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EX-95 - EXHIBIT 95 - Westmoreland Resource Partners, LPq22016exhibit_951.htm
EX-32 - EXHIBIT 32 - Westmoreland Resource Partners, LPq22016exhibit_32.htm
EX-31.2 - EXHIBIT 31.2 - Westmoreland Resource Partners, LPq22016exhibit_312.htm
EX-31.1 - EXHIBIT 31.1 - Westmoreland Resource Partners, LPq22016exhibit_311.htm
EX-10.9 - EXHIBIT 10.9 - Westmoreland Resource Partners, LPexh109wmlp10q8216.htm
EX-10.8 - EXHIBIT 10.8 - Westmoreland Resource Partners, LPexh108wmlp10q8216.htm
EX-10.7 - EXHIBIT 10.7 - Westmoreland Resource Partners, LPexh107wmlp10q8216.htm
EX-10.6 - EXHIBIT 10.6 - Westmoreland Resource Partners, LPexh106wmlp10q8216.htm
EX-10.5 - EXHIBIT 10.5 - Westmoreland Resource Partners, LPexh105wmlp10q8216.htm
EX-10.4 - EXHIBIT 10.4 - Westmoreland Resource Partners, LPexh104wmlp10q8216.htm
EX-10.3 - EXHIBIT 10.3 - Westmoreland Resource Partners, LPexh103wmlp10q8216.htm
EX-10.2 - EXHIBIT 10.2 - Westmoreland Resource Partners, LPexh102wmlp10q8216.htm
EX-10.1 - EXHIBIT 10.1 - Westmoreland Resource Partners, LPexh101wmlp10q8216.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 June 30, 2016
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 August 1, 2016, 5,733,560 common units representing limited partner interests in our Partnership (the "common units") were outstanding. The common units trade on the New York Stock Exchange under the ticker symbol “WMLP.” 



TABLE OF CONTENTS 



PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
June 30,
2016
 
December 31, 2015
 
(In thousands)
Assets
 
Current assets:
 
 
 
Cash
$
5,610

 
$
3,710

Receivables
34,966

 
32,552

Inventories
19,299

 
23,630

Assets held for sale
1,373

 

Other current assets
7,189

 
4,650

Total current assets
68,437

 
64,542

Property, plant and equipment:
 
 
 
Land and mineral rights
108,496

 
104,600

Plant and equipment
259,345

 
258,877

 
367,841

 
363,477

Less accumulated depreciation, depletion and amortization
(110,902
)
 
(85,836
)
Net property, plant and equipment
256,939

 
277,641

Advanced coal royalties
6,257

 
10,082

Restricted investments
37,506

 
34,526

Intangible assets, net of accumulated amortization of $3.1 million and $2.1 million, respectively
27,900

 
28,933

Deposits and other assets
810

 
1,554

Total Assets
$
397,849

 
$
417,278

Liabilities and Partners' Capital
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
3,019

 
$
2,563

Accounts payable and accrued expenses:
 
 
 
Trade
19,002

 
23,132

Production taxes
15,486

 
16,586

Asset retirement obligations
18,492

 
14,075

Other current liabilities
3,143

 
3,998

Total current liabilities
59,142

 
60,354

Long-term debt, less current installments
311,450

 
298,814

Asset retirement obligations, less current portion
39,913

 
42,559

Other liabilities
2,584

 
2,397

Total liabilities
413,089

 
404,124

Partners' capital (deficit):
 
 
 
Limited partners (5,733,560 and 5,711,630 units outstanding as of June 30, 2016 and December 31, 2015, respectively)
(11,642
)
 
(3,176
)
Series A Convertible Units (15,656,551 and 15,251,989 units outstanding as of June 30, 2016 and December 31, 2015, respectively)
(36,898
)
 
(16,760
)
General partner (35,291 units outstanding as of June 30, 2016 and December 31, 2015, respectively)
33,308

 
33,360

Accumulated other comprehensive loss
(8
)
 
(270
)
Total Westmoreland Resource Partners, LP (deficit) capital
(15,240
)
 
13,154

Total liabilities and partners’ capital
$
397,849

 
$
417,278

See accompanying notes to consolidated financial statements. 



WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Revenues:
 
 
 
 
 
 
 
Coal revenues
$
79,096

 
$
92,554

 
$
170,656

 
$
195,828

Non-coal revenues
1,371

 
2,880

 
2,293

 
6,850

Total revenues
80,467

 
95,434

 
172,949

 
202,678

Costs and expenses:
 
 
 
 
 
 
 
Cost of coal revenues
62,674

 
77,219

 
133,885

 
161,046

Cost of non-coal revenues
123

 
235

 
276

 
3,390

Depreciation, depletion and amortization
14,547

 
13,921

 
29,812

 
28,811

Selling and administrative
2,844

 
4,677

 
6,112

 
8,847

Loss on sales of assets
407

 
645

 
1,636

 
1,701

Restructuring and impairment charges
4,163

 
103

 
4,701

 
656

Total cost and expenses
84,758

 
96,800

 
176,422

 
204,451

Operating income (loss)
(4,291
)
 
(1,366
)
 
(3,473
)
 
(1,773
)
Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(10,247
)
 
(6,010
)
 
(20,095
)
 
(11,943
)
Interest income
79

 
150

 
419

 
519

Other income
30

 
130

 
54

 
222

Change in fair value of warrants
4

 
448

 
(186
)
 
477

Total other expenses
(10,134
)
 
(5,282
)
 
(19,808
)
 
(10,725
)
Loss before income taxes
(14,425
)
 
(6,648
)
 
(23,281
)
 
(12,498
)
Income tax benefit (expense)

 
293

 

 
(45
)
Net loss
(14,425
)
 
(6,355
)
 
(23,281
)
 
(12,543
)
Less net (loss) income allocated to general partner
(23
)
 

 
(37
)
 
4,054

Net loss allocated to limited partners
$
(14,402
)
 
$
(6,355
)
 
$
(23,244
)
 
$
(16,597
)
 
 
 
 
 
 
 
 
Net (loss) per common limited partner unit:
 
 
 
 
 
 
 
Basic
$
(0.67
)
 
$
(1.08
)
 
$
(1.08
)
 
$
(2.82
)
Diluted
(0.67
)
 
(1.08
)
 
(1.08
)
 
(2.82
)

 
 
 
 
 
 
 
Weighted average number of common limited partner units outstanding:
 
 
 
 
 
 
 
Basic
5,899,577

 
5,878,187

 
5,892,290

 
5,878,187

Diluted
5,899,577

 
5,878,187

 
5,892,290

 
5,878,187


 
 
 
 
 
 
 
Cash distribution paid per common limited partner unit
$
0.20

 
$
0.20

 
$
0.40

 
$
0.20

Cash distribution paid per Series A convertible common unit
0.20

 

 
0.20

 

Cash distribution paid per general partner unit
0.20

 
0.20

 
0.40

 
0.20


See accompanying notes to consolidated financial statements. 

4


WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net loss
$
(14,425
)
 
$
(6,355
)
 
$
(23,281
)
 
$
(12,543
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized and realized gain (loss) on available-for-sale securities
290

 
(449
)
 
262

 
(409
)
Other comprehensive income (loss)
290

 
(449
)
 
262

 
(409
)
Comprehensive loss attributable to the Partnership
$
(14,135
)
 
$
(6,804
)
 
$
(23,019
)
 
$
(12,952
)
See accompanying notes to consolidated financial statements. 


5


WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Partners' Capital
(Unaudited)
 
 
Limited Partners
 
 
 
 
 
 
 
Total
Partners'
Capital
(Deficit)
 
Common
 
Series A Convertible
 
Liquidation
 
Total
 
General Partner
 
Accumulated Other Comprehensive Loss
 
 
Units
 
Capital (Deficit)
 
Units
 
Capital (Deficit)
 
Units
 
Capital
 
Units
 
Capital (Deficit)
 
Units
 
Capital
 
 
 
(In thousands, except shares data)
Balance at December 31, 2015
5,711,630

 
$
(3,176
)
 
15,251,989

 
$
(16,760
)
 
856,698

 
$

 
21,820,317

 
$
(19,936
)
 
35,291

 
$
33,360

 
$
(270
)
 
$
13,154

Net loss

 
(6,237
)
 

 
(17,007
)
 

 

 

 
(23,244
)
 

 
(37
)
 

 
(23,281
)
Equity-based compensation

 
127

 

 

 

 

 

 
127

 

 

 

 
127

Issuance of units to LTIP participants
21,930

 

 

 

 

 

 
21,930

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 
262

 
262

Paid-in-kind Series A convertible unit distribution

 

 
404,562

 

 

 

 
404,562

 

 

 

 

 

Cash distribution to unitholders

 
(2,356
)
 

 
(3,131
)
 

 

 

 
(5,487
)
 

 
(15
)
 

 
(5,502
)
Balance at June 30, 2016
5,733,560

 
$
(11,642
)
 
15,656,551

 
$
(36,898
)
 
856,698

 
$

 
22,246,809

 
$
(48,540
)
 
35,291

 
$
33,308

 
$
(8
)
 
$
(15,240
)
 
See accompanying notes to consolidated financial statements. 

6


WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)


 
Six Months Ended June 30,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(23,281
)
 
$
(12,543
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
29,812

 
28,811

Accretion of asset retirement obligations
2,779

 
2,518

Restructuring and impairment charges
4,701

 
656

Non-cash interest expense
4,554

 
2,664

Amortization of debt issuance costs
1,235

 
817

Other
1,950

 
1,369

Changes in operating assets and liabilities:
 
 
 
Receivables, net
(2,414
)
 
16,492

Inventories
4,331

 
(1,755
)
Accounts payable and accrued expenses
(6,806
)
 
(138
)
Deferred revenue

 
(2,513
)
Asset retirement obligations
(4,745
)
 
(2,695
)
Other assets and liabilities
2,054

 
747

Net cash provided by operating activities
14,170

 
34,430

Cash flows from investing activities:
 
 
 
Additions to property, plant, equipment and other
(2,529
)
 
(8,395
)
Advance coal royalties payments
(16
)
 
(3,266
)
Change in restricted investments
(2,720
)
 
1,777

Net proceeds from sales of assets
354

 
136

Net cash used in investing activities
(4,911
)
 
(9,748
)
Cash flows from financing activities:
 
 
 
Borrowings from long-term debt

 
937

Repayments of long-term debt
(1,857
)
 
(8,090
)
Debt issuance costs and other refinancing costs

 
(18
)
Transactions with Westmoreland Coal Company

 
(9,467
)
Cash distributions to unitholders
(5,502
)
 
(1,183
)
Net cash used in financing activities
(7,359
)
 
(17,821
)
Net increase (decrease) in cash
1,900

 
6,861

Cash, beginning of the period
3,710

 
6,004

Cash, end of the period
$
5,610

 
$
12,865

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
14,306

 
$
8,461

Non-cash transactions:
 
 
 
Property, plant and equipment acquired with debt
9,259

 
5,065

Asset retirement obligations capitalized in mine development
3,400

 
2,533

Market value of Series A unit at date of distribution
3,050

 

 See accompanying notes to consolidated financial statements.

7


WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts and operations of Westmoreland Resource Partners, LP, or the Partnership, and its consolidated subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and require the use of management’s estimates. The financial information contained in this Quarterly Report on Form 10-Q is unaudited, but reflects all adjustments which in the opinion of management are 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 six months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016.
These unaudited quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes thereto contained in our 2015 Form 10-K, except as described below.
On August 1, 2015, Westmoreland Coal Company (“WCC”), who owns and controls the Westmoreland Resources GP, LLC (“GP”), the general partner of Westmoreland Resource Partners, LP, contributed 100% of the outstanding equity interests in Westmoreland Kemmerer, LLC (“WKL”) to the Partnership (the “Kemmerer Drop”). The Kemmerer Drop was 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 Kemmerer Drop for periods as of and subsequent to December 31, 2014, the earliest point of common control. Information about our acquisition and the accounting for the Kemmerer Drop is in Note 1, “Organization and Presentation” and Note 3, “Acquisition and Pushdown Accounting,” in our 2015 Form 10-K.
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We adopted this standard on January 1, 2016 and retrospectively applied the guidance to prior periods.
Accounting Pronouncements Effective in the Future
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASU Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017. The Partnership can either adopt these standards retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows and financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in ASU 2016-02 require companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations generated by contracts longer than one year. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The guidance is required to be applied by the modified retrospective transition approach. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows and financial position.


8

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2. INVENTORIES
Inventories consisted of the following:
 
June 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Coal stockpiles
$
4,030

 
$
5,683

Fuel inventories
1,524

 
1,953

Materials and supplies
14,062

 
16,311

Reserve for obsolete inventory
(317
)
 
(317
)
Total
$
19,299

 
$
23,630

3. RESTRICTED INVESTMENTS
The Partnership invests certain bond collateral in a limited selection of fixed-income investment options and receives the investment returns on these investments. These investments are not available to meet the Partnership’s general cash needs.
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).
The carrying value and estimated fair value of our restricted investments were as follows:
 
June 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Cash and cash equivalents
$
7,481

 
$
7,409

Available-for-sale securities
30,025

 
27,117

 
$
37,506

 
$
34,526

Available-for-Sale Restricted Investments
The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale securities were as follows:
 
June 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Cost basis
$
30,114

 
$
27,387

Gross unrealized holding gains
287

 
74

Gross unrealized holding losses
(376
)
 
(344
)
Fair Value
$
30,025

 
$
27,117



9

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. RESTRUCTURING AND IMPAIRMENT CHARGES
Restructuring Charges
Concurrent 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 across the two organizations. Total expected restructuring charges related to the WCC Transactions of $3.4 million have been recorded to the restructuring and impairment expense line item within our consolidated statements of operations as they were incurred.
The table below represents the restructuring provision activity related to the restructuring plan:
 
WCC Transactions Restructuring Plan
 
(In thousands)
Balance, December 31, 2014
$
2,783

Restructuring Charges
656

Cash Payments
(3,311
)
Balance, December 31, 2015
128

Restructuring Charges

Cash Payments
(111
)
Balance, June 30, 2016
$
17

Impairment Charges
In April 2016, we entered into an agreement to purchase 1.0 million tons of coal (“purchased coal”) from a third party through December 31, 2017. The purchased coal will be used to fulfill specific customer sales orders under preexisting long-term sales agreements. As a result of the purchased coal agreement, we down-sized our work force and incurred a $0.3 million severance charge for the three months ended June 30, 2016 and an impairment charge on excess equipment of $4.2 million for the three months ended June 30, 2016. Impairment charges for the six months ended June 30, 2016 was $4.7 million. We intend to market and sell the excess equipment and have reflected the expected amount to be recovered, based on prices for similar assets, as "Assets held for sale" on the consolidated balance sheet.
5. LONG-TERM DEBT
Debt consisted of the following:
 
June 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Term loan facility
$
303,301

 
$
299,248

Capital lease obligations
17,326

 
9,351

Other
691

 
790

Total debt outstanding
321,318

 
309,389

Less debt issuance costs
(6,849
)
 
(8,012
)
Less current installments
(3,019
)
 
(2,563
)
Total debt outstanding, less current installments
$
311,450

 
$
298,814





10

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The following table presents aggregate contractual debt maturities of all long-term debt: 
 
June 30,
 
2016
 
(In thousands)
2016
$
1,357

2017
3,712

2018
307,480

2019
4,243

2020
1,835

Thereafter
2,691

Total
$
321,318


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 June 30, 2016, we had a term loan of $303.3 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, 2016, the 2014 Financing Agreement had a cash interest rate of 9.25%, consisting of the LIBOR floor (0.75%) plus 8.5%. The term loan 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 $2.3 million and $4.6 million for the three and six months ended June 30, 2016. The outstanding term loan amount represents the principal balance of $291.9 million, plus PIK Interest of $11.4 million.
During the three and six months ended June 30, 2016, we paid down $0.2 million and $0.5 million of the term loan under the 2014 Financing Agreement with proceeds from oil and gas royalties received. The 2014 Financing Agreement requires mandatory prepayment of principal with proceeds from such events.
In connection with the Kemmerer Drop, we amended the 2014 Financing Agreement on July 31, 2015 to (i) allow us to make cash distributions in an aggregate amount not to exceed $15.0 million (previously $7.5 million) when our Consolidated Total Net Leverage ratio is more than 3.75 or Fixed Charge Coverage ratio is less than 1.00 (as such ratios are defined in the 2014 Financing Agreement) 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 cash distributions and applying availability under such revolving loan facility towards satisfying the liquidity requirement ("Restricted Distributions"). As of June 30, 2016, we have made $9.7 million in Restricted Distributions.
As of June 30, 2016, we were in compliance with all covenants under the terms of the 2014 Financing Agreement.
On October 23, 2015, WMLP and its subsidiaries entered into a loan and security agreement (the “Revolving Credit Facility”) with the lenders party thereto and The PrivateBank and Trust Company, as administrative agent, which permits borrowings up to the aggregate principal amount of $15.0 million and letters of credit in an aggregate outstanding amount of up to $10.0 million, which reduces availability under the Revolving Credit Facility on a dollar-for-dollar basis. At June 30, 2016, availability under the Revolving Credit Facility was $15.0 million.
Deferred Financing Costs
Due to the adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, debt issuance costs related to our debt liabilities are now reported in the balance sheet as a direct

11

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

deduction from the face amount of the notes. This change in accounting principle had the effect of reducing the non-current asset, Deposits and other assets and non-current liability, Long-term debt, less current installments, by $8.0 million as of December 31, 2015.
Capital Leases
During the three and six months ended June 30, 2016, we entered into $9.3 million of new capital leases.
6. POSTRETIREMENT MEDICAL BENEFITS, PENSION AND OTHER SAVING PLANS
Immediately prior to the Kemmerer 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. On August 1, 2015, WCC assumed all liabilities, including the pension assets, 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.
Prior to August 1, 2015, WKL provided postretirement medical benefits and a defined benefit pension plan to qualified full-time employees pursuant to collective bargaining agreements. The postretirement medical benefits were provided through self-insurance programs. The pension 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 Kemmerer Drop is accounted for as a transfer of net assets between entities under common control, our 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 Kemmerer Drop (period of December 31, 2014 through August 1, 2015). In accordance with the Contribution Agreement, subsequent to the Kemmerer Drop, WCC, in compliance with the services agreement with our GP, as amended through the date hereof (the “Services Agreement”), and the Partnership’s fourth amended and restated partnership agreement, as amended (the “Partnership Agreement”), will allocate expenses incurred for postretirement medical liabilities and 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.
Postretirement Medical Benefits
WKL provided postretirement medical benefits to retired employees and their dependents, as mandated by the Coal Industry Retiree Health Act of 1992 and pursuant to collective bargaining agreements. WKL also provided these benefits to qualified full-time employees pursuant to collective bargaining agreements. These benefits are provided through self-insured programs.
The components of net periodic postretirement medical benefit cost are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$

 
$
816

 
$

 
$
1,632

Interest cost

 
642

 

 
1,285

Amortization of deferred items

 

 

 

Total net periodic benefit cost
$

 
$
1,458

 
$

 
$
2,917

These costs are included in the accompanying statements of operations in Cost of coal revenues and Selling and administrative expenses.
Pension
WKL provided a defined benefit pension plan to qualified full-time employees pursuant to a collective bargaining agreement. WKL’s funding policy is to contribute annually the minimum amount prescribed, as specified by applicable regulations.

12

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The components of net periodic benefit cost are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$

 
$
244

 
$

 
$
623

Interest cost

 
603

 

 
1,228

Expected return on plan assets

 
(844
)
 

 
(1,688
)
Total net periodic benefit cost
$

 
$
3

 
$

 
$
163

These costs are included in the accompanying statements of operations in Cost of coal revenues and Selling and administrative expenses.
7. FAIR VALUE MEASUREMENTS
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.
In connection with our refinancing in June 2013, certain of the second lien lenders and lender affiliates received warrants entitling them to purchase common units. The warrants are measured at fair value at each balance sheet date. As of June 30, 2016, the fair value of each warrant was $5.00, based on the following assumptions: spot price of $5.12 per unit as traded on the New York Stock Exchange, with an exercise price of $0.12 per unit. The fair value of the warrants are a Level 1 measurement.
See Note 3 for additional disclosures related to fair value measurements of restricted investments.
8. DISTRIBUTIONS OF AVAILABLE CASH
We distribute 100% of our available cash within 45 days after the end of each quarter to unitholders of record and to our GP, subject to the conditions and limitations within the 2014 Financing Agreement. Available cash is determined at the end of each quarter and is generally defined in the Partnership Agreement as all cash and cash equivalents on hand at the end of each quarter less reserves established by our GP in its reasonable discretion for future cash requirements. These reserves are retained to provide for the conduct of our business, the payment of debt principal and interest and to provide funds for future distributions for any one or more of the next four quarters, and to comply with applicable law. Our available cash may also include, if our GP so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
On July 28, 2016, we declared a quarterly cash distribution for the quarter ended June 30, 2016, of $0.20 per common unit and warrant with distribution rights. Additionally, we declared a cash distribution of $0.20 per Series A Convertible unit. The cash distribution totaling approximately $4.3 million, will be paid to all common unitholders and warrant holders on August 12, 2016 to all unitholders of record as of August 8, 2016.
Series A Units
Series A Convertible Units 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 paid-in-kind Units (“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. The Series A Convertible Units will convert into common units, on a one-for-one basis, at the earlier of 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

13

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.
On February 12, 2016, we issued 404,562 Series A Convertible Units as the paid-in-kind Series A distribution with respect to the fourth quarter 2015.
9. ASSET RETIREMENT OBLIGATIONS
As of June 30, 2016, our asset retirement obligation (“ARO”) totaled $58.4 million, including amounts reported as current liabilities.
Changes in the Partnership's ARO were as follows: 
 
Six Months Ended June 30, 2016
 
Year Ended December 31, 2015
 
(In thousands)
Asset retirement obligations, January 1,
$
56,634

 
$
50,545

Accretion
2,779

 
5,085

Changes resulting from additional mines

 
2,285

Changes due to amount and timing of reclamation
4,800

 
6,265

Payments
(5,808
)
 
(7,546
)
Asset retirement obligations
58,405

 
56,634

Less current portion
(18,492
)
 
(14,075
)
Asset retirement obligations, less current portion
$
39,913

 
$
42,559

  
The $4.8 million increase in the asset retirement obligation for the six months ended June 30, 2016 is the result of updated costs estimates, changes in mine plans and reclamation consents.
As of June 30, 2016, the Partnership had $137.7 million in surety bonds outstanding to secure reclamation obligations.
10. LONG-TERM INCENTIVE PLAN
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:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Recognition of fair value of restricted common units over the vesting period
$
63

 
$
172

 
$
127

 
$
283


14

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A summary of restricted common unit award activity for the six months ended June 30, 2016 is as follows:
 
Units
 
Weighted Average Grant-Date Fair Value
 
Unamortized Compensation Expense
 
Non-vested at December 31, 2015
21,930

 
$
11.40

 
 
 
Granted
63,775

 
3.92

 
 
 
Vested
(21,930
)
 
11.40

 
 
 
Non-vested at June 30, 2016
63,775

 
$
3.92

 
$
167

1 
1Expected to be recognized over the next 8 months.
11. 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, 2016, the remaining terms of our long-term contracts range from one to ten years.
Purchase Commitments 
In April 2016, we entered into a fixed price agreement to purchase 1.0 million tons of coal from a third party through December 31, 2017.
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 and Regulatory
The Partnership is party to various lawsuits, claims and regulatory proceedings incidental to our business at any point in time. We record accruals for potential losses related to these matters when, in management’s opinion, such losses are probable and reasonably estimable. Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity. However, if the results of these matters were different from management’s current opinion and in amounts greater than our accruals, then they could have a material adverse effect.
Ohio Environmental Protection Agency
In May 2016 the Ohio Environmental Protection Agency’s Department of Permitting (“OEPA”) notified us in writing in that they believe twelve of our previously remediated Oxford mines have failed to meet the performance goals set forth in their approved mitigation plans. Their letters allow that we either a) evidence that their listed mitigation deficiencies are actually meeting the performance standards, b) request an extension of up to 2 years to complete the outstanding mitigation obligations, or c) pursue other off-site mitigation credits. Our evaluation of the OEPA’s claims is not yet complete, however based on the nature of their claims we believe it is reasonably possible that some level of remediation efforts will be required, although an estimate of loss cannot be reasonably determined at this time.
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.

15

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. 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:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except shares and per share data)
Limited partner common units
 
 
 
 
 
 
 
Weighted average units outstanding basic and diluted1, 2
5,899,577

 
5,878,187

 
5,892,290

 
5,878,187

Net (loss) allocated to common unitholders basic and diluted2
$
(3,941
)
 
$
(6,354
)
 
$
(6,384
)
 
$
(16,597
)
Net (loss) per limited partner common unit basic and diluted2
$
(0.67
)
 
$
(1.08
)
 
$
(1.08
)
 
$
(2.82
)
 
 
 
 
 
 
 
 
Series A convertible units
 
 
 
 
 
 
 
Weighted average Series A convertible units outstanding basic
15,656,551

 

 
15,560,968

 

Net loss allocated to Series A convertible units basic and diluted2
$
(10,460
)
 
$

 
$
(16,859
)
 
$

Net loss per Series A convertible unit basic and diluted2
$
(0.67
)
 
$

 
$
(1.08
)
 
$

 
 
 
 
 
 
 
 
General partner units
 
 
 
 
 
 
 
Weighted average general partner units outstanding basic and diluted
35,291

 
35,291

 
35,291

 
35,291

Net (loss) income allocated to general partners basic and diluted2
$
(24
)
 
$
2

 
$
(38
)
 
$
4,057

Net (loss) income per general partner unit basic and diluted2
$
(0.67
)
 
$
0.06

 
$
(1.08
)
 
$
114.96

 
 
 
 
 
 
 
 
Cash distribution paid per common limited partner unit
$
0.20

 
$
0.20

 
$
0.40

 
$
0.20

Cash distribution paid per Series A convertible common unit
$
0.20

 
$

 
$
0.20

 
$

Cash distribution paid per general partner unit
$
0.20

 
$
0.20

 
$
0.40

 
$
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, 2016 and 2015, respectively.
The impact of the Kemmerer Drop on income (loss) per units for the three and six months ended June 30, 2015 is as follows:
 
Three Months Ended June 30, 2015
 
Limited Partner Units
 
Series A Convertible Units
 
General Partner Units
Predecessor Partnership basic and diluted earnings per unit
$
(1.08
)
 
$

 
$
(1.08
)
Impact of Kemmerer Drop basic and diluted earnings per unit

 

 
1.14

Basic and diluted earnings per unit
$
(1.08
)
 
$

 
$
0.06


16

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
Six Months Ended June 30, 2015
 
Limited Partner Units
 
Series A Convertible Units
 
General Partner Units
Predecessor Partnership basic and diluted earnings per unit
$
(2.82
)
 
$

 
$
(2.82
)
Impact of Kemmerer Drop basic and diluted earnings per unit

 

 
117.78

Basic and diluted earnings per unit
$
(2.82
)
 
$

 
$
114.96


13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table reflects the changes in accumulated other comprehensive income (loss) arising from our available-for-sale securities (net of tax):
 
Accumulated Other Comprehensive Income (Loss)
 
(In thousands)
Balance at December 31, 2015
$
(270
)
Other comprehensive loss before reclassification
232

Amounts reclassified from accumulated other comprehensive income
30

Balance at June 30, 2016
$
(8
)
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2016:
 
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 June 30,
 
Six Months Ended June 30,
 
2016
 
2016
 
 
(In thousands)
Realized gains and losses on available-for-sale securities
$
30

 
$
30

 
Other income (loss)
14. 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. 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 Services Agreement, the Partnership engaged the GP to continue providing services such as general administrative and management, engineering, operations (including mining operations), geological, corporate development, real property, marketing, and other services to the Partnership. Administrative services include without limitation legal, finance and accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit and tax. Under the Services Agreement the Partnership pays the GP a fixed annual management fee of $2.2 million for certain executive and administrative services, and reimburses the GP at cost for other expenses and expenditures. The current terms of the Services Agreement expires on December 31, 2016, 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, 2016, were for costs related to payroll. Reimbursable costs under the Services Agreement totaling $0.9 million and $4.2 million were included in accounts payable as of June 30, 2016 and December 31, 2015, respectively. In December 2015, the Partnership prepaid the GP for the 2016 annual management fee of $2.2 million, of which $1.1 million was included in Other current assets at June 30, 2016.

17

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Finally, we sold coal to and performed various transportation and operational services for a subsidiary of WCC, which generated $6.4 million and $14.3 million in coal revenues and less than $0.01 million and less than $0.02 million in non-coal revenues for the three and six months ended June 30, 2016. As of June 30, 2016 and December 31, 2015, receivables totaling $9.2 million and $3.4 million, respectively, were included in Receivables - trade.
15. SUBSEQUENT EVENTS
The Partnership has evaluated subsequent events in accordance with ASC 855, Subsequent Events, through the filing of its Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to disclosures in the consolidated financial statements.

18


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 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, 2015 included in our 2015 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:
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 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;
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. Additional information is found in our discussion below under Cash Distributions;

19


Adequacy and sufficiency of our internal controls;
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.
Overview
Westmoreland Resource Partners, LP is a Delaware limited partnership listed on the New York Stock Exchange ("NYSE") under the ticker symbol "WMLP". Westmoreland Coal Company, a Delaware corporation ("WCC"), owns 100% of our General Partner and, and as of the date of this filing, 93.8% beneficial limited partner interest on a fully diluted basis.
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 eastern Ohio and Lincoln County, Wyoming. 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, northeastern U.S. and Wyoming.
We operate in a single business segment and have five operating subsidiaries, Oxford Mining, Oxford Mining Kentucky, WKFCH, WKL 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. 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 
Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015
Overview
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Total Revenues
$
80.5

 
$
95.4

 
$
(14.9
)
 
(15.6
)%
Net loss
(14.4
)
 
(6.4
)
 
(8.0
)
 
125.0
 %
Adjusted EBITDA1
16.3

 
14.7

 
1.6

 
10.9
 %
1Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Total revenue was $80.5 million for the three months ended June 30, 2016, a decrease of $14.9 million, or 15.6%, from $95.4 million for the three months ended June 30, 2015. Net loss for the three months ended June 30, 2016 was $14.4 million, compared to a net loss for the three months ended June 30, 2015 of $6.4 million. Adjusted EBITDA was $16.3 million for the three months ended June 30, 2016, an increase of $1.6 million from $14.7 million for the three months ended June 30, 2015.

20


Revenues
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Coal revenues
$
79.1

 
$
92.6

 
$
(13.5
)
 
(14.6
)%
Non-coal revenues
1.4

 
2.8

 
(1.4
)
 
(50.0
)%
Total Revenues
$
80.5

 
$
95.4

 
$
(14.9
)
 
(15.6
)%
Coal sales revenue was $79.1 million for the three months ended June 30, 2016, a decrease of $13.5 million, or 14.6%, from $92.6 million for the three months ended June 30, 2015. The decrease was primarily attributable to a 13.6% decrease in sales tons in the amount of $12.6 million, compounded by a $0.50 per ton, or an aggregate $0.9 million, decrease in the average sale price per ton for the three months ended June 30, 2016. 
Non-coal revenues, primarily from limestone sales, non-coal services and other miscellaneous revenue was $1.4 million for the three months ended June 30, 2016, a decrease of $1.4 million, from $2.8 million for the three months ended June 30, 2015. The decrease was primarily attributable to a $1.1 million and $0.4 million decrease in other revenue and limestone, respectively, offset in part by a $0.1 million increase in oil and gas royalties. The $1.1 million decrease in other revenue was due primarily to generating $1.8 million in June 2015 compared to $0.6 million in June 2016 in lost coal fees for granting two respective pipeline right-of-ways to multiple third parties.
Cost of Coal Revenues
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Cost of coal revenues
$
62.7

 
$
77.2

 
$
(14.5
)
 
(18.8
)%
Cost of coal revenues (excluding depreciation, depletion and amortization ("DD&A") was $62.7 million for the three months ended June 30, 2016, a decrease of $14.5 million, or 18.8%, from $77.2 million for the three months ended June 30, 2015. The decrease was primarily attributable to a decrease of 0.3 million in tons sold, which corresponds to a $10.4 million decrease in cost of coal revenues, and a decrease in the cost to produce coal of $2.27 per ton, or an aggregate $4.1 million, for the three months ended June 30, 2016. The decrease in the cost to produce coal of $2.27 per ton was primarily attributed to lower fuel prices and mine operating efficiencies.
Depreciation, Depletion and Amortization
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Depreciation, depletion and amortization
$
14.5

 
$
13.9

 
$
0.6

 
4.3
%
DD&A expense was $14.5 million for the three months ended June 30, 2016, an increase of $0.6 million, or 4.3%, from $13.9 million for the three months ended June 30, 2015. Amortization expense was $4.1 million for the three months ended June 30, 2016, a $2.8 million increase from $1.3 million for the three months ended June 30, 2015. The increase was primarily attributable to changes in the asset retirement costs on closed mines resulting from revisions to cost estimates. Depreciation expense decreased $1.6 million, or 15.2%, to $8.9 million for the three months ended June 30, 2016, from $10.5 million for the three months ended June 30, 2015. The decrease was primarily attributable to a smaller operating fleet. Depletion expense was $1.5 million for the three months ended June 30, 2016, a $0.6 million decrease from $2.1 million for the three months ended June 30, 2015, which was primarily attributable to the production and sale of 0.3 million fewer coal tons during the three months ended June 30, 2016.

21


Selling and Administrative
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Selling and administrative
$
2.8

 
$
4.7

 
$
(1.9
)
 
(40.4
)%
Selling and administrative expenses were $2.8 million for the three months ended June 30, 2016, a decrease of $1.9 million, or 40.4%, from $4.7 million for the three months ended June 30, 2015. The decrease is primarily the result of cost reduction efforts made during the three months ended June 30, 2016
Nonoperating Results (including interest expense, interest income, other income, and change in fair value of warrants)
 
Three Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Interest expense
$
(10.2
)
 
$
(6.0
)
 
$
(4.2
)
 
70.0
 %
Interest income
0.1

 
0.2

 
(0.1
)
 
(50.0
)%
Other income

 
0.1

 
(0.1
)
 
(100.0
)%
Change in fair value of warrants

 
0.4

 
(0.4
)
 
(100.0
)%
Our interest expense increased $4.2 million for the three months ended June 30, 2016 to $10.2 million compared to $6.0 million for the three months ended June 30, 2015 primarily due to the $120.0 million in additional debt incurred in connection with the Kemmerer Drop on August 1, 2015.
Our interest income was $0.1 million for the three months ended June 30, 2016, a decrease of $0.1 million from $0.2 million for the three months ended June 30, 2015, resulting from a decrease in average cash on hand throughout the three months ended June 30, 2016.
We recognized no change in fair value of warrants for the three months ended June 30, 2016, a decrease of $0.4 million compared to $0.4 million for the three months ended June 30, 2015.
Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015
Overview
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Total Revenues
$
172.9

 
$
202.7

 
$
(29.8
)
 
(14.7
)%
Net loss
(23.3
)
 
(12.5
)
 
(10.8
)
 
86.4
 %
Adjusted EBITDA1
35.6

 
33.7

 
1.9

 
5.6
 %
1Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Total revenue was $172.9 million for the six months ended June 30, 2016, a decrease of $29.8 million, or 14.7%, from $202.7 million for the six months ended June 30, 2015. Net loss for the six months ended June 30, 2016 was $23.3 million, compared to a net loss for the six months ended June 30, 2015 of $12.5 million. Adjusted EBITDA was $35.6 million for the six months ended June 30, 2016, an increase of $1.9 million from $33.7 million for the six months ended June 30, 2015.

22


Revenues
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Coal revenues
$
170.7

 
$
195.8

 
$
(25.1
)
 
(12.8
)%
Non-coal revenues
2.2

 
6.9

 
(4.7
)
 
(68.1
)%
Total Revenues
$
172.9

 
$
202.7

 
$
(29.8
)
 
(14.7
)%
Coal sales revenue was $170.7 million for the six months ended June 30, 2016, a decrease of $25.1 million, or 12.8%, from $195.8 million for the six months ended June 30, 2015. The decrease was primarily attributable to a 10.5% decrease in sales tons in the amount of $20.6 million, compounded by a $1.18 per ton, or an aggregate $4.6 million, decrease in the average sale price per ton for the six months ended June 30, 2016. 
Non-coal revenues, primarily from limestone sales, non-coal services and other miscellaneous revenue was $2.2 million for the six months ended June 30, 2016, a decrease of $4.7 million, from $6.9 million for the six months ended June 30, 2015. The decrease was primarily attributable to a $3.1 million decrease in non-coal services, primarily due to $2.4 million in non-recurring coal handling and transportation service revenue performed on behalf of a subsidiary of Westmoreland Coal Company ("WCC") during the six months ended June 30, 2015. Additionally, other revenue decrease $1.3 million and limestone revenue decreased $0.7 million, offset in part by a $0.4 million increase in oil and gas royalties. The $1.3 million decrease in other revenue was due primarily to generating $1.8 million in June 2015 compared to $0.6 million in June 2016 in lost coal fees for granting two respective pipeline right-of-ways to multiple third parties.
Cost of Coal Revenues
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Cost of coal revenues
$
133.9

 
$
161.0

 
$
(27.1
)
 
(16.8
)%
Cost of coal revenues (excluding depreciation, depletion and amortization ("DD&A") was $133.9 million for the six months ended June 30, 2016, a decrease of $27.1 million, or 16.8%, from $161.0 million for the six months ended June 30, 2015. The decrease was primarily attributable to a decrease of 0.5 million in tons sold, which corresponds to a $16.9 million decrease in cost of coal revenues, and a decrease in the cost to produce coal of $2.62 per ton, or an aggregate $10.2 million, for the six months ended June 30, 2016. The decrease in the cost to produce coal of $2.62 per ton was primarily attributed to lower fuel prices and mine operating efficiencies.

23


Depreciation, Depletion and Amortization
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Depreciation, depletion and amortization
$
29.8

 
$
28.8

 
$
1.0

 
3.5
%
DD&A expense was $29.8 million for the six months ended June 30, 2016, an increase of $1.0 million, or 3.5%, from $28.8 million for the six months ended June 30, 2015. Amortization expense was $7.6 million for the six months ended June 30, 2016, a $4.9 million increase from $2.7 million for the six months ended June 30, 2015. The increase was primarily attributable to changes in the asset retirement costs on closed mines resulting from revisions to cost estimates. Depreciation expense decreased $3.0 million, or 13.9%, to $18.6 million for the six months ended June 30, 2016, from $21.6 million for the six months ended June 30, 2015. The decrease was primarily attributable to a smaller operating fleet. Depletion expense was $3.6 million for the six months ended June 30, 2016, a $0.9 million decrease from $4.5 million for the six months ended June 30, 2015, which was primarily attributable to the production and sale of 0.5 million fewer coal tons during the six months ended June 30, 2016.
Selling and Administrative
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Selling and administrative
$
6.1

 
$
8.8

 
$
(2.7
)
 
(30.7
)%
Selling and administrative expenses were $6.1 million for the six months ended June 30, 2016, a decrease of $2.7 million, or 30.7%, from $8.8 million for the six months ended June 30, 2015. The decrease is primarily the result of cost reduction efforts made during the six months ended June 30, 2016
Nonoperating Results (including interest expense, interest income, other income, and change in fair value of warrants)
 
Six Months Ended June 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Interest expense
$
(20.1
)
 
$
(11.9
)
 
$
(8.2
)
 
68.9
 %
Interest income
0.4

 
0.5

 
(0.1
)
 
(20.0
)%
Other income
0.1

 
0.2

 
(0.1
)
 
(50.0
)%
Change in fair value of warrants
(0.2
)
 
0.5

 
(0.7
)
 
(140.0
)%
Our interest expense increased $8.2 million for the six months ended June 30, 2016 to $20.1 million compared to $11.9 million for the six months ended June 30, 2015 primarily due to the $120.0 million in additional debt incurred in connection with the Kemmerer Drop on August 1, 2015.
Our interest income was $0.4 million for the six months ended June 30, 2016, a decrease of $0.1 million from $0.5 million for the six months ended June 30, 2015, resulting from a decrease in average cash on hand throughout the six months ended June 30, 2016.
We recognized expense from the change in fair value of warrants of $0.2 million for the six months ended June 30, 2016, a decrease of $0.7 million compared to $0.5 million of income for the six months ended June 30, 2015. The $0.2 million of expense is the result of the increase in value of our units traded on the NYSE during the six months ended June 30, 2016.

24


Non-GAAP Financial Measures
Adjusted EBITDA
EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, United States Generally Accepted Accounting Principals ("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 changes in deferred revenue, cash reclamation and mine closure expenditures, reserve replacement and maintenance capital expenditures, cash pension and postretirement medical expenditures, and cash interest expense (net of interest income). 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.

25


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,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Reconciliation of Adjusted EBITDA to Net Loss
 
 
 
 
 
 
 
Net loss
$
(14,425
)
 
$
(6,355
)
 
$
(23,281
)
 
$
(12,543
)
Income tax expense

 
293

 

 
(45
)
Interest expense
(10,168
)
 
(5,860
)
 
(19,676
)
 
(11,424
)
Depreciation, depletion and amortization
14,547

 
13,921

 
29,812

 
28,811

Accretion of ARO and receivable
1,404

 
1,270

 
2,779

 
2,518

EBITDA
11,694

 
14,403

 
28,986

 
30,255

Restructuring and impairment charges
4,163

 
103

 
4,701

 
656

Loss on sale of assets
407

 
645

 
1,636

 
1,701

Share-based compensation
63

 
172

 
127

 
283

Other non-cash and non-recurring costs1
(34
)
 
(578
)
 
132

 
818

Adjusted EBITDA
16,293

 
14,745

 
35,582

 
33,713

Deferred revenue
(3,572
)
 
(4,944
)
 

 
(2,513
)
Reclamation and mine closure costs
(3,736
)
 
(2,335
)
 
(5,624
)
 
(3,261
)
Maintenance capital expenditures and other capitalized items
(1,783
)
 
(3,584
)
 
(3,328
)
 
(6,895
)
Pension and postretirement medical

 
791

 

 
2,116

Cash interest expense, net of interest income
(7,179
)
 
(4,109
)
 
(13,891
)
 
(7,940
)
Distributable Cash Flow
$
23

 
$
564

 
$
12,739

 
$
15,220

1Includes non-cash activity from the change in fair value of investments and warrants.
Liquidity and Capital Resources 
Liquidity 
We had the following liquidity at June 30, 2016 and December 31, 2015:
 
June 30,
 
December 31,
 
2016
 
2015
 
(In millions)
Cash and cash equivalents
$
5.6

 
$
3.7

Revolving Credit Facility
15.0

 
15.0

Total
$
20.6

 
$
18.7

We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.
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 have been cash generated by our operations, borrowings under the 2014 Financing Agreement, and availability under our Revolving Credit Facility.

26


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, 2016, our available liquidity was $20.6 million, which included $5.6 million in cash and $15.0 million of availability under our Revolving Credit Facility.
Debt Obligations 
As of June 30, 2016 the outstanding balance on our 2014 Financing Agreement was $303.3 million. This amount represents the principal balance of $291.9 million, plus PIK interest of $11.4 million as of June 30, 2016. As of June 30, 2016, our 2014 Financing Agreement had a cash interest rate of 9.25%, consisting of the LIBOR floor (0.75%) plus 8.50%.
As of June 30, 2016, availability under the Revolving Credit Facility was $15.0 million.
Cash Distribution 
Our partnership agreement requires that we distribute all of our available cash quarterly. Under our partnership agreement, available cash is determined at the end of each quarter and generally defined as cash generated from our business in excess of the amount of cash reserves established by our general partner to provide for the conduct of our business, to comply with applicable law, to make payments related to any of our debt instruments or other agreements, or to provide for future distributions to our unitholders for any one or more of the next four quarters. Our available cash may also include, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
Our 2014 Financing Agreement restricts us from making cash distributions in excess of $15.0 million in the aggregate when certain ratios and liquidity requirements are not met, see Note 5 of Notes to Unaudited Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.” As of June 30, 2016, we have distributed $9.7 million in cash that count toward the $15.0 million in aggregate restricted distribution payments. On July 28, 2016, we declared a quarterly cash distribution for the quarter ended June 30, 2016, of $0.20 per common unit, warrant with distribution rights and Series A Convertible unit ("Second Quarter Distribution"). The Second Quarter Distribution, totaling approximately $4.3 million, will be paid to all common unitholders, warrant holders and holders of Series A Convertible units on August 12, 2016 to all unitholders of record as of August 8, 2016. The Second Quarter Distribution will bring the aggregate remaining permitted restricted distributions total to $0.9 million at that time.
Historical Sources and Uses of Cash
The following table summarizes net cash provided by (used in) operating activities, investing activities, and financing activities for the six months ended June 30, 2016 and 2015:
 
Six Months Ended June 30,
 
2016
 
2015
 
(In thousands)
Net cash provided by (used in):
 
 
 
Operating activities
$
14,170

 
$
34,430

Investing activities
(4,911
)
 
(9,748
)
Financing activities
(7,359
)
 
(17,821
)
Net cash provided by operating activities was $14.2 million for the six months ended June 30, 2016 compared to $34.4 million of net cash provided by operating activities for the six months ended June 30, 2015, a decrease of $20.3 million. The decrease of $20.3 million resulted from a net loss for the six months ended June 30, 2016 of $23.3 million, an increase of $10.7 million, compared to net loss for the six months ended June 30, 2015 of $12.5 million, a decrease of $17.7 million in cash provided by change in working capital, offset in part by an increase of $4.0 million in restructuring and impairment charges, a $1.9 million increase in non-cash interest expense and a $1.0 million increase in depreciation, depletion and amortization expense. The $17.7 million change in working capital resulted from $18.9 million decrease in cash flows from

27


accounts receivables resulting from extending payment terms to a subsidiary of WCC, offset in part by $2.5 million increase in cash flows from the change in deferred revenue.
Net cash used in investing activities was $4.9 million for the six months ended June 30, 2016 compared to $9.7 million for the six months ended June 30, 2015, a decrease of approximately $4.8 million. The $4.8 million decrease was attributable to a $5.9 million decrease in capital expenditure spend and a decrease of $3.3 million in advance royalty payments, offset in part by $4.5 million in changes in restricted investments.
Net cash used in financing activities was $7.4 million for the six months ended June 30, 2016, down $10.5 million from net cash used in financing activities of $17.8 million for the six months ended June 30, 2015. The $7.4 million of cash flows used in financing activities for the six months ended June 30, 2016, consisted of $5.5 million of cash used in distributions to partners and $1.9 million of cash used in the repayment of long-term debt.
Capital Expenditures 
Our mining operations require investments to maintain, expand, and upgrade existing operations and to meet environmental and safety regulations. We have funded and expect to continue funding capital expenditures primarily from cash generated by our operations, borrowings under the 2014 Financing Agreement, and proceeds from asset sales. In the future, we may also fund capital expenditures with borrowings under the Loan Facility.
The following table summarizes our capital expenditures by type for the three and six months ended June 30, 2016, and 2015.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Coal reserves
$

 
$

 
$

 
$

Mine development
351

 
404

 
531

 
679

Equipment and components
1,432

 
3,180

 
2,797

 
6,216

Total
$
1,783

 
$
3,584

 
$
3,328

 
$
6,895

Critical Accounting Policies and Estimates
Please refer to the corresponding section in Part II, Item 7 of our 2015 Form 10-K and the footnote disclosures included in Part I, Item I of this report for a discussion of our accounting policies and estimates.
Recent Accounting Pronouncements
See Note 1 of Notes to Unaudited Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.”
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and surety, performance and road bonds. No liabilities related to these arrangements are reflected in our consolidated balance sheet, and we do not expect any material adverse effect on our financial condition, results of operations or cash flows to result from these arrangements. We utilize surety bonds and letters of credit issued by financial institutions to third parties to assure the performance of our obligations relating to reclamation obligations. These arrangements are not reflected in our consolidated balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.
Our off-balance sheet arrangements are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2015 Form 10-K.

28

 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


Item 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2015. For additional information, refer to the “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of our 2015 Form 10-K.


29


Item 4CONTROLS AND PROCEDURES
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of June 30, 2016. Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date.
Additionally, there have been no changes in internal control over financial reporting that occurred during the six months ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

30


PART II
OTHER INFORMATION

Item 1LEGAL PROCEEDINGS
We are subject, from time-to-time, to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. We cannot predict with assurance the outcome of Actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and may result in a negative impact on income in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material adverse effect on our financial results.
Item 1A RISK FACTORS
We have disclosed under the heading “Risk Factors” in our 2015 Form 10-K, the risk factors that we believe materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the 2015 Form 10-K and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and or operating results.
Item 4 MINE SAFETY DISCLOSURES
On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Section 1503(a) of the Dodd-Frank Act contains reporting requirements regarding mine safety. Mine safety violations or other regulatory matters, as required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, are included as Exhibit 95.1 to this report on Form 10-Q.
Item 6 EXHIBITS
The exhibits listed in the Exhibit Index are incorporated herein by reference.

 

31


SIGNATURES
   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WESTMORELAND RESOURCE PARTNERS, LP
 
 
By: 
WESTMORELAND RESOURCES GP, LLC, its general partner  
 
 
 
 
Date:
August 2, 2016
By: 
/s/ Jason W. Veenstra
 
 
 
Jason W. Veenstra
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer and A Duly Authorized Officer)  
 
 
 
 
Date:
August 2, 2016
By: 
/s/ Michael J Meyer
 
 
 
Michael J. Meyer
 
 
 
Controller and Principal Accounting Officer
 
 
 
(Principal Accounting Officer and A Duly Authorized Officer)



32


Index to Exhibits
 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed Herewith
3.1
 
Certificate of Limited Partnership of Westmoreland Resource Partners, LP (f/k/a Oxford Resource Partners, LP)


 
8-K
 
001-34815
 
2.1
 
8/4/2015
 
 
3.2
 
Fourth Amended and Restated Agreement of Limited Partnership of Westmoreland Resource Partners, LP

 
10-K
 
001-34815
 
3.2
 
3/6/2015
 
 
3.3
 
Amendment No. 1 to Fourth Amended and Restated Agreement of Limited Partnership of Westmoreland Resource Partners, LP

 
8-K
 
001-34815
 
2.1
 
8/6/2015
 
 
3.4
 
Certificate of Formation of Westmoreland Resources GP, LLC (f/k/a Oxford Resources GP, LLC)

 
S-1
 
333-165662

 
3.3
 
4/21/2010
 
 
3.5
 
Third Amended and Restated Limited Liability Company Agreement of Westmoreland Resources GP, LLC (f/k/a Oxford Resources GP, LLC)
 
8-K
 
001-34815
 
3.2
 
1/4/2011
 
 
3.6
 
First Amendment to Third Amended and Restated Limited Liability Company Agreement of Westmoreland Resources GP, LLC (f/k/a Oxford Resources GP, LLC)