
Consolidated Westmoreland Resource Partners, LP
(As recasted)
Assets
 
 
 
Current assets:
 
 
 
 
 
Cash
$
5,921

 
$
83

 
$
6,004

Receivables:
 
 
 
 
 
Trade
22,710

 
17,572

 
40,282

Other
116

 
99

 
215

 
22,826

 
17,671

 
40,497

Inventory
14,013

 
10,472

 
24,485

Deferred income taxes

 
903

 
903

Other current assets
1,317

 
2,356

 
3,673

Total current assets
44,077

 
31,485

 
75,562

Property, plant and equipment:
 
 
 
 
 
Land and mineral rights
71,715

 
21,301

 
93,016

Plant and equipment
134,029

 
115,855

 
249,884

 
205,744

 
137,156

 
342,900

Less accumulated depreciation, depletion and amortization

 
(34,773
)
 
(34,773
)
Net property, plant and equipment
205,744

 
102,383

 
308,127

Advanced coal royalties
9,153

 

 
9,153

Restricted investments and bond collateral
10,621

 
25,282

 
35,903

Intangible assets, net of accumulated amortization
31,000

 

 
31,000

Deferred income taxes

 
15,477

 
15,477

Deferred financing costs, net
6,993

 

 
6,993

Total Assets
$
307,588

 
$
174,627

 
$
482,215

Liabilities and Partners' Capital
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current installments of long-term debt
$
6

 
$
2,310

 
$
2,316

Accounts payable and accrued expenses:
 
 
 
 
 
Trade
19,135

 
11,057

 
30,192

Deferred revenue

 
2,513

 
2,513

Production taxes
1,033

 
17,157

 
18,190

Accrued compensation
1,531

 

 
1,531

Postretirement medical benefits

 
436

 
436

Asset retirement obligations
7,783

 
2,658

 
10,441

Other current liabilities
4,007

 

 
4,007

Total current liabilities
33,495

 
36,131

 
69,626

Long-term debt, less current installments
175,029

 
9,321

 
184,350

Postretirement medical costs, less current portion

 
60,245

 
60,245

Pension obligation

 
17,762

 
17,762

Asset retirement obligations, less current portion
23,902

 
16,202

 
40,104

Warrants
1,981

 

 
1,981

Other liabilities
160

 

 
160

Total liabilities
234,567

 
139,661

 
374,228

Partners' capital:
 
 
 
 
 
Net equity
73,021

 
34,966

 
107,987

Total partners’ capital
73,021

 
34,966

 
107,987

Total liabilities and partners’ capital
$
307,588

 
$
174,627

 
$
482,215

    

17

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)
 
September 30,
 
December 31,
 
2015
 
2014
Coal
$
6,218

 
$
6,865

Fuel inventory
1,547

 
1,860

Materials and supplies
17,016

 
16,132

Reserve for obsolete inventory
(372
)
 
(372
)
Total
$
24,409

 
$
24,485

NOTE 4:RESTRICTED INVESTMENTS AND BOND COLLATERAL
Restricted investments and bond collateral consisted of the following:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
September 30,
 
December 31,
 
2015
 
2014
Reclamation bond collateral
$
34,547

 
$
34,382

Deposits
1,350

 
1,521

 
$
35,897

 
$
35,903

The carrying value and estimated fair value of its restricted investments and bond collateral at September 30, 2015 were as follows:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
Carrying Value
 
Fair Value
 
Fair Value Hierarchy
Cash and cash equivalents
$
10,009

 
$
10,009

 
Level 1
Available-for-sale securities
25,888

 
25,888

 
Level 1
 
$
35,897

 
$
35,897

 
 
These accounts include available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in Accumulated other comprehensive income (loss).
Available-for-Sale Restricted Investments and Bond Collateral
The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale securities at September 30, 2015 are as follows:

18

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

 
Westmoreland Resource Partners, LP
 
(Successor)
Cost basis
$
26,016

Gross unrealized holding gains
29

Gross unrealized holding losses
(157
)
Fair Value
$
25,888

Maturities of available-for-sale securities are as follows at September 30, 2015 and December 31, 2014, respectively:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
As of September 30, 2015
 
As of December 31, 2014
 
Cost Basis
 
Fair Value
 
Cost Basis
 
Fair Value
Due in five years or less
$
9,572

 
$
9,523

 
$
8,672

 
$
8,437

Due after five years but before ten years
3,900

 
3,920

 
10,040

 
10,001

Due in more than ten years
12,544

 
12,445

 
6,574

 
6,585

 
$
26,016

 
$
25,888

 
$
25,286

 
$
25,023


19

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

NOTE 5:RESTRUCTURING CHARGES
Concurrently with WCC’s acquisition of the GP and approximately 79.1% of our limited partner interests completed in December 2014 (collectively, the "WCC Transactions"), we and WCC initiated a restructuring plan to streamline operations and eliminate duplicative 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 zero and $0.7 million, respectively, for the three and nine months ended September 30, 2015.
WCC Transactions restructuring accrual activity is summarized as follows:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
As of December 31, 2014
 
Nine Months Ended September 30, 2015
 
As of September 30, 2015
 
Liability
 
Charges
 
Payments
 
Liability
Severance and other termination costs
$
2,783

 
$
656

 
$
(3,238
)
 
$
201

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 Nine Months Ended September 30, 2015
 
Incurred Through September 30,
2015
 
Total Expected
Restructuring Expenses
Severance and other termination costs
 
$
656

 
$
3,439

 
$
3,439

NOTE 6:OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following: 
 
Westmoreland Resource Partners, LP
 
(Successor)
 
September 30,
 
December 31,
 
2015
 
2014
Accrued interest
$
1,909

 
$
45

Accrued royalties
460

 
809

Restructuring reserve
201

 
2,783

Other
410

 
370

Total
$
2,980

 
$
4,007


20

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

NOTE 7:LONG-TERM DEBT
Debt consisted of the following:
 
Westmoreland Resource Partners, LP
 
(Successor)
 
September 30,
 
December 31,
 
2015
 
2014
First lien debt:
 
 
 
Term loan
$
292,797

 
$
175,000

Paid-in-kind interest
4,617

 

Total first lien debt
297,414

 
175,000

Capital leases
10,775

 
11,666

Total debt
308,189

 
186,666

Less current portion
(2,587
)
 
(2,316
)
Long-term debt
$
305,602

 
$
184,350

Credit Facilities
On December 31, 2014, we entered into a Financing Agreement with the lenders party thereto and U.S. Bank National Association, as Administrative and Collateral Agent (the “2014 Financing Agreement”). As of September 30, 2015, we had a term loan of $297.4 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 September 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 credit facility under the 2014 Financing Agreement matures in December 2018.
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 Financing Agreement was $2.0 million and $4.6 million for the three and nine months ended September 30, 2015, respectively. The outstanding term loan amount represents the principal balance of $292.8 million, plus PIK Interest of $4.6 million.
In connection with the Drop, we amended the 2014 Financing Agreement on July 31, 2015 to (i) allow us to make distributions in an aggregate amount not to exceed $15.0 million (previously $7.5 million) without pro forma compliance with the consolidated total net leverage ratio or fixed charge coverage ratio, and (ii) at any time that we have a revolving loan facility available, require us to have liquidity of at least $7.5 million (previously $5.0 million), after giving effect to such distributions and applying availability under such revolving loan facility towards satisfying the liquidity requirement.    
During the three and nine months ended September 30, 2015, we paid down $0.4 million and $2.2 million of the first lien term loan with proceeds from oil and gas royalties received and the granting of a pipeline right-a-way to a third party. The 2014 Financing Agreement requires mandatory prepayment of principal with proceeds from such events.
As of September 30, 2015, we were in compliance with all covenants under the terms of the 2014 Financing Agreement.
Capital Leases
We engage in leasing transactions for equipment utilized in our mining operations. At September 30, 2015 , the capital leases outstanding had a weighted average interest rate of 3.11% and mature at various dates beginning in 2016 through 2020. During the nine months ended September 30, 2015, we acquired $5.1 million of equipment under capital leases.
The following table presents aggregate contractual capital lease debt maturities:

21

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

 
Westmoreland Resource Partners, LP
 
(Successor)
 
As of September 30, 2015
2015
$
640

2016
2,584

2017
2,425

2018
2,470

2019
2,459

Thereafter
197

Total debt
$
10,775

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 $0.7 million and $1.5 million for the three and nine months ended September 30, 2015, respectively and $1.1 million and $3.0 million for the three and nine months ended September 30, 2014, respectively.
NOTE 8:POSTRETIREMENT MEDICAL BENEFITS
Immediately prior to the Drop and in accordance with the Contribution Agreement all employees of WKL were transferred to WCC. WCC assumed all liabilities associated with the Excluded Liabilities, including but not limited to postretirement medical benefits on August 1, 2015.
Prior to August 1, 2015, WKL provided postretirement medical benefits pursuant to collective bargaining agreements. These benefits were provided through self-insurance programs. As the Drop is accounted for as a transfer of net assets between entities under common control, our condensed consolidated financial statements include the historical results of WKL, including postretirement medical expense, pension expense and income taxes, for the periods while under common control prior to the Drop (period of December 31, 2014 through August 1, 2015). In accordance with the Contribution Agreement, subsequent to the Drop, WCC, in compliance with the services agreement with our GP, as amended through the date hereof (the "Services Agreement"), and the Partnership Agreement, will allocate expenses incurred for postretirement medical liabilities attributable to the transferred employees on a cash basis through the period ending December 31, 2017. Thereafter, WCC shall allocate such expenses in its sole discretion, in compliance with the Services Agreement and the Partnership Agreement.
The components of net periodic postretirement medical benefit cost are 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 September 30, 2015
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
Service cost
$
272

 
 
$

 
$
1,904

 
 
$

Interest cost
214

 
 

 
1,499

 
 

Amortization of deferred items

 
 

 

 
 

Total net periodic benefit cost
$
486

 
 
$

 
$
3,403

 
 
$


22

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

These costs are included in the accompanying statements of operations in Cost of coal revenues and Selling and administrative expenses.
NOTE 9:PENSION    
Immediately prior to the Drop and in accordance with the Contribution Agreement all employees of WKL were transferred to WCC. WCC assumed all liabilities associated with the Excluded Liabilities, including but not limited to pension benefits on August 1, 2015.
Prior to August 1, 2015, WKL provided a defined benefit pension plan to qualified full-time employees pursuant to a collective bargaining agreement. Benefits are generally based on years of service and a specific dollar amount per year of service as specified in the plan agreement. As the Drop is accounted for as a transfer of net assets between entities under common control, our condensed consolidated financial statements include the historical results of WKL, including postretirement medical expense, pension expense and income taxes, for the periods while under common control prior to the Drop (period of December 31, 2014 through August 1, 2015). In accordance with the Contribution Agreement, subsequent to the Drop, WCC, in compliance with the services agreement with our GP, as amended through the date hereof (the "Services Agreement"), and the Partnership Agreement, will allocate expenses incurred for pension liabilities attributable to the transferred employees on a cash basis through the period ending December 31, 2017. Thereafter, WCC shall allocate such expenses in its sole discretion, in compliance with the Services Agreement and the Partnership Agreement.
The components of net periodic benefit cost are 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 September 30, 2015
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
Service cost
$
104

 
 
$

 
$
727

 
 
$

Interest cost
205

 
 

 
1,433

 
 

Expected return on plan assets
(281
)
 
 

 
(1,969
)
 
 

Total net periodic benefit cost
$
28

 
 
$

 
$
191

 
 
$

These costs are included in the accompanying statements of operations in Cost of coal revenues and Selling and administrative expenses.
NOTE 10:     FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash, accounts receivable 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 warrants are measured at fair valued at each balance sheet date using the Black-Scholes model. As of September 30, 2015, the fair value of each warrant was $7.18, based on the following assumptions: spot price of $7.30 per unit, exercise price of $0.12 per unit, term of 2.75 years, volatility of 90.0% and a three-year treasury rate of 0.9%. The fair value of the warrants are a Level 2 measurement. 

23

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

NOTE 11:ASSET RETIREMENT OBLIGATIONS 
As of September 30, 2015, our asset retirement obligation ("ARO") totaled $52.7 million, including amounts reported as current liabilities.
Changes in the Partnership's ARO were as follows: 
 
Westmoreland Resource Partners, LP
 
(Successor)
 
Nine Months Ended   September 30, 2015
 
Year Ended December 31, 2014
Asset retirement obligations, January 1,
$
50,545

 
$
31,654

Accretion
3,795

 
2,337

Changes resulting from additional mines
2,285

 
5,171

Changes due to amount and timing of reclamation
1,447

 
(2,480
)
Impact of the Drop

 
18,860

Payments
(5,406
)
 
(4,997
)
Asset retirement obligations
52,666

 
50,545

Less current portion
(11,170
)
 
(10,441
)
Asset retirement obligations, less current portion
$
41,496

 
$
40,104

  
NOTE 12: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   September 30, 2015
 
 
Three Months Ended   September 30, 2014
 
Nine Months Ended   September 30, 2015
 
 
Nine Months Ended   September 30, 2014
Recognition of fair value of restricted common units over the vesting period
$
63

 
 
$
462

 
$
146

 
 
$
1,383


24

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

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

 
$

 
 
 
Granted
21,930

 
11.40

 
 
 
Vested

 

 
 
 
Non-vested at September 30, 2015
21,930

 
$
11.40

 
$
104

1 
1Expected to be recognized over the next 5 months.
NOTE 13:    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 September 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.
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 $0.3 million to resolve various claims as of September 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.

25

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

NOTE 14: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 September 30, 2015
 
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2015
 
 
Nine Months Ended September 30, 2014
 
 
 
 
 
 
Limited partner common units
 
 
 
 
 
 
 
 
 
Average units outstanding basic and diluted1, 2
5,878,187

 
 
2,066,556

 
5,878,187

 
 
2,059,808

Net (loss) income allocated to common unitholders basic and diluted2
$
(7,639
)
 
 
$
9,622

 
$
(24,236
)
 
 
$
(3,240
)
Net (loss) income per limited partner common unit basic and diluted2
$
(1.30
)
 
 
$
4.68

 
$
(4.12
)
 
 
$
(1.56
)
 
 
 
 
 
 
 
 
 
 
Series A convertible units
 
 
 
 
 
 
 
 
 
Average Series A convertible units outstanding basic
9,946,949

 
 

 
3,352,085

 
 

Net loss allocated to Series A convertible units basic and diluted2
$
(5,215
)
 
 
$

 
$
(5,215
)
 
 
$

Net loss per Series A convertible unit basic and diluted2
$
(0.52
)
 
 
$

 
$
(1.56
)
 
 
$

 
 
 
 
 
 
 
 
 
 
General partner units
 
 
 
 
 
 
 
 
 
Average general partner units outstanding basic and diluted
35,291

 
 
35,291

 
35,291

 
 
35,291

Net income (loss) allocated to general partners basic and diluted2
$
132

 
 
$
165

 
$
4,189

 
 
$
(56
)
Net income (loss) per general partner unit basic and diluted
$
3.74

 
 
$
4.68

 
$
118.70

 
 
$
(1.56
)
 
 
 
 
 
 
 
 
 
 
Distribution paid per limited partner unit
$
0.20

 
 
$

 
$
0.40

 
 
$

Distribution paid per Series A convertible common unit
$

 
 
$

 
$

 
 
$

Distribution paid per general partner unit
$
0.20

 
 
$

 
$
0.40

 
 
$

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 nine months ended September 30, 2015 and 2014, respectively.
The impact of the Drop on earnings (loss) per units for the three and nine months ended September 30, 2015 is as follows:
 
Three Months Ended September 30, 2015
 
Limited Partner Units
 
Series A Convertible Units
 
General Partner Units
Predecessor Partnership basic and diluted earnings per unit
$
(1.65
)
 
$
(0.87
)
 
$
(1.65
)
Impact of Drop basic and diluted earnings per unit
0.35

 
0.35

 
5.39

Basic and diluted earnings per unit
$
(1.30
)
 
$
(0.52
)
 
$
3.74


26

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

 
Nine Months Ended September 30, 2015
 
Limited Partner Units
 
Series A Convertible Units
 
General Partner Units
Predecessor Partnership basic and diluted earnings per unit
$
(4.47
)
 
$
(2.61
)
 
$
(4.47
)
Impact of Drop basic and diluted earnings per unit
0.35

 
1.05

 
123.17

Basic and diluted earnings per unit
$
(4.12
)
 
$
(1.56
)
 
$
118.70

NOTE 15:ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table reflects the changes in accumulated other comprehensive income (loss) by component:
 
Pension
 
Postretirement Medical Benefits
 
Available for Sale Securities (net of tax)
 
Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2014
$
(1,599
)
 
$
2,718

 
$
(107
)
 
$
1,012

Other comprehensive income (loss) before reclassification

 

 
(606
)
 
(606
)
Amounts reclassified from accumulated other comprehensive income (loss)

 

 
137

 
137

Impact of the Drop
1,599

 
(2,718
)
 
485

 
(634
)
Balance at September 30, 2015
$

 
$

 
$
(91
)
 
$
(91
)
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2015:
 
Amount reclassified from accumulated other comprehensive income (loss)
 
Affected line item in the statement where net income (loss) is presented
Details about accumulated other comprehensive income (loss) components
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2015
 
Realized gains and losses on available-for-sale securities
$