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, 2014

OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 001-34815
 
Oxford Resource Partners, LP
(Exact name of registrant as specified in its charter)
 
Delaware
77-0695453
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
 
41 South High Street, Suite 3450, Columbus, Ohio 43215
(Address of Principal Executive Offices, Including Zip Code)
 
(614) 643-0337
(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, 2014, 10,774,814 common units and 10,280,380 subordinated units were outstanding. The common units trade on the New York Stock Exchange under the ticker symbol “OXF.”

Page 1

 



 
TABLE OF CONTENTS
 
 
 
 
 
PART I. FINANCIAL INFORMATION
Page
 
 
 
ITEM 1.
Condensed Consolidated Financial Statements (Unaudited) ....................................................................
 
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 .....................................................................................................................................
 
Condensed Consolidated Statements of Partners’ (Deficit) Capital for the Nine Months Ended September 30, 2014 and 2013 ...................................................................................................................
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 ....................................................................................................................................................
 
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 .....................................................................................................................................................
 
 



Page 2

 


PART I. FINANCIAL INFORMATION 

OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2014 AND DECEMBER 31, 2013
(UNAUDITED)
(in thousands, except for unit data)
 
As of
September 30, 2014
 
As of
December 31, 2013
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash
$
7,454

 
$
3,089

Accounts receivable
25,176

 
25,850

Inventory
15,596

 
13,840

Advance royalties
2,940

 
2,604

Prepaid expenses and other assets
1,444

 
1,737

Total current assets
52,610

 
47,120

PROPERTY, PLANT AND EQUIPMENT, NET
125,150

 
144,426

ADVANCE ROYALTIES, LESS CURRENT PORTION
6,971

 
8,800

INTANGIBLE ASSETS, NET
1,017

 
1,188

OTHER LONG-TERM ASSETS
18,237

 
22,821

Total assets
$
203,985

 
$
224,355

LIABILITIES AND PARTNERS' (DEFICIT) CAPITAL
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
22,497

 
$
23,932

Current portion of long-term debt
73,527

 
7,901

Current portion of reclamation and mine closure obligations
7,949

 
5,996

Accrued taxes other than income taxes
1,041

 
1,293

Accrued payroll and related expenses
2,279

 
3,389

Other liabilities
2,989

 
3,457

Total current liabilities
110,282

 
45,968

LONG-TERM DEBT
75,428

 
155,375

RECLAMATION AND MINE CLOSURE OBLIGATIONS
25,792

 
25,658

WARRANTS
2,978

 
4,599

OTHER LONG-TERM LIABILITIES
3,737

 
3,753

Total liabilities
218,217

 
235,353

PARTNERS’ DEFICIT:
 
 
 
Limited partners (21,055,194 and 20,867,073 units outstanding as of September 30, 2014 and December 31, 2013, respectively)
(15,358
)
 
(13,460
)
General partner (423,494 units outstanding as of September 30, 2014 and December 31, 2013)
(2,573
)
 
(2,507
)
Total Oxford Resource Partners, LP deficit
(17,931
)
 
(15,967
)
Noncontrolling interest
3,699

 
4,969

Total partners’ deficit
(14,232
)
 
(10,998
)
Total liabilities and partners’ deficit
$
203,985

 
$
224,355

 

See accompanying notes to condensed consolidated financial statements.


Page 3

 


OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
(in thousands, except for unit and per unit data) 
 
For the Three Months Ended September 30,

For the Nine Months Ended September 30,
 
2014

2013

2014

2013
REVENUES:
 

 

 

 
Coal sales
$
73,112


$
84,742


$
229,468


$
255,226

Other revenue
21,395


2,844


25,044


9,211

Total revenues
94,507


87,586


254,512


264,437

COSTS AND EXPENSES:
 

 

 

 
Cost of coal sales:
 

 

 

 
Produced coal
64,592


68,175


196,326


202,159

Purchased coal
300


5,881


1,587


17,774

Total cost of coal sales (excluding depreciation, depletion and amortization)
64,892


74,056


197,913


219,933

Cost of other revenue
542


455


1,313


1,228

Depreciation, depletion and amortization
9,236


12,017


30,532


37,760

Selling, general and administrative expenses
3,604


3,051


10,530


13,056

Restructuring expenses
—


150


75


1,012

Gain on disposal of assets, net
—


(1,107
)

(559
)

(6,594
)
Total costs and expenses
78,274


88,622


239,804


266,395

INCOME (LOSS) FROM OPERATIONS
16,233


(1,036
)

14,708


(1,958
)
INTEREST AND OTHER INCOME (EXPENSES):
 

 

 

 
Interest income
1


1


4


3

Interest expense
(7,026
)

(6,808
)

(20,899
)

(14,146
)
Change in fair value of warrants
151


2,714


1,621


565

Total interest and other expenses
(6,874
)

(4,093
)

(19,274
)

(13,578
)
NET INCOME (LOSS)
9,359


(5,129
)

(4,566
)

(15,536
)
Net loss (income) attributable to noncontrolling interest
428


(470
)

1,270


(1,120
)
Net income (loss) attributable to Oxford Resource Partners, LP unitholders
9,787


(5,599
)

(3,296
)

(16,656
)
Net income (loss) allocated to general partner
193


(112
)

(66
)

(333
)
Net income (loss) allocated to limited partners
$
9,594


$
(5,487
)

$
(3,230
)

$
(16,323
)
 
 
 
 
 
 
 
 
Net income (loss) per limited partner unit:
 
 
 
 
 
 
 
Basic
0.39

 
(0.22
)
 
(0.13
)
 
(0.74
)
Diluted
0.39

 
(0.22
)
 
(0.13
)
 
(0.74
)
 
 
 
 
 
 
 
 
Weighted average number of limited partner units outstanding:
 
 
 
 
 
 
 
Basic
24,778,680

 
24,587,411

 
24,717,697

 
22,159,610

Diluted
24,778,680

 
24,587,411

 
24,717,697

 
22,159,610

 
See accompanying notes to condensed consolidated financial statements.

Page 4

 


OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' (DEFICIT) CAPITAL
AS OF SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
(in thousands, except for unit data)
 
 
Limited Partners
 
 
 
 
 
 
 
Total Partners' Capital (Deficit)
 
Common
 
Subordinated
 
Total
 
General Partner
 
 
 
 
Units
 
Capital
 
Units
 
Deficit
 
Units
 
Capital (Deficit)
 
Units
 
Deficit
 
Non-controlling Interest
 
Balance at December 31, 2012
10,470,810

 
$
93,930

 
10,280,380

 
$
(84,337
)
 
20,751,190

 
$
9,593

 
423,494

 
$
(2,010
)
 
$
3,744

 
$
11,327

Net loss
—

 
(8,262
)
 
—

 
(8,061
)
 
—

 
(16,323
)
 
—

 
(333
)
 
1,120

 
(15,536
)
Equity-based compensation
—

 
1,090

 
—

 
—

 
—

 
1,090

 
—

 
—

 
—

 
1,090

Issuance of units to LTIP participants
85,394

 
(66
)
 
—

 
—

 
85,394

 
(66
)
 
—

 
—

 
—

 
(66
)
Balance at September 30, 2013
10,556,204

 
$
86,692

 
10,280,380

 
$
(92,398
)
 
20,836,584

 
$
(5,706
)
 
423,494

 
$
(2,343
)
 
$
4,864

 
$
(3,185
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
10,586,693

 
$
82,931

 
10,280,380

 
$
(96,391
)
 
20,867,073

 
$
(13,460
)
 
423,494

 
$
(2,507
)
 
$
4,969

 
$
(10,998
)
Net loss
—

 
(1,628
)
 
—

 
(1,602
)
 
—

 
(3,230
)
 
—

 
(66
)
 
(1,270
)
 
(4,566
)
Equity-based compensation
—

 
1,383

 
—

 
—

 
—

 
1,383

 
—

 
—

 
—

 
1,383

Issuance of units to LTIP participants
188,121

 
(51
)
 
—

 
—

 
188,121

 
(51
)
 
—

 
—

 
—

 
(51
)
Balance at September 30, 2014
10,774,814

 
$
82,635

 
10,280,380

 
$
(97,993
)
 
21,055,194

 
$
(15,358
)
 
423,494

 
$
(2,573
)
 
$
3,699

 
$
(14,232
)
 
See accompanying notes to condensed consolidated financial statements.

Page 5

 


OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
(in thousands) 
 
For the nine months ended
 
September 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(4,566
)
 
$
(15,536
)
Adjustments to reconcile net loss to net cash from operating activities:
 
 
 
Depreciation, depletion and amortization
30,532

 
37,760

Restructuring expenses
75

 
1,012

Change in fair value of warrants
(1,621
)
 
(565
)
Interest rate swap adjustment to market
—

 
(12
)
Non-cash interest expense
5,770

 
2,238

Amortization and write-off of deferred financing costs
3,010

 
3,040

Non-cash equity-based compensation expense
1,383

 
1,090

Non-cash reclamation and mine closure expense
1,725

 
1,683

Amortization of below-market coal sales contracts
—

 
(60
)
Gain on disposal of assets, net
(559
)
 
(6,594
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
674

 
(8,697
)
Inventory
(1,756
)
 
489

Advance royalties
1,493

 
(1,265
)
Restricted cash
1,109

 
1,429

Prepaid expenses and other assets
225

 
(276
)
Accounts payable
(1,435
)
 
(2,561
)
Reclamation and mine closure obligations
(3,376
)
 
(6,837
)
Accrued taxes other than income taxes
(252
)
 
(38
)
Accrued payroll and related expenses
(1,110
)
 
878

Other liabilities
(608
)
 
(248
)
Net cash from operating activities
30,713

 
6,930

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of property and equipment
(8,513
)
 
(12,641
)
Purchase of coal reserves and land
(5
)
 
(14
)
Mine development costs
(1,896
)
 
(2,612
)
Proceeds from sale of assets
3,751

 
6,284

Insurance proceeds
—

 
3,035

Net cash from investing activities
(6,663
)
 
(5,948
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from borrowings
—

 
150,000

Payments on borrowings
(18,626
)
 
(56,071
)
Advances on line of credit
17,500

 
43,588

Payments on line of credit
(19,000
)
 
(119,088
)
Debt issuance costs
(341
)
 
(9,517
)
Collateral for reclamation bonds
782

 
(11,133
)
Net cash from financing activities
(19,685
)
 
(2,221
)
NET CHANGE IN CASH
4,365

 
(1,239
)
CASH, beginning of period
3,089

 
3,977

CASH, end of period
$
7,454

 
$
2,738


See accompanying notes to condensed consolidated financial statements.

Page 6
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In our opinion, the condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the condensed consolidated financial statements are considered to be of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”) and filed with the U.S. Securities and Exchange Commission (the “SEC”).
 
NOTE 1: ORGANIZATION AND PRESENTATION
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts and operations of the Partnership and its consolidated subsidiaries.
Significant Relationships Referenced in Notes to Condensed Consolidated Financial Statements
•
“We,” “us,” “our,” or the “Partnership” means the business and operations of Oxford Resource Partners, LP, the parent entity, as well as its consolidated subsidiaries.
•
Our “GP” means Oxford Resources GP, LLC, the general partner of Oxford Resource Partners, LP.
Organization 
We are a low-cost producer of high-value thermal coal and the largest producer of surface-mined coal in Ohio. We market our coal primarily to large electric utilities with coal fired, base-load scrubbed power plants under long-term coal sales contracts. We focus on acquiring thermal coal reserves that we can efficiently mine with our large scale equipment. Our reserves and operations are strategically located to serve our primary market area of Indiana, Kentucky, Michigan, Ohio, Pennsylvania and West Virginia. These coal reserves are mined by our subsidiaries, Oxford Mining Company, LLC (“Oxford Mining”), Oxford Mining Company - Kentucky, LLC and Harrison Resources, LLC (“Harrison Resources”).
We are managed by our GP and all executives, officers and employees who provide services to us are employees of our GP. Charles C. Ungurean, the President and Chief Executive Officer of our GP and a member of our GP’s board of directors (“Mr. C. Ungurean”), and Thomas T. Ungurean, a former officer of our GP (“Mr. T. Ungurean”), are the co-owners of C&T Coal, Inc. (“C&T”), which holds an ownership position in our GP and also holds units in our limited partnership.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the Annual Report.
Liquidity
We have incurred net losses in the past few years resulting in an accumulated deficit of $17.9 million at September 30, 2014. We have managed our liquidity for the nine months ended September 30, 2014, with $30.7 million of cash flows provided from operations and $19.7 million of cash flows used in financing activities. As of  September 30, 2014, our available liquidity was $14.2 million, which consisted of $7.5 million in cash on hand and $6.7 million of borrowing capacity under our credit facilities. Further, we have an option for an additional $10 million term loan if requested by us and approved by the issuing second lien lender.

Page 7
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

Our first lien credit facility, consisting of a $54.3 million term loan and $18.0 million revolver as of September 30, 2014, is scheduled to mature in September 2015. Our second lien credit facility, consisting of a $76.1 million term loan as of September 30, 2014, is scheduled to mature in December 2015. In conjunction with the closing of the Westmoreland transactions discussed in Note 15, which are subject to unitholder approval, Westmoreland has received a commitment to refinance our current credit facilities from certain lenders. If for some reason the Westmoreland transactions do not close as expected, we will pursue extending our current financing agreements or a complete refinancing of our existing debt. If we are unable to extend or refinance our debt, our ability to continue as a going concern will be impacted. Due to its maturity date, all amounts outstanding under our first lien credit facility have been classified as current liabilities in our consolidated balance sheet as of September 30, 2014.
Should we have difficulty meeting our forecasts, this could have an adverse effect on our liquidity position. Management expects to be able to achieve its forecasted results for the year ending December 31, 2014. However, there can be no assurance that our cash flows will be sufficient to allow us to continue as a going concern if we are unable to meet our forecasts.
Accounting Pronouncement Effective in the Future
In April 2014, the FASB issued ASU 2014-8, Presentation of Financial Statements and Property, Plant and Equipment, which changes the presentation of discontinued operations on the statements of operations and other requirements for reporting discontinued operations. Under the new standard, a disposal of a component or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component meets the criteria to be classified as held for sale or is disposed. The amendments in this update also require additional disclosures about discontinued operations and disposal of an individually significant component of an entity that does not qualify for discontinued operations. The new guidance is effective for interim and annual periods beginning after December 15, 2014. We plan to adopt ASU 2014-8 effective January 1, 2015.
In May 2014, the FASB issued ASU 2014-9, Revenue From Contracts With Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to receive in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The new guidance is effective for the interim and annual periods beginning after December 15, 2016; early adoption is not permitted. We are currently assessing the impact that this standard will have on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared based on the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The new guidance is effective for the interim and annual periods beginning after December 15, 2016; early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.
NOTE 3: RESTRUCTURING EXPENSES
In March 2012, we received a termination notice from a customer related to a 0.8 million tons per year coal supply contract fulfilled from our Illinois Basin operations. In response, we initially idled some of our Illinois Basin operations, terminated a significant number of employees related to such operations and substituted purchased coal for mined and washed

Page 8
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

coal on certain sales contracts. Subsequently over time, the remainder of our Illinois Basin operations were idled and the related employees terminated with the result that our Illinois Basin operations were fully idled as of December 31, 2013. During that period, we also sold some of our excess Illinois Basin equipment while redeploying most of the equipment to our Northern Appalachian operations, with such redeployment being completed during the first quarter of 2014. Additionally, we sold our Illinois Basin dock in April 2014. Finally, we are seeking to sell the remaining Illinois Basin equipment, consisting of a large-capacity shovel and several smaller pieces of equipment, and would consider offers to purchase the remaining coal reserves and/or facilities related to our Illinois Basin operations.
Impairment Expenses
As a result of the restructuring described above, we recorded asset impairment expenses of $12.8 million during 2012. These non-cash expenses related to coal reserves, mine development assets and certain mining equipment. No such expenses were recorded in the three and nine month periods ended September 30, 2014 and 2013, respectively.
Restructuring Expenses
The restructuring related to our Illinois Basin operations was completed by March 31, 2014. Accordingly, no restructuring expenses were recorded in the third quarter of 2014, while $0.2 million of restructuring expenses were recorded in the third quarter of 2013. Restructuring expenses of $0.1 million and $1.0 million were incurred during the nine months ended September 30, 2014 and 2013, respectively. These expenses included termination costs for approximately 35 employees in 2013, professional and legal fees, and transportation costs associated with moving idled equipment to our Northern Appalachian operations. The liabilities related to the restructuring are included in “other liabilities” in our condensed consolidated balance sheet as of December 31, 2013. There is no liability remaining as of September 30, 2014.
Restructuring accrual activity, combined with a reconciliation to “impairment and restructuring expenses” as set forth in our condensed consolidated statements of operations, is summarized as follows:
 
As of
December 31, 2013
 
For the Nine Months Ended September 30, 2014
 
As of
September 30, 2014
 
Liability
 
Expense
 
Payments
 
Liability
 
 
 
 
 
 
 
 
Severance and other termination costs
$
404

 
$
(42
)
 
$
(362
)
 
$
—

Equipment relocation costs
252

 
117

 
(369
)
 
—

Total cash restructuring expenses
$
656

 
$
75

 
$
(731
)
 
$
—


Page 9
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

The following table summarizes the total impairment and restructuring expenses incurred during the nine months ended September 30, 2014 and over the course of the entire restructuring:
 
Expenses
 
 
 
For the Nine Months Ended September 30, 2014
 
Incurred Through
September 30, 2014
 
Total Expenses
Cash:
 
 
 
 
 
Severance and other termination costs
$
(42
)
 
$
1,846

 
$
1,846

Professional and legal fees
—

 
1,021

 
1,021

Equipment relocation costs
117

 
1,161

 
1,161

Coal lease termination costs
—

 
23

 
23

Total cash restructuring expenses
75

 
4,051

 
4,051

 
 
 
 
 
 
Non-cash:
 
 
 
 
 
Coal lease termination costs
—

 
683

 
683

Asset impairment
—

 
12,753

 
12,753

Total non-cash restructuring expenses
—

 
13,436

 
13,436

Total impairment and restructuring expenses
$
75

 
$
17,487

 
$
17,487


Page 10
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)


NOTE 4: INVENTORY
Inventory consisted of the following:
 
As of
September 30, 2014
 
As of
December 31, 2013
 
 
 
 
Coal
$
7,803

 
$
5,957

Fuel
1,941

 
1,879

Spare parts and supplies
5,852

 
6,004

Total
$
15,596

 
$
13,840

 
NOTE 5: PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net of accumulated depreciation, depletion and amortization, consisted of the following:
 
As of
September 30, 2014
 
As of
December 31, 2013
Property, plant and equipment, gross
 
 
 
Land
$
2,161

 
$
3,016

Coal reserves
49,579

 
49,574

Mine development costs
64,189

 
58,077

Buildings and tipple
1,824

 
1,957

Machinery and equipment
198,542

 
202,663

Vehicles
4,442

 
4,522

Furniture and fixtures
1,286

 
1,584

Railroad sidings
160

 
160

Total property, plant and equipment, gross
322,183

 
321,553

Less: accumulated depreciation, depletion and amortization
(197,033
)
 
(177,127
)
Total property, plant and equipment, net
$
125,150

 
$
144,426

     The amounts of depreciation expense related to fixed assets, depletion expense related to coal reserves, amortization expense related to mine development costs and amortization expense related to intangible assets for the respective periods are as follows:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Depreciation
$
6,424

 
$
7,791

 
$
20,561

 
$
23,315

Depletion
1,472

 
1,294

 
3,882

 
2,992

Mine development amortization
1,281

 
2,869

 
5,909

 
11,264

Intangible asset amortization
59

 
63

 
180

 
189

 
$
9,236

 
$
12,017

 
$
30,532

 
$
37,760

 

Page 11
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)


NOTE 6: RECLAMATION AND MINE CLOSURE OBLIGATIONS
As of September 30, 2014, our liability for reclamation and mine closure obligations totaled $33.7 million, including amounts reported as current liabilities. While the amount of these future obligations cannot be determined with certainty, we estimate that, as of September 30, 2014, the aggregate undiscounted obligations for final reclamation and mine closure totaled $41.5 million.
The changes in the liability for reclamation and mine closure obligations on a discounted basis for the nine months ended September 30, 2014 and the year ended December 31, 2013 are as follows:
 
Nine Months Ended September 30, 2014
 
Year Ended December 31, 2013
 
 
 
 
Balance at beginning of period
$
31,654

 
$
29,013

Accretion expense
1,725

 
2,293

Adjustment resulting from additional mines
4,147

 
3,671

Adjustments to the liability from annual recosting and other
39

 
5,333

Payments
(3,824
)
 
(8,656
)
Total reclamation and mine closure obligations
33,741

 
31,654

Less current portion
(7,949
)
 
(5,996
)
Long-term reclamation and mine closure obligations
$
25,792

 
$
25,658

 
NOTE 7: LONG-TERM DEBT
     Long-term debt as of September 30, 2014 and December 31, 2013 consisted of the following:
 
As of
September 30, 2014
 
As of
December 31, 2013
First lien debt:
 
 
 
Revolver
$
18,000

 
$
19,500

Term loan
54,271

 
69,321

Total first lien debt
72,271

 
88,821

Second lien debt:
 
 
 
Term loan
74,625

 
75,000

Paid-in-kind interest
5,753

 
2,318

Debt discount, net
(4,229
)
 
(6,456
)
Total second lien debt, net of debt discount
76,149

 
70,862

Notes payable
535

 
3,593

Total debt
148,955

 
163,276

Less current portion
(73,527
)
 
(7,901
)
Long-term debt
$
75,428

 
$
155,375

In June 2013, we closed on $175 million of credit facilities that replaced our previous term loan and revolving credit facility. These facilities include (i) a first lien credit facility consisting of a $75 million term loan and a $25 million revolver under a financing agreement that matures September 30, 2015, as amended (the “First Lien Financing Agreement”), and (ii) a second lien credit facility consisting of a $75 million term loan (with an option for an additional $10 million term loan if requested by us and approved by the issuing second lien lender) under a financing agreement that matures December 31, 2015, as amended (the “Second Lien Financing Agreement,” and collectively with the First Lien Financing Agreement, the

Page 12
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

“Financing Agreements”). The Financing Agreements allow for nine-month extensions which we may exercise provided that certain conditions are met.
As of September 30, 2014, we were in compliance with all covenants under the terms of the Financing Agreements.
First Lien Credit Facility
As of September 30, 2014, we had a term loan of $54.3 million outstanding under our first lien credit facility. We are obligated to make quarterly principal payments of $1.3 million until repayment of the then outstanding balance at maturity. Borrowings on our first lien term loan bear interest at a variable rate per annum equal to, at our option, the London Interbank Offered Rate (“LIBOR”) (floor of 1.5%) plus 6.75% or the Reference Rate (as defined in the First Lien Financing Agreement) (floor of 3.00%) plus 6.25%. As of September 30, 2014, our first lien term loan had a cash interest rate of 8.25%, consisting of LIBOR of 1.5% plus 6.75%.
In August 2014, we received proceeds of $19.5 million from the settlement of litigation relating to the wrongful termination of a coal supply agreement with a former customer. Under the First Lien Financing Agreement, we were required to apply all of those proceeds in excess of the $1.9 million of recovered litigation and other related costs to prepayment of our first lien term loan. However, we were able to amend the First Lien Financing Agreement at that time to allow us to retain an additional $5.0 million of the settlement proceeds. In conjunction with executing the amendment, we incurred $0.4 million in debt amendment costs recorded in “other long-term assets,” which costs will be amortized over the life of our first lien credit facility.
Our first lien credit facility also includes a $25 million revolver under which $18.0 million was outstanding as of September 30, 2014. As of September 30, 2014, the balance outstanding on the revolver had a weighted average cash interest rate of 8.25%, consisting of LIBOR of 1.5% plus 6.75%.
As they are now due within one year, borrowings under our first lien credit facility are classified as "current portion of long-term debt" in our consolidated balance sheet as of September 30, 2014.
Second Lien Credit Facility
     As of September 30, 2014, we had a term loan, net of debt discount, of $76.1 million outstanding under our second lien credit facility. We are obligated to make quarterly principal payments of $0.2 million until repayment of the then outstanding balance at maturity. As of September 30, 2014, our second lien credit facility term loan had a cash interest rate of 11.00%, consisting of LIBOR of 1.25% plus 9.75%.
Our second lien credit facility also provides for PIK Interest (paid-in-kind interest as defined in the Second Lien Financing Agreement) at the rate of 5.75%. PIK Interest is added quarterly to the then-outstanding principal amount of the term loan as additional principal obligations. For the three months ended September 30, 2014 and 2013, PIK Interest totaled $1.1 million and $1.1 million, respectively. For the nine months ended September 30, 2014 and 2013, PIK Interest totaled $3.4 million and $1.2 million, respectively.
In conjunction with the Second Lien Financing Agreement, certain lenders and lender affiliates (the "Warrantholders") received warrants entitling them to purchase 1,955,666 common units and 1,814,185 subordinated units at $0.01 per unit. The warrants, classified as a liability, were recorded at their fair value of $7.9 million at issuance as a debt discount. The warrants are subsequently marked to fair value with the change in fair value reported in earnings. This discount is being amortized through interest expense over the life of our second lien credit facility using the effective interest method. For the three months ended September 30, 2014 and 2013, amortization of the debt discount totaled $0.7 million and $0.6 million, respectively. For the nine months ended September 30, 2014 and 2013, amortization of the debt discount totaled $2.2 million and $0.7 million, respectively. 

Page 13
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)


NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash, restricted 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 fair value of the Partnership’s first and second lien credit facilities and warrants were determined based upon a market approach and approximates the carrying value at September 30, 2014.
     The warrants are fair valued at each balance sheet date using the Black-Scholes model. As of September 30, 2014, the fair value of each warrant was $0.79, based on the following assumptions: spot price of $0.80 per unit, exercise price of $0.01 per unit, term of 3.75 years, volatility of 80% and a five-year treasury rate of 1.78%.
The fair value of the Partnership’s first and second lien credit facilities and warrants are a Level 2 measurement. 
NOTE 9: LONG-TERM INCENTIVE PLAN
Under our Long-Term Incentive Plan (our “LTIP”), we recognize equity-based compensation expense over the vesting period of the units. These units are subject to conditions and restrictions as determined by our Compensation Committee, including continued employment or service. Historically, these units generally vested in equal annual increments over four years with accelerated vesting of the first increment in certain cases. Beginning in 2012, some of the units granted to executive officers vest based on specified performance criteria.
We are authorized to distribute up to 2,806,075 units under the LTIP. As of September 30, 2014, 386,882 units remained available for issuance in the future assuming that all grants issued and currently outstanding are settled with common units, without reduction for tax withholding, and no future forfeitures occur.
For the three months ended September 30, 2014 and 2013, we recognized equity-based compensation expense of $462 and $351, respectively. For the nine months ended September 30, 2014 and 2013, we recognized equity-based compensation expense of $1,383 and $1,090, respectively. These amounts are included in selling, general and administrative expenses and cost of coal sales. As of September 30, 2014 and December 31, 2013, $2,511 and $2,150, respectively, of cost remained unamortized. We expect to recognize these costs using the straight-line method over a remaining weighted average period of 1.2 years as of September 30, 2014.
The following table summarizes additional information concerning our unvested LTIP units:
 
Units
 
Weighted Average Grant Date Fair Value
 
 
 
 
Unvested balance at December 31, 2013
559,184

 
$
6.79

Granted
1,467,007

 
1.21

Issued
(188,121
)
 
3.90

Surrendered
(39,888
)
 
9.69

Unvested balance at September 30, 2014
1,798,182

 
2.47

     The value of LTIP units vested during the three months ended September 30, 2014 and 2013 was $75 and $38, respectively. The value of LTIP units vested during the nine months ended September 30, 2014 and 2013 was $1,081 and $926, respectively.

Page 14
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)


NOTE 10: 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:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Limited partner units
  
 
  
 
  
 
  
Average units outstanding:
 
 
 
 
 
 
 
Basic
24,778,680

 
24,587,411

 
24,717,697

 
22,159,610

Effect of equity-based compensation1
N/A

 
N/A

 
N/A

 
N/A

Diluted
24,778,680

 
24,587,411

 
24,717,697

 
22,159,610

Net income (loss) allocated to limited partners
 
 
 
 
 
 
 
Basic
$
9,622

 
$
(5,504
)
 
$
(3,240
)
 
$
(16,344
)
Diluted
9,622

 
(5,504
)
 
(3,240
)
 
(16,344
)
Net income (loss) per limited partner unit
 
 
 
 
 
 
 
Basic
$
0.39

 
$
(0.22
)
 
$
(0.13
)
 
$
(0.74
)
Diluted
0.39

 
(0.22
)
 
(0.13
)
 
(0.74
)
General partner units
  
 
  
 
  
 
  
Average units outstanding:
 
 
 
 
 
 
 
Basic
423,730

 
423,730

 
423,730

 
423,580

Diluted
423,730

 
423,730

 
423,730

 
423,580

Net income (loss) allocated to general partner
 
 
 
 
 
 
 
Basic
$
165

 
$
(95
)
 
$
(56
)
 
$
(312
)
Diluted
165

 
(95
)
 
(56
)
 
(312
)
Net income (loss) per general partner unit
 
 
 
 
 
 
 
Basic
$
0.39

 
$
(0.22
)
 
$
(0.13
)
 
$
(0.74
)
Diluted
0.39

 
(0.22
)
 
(0.13
)
 
(0.74
)
 
1 Unvested LTIP units are not dilutive units for the three and nine months ended September 30, 2014 and 2013.
Under the Partnership’s partnership agreement, arrearage amounts resulting from suspension of the common units distribution accumulate, while those related to the subordinated units do not. In the future, if and as distributions are made for any quarter, the first priority is to pay the then minimum quarterly distribution to common unitholders (including the holders of common unit warrants). Any additional distribution amounts paid at that time are then paid to common unitholders (including the holders of common unit warrants) until their previously unpaid accumulated arrearage amounts have been paid in full. As of September 30, 2014, the total arrearage amount was $42.7 million. Distributions are prohibited by our credit facilities as long as we have outstanding borrowings thereunder.
NOTE 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 September 30, 2014, the remaining terms of our long-term contracts were between one and two years.

Page 15
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

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. We previously had a long-term purchase contract for 0.4 million tons of coal per year with a separate supplier who had asserted that the contract had terminated by its terms. We entered into a settlement agreement with the supplier in February 2013 under which the parties agreed to terminate the contract with the supplier making a one-time payment of $2.1 million to us, which payment was recorded in “other revenue.”
Transportation
We depend upon barge, rail and truck transportation systems to deliver coal to our customers. We have a long-term rail transportation contract that has been amended and extended through March 31, 2015.
 401(k) Plan
The GP did not make a commitment to fund an employer contribution to our 401(k) plan for the year ended December 31, 2013, and consequently no such contribution has been or will be made. As of September 30, 2014, the GP had not made such a commitment for the year ended December 31, 2014 either.
Surety and Performance Bonds
As of September 30, 2014, we had $35.6 million in surety bonds outstanding to secure certain reclamation obligations which were collateralized by cash deposits of $8.8 million. Such collateral is included in “other long-term assets.” Additionally, we had road bonds totaling $0.7 million and performance bonds totaling $3.0 million outstanding to secure contractual performance. We believe these bonds will expire without any claims or payments thereon and therefore will not have a material adverse effect on our financial position, liquidity or operations.
Legal
In July 2014, we concluded litigation with a former customer, who wrongfully terminated its coal supply agreement with us, by entering into a settlement agreement under which the former customer paid us $19.5 million to compensate us for lost profits on coal sales due to the wrongful termination. We applied $12.6 million of these settlement proceeds to prepayment of principal on our first lien term loan.
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 $870 to resolve various claims as of September 30, 2014, of which $650 was accrued during the nine months ended September 30, 2014.
Guarantees
Our GP and the Partnership guarantee certain obligations of our subsidiaries. We believe that these guarantees will expire without any liability to the guarantors, and therefore will not have a material adverse effect on our financial position, liquidity or operations.
NOTE 12: RELATED PARTY TRANSACTIONS
In connection with our formation in August 2007, the Partnership and Oxford Mining entered into an administrative and operational services agreement (the “Services Agreement”) with our GP. The Services Agreement is terminable by either party upon 30 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. Our GP provides us with services such as general administrative and management, human resources, legal, information technology, finance and accounting, corporate development, real property, marketing, engineering, operations (including mining operations), geological, risk management and

Page 16
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

insurance services. Pursuant to the Services Agreement, the primary reimbursements to our GP were for costs related to payroll. Reimbursable costs under the Services Agreement totaling $1,908 and $624 were included in accounts payable as of September 30, 2014 and December 31, 2013, respectively.
We sell clay and small quantities of coal to Tunnell Hill Reclamation, LLC (“Tunnell Hill”), a company that is indirectly owned by Mr. C. Ungurean, Mr. T. Ungurean, and affiliates of AIM Oxford. Sales to Tunnell Hill were de minimis for the three months ended September 30, 2014 and 2013, respectively, and $426 and $302 for the nine months ended September 30, 2014 and 2013, respectively. Additionally, we provided contracted services to Tunnell Hill totaling $613 for the three and nine months ended September 30, 2014, while there were no contracted services provided during those periods in 2013. Accounts receivable from Tunnell Hill were $744 at September 30, 2014 and $83 at December 31, 2013. 

NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
     Supplemental cash flow information:
 
For the Nine Months Ended September 30,
 
2014
 
2013
Cash paid for:
 
 
 
Interest
$
12,304

 
$
8,588

Non-cash activities:
 
 
 
Property and equipment acquired with debt or capital lease
35

 
1,000

Reclamation and mine closure costs capitalized in mine development
4,216

 
10,669

Market value of common units vested in LTIP
255

 
255

 
NOTE 14: SEGMENT INFORMATION
We operate in one business segment. We operate surface coal mines in Northern Appalachia and, through December 2013, in the Illinois Basin. We sell high-value thermal coal to utilities, industrial customers, municipalities and other coal-related entities primarily in the eastern United States. Our operating and executive management reviews and bases its decisions upon consolidated reports. Our operating subsidiaries extract coal utilizing surface-mining techniques and prepare it for sale to their customers. Such operating subsidiaries share customers and a particular customer may receive coal from any one of such operating subsidiaries.
NOTE 15: SUBSEQUENT EVENTS
Westmoreland Transactions
On October 16, 2014, Westmoreland Coal Company (“Westmoreland”), our general partner and we announced that Westmoreland will acquire our general partner and contribute certain royalty bearing coal reserves to us in return for a specified number of our common units. As a result, we intend to resume quarterly distributions at $0.20 per common unit (after a 12-to-1 reverse split) and refinance our existing credit facilities on better terms, including terms that allow for distributions to unitholders and additional credit capacity to fund future acquisitions. There will also be a one-time special distribution to the common unitholders of Oxford excluding AIM, C&T, the Warrantholders and Westmoreland. The distribution will be made to such common unitholders, on a pro rata basis, and will consist of an approximately 25% “unit dividend” of an aggregate of 202,184 additional post-reverse split common units. Certain lenders have agreed to provide a new credit facility for us that will refinance all of our existing debt on that basis. Following these transactions, we will continue to operate as a stand-alone, publicly-traded master limited partnership (MLP) and Westmoreland will own 77% of our fully diluted limited partner interests.
The transactions involving us must be approved by a majority of our outstanding common units that are not owned by our general partner and its affiliates and by a majority of the outstanding subordinated units. We have filed a proxy statement with the SEC for review and it is anticipated that the unitholder vote will be held in December 2014. Upon receiving unitholder approval, all of the transactions are expected to be closed concurrently with the debt refinancing. It is anticipated that the transactions will be completed during the fourth quarter of 2014.

Page 17
OXFORD RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands, except for unit and per unit data)

Harrison Resources Redemption     
In early October 2014, Oxford Mining entered into a membership interest redemption agreement with Harrison Resources and CONSOL of Ohio LLC (“CONSOL”) under which Harrison Resources redeemed all of CONSOL’s interest in Harrison Resources. Harrison Resources had been a joint venture owned 51% by Oxford Mining and 49% by CONSOL, and as a result of the redemption Oxford Mining owns 100% of Harrison Resources. In connection with the redemption, Harrison Resources acquired 0.9 million tons of coal reserves from a CONSOL affiliate, and also options to purchase an aggregate of 5.6 million additional tons of coal reserves from a CONSOL affiliate. These tons are in addition to the 1.7 million tons of coal reserves already owned by Harrison Resources. Harrison Resources paid total consideration of $3.6 million in these transactions. These transactions were effective as of October 1, 2014.

Page 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 condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) 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, 2013 included in our Annual Report on Form 10-K (our “Annual Report”) 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
Statements in this Quarterly Report that are not historical facts are forward-looking statements within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” and similar terms and phrases, including references to assumptions, in this Quarterly Report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
•
market demand for coal and energy, including changes in consumption patterns by utilities away from the use of coal;
•
availability of qualified workers;
•
future economic or capital market conditions;
•
weather conditions or catastrophic weather-related damage;
•
our production capabilities;
•
consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
•
our plans and objectives for future operations, including expansion or consolidation;
•
our relationships with, and other conditions affecting, our customers;
•
availability and costs of credit and surety bonds;
•
our liquidity, including our ability to adhere to financial covenants related to our borrowing arrangements;
•
availability and costs of key supplies or commodities, such as diesel fuel, steel, explosives and tires; 
•
availability and costs of capital equipment;
•
prices of fuels which compete with or impact coal usage, such as oil and natural gas;
•
timing of reductions or increases in customer coal inventories;
•
long-term coal supply arrangements;
•
reductions and/or deferrals of purchases by major customers;
•
coal mining operations, including risks relating to third-party suppliers and carriers operating at our mines or complexes;

Page 19

 


•
unexpected maintenance and equipment failure;
•
environmental, safety and other laws and regulations, including those directly affecting our coal mining and production, and those affecting our customers' coal usage;
•
ability to obtain and maintain all necessary governmental permits and authorizations;
•
competition among coal and other energy producers in the United States and internationally;
•
railroad, barge, trucking and other transportation availability, performance and costs;
•
employee benefits costs and labor relations issues;
•
replacement of our reserves;
•
our assumptions concerning economically recoverable coal reserve estimates;
•
title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or inability to mine these properties;
•
future legislation and changes in regulations or governmental policies or changes in interpretations or enforcement thereof, including with respect to safety enhancements and environmental initiatives relating to global warming and climate change;
•
our ability to pay our quarterly distributions (when permitted) which substantially depends upon our future operating performance (which may be affected by prevailing economic conditions in the coal industry), debt covenants, and financial, business and other factors, some of which are beyond our control;
•
adequacy and sufficiency of our internal controls; and
•
legal and administrative proceedings, settlements, investigations and claims, including those related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage.
You should keep in mind that any forward-looking statements made by us in this Quarterly Report or elsewhere speak only as of the date on which the statements were made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Quarterly Report after the date of this Quarterly Report, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this Quarterly Report might not occur. When considering these forward-looking statements, you should keep in mind the cautionary statements in this Quarterly Report and in our other SEC filings, including the more detailed discussion of these factors, as well as other factors that could affect our results, contained in the “Risks Relating to Our Business” section of Item 1A of our Annual Report.
Overview
We are a low-cost producer and marketer of high-value thermal coal (“coal”) to United States (“U.S.”) utilities and industrial users, and we are the largest producer of surface mined coal in Ohio. We market our coal primarily to large electric utilities with coal-fired, base-load scrubbed power plants under long-term coal sales contracts. We focus on acquiring 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 Indiana, Kentucky, Michigan, Ohio, Pennsylvania and West Virginia.
We operate in a single business segment and have three operating subsidiaries, Oxford Mining Company, LLC ("Oxford Mining"), Oxford Mining Company-Kentucky, LLC and Harrison Resources, LLC ("Harrison Resources"). All of our operating subsidiaries participate primarily in the business of utilizing surface mining techniques to mine domestic coal and prepare it for sale to our customers. All three subsidiaries share common customers, assets and employees.
We currently have 15 active surface mines and we manage these mines as six mining complexes. Our coal reserves and operations are strategically located near our customers with the flexibility to ship by barge, truck or rail. During the three and nine months ended September 30, 2014, we produced and sold 1.4 million and 4.3 million tons, respectively, of coal.

Page 20

 


As previously disclosed in our periodic filings with the SEC, in the first quarter of 2012 we received a termination notice from a customer related to a 0.8 million tons per year coal supply contract fulfilled from our Illinois Basin operations. In response, we initially idled some of our Illinois Basin operations, terminated a significant number of employees related to such operations and substituted purchased coal for mined and washed coal on certain sales contracts. Subsequently, over time, the remainder of our Illinois Basin operations were idled and the related employees terminated with the result that our Illinois Basin operations were fully idled as of December 31, 2013. During that period, we also sold some of our excess Illinois Basin equipment while redeploying most of the equipment to our Northern Appalachian operations, with such redeployment being completed during the first quarter of 2014. Additionally, we sold our Illinois Basin dock in April 2014. And finally, we are seeking to sell the remaining Illinois Basin equipment, consisting of a large-capacity shovel and several smaller pieces of equipment, and would consider offers to purchase the remaining coal reserves and/or facilities related to our Illinois Basin operations.
In July 2014, we concluded litigation with a former customer, who wrongfully terminated its coal supply agreement with us, by entering into a settlement agreement under which the former customer paid us $19.5 million to compensate us for lost profits on coal sales due to the wrongful termination. We made from these settlement proceeds a $12.6 million prepayment of principal on our first lien term loan.
Westmoreland Transactions
On October 16, 2014, Westmoreland Coal Company (“Westmoreland”), our general partner and we announced that Westmoreland will acquire our general partner and contribute certain royalty bearing coal reserves to us in return for a specified number of our common units. As a result, we intend to resume quarterly distributions at $0.20 per common unit (after a 12-to-1 reverse split) and refinance our existing credit facilities on better terms, including terms that allow for distributions to unitholders and additional credit capacity to fund future acquisitions. There will also be a one-time special distribution to the common unitholders of Oxford excluding AIM, C&T, the Warrantholders and Westmoreland. The distribution will be made to such common unitholders, on a pro rata basis, and will consist of an approximately 25% “unit dividend” of an aggregate of 202,184 additional post-reverse split common units. Certain lenders have agreed to provide a new credit facility for us that will refinance all of our existing debt on that basis. Following these transactions, we will continue to operate as a stand-alone, publicly-traded master limited partnership (MLP) and Westmoreland will own 77% of our fully diluted limited partner interests.
The transactions involving us must be approved by a majority of our outstanding common units that are not owned by our general partner and its affiliates and by a majority of the outstanding subordinated units. We have filed a proxy statement with the SEC for review and it is anticipated that the unitholder vote will be held in December 2014. Upon receiving unitholder approval, all of the transactions are expected to be closed concurrently with the debt refinancing. It is anticipated that the transactions will be completed during the fourth quarter of 2014.
Subsequent Event
In early October 2014, Oxford Mining entered into a membership interest redemption agreement with Harrison Resources and CONSOL of Ohio LLC (“CONSOL”) under which Harrison Resources redeemed all of CONSOL’s interest in Harrison Resources. Harrison Resources had been a joint venture owned 51% by Oxford Mining and 49% by CONSOL, and as a result of the redemption Oxford Mining owns 100% of Harrison Resources. In connection with the redemption, Harrison Resources acquired 0.9 million tons of coal reserves from a CONSOL affiliate, and also options to purchase an aggregate of 5.6 million additional tons of coal reserves from a CONSOL affiliate. These tons are in addition to the 1.7 million tons of coal reserves already owned by Harrison Resources. Harrison Resources paid total consideration of $3.6 million in these transactions. These transactions were effective as of October 1, 2014.
Evaluating Our Results of Operations
We evaluate our results of operations based on several key measures, which include:
•
our coal production, sales volume and sales prices, which drive our coal sales revenue;
•
our cost of coal sales, including cost of purchased coal;
•
our net (loss) income; and
•
our Adjusted EBITDA, a non-GAAP financial measure.

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Coal Production, Sales Volume and Sales Prices
We evaluate our operations based on the volume of coal we produce, the volume of coal we sell, and the prices we receive for our coal. The volume of coal we sell is also a function of the productive capacity of our mining complexes, the amount of coal we purchase, and market demand. We sell substantially all of our coal under long-term coal sales contracts, and thus sales prices are dependent upon the terms of those contracts.
Our long-term coal sales contracts typically provide for fixed prices, or a schedule of prices that are either fixed or contain market-based adjustments, over the contract term. In addition, many of our long-term coal sales contracts have full or partial cost pass through or cost adjustment provisions. Cost pass through provisions increase or decrease the coal sales price for all or a specified percentage of changes in the costs for items such as diesel fuel and inflation. Cost adjustment provisions adjust the initial contract price over the term of the contract either by a specific percentage or a percentage determined by reference to various cost-related indices, including cost-related indices for diesel fuel and the cost-of-living generally.
We evaluate the price we receive for our coal on a per ton basis. Our coal sales revenue per ton represents our coal sales revenue divided by total tons of coal sold.
Cost of Coal Sales
We evaluate, on a cost per ton sold basis, our cost of coal sales which excludes non-cash costs such as depreciation, depletion and amortization (“DD&A”), gain or loss on asset disposals, impairment and restructuring expenses, and indirect costs such as selling, general and administrative expenses. Our cost of coal sales per ton represents our cost of coal sales divided by the tons of coal sold. Our cost of coal sales includes costs for labor, diesel fuel, oil, explosives, royalties, equipment lease expense, repairs and maintenance, and other costs directly related to our mining operations.
At times, we purchase coal from third parties to fulfill a portion of our obligations under our long-term coal sales contracts and, in certain cases, to meet customer coal quality specifications. These costs are included in the cost of purchased coal amount within cost of coal sales.
The following table provides operational data including data with respect to our tons of coal produced, purchased and sold, as well as our coal sales revenue, cash cost of coal sales and cash margin on a per ton basis, for the periods indicated:
 
Three Months Ended
 
% Change
 
Nine Months Ended
 
% Change
 
September 30,
 
 
September 30,
 
 
2014
 
2013
 
 
2014
 
2013
 
 
(tons in thousands, unaudited)
 
 
 
(tons in thousands, unaudited)
 

 
 
 
 
 
 
 
 
 
 
 
 
Produced tons
1,392

 
1,549

 
(10.1)%
 
4,305

 
4,650

 
(7.4)%
Purchased tons
10

 
121

 
(91.7)%
 
52

 
367

 
(85.8)%
Tons of coal sold
1,402

 
1,670

 
(16.0)%
 
4,357

 
5,017

 
(13.2)%
 
 
 
 
 
 
 
 
 
 
 
 
Tons sold under long-term contracts
96.3
%
 
93.5
%
 
n/a
 
96.8
%
 
94.5
%
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
Coal sales revenue per ton
$
52.16

 
$
50.74

 
2.8%
 
$
52.67

 
$
50.87

 
3.5%
Below-market sales contract amortization per ton
—

 
—

 
—%
 
—

 
(0.01
)
 
(100.0)%
Cash coal sales revenue per ton
52.16

 
50.74

 
2.8%
 
52.67

 
50.86

 
3.6%
Cash cost of coal sales per ton
(46.29
)
 
(44.34
)
 
4.4%
 
(45.43
)
 
(43.84
)
 
3.6%
Cash margin per ton
$
5.87

 
$
6.40

 
(8.3)%
 
$
7.24

 
$
7.02

 
3.1%
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure used by management to gauge operating performance. We define Adjusted EBITDA as net income or loss before deducting interest, income taxes, depreciation, depletion, amortization, change in fair value of warrants, impairment and restructuring expenses, gain or loss on disposal of assets, amortization of below-market coal sales contracts, non-cash equity-based compensation expense, non-cash reclamation and mine closure

Page 22

 


expense, and certain non-recurring revenues and costs. Although Adjusted EBITDA is not a measure of financial performance calculated in accordance with GAAP, we believe it is useful to management and others, such as investors and lenders, in evaluating our financial performance without regard to our financing methods, capital structure or income taxes; our ability to generate cash sufficient to pay interest and principal on our indebtedness, make distributions and fund capital expenditures; and our compliance with certain credit facility financial covenants. Because not all companies calculate Adjusted EBITDA the same way, our calculation may not be comparable to similarly titled measures of other companies.
For a reconciliation of Net Loss to Adjusted EBITDA for the three and nine months ended September 30, 2014 and 2013, see “- Results of Operations - Summary.”
Long-term Coal Supply Contracts
As is customary in the coal industry, we enter into long-term supply contracts (one year or longer in duration) with substantially all of our customers. These contracts allow customers to secure a supply for their future needs and provide us with greater predictability of sales volumes and prices. For the nine months ended September 30, 2014, approximately 96.3% of our coal tons sold were sold under long-term supply contracts. We sell the remainder of our coal through short-term contracts and on the spot market.
The terms of our coal supply contracts result from competitive bidding and extensive negotiations with each customer. Consequently, the terms can vary significantly by contract and can cover such matters as price adjustment features, price reopener terms, coal quality requirements, quantity adjustment mechanisms, permitted sources of supply, future regulatory changes, extension options, force majeure provisions, and termination and assignment provisions. Some long-term contracts provide for a pre-determined adjustment to the stipulated base price at specified times or periodic intervals to account for changes due to inflation or deflation in prevailing market prices.
Also, most contracts contain provisions to adjust the base price due to new statutes, ordinances or regulations that influence our costs of production. In addition, some of our contracts contain provisions that allow for the recovery of costs impacted by modifications or changes in the interpretations or application of government statutes.
Price reopener provisions are present in several of our long-term contracts. These price reopener provisions may automatically set a new price based on prevailing market price or, in some instances, require the parties to agree on a new price, sometimes within a specified range. In a limited number of contracts, failure of the parties to agree on a price under a price reopener provision can lead to contract termination.
As of September 30, 2014, 99.2% of our projected coal sales tons for the balance of 2014 were committed and priced. As of September 30, 2014, we had commitments under supply contracts to deliver 4.1 million, 2.0 million and 2.0 million tons of coal to customers in 2015, 2016 and 2017, respectively. Of these amounts, in 2015 and 2016, 2.8 million and 1.1 million tons, respectively, are dependent upon reaching agreement on pricing during reopener periods. In 2017, all 2.0 million tons are dependent upon reaching agreement on pricing during reopener periods.
Factors That Impact Our Business
Our results of operations in the near term could be impacted by a number of factors, including (1) adverse weather conditions and natural disasters, (2) poor mining conditions resulting from geological conditions or the effects of prior mining, (3) equipment problems, (4) the availability of transportation for coal shipments and (5) the availability and costs of key supplies and commodities, such as steel, diesel fuel and explosives.
On a long-term basis, our results of operations could be impacted by, among other factors, (1) changes in governmental regulation, (2) the availability and prices of competing electricity-generation fuels, (3) our ability to secure or acquire high-quality coal reserves and (4) our ability to find buyers for coal under favorable supply contracts.

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Results of Operations
Summary
The following table presents historical condensed consolidated financial data for the three and nine months ended September 30, 2014 and 2013: 
SELECTED FINANCIAL AND OPERATING DATA

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
REVENUES:
 
 
 
 
 
 
 
Coal sales
$
73,112

 
$
84,742

 
$
229,468

 
$
255,226

Other revenue
21,395

 
2,844

 
25,044

 
9,211

Total revenues
94,507

 
87,586

 
254,512

 
264,437

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of coal sales:
 
 
 
 
 
 
 
Produced coal
64,592

 
68,175

 
196,326

 
202,159

Purchased coal
300

 
5,881

 
1,587

 
17,774

Total cost of coal sales (excluding depreciation, depletion and amortization)
64,892

 
74,056

 
197,913

 
219,933

Cost of other revenue
542

 
455

 
1,313

 
1,228

Depreciation, depletion and amortization
9,236

 
12,017

 
30,532

 
37,760

Selling, general and administrative expenses
3,604

 
3,051

 
10,530

 
13,056

Restructuring expenses
—

 
150

 
75

 
1,012

Gain on disposal of assets, net
—

 
(1,107
)
 
(559
)
 
(6,594
)
Total costs and expenses
78,274

 
88,622

 
239,804

 
266,395

INCOME (LOSS) FROM OPERATIONS
16,233

 
(1,036
)
 
14,708

 
(1,958
)
INTEREST AND OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
Interest income
1

 
1

 
4

 
3

Interest expense
(7,026
)
 
(6,808
)
 
(20,899
)
 
(14,146
)
Change in fair value of warrants
151

 
2,714

 
1,621

 
565

Total interest and other expenses
(6,874
)
 
(4,093
)
 
(19,274
)
 
(13,578
)
NET INCOME (LOSS)
9,359

 
(5,129
)
 
(4,566
)
 
(15,536
)
Net loss (income) attributable to noncontrolling interest
428

 
(470
)
 
1,270

 
(1,120
)
Net income (loss) attributable to Oxford Resource Partners, LP unitholders
9,787

 
(5,599
)
 
(3,296
)
 
(16,656
)
Net income (loss) allocated to general partner
193

 
(112
)
 
(66
)
 
(333
)
Net income (loss) allocated to limited partners
$
9,594

 
$
(5,487
)
 
$
(3,230
)
 
$
(16,323
)
 
 
 
 
 
 
 
 

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The following table presents a reconciliation of net loss to Adjusted EBITDA for the three and nine months ended September 30, 2014 and 2013:
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands, unaudited)
Net income (loss)
$
9,359

 
$
(5,129
)
 
$
(4,566
)
 
$
(15,536
)
Adjustments:
 
 
 
 
 
 
 
Interest expense, net of interest income
7,025

 
6,807

 
20,895

 
14,143

Depreciation, depletion and amortization
9,236

 
12,017

 
30,532

 
37,760

Change in fair value of warrants
(151
)
 
(2,714
)
 
(1,621
)
 
(565
)
Restructuring expenses
—

 
150

 
75

 
1,012

Gain on disposal of assets, net
—

 
(1,107
)
 
(559
)
 
(6,594
)
Amortization of below-market coal sales contracts
—

 
—

 
—

 
(60
)
Non-cash equity-based compensation expense
462

 
351

 
1,383

 
1,090

Non-cash reclamation and mine closure expense
600

 
625

 
1,725

 
1,683

Non-recurring costs:
 
 
 
 
 
 
 
Debt refinancing expenses
—

 
—

 
—

 
3,059

Other
336

 
—

 
1,204

 
(2,100
)
Adjusted EBITDA
$
26,867

 
$
11,000

 
$
49,068

 
$
33,892

 
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Overview
Total revenue was $94.5 million for the three months ended September 30, 2014, an increase of $6.9 million, or 7.9%, from $87.6 million for the three months ended September 30, 2013. Net income for the three months ended September 30, 2014 was $9.4 million, compared to a net loss for the three months ended September 30, 2013 of $5.1 million. This result was due to revenue of $19.5 million in litigation settlement proceeds compensating us for lost profits on coal sales resulting from the wrongful termination of a coal supply agreement with a former customer. Adjusted EBITDA was $26.9 million for the three months ended September 30, 2014, an increase of $15.9 million from $11.0 million for the three months ended September 30, 2013. Cash margin per ton was $5.87 for the three months ended September 30, 2014, a decrease of $0.53, or 8.3%, per ton from $6.40 per ton for the three months ended September 30, 2013.
Coal Sales Revenue
Coal sales revenue was $73.1 million for the three months ended September 30, 2014, a decrease of $11.6 million, or 13.7%, from $84.7 million for the three months ended September 30, 2013. The decrease was primarily attributable to a 16.0% reduction in tons sold with a value of $13.6 million, partially offset by a $1.42 per ton, or an aggregate $2.0 million, increase in coal sales revenue. The reduction in tons sold was primarily attributable to the idling of our Illinois Basin operations.
Other Revenue
Other revenue, primarily from clay and limestone sales, royalty income and other miscellaneous revenue, was $21.4 million for the three months ended September 30, 2014, an increase of $18.5 million from $2.9 million for the three months ended September 30, 2013. Non-coal revenue increased $18.3 million to $19.8 million for the three months ended September 30, 2014 from $1.5 million for the three months ended September 30, 2013, due primarily to the receipt of $19.5 million in litigation settlement proceeds from a former customer compensating us for lost profits on coal sales due to a wrongfully terminated coal supply agreement. At the same time, clay and limestone sales increased $0.2 million to $1.6 million for the three months ended September 30, 2014 from $1.4 million for the three months ended September 30, 2013.

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Cost of Coal Sales (Excluding DD&A)
Cost of coal sales (excluding DD&A) was $64.9 million for the three months ended September 30, 2014, a decrease of $9.2 million, or 12.4%, from $74.1 million for the three months ended September 30, 2013. The decrease was primarily attributable to a 0.3 million reduction in tons sold, which corresponds to a $11.9 million decrease in cost of coal sales, partially offset by an increase in the cost to produce coal of $1.95 per ton, or an aggregate of $2.7 million. Cost of coal sales per ton was $46.29 for the three months ended September 30, 2014, an increase of $1.95, or 4.4% per ton from $44.34 per ton for the three months ended September 30, 2013. The $1.95 per ton increase was primarily attributable to a $1.86 per ton, or $2.6 million, increase in contract highwall miner fees; a $1.34 per ton, or $1.9 million, increase in transportation cost; a $0.45 per ton, or $0.6 million, increase in wages; a $0.42 per ton, or $0.6 million, increase in diesel fuel expense; and a $0.27 per ton, or $0.4 million, increase in lease expense, which were partially offset by a $3.31 per ton, or $5.6 million, decrease in purchased coal. Contract highwall miner fees increased due to the utilization of contractors at two of our mining operations while no such contractors were engaged in the comparable period last year. Wages increased due to raises implemented in mid-2014 in response to increased competition in the labor market from the growing oil and gas drilling business in southeastern Ohio. Transportation cost increased due to longer haul routes, diesel fuel expense increased due to higher spot prices, and lease expense increased due to costs incurred to lease heavy equipment.
    For the three months ended September 30, 2014, 10 thousand tons of coal were purchased, which represents a decrease of 111 thousand tons of coal purchased from 121 thousand tons of coal purchased for the three months ended September 30, 2013. In the three months ended September 30, 2013, we had in place a purchased coal contract that allowed us to substitute lower cost purchased coal for mined and washed coal on certain sales contracts in the Illinois Basin. In the three months ended September 30, 2014, we were no longer supplying those sales contracts and therefore did not enter into any such new purchase coal contracts. The aggregate cost for tons of coal purchased for the three months ended September 30, 2014 decreased by $5.6 million from the three months ended September 30, 2013.
Depreciation, Depletion and Amortization
DD&A expense was $9.2 million for the three months ended September 30, 2014, a decrease of $2.8 million, or 23.1%, from $12.0 million for the three months ended September 30, 2013. Depreciation expense was $6.4 million for the three months ended September 30, 2014, a $1.4 million decrease from $7.8 million for the three months ended September 30, 2013. Amortization expense decreased $1.6 million to $1.3 million for the three months ended September 30, 2014 from $2.9 million for the three months ended September 30, 2013. The decrease was primarily attributable to changes in the amortization for asset retirement costs based on revisions to cost estimates and useful lives. Depletion expense was $1.5 million for the three months ended September 30, 2014, a $0.2 million increase from $1.3 million for the three months ended September 30, 2013, which was primarily attributable to an increase in the depletion rate per ton.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $3.6 million for the three months ended September 30, 2014, an increase of $0.5 million, or 18.1%, from $3.1 million for the three months ended September 30, 2013. The increase of $0.5 million was primarily the result of a $0.4 million increase in legal fees related to the litigation settlement in July 2014 for lost profits on a wrongfully terminated coal supply contract.
Gain on Disposal of Assets, Net
The net gain on disposal of assets was zero for the three months ended September 30, 2014 compared to a net gain of $1.1 million for the three months ended September 30, 2013. The $1.1 million gain on the disposal of assets for the three months ended September 30, 2013 was primarily due to the $3.0 million of insurance proceeds received on equipment lost in mining activities with a carrying value of $1.6 million, resulting in a $1.4 million gain. This gain was offset by net losses generated from the disposal of equipment in the normal course of business of $0.3 million for the three months ended September 30, 2013.




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Net Loss (Income) Attributable to Noncontrolling Interest
Net loss (income) attributable to noncontrolling interest relates to the 49% ownership interest in Harrison Resources owned by a subsidiary of CONSOL. Net loss attributable to noncontrolling interest was $0.4 million for the three months ended September 30, 2014, a decrease of $0.9 million from net income attributable to noncontrolling interest of $0.5 million for the three months ended September 30, 2013. This decrease was primarily due to an increase in the mining fee paid to Oxford Mining and a decrease in selling prices resulting from the mining of a lower quality of coal. Effective October 1, 2014, Harrison Resources redeemed all of CONSOL's ownership interest with the result that we now own 100% of Harrison Resources.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Overview
Total revenue was $254.5 million for the nine months ended September 30, 2014, a decrease of $9.9 million, or 3.8%, from $264.4 million for the nine months ended September 30, 2013. Net loss for the nine months ended September 30, 2014 was $4.6 million, compared to a net loss for the nine months ended September 30, 2013 of $15.5 million. The lower loss was due to revenue of $19.5 million in litigation settlement proceeds received in the third quarter of 2014, which proceeds compensated us for lost profits on coal sales resulting from the wrongful termination of a coal supply agreement with a former customer. Adjusted EBITDA was $49.1 million for the nine months ended September 30, 2014, an increase of $15.2 million from $33.9 million for the nine months ended September 30, 2013. Cash margin per ton was $7.24 for the nine months ended September 30, 2014, an increase of $0.22, or 3.1%, per ton from $7.02 per ton for the nine months ended September 30, 2013.
Coal Sales Revenue
Coal sales revenue was $229.5 million for the nine months ended September 30, 2014, a decrease of $25.7 million, or 10.1%, from $255.2 million for the nine months ended September 30, 2013. The decrease was primarily attributable to a 13.2% reduction in tons sold with a value of $33.5 million, partially offset by a $1.80 per ton, or an aggregate $7.8 million, increase in coal sales revenue. The decrease in tons sold was primarily attributable to the idling of our Illinois Basin operations.
Other Revenue
Other revenue, primarily from clay and limestone sales, royalty income and other miscellaneous revenue, was $25.0 million for the nine months ended September 30, 2014, an increase of $15.8 million from $9.2 million for the nine months ended September 30, 2013. Non-coal revenue increased $15.4 million to $20.4 million for the nine months ended September 30, 2014 from $5.0 million for the nine months ended September 30, 2013, due primarily to revenue of $19.5 million in litigation settlement proceeds compensating us for lost profits on coal sales resulting from the wrongful termination of a coal supply contract with a former customer. Additionally, clay and limestone sales increased $0.4 million to $4.6 million for the nine months ended September 30, 2014 from $4.2 million for the nine months ended September 30, 2013.
Cost of Coal Sales (Excluding DD&A)
Cost of coal sales (excluding DD&A) was $197.9 million for the nine months ended September 30, 2014, a decrease of $22.0 million, or 10.0%, from $219.9 million for the nine months ended September 30, 2013. The decrease was primarily attributable to a 0.6 million reduction in tons sold, which corresponds to a $28.9 million decrease in cost of coal sales, partially offset by an increase in the cost to produce coal of $1.59 per ton, or an aggregate of $6.9 million. Cost of coal sales per ton was $45.43 for the nine months ended September 30, 2014, an increase of $1.59, or 3.6%, per ton from $43.84 per ton for the nine months ended September 30, 2013. The $1.59 per ton increase was primarily attributable to a $1.61 per ton, or $7.0 million, increase in contract highwall miner fees; a $1.18 per ton, or $5.1 million, increase in transportation cost; a $0.61 per ton, or $2.7 million, increase in diesel fuel expense; a $0.34 per ton, or $1.5 million, increase in wages; and a $0.26 per ton, or $1.1 million, increase in lease expense, which were partially offset by a $3.18 per ton, or $16.1 million, decrease in purchased coal. Contract highwall miner fees increased due to the utilization of contractors at two of our mining operations while no such contractors were engaged in the comparable period last year. Wages increased due to raises implemented in mid-2014 in response to increased competition in the labor market from the growing oil and gas drilling business in southeastern Ohio. Transportation cost increased due to longer haul routes, diesel fuel expense increased due to higher spot prices, and lease expense increased due to costs incurred to lease heavy equipment.

Page 27

 


For the nine months ended September 30, 2014, 52 thousand tons of coal were purchased, which represents a decrease of 315 thousand tons of coal purchased from 367 thousand tons of coal purchased for the nine months ended September 30, 2013. In the nine months ended September 30, 2013, we had a purchased coal contract in place that allowed us to substitute lower cost purchased coal for mined and washed coal on certain sales contracts in the Illinois Basin. In the nine months ended September 30, 2014, we were no longer supplying those sales contracts and therefore did not enter into any such new purchase coal contracts. The aggregate cost for tons of coal purchased for the nine months ended September 30, 2014 decreased by $16.1 million from the aggregate cost for tons of coal purchased for the nine months ended September 30, 2013.
Depreciation, Depletion and Amortization
DD&A expense was $30.5 million for the nine months ended September 30, 2014, a decrease of $7.3 million, or 19.1%, from $37.8 million for the nine months ended September 30, 2013. Depreciation expense was $20.6 million for the nine months ended September 30, 2014, a $2.7 million decrease from $23.3 million for the nine months ended September 30, 2013. Amortization expense decreased $5.5 million to $6.0 million for the nine months ended September 30, 2014 from $11.5 million for the nine months ended September 30, 2013. The decrease was primarily attributable to changes in the amortization for asset retirement costs based on revisions to cost estimates and useful lives. Depletion expense was $3.9 million for the nine months ended September 30, 2014, a $0.9 million increase from $3.0 million for the nine months ended September 30, 2013, which was primarily attributable to an increase in the depletion rate per ton.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10.5 million for the nine months ended September 30, 2014, a decrease of $2.6 million, or 19.3%, from $13.1 million for the nine months ended September 30, 2013. The decrease of $2.6 million was primarily the result of a $1.7 million decrease in legal and professional expense and a $0.8 million decrease in compensation, offset in part by a $0.7 million increase in the legal reserve. In the 2013 period, we incurred professional fees, principally for advisory and legal services related to the refinancing of our credit facility that was completed in the second quarter of 2013. Legal fees in 2014 relate primarily to litigation involving the wrongful termination of a coal supply contract and were less than fees incurred in 2013 related to the refinancing. The decrease in compensation was primarily the result of lower bonuses being earned during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The legal reserve was increased in the second quarter 2014 to provide for the resolution of a dispute matter.
Gain on Disposal of Assets, Net
The net gain on disposal of assets of $0.6 million for the nine months ended September 30, 2014 resulted from the disposal of equipment in the normal course of business. During the nine months ended September 30, 2013, the net gain of $6.6 million is primarily attributable to the sale of certain oil and gas rights resulting in net gains of $6.1 million. Additionally, $3.0 million in insurance proceeds was received on equipment lost in mining activities with a carrying value of $1.6 million, resulting in a $1.4 million gain for the nine months ended September 30, 2013. These gains were offset by net losses generated from the disposal of equipment in the normal course of business of $0.9 million for the nine months ended September 30, 2013.
Net Loss (Income) Attributable to Noncontrolling Interest
Net loss (income) attributable to noncontrolling interest relates to the 49% ownership interest in Harrison Resources owned by a subsidiary of CONSOL. Net loss attributable to noncontrolling interest was $1.3 million for the nine months ended September 30, 2014, a decrease of $2.4 million from net income attributable to noncontrolling interest of $1.1 million for the nine months ended September 30, 2013. This decrease was primarily due to an increase in the mining fee paid to Oxford Mining and a decrease in selling prices resulting from the mining of a lower quality of coal. Effective October 1, 2014, Harrison Resources redeemed all of CONSOL's ownership interest with the result that we now own 100% of Harrison Resources.

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Liquidity and Capital Resources
Liquidity
Our business is capital intensive and requires substantial capital expenditures for, among other things, purchasing, maintaining and upgrading equipment used in developing mines and mining our coal, and acquiring reserves. Our principal liquidity needs are to finance current operations and fund capital expenditures, including costs of acquisitions from time to time, servicing of our debt and paying cash distributions to our unitholders when we are in a position to do so. Our primary sources of liquidity to meet these needs are cash generated by our operations and borrowings under the Financing Agreements.
In August 2014, we received litigation settlement proceeds of $19.5 million, which compensated us for lost profits on coal from a wrongfully terminated coal supply agreement with a former customer. Concurrently, we amended our first lien term loan to allow us to retain $5.0 million of the settlement proceeds in addition to the already permissible retention of $1.9 million of legal and other related costs. We were thus able, from settlement proceeds that we received, to enhance our liquidity by $6.9 million while also making a prepayment of principal on our first lien term loan of $12.6 million.
Additionally, if we are able to sell the remaining Illinois Basin equipment, consisting of a large-capacity shovel and several smaller pieces of equipment, our liquidity will be further enhanced. We would also consider offers for the remaining coal reserves and/or facilities related to our Illinois Basin operations, which could enhance our liquidity even further. There are no assurances that we will be able to sell such assets.
We have incurred net losses in the past few years resulting in an accumulated deficit of $17.9 million at September 30, 2014. We have managed our liquidity for the nine months ended September 30, 2014, with $30.7 million of cash flows provided from operations and with $19.7 million of cash flows used in financing activities. As of September 30, 2014, our available liquidity was $14.2 million, which consisted of $7.5 million in cash on hand and $6.7 million of borrowing capacity under our credit facilities. Additionally, we have an option for an additional $10 million term loan if requested by us and approved by the issuing second lien lender.
Our first lien credit facility, consisting of a $54.3 million term loan and $18.0 million in revolver loans as of September 30, 2014, is scheduled to mature in September 2015. Our second lien credit facility, consisting of a $76.1 million term loan as of September 30, 2014, is scheduled to mature in December 2015. In conjunction with the closing of the Westmoreland transactions discussed previously, which are subject to unitholder approval, Westmoreland has received a commitment to refinance our current credit facilities from certain lenders. If for some reason the Westmoreland transactions do not close as expected, we will pursue extending our current financing agreements or a complete refinancing of our existing debt. If we are unable to extend or refinance our debt, our ability to continue as a going concern will be impacted. Due to its maturity date, all amounts outstanding under our first lien credit facility have been classified as current liabilities in our consolidated balance sheet as of September 30, 2014.
Should we have difficulty meeting our forecasts, this could have an adverse effect on our liquidity position. Management expects us to be able to achieve our updated forecasted results for the year ending December 31, 2014. However, there can be no assurance that our cash flows will be sufficient to allow us to continue as a going concern if we are unable to meet our forecasts.
Please read “- Capital Expenditures” for a further discussion of the impact of capital expenditures on liquidity.
Refinancing Upon Closing of Westmoreland Transactions
In conjunction with the closing of the Westmoreland transactions previously described, which are subject to unitholder approval, we intend to enter into a new credit agreement with certain lenders to replace our existing $175 million of credit facilities consisting of (i) a first lien $75 million term loan and $25 million revolver and (ii) a second lien $75 million term loan. The new credit agreement will provide for up to $295 million of senior secured first lien term loans, with $175 million funded at close and maturing four years after closing, and the remaining $120 million available in the form of delayed draw term loans which can be used to fund acquisitions up to 12 months after closing. Additionally, there is an accordion feature that takes effect when the delayed draw feature expires which makes a further $150 million available for use to fund acquisitions during the remaining three loan years.


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Cash Flows
Cash flows for the nine months ended September 30, 2014 and 2013 are as follows:
 
Nine Months Ended
 
September 30,
 
2014
 
2013
 
(in thousands, unaudited)
Net cash from (used):
 
 
 
Operating activities
$
30,713

 
$
6,930

Investing activities
(6,663
)
 
(5,948
)
Financing activities
(19,685
)
 
(2,221
)
Total
$
4,365

 
$
(1,239
)
     
Net cash provided by operating activities was $30.7 million for the nine months ended September 30, 2014 compared to $6.9 million of net cash provided in operating activities for the nine months ended September 30, 2013, an increase of $23.8 million. We experienced a net loss for the nine months ended September 30, 2014 of $4.6 million, a decrease of $10.9 million, compared to a net loss for the nine months ended September 30, 2013 of $15.5 million. The decrease in the net loss was attributable in part to the $19.5 million lost profits payment received for the wrongful termination of a coal supply agreement with a former customer, a $7.3 million decrease in depreciation, depletion and amortization and a $1.0 million change in the fair value of warrants, partially offset by a $3.6 million increase in non-cash interest expense, and a $6.0 million decrease in gain on disposal of assets, net. These differences, combined with a $12.1 million favorable change in working capital, are the primary drivers of the increase in net cash provided by operating activities. The favorable change in working capital was primarily attributable to favorable changes of $9.4 million in accounts receivable, $3.4 million in reclamation and mine closure costs, and $2.8 million of advanced royalties, partially offset by an unfavorable change in accrued payroll and related expenses of $2.0 million.
Net cash used in investing activities was $6.7 million for the nine months ended September 30, 2014 compared to $5.9 million for the nine months ended September 30, 2013, an increase of $0.8 million. The increase was attributable to a $3.0 million decrease in insurance proceeds and a $2.5 million decrease in proceeds from the sale of assets, partially offset by a $4.8 million reduction in capital expenditure spending. The $4.8 million reduction in capital expenditure spending consisted of a $4.1 million decrease in purchase of property and equipment and a $0.7 million decrease in mine development costs.
Net cash used in financing activities was $19.7 million for the nine months ended September 30, 2014, an increase of $17.5 million from net cash used in financing activities of $2.2 million for the nine months ended September 30, 2013. The $17.5 million increase in net cash used in financing activities was primarily attributable to the $12.6 million principal prepayment paid in conjunction with the receipt of $19.5 million in litigation settlement proceeds from a former customer compensating us for lost profits on coal sales due to a wrongful termination of a coal supply agreement.
Capital Expenditures
Our mining operations require investments to maintain, upgrade, and expand our 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 and borrowings under the Financing Agreements.
The following table summarizes our capital expenditures by type for the three and nine months ended September 30, 2014 and 2013:

Page 30

 


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 
(in thousands, unaudited)
Coal reserves and land
$
—

 
$
—

 
$
5

 
$
14

Mine development
1,278

 
672

 
1,896

 
2,612

Property and equipment, including components
3,308

 
3,926

 
8,549

 
10,606

Total
$
4,586

 
$
4,598

 
$
10,450

 
$
13,232

Financing Agreements
In June 2013, we closed on $175 million of credit facilities that replaced our previous term loan and revolving credit facility. The facilities are (i) a first lien credit facility consisting of a $75 million term loan and a $25 million revolver under a financing agreement, as amended (the “First Lien Financing Agreement”), and (ii) a second lien credit facility consisting of a $75 million term loan (with an option for an additional $10 million term loan if requested by us and approved by the issuing second lien lender) under a financing agreement, as amended (the “Second Lien Financing Agreement,” and collectively with the First Lien Financing Agreement, the “Financing Agreements”).
Our first lien credit facility matures in September 2015 with an option to extend to June 2016, and our second lien credit facility matures in December 2015 with an option to extend to September 2016, if certain conditions are met. As of September 30, 2014, the blended cash interest rate for both credit facilities was 9.70%. The Financing Agreements contain customary financial and other covenants, and also preclude making unitholder distributions during the term of the credit facilities. Borrowings under the credit facilities are secured by substantially all of our assets.
Warrants
In conjunction with the Second Lien Financing Agreement, certain lenders and lender affiliates received warrants entitling them to purchase 1,955,666 common units and 1,814,185 subordinated units at $0.01 per unit. The warrants participate in distributions whether or not exercised. During the five-year term for exercise of the warrants, the warrant exercise price and number of units will be adjusted for unit splits or reverse splits, such that the economics of the warrants remain unchanged. These warrants are free standing financial instruments, within the scope of ASC 480, Distinguishing Liabilities from Equity, since they are detachable from the Second Lien Financing Agreement. The warrants, classified as a liability, were recorded at their fair value of $7.9 million at issuance. The warrants are subsequently marked to fair value with the change reported in earnings. The fair value assigned to the warrants at issuance was recorded as a debt discount, reducing the outstanding debt balance. This discount is being amortized through interest expense over the life of our second lien credit facility using the effective interest method.
First Lien Credit Facility Borrowings
As of September 30, 2014, the outstanding balance on our first lien term loan was $54.3 million. We are obligated to make quarterly principal payments of $1.3 million continuing until repayment of the then outstanding balance at maturity. As of September 30, 2014, our first lien term loan had a cash interest rate of 8.25%, consisting of LIBOR of 1.5% plus 6.75%.
In August 2014, we received proceeds of $19.5 million from the settlement of litigation relating to the wrongful termination of a coal supply agreement with a former customer. Under our first lien credit facility, we were required to apply all of those proceeds in excess of the $1.9 million of recovered litigation and other related costs to prepayment of our first lien term loan. However, we were able to amend our first lien credit facility at that time to allow us to retain an additional $5.0 million of the settlement proceeds. In conjunction with executing the amendment, we incurred $0.4 million in debt amendment costs recorded in “other long-term assets,” which costs will be amortized over the remaining term of our first lien credit facility.
Our first lien credit facility also includes a $25 million revolver, $18.0 million of which was outstanding as of September 30, 2014. As of September 30, 2014, the balance outstanding on the revolver had a weighted average cash interest rate of 8.25%, consisting of LIBOR of 1.5% plus 6.75%.
Due to the September 2015 maturity date, borrowings under our first lien credit facility are classified as "current portion of long-term debt" in our consolidated balance sheet as of September 30, 2014.

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Second Lien Credit Facility Borrowings
As of September 30, 2014, the outstanding balance on our second lien term loan was $76.1 million. This amount represents the principal balance of $74.6 million, plus PIK Interest of $5.7 million, net of the unamortized debt discount of $4.2 million. We are obligated to make quarterly principal payments of $0.2 million until repayment of the then outstanding balance at maturity. As of September 30, 2014, our second lien term loan had a cash interest rate of 11.0%, consisting of LIBOR of 1.25% plus 9.75%.
Our second lien credit facility provides for PIK Interest (paid-in-kind interest as defined in the Second Lien Financing Agreement) at the rate of 5.75%. PIK Interest is added quarterly to the then-outstanding principal amount of our second lien term loan as additional principal obligations. PIK Interest totaled $1.1 million and $3.4 million for the three and nine months ended September 30, 2014, respectively.
A portion of the principal of $75 million associated with our second lien term loan was allocated to the warrants in an amount equal to their fair value of $7.9 million. The value allocated to the warrants was recorded as a debt discount and is being amortized to interest expense over the term of our second lien credit facility using the effective interest method.  Amortization of the debt discount totaled $0.7 million and $2.2 million for the three and nine months ended September 30, 2014, respectively.
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 surety, performance, and road bonds.
Federal and state laws require us to secure certain long-term obligations, such as reclamation and mine closure costs, and contractual performance. Presently, we secure these obligations with surety bonds supported by cash deposits. If surety bonds became unavailable, we would seek to secure our reclamation obligations with cash deposits or other suitable forms of collateral.
As of September 30, 2014, we had $35.6 million in surety bonds outstanding to secure certain reclamation obligations which were collateralized by $8.8 million of cash. Such collateral is included in “other long-term assets” on our condensed consolidated balance sheets. Additionally, we had road bonds totaling $0.7 million and performance bonds totaling $3.0 million outstanding to secure contractual performance. We believe these bonds will expire without any claims or payments thereon and therefore they will not have a material adverse effect on our financial position, liquidity or operations.
New Accounting Standards
See Note 2: "Summary of Significant Accounting Policies - Accounting Pronouncement Effective in the Future" to our unaudited condensed consolidated financial statements for a discussion of newly adopted accounting pronouncements.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect reported amounts. These estimates and assumptions are based on information available as of the date of the financial statements. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of results that can be expected for the full year. Please refer to the section entitled “Critical Accounting Policies and Estimates” of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report for a discussion of our critical accounting policies and estimates.
 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market price risk in the normal course of mining and selling coal. We manage this risk through the use of long-term coal supply contracts, rather than through the use of derivative instruments. Committed, but unpriced, sales are subject to future market price volatility. As of September 30, 2014, 99.2% of our projected sales for the balance of 2014 were committed and priced.
We are also exposed to market price risk related to diesel fuel pricing. To reduce this risk in part, we enter into forward purchase agreements. Additionally, we are further protected by diesel fuel escalation provisions contained in certain of our coal supply contracts that provide for a change in the price per coal ton sold in the event of changes in diesel fuel pricing. As of September 30, 2014, we had such price protection with respect to 95% of our expected diesel fuel purchases for the remainder of 2014 and 86% of our expected diesel fuel purchases for 2015. 
Item 4. Controls and Procedures
     We maintain controls and procedures designed to ensure that information required to be disclosed in the reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was performed as of September 30, 2014. This evaluation was performed by our management, with the participation of our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of September 30, 2014 to ensure that we are able to collect, process and disclose the information that we are required to disclose in the reports we file with the SEC within the required time periods. During the quarterly period ended September 30, 2014, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with this evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
     The certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) are filed with this Quarterly Report as Exhibits 31.1 and 31.2. The certifications of our Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 are furnished with this Quarterly Report as Exhibits 32.1 and 32.2.

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PART II. OTHER INFORMATION 
Item 1.     Legal Proceedings
     We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, our management believes these claims will not have a material adverse effect on our financial position, liquidity or operations.
Item 1A.     Risk Factors
     In addition to the other information set forth in this Quarterly Report, careful consideration should be given to the risk factors discussed in the “Risk Factors” section of our Annual Report. The risk factor set forth below is a risk not previously disclosed in the “Risk Factors” section of our Annual Report.
Risks Inherent in an Investment in Us 
Failure to complete the transactions or delays in completing the transactions with Westmoreland Coal Company could negatively impact our unit price, future business and operation, and financial results.
On October 16, 2014, we entered into a contribution agreement under which Westmoreland Coal Company (“Westmoreland”), in connection with its acquisition of our general partner, will contribute royalty-bearing coal reserves assets in exchange for the issuance to it of a substantial number of our outstanding common units. As a part of these transactions, our equity structure will be simplified through amendment of our partnership agreement. Completion of the proposed transactions is subject to various conditions, including, among others, approval by the holders of a majority of the common units held by persons other than our general partner and its affiliates and other customary closing conditions. If the transactions are not completed, we will be subject to a number of risks, including the following:
•
because the current price of our common units may reflect a market premium based on the assumption that we will complete the transactions, a failure to complete the transactions could result in a decline in the price of our common units;
•
the pending transactions, their effects and related matters may distract our employees from day-to-day operations and require substantial commitments of time and resources, and may also impair our relations with our employees, customers, suppliers and other constituencies due to uncertainty about the future following the completion of the transactions;
•
in specified circumstances, if the transactions are not completed, we may be required to pay Westmoreland a termination fee of $3 million and reimburse it for replacement debt commitment fees of $5 million;
•
we will not realize the benefits expected from being part of a larger combined organization; and
•
some costs related to the transactions, such as legal and accounting fees, must be paid even if the transactions are not completed.
While the Westmoreland transactions are pending we may be subject to restrictions on the conduct of our business.
The contribution agreement restricts us from taking specified actions without Westmoreland’s approval. These restrictions could adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could negatively affect our businesses and operations prior to the completion of the transactions.
The New York Stock Exchange (“NYSE”) requires us to maintain certain quantitative and qualitative standards. Failure to maintain those standards could result in the delisting of our common units on the NYSE.
The NYSE requires listed entities to maintain a minimum average closing price of $1.00 per unit over any period of 30 consecutive trading days. Failure to do so results in notification from the NYSE that the listed entity has a cure period of six months to regain compliance or be delisted, which could result in the entity’s units being traded on one of the over-the-counter markets.

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     In July 2014, the NYSE notified us that, as of and for the 30 consecutive trading days ended June 26, 2014, our minimum average closing price was $0.99 per unit. We then timely notified the NYSE that we intend to cure this deficiency. Under the NYSE rules, our common units will continue to be listed on the NYSE during the cure period, subject to our continued compliance with other listing requirements, which include but are not limited to maintaining a minimum market capitalization of $15.0 million over a period of 30 consecutive trading days.
     Our ability to cure the deficiency may be affected by events beyond our control, as may our ability to continue to maintain our market capitalization at a minimum of $15.0 million over a period of 30 consecutive trading days. If we are unable to again meet the requirement for a $1.00 per unit minimum average closing price or continue to maintain minimum market capitalization of $15.0 million, we would need to move our common units to trading on one of the over-the-counter markets.
As part of the Westmoreland transactions, we will effect a 12-to-1 reverse unit split, which we expect to substantially increase our unit price. Additionally, Westmoreland will be contributing certain assets in exchange for common units which we expect to increase our market capitalization. We expect these actions will enable us to cure the unit price deficiency.
Item 4.     Mine Safety Disclosures
     Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K for the quarter ended September 30, 2014 is included as Exhibit 95 to this Quarterly Report on Form 10-Q. 


Page 35

 


Item 6.     Exhibits
 
The exhibits listed in the Exhibit Index are incorporated herein by reference.

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.
 
Date: October 30, 2014
 
 
OXFORD RESOURCE PARTNERS, LP
 
By: OXFORD RESOURCES GP, LLC, its general partner
 
 
 
 
By: 
/s/ CHARLES C. UNGUREAN
 
 
Charles C. Ungurean
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
 
By: 
/s/ BRADLEY W. HARRIS
 
 
Bradley W. Harris
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)

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EXHIBIT INDEX
 
Exhibit
Number
Exhibit Description
3.1
Certificate of Limited Partnership of Oxford Resource Partners, LP (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Commission File No. 333-165662) filed on March 24, 2010).
3.2
Third Amended and Restated Agreement of Limited Partnership of Oxford Resource Partners, LP dated July 19, 2010 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (Commission File No. 001-34815) filed on July 19, 2010).
3.2A
First Amendment to Third Amended and Restated Limited Partnership Agreement of Oxford Resource Partners, LP dated June 24, 2013 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (Commission File No. 001-34815) filed on June 25, 2013).
3.3
Certificate of Formation of Oxford Resources GP, LLC (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-1 (Commission File No. 333-165662) filed on April 21, 2010)
3.4
Third Amended and Restated Limited Liability Company Agreement of Oxford Resources GP, LLC dated January 1, 2011 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (Commission File No. 001-34815) filed on January 4, 2011).
3.4A
First Amendment to Third Amended and Restated Limited Liability Company Agreement of Oxford Resources GP, LLC dated June 24, 2013 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (Commission File No. 001-34815) filed on June 25, 2013).
3.4B
First Amendment to Third Amended and Restated Limited Liability Company Agreement of Oxford Resources GP, LLC executed as of March 12, 2014 to be effective as of June 24, 2013, entered into to correct, clarify, supersede and replace in its entirety the First Amendment to Third Amended and Restated Limited Liability Company Agreement of Oxford Resources GP, LLC dated June 24, 2013 (incorporated by reference to Exhibit 3.4B to the Quarterly Report on Form 10-Q (Commission File No. 001-34815) filed on May 6, 2014).
10.34
Contribution Agreement, dated as of October 16, 2014, between Oxford Resource Partners LP and Westmoreland Coal Company (incorporated by reference to Annex B of the Preliminary Proxy Statement, filed on October 24, 2014).
10.35*
Membership Interests Redemption Agreement, effective as of October 1, 2014, among Oxford Mining Company, LLC, Harrison Resources, LLC and CONSOL of Ohio LLC.

31.1*
Certification of Charles C. Ungurean, President and Chief Executive Officer of Oxford Resources GP, LLC, the general partner of Oxford Resource Partners, LP, for the September 30, 2014 Quarterly Report on Form 10-Q, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Bradley W. Harris, Senior Vice President, Chief Financial Officer and Treasurer of Oxford Resources GP, LLC, the general partner of Oxford Resource Partners, LP, for the September 30, 2014 Quarterly Report on Form 10-Q, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Charles C. Ungurean, President and Chief Executive Officer of Oxford Resources GP, LLC, the general partner of Oxford Resource Partners, LP, for the September 30, 2014 Quarterly Report on Form 10-Q, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Bradley W. Harris, Senior Vice President, Chief Financial Officer and Treasurer of Oxford Resources GP, LLC, the general partner of Oxford Resource Partners, LP, for the September 30, 2014 Quarterly Report on Form 10-Q, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95*
Mine Safety Disclosures.
101*
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) our Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013; (ii) our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013; (iii) our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013; (iv) our Condensed Consolidated Statements of Partners’ (Deficit) Capital for the nine months ended September 30, 2014 and 2013; and (v) the notes to our Condensed Consolidated Financial Statements.
*     Filed herewith (or furnished, in the case of Exhibits 32.1 and 32.2).
 
 
i

Page 37




Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Charles C. Ungurean, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q (this “Report”) of the registrant, Oxford Resource Partners, LP;
2.
Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.
Based on my knowledge, the financial statements, and other financial information included in this Report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d.
Disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 30, 2014            By: /s/ CHARLES C. UNGUREAN                                                Charles C. Ungurean
President and Chief Executive Officer of Oxford Resources GP, LLC (the general partner of Oxford Resource Partners, LP)







Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Bradley W. Harris, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q (this “Report”) of the registrant, Oxford Resource Partners, LP;
2.
Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.
Based on my knowledge, the financial statements, and other financial information included in this Report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d.
Disclosed in this Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 30, 2014            By: /s/ BRADLEY W. HARRIS                                                    Bradley W. Harris
Senior Vice President, Chief Financial Officer and                                         Treasurer of Oxford Resources GP, LLC (the general                                         partner of Oxford Resource Partners, LP)







Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Oxford Resource Partners, LP (the “Partnership”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles C. Ungurean, President and Chief Executive Officer of Oxford Resources GP, LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:
•
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
•
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
Date: October 30, 2014            By: /s/ CHARLES C. UNGUREAN                                                Charles C. Ungurean
President and Chief Executive Officer of Oxford Resources GP, LLC (the general partner of Oxford Resource Partners, LP)
    
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate document. A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.







Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Oxford Resource Partners, LP (the “Partnership”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradley W. Harris, Senior Vice President, Chief Financial Officer and Treasurer of Oxford Resources GP, LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:
•
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
•
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
Date: October 30, 2014            By: /s/ BRADLEY W. HARRIS                                                    Bradley W. Harris
Senior Vice President, Chief Financial Officer and     
Treasurer of Oxford Resources GP, LLC (the general     
partner of Oxford Resource Partners, LP)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate document. A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.







Exhibit 95
Mine Safety Disclosure
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 104 of Regulation S-K, is included in this Exhibit 95.
For each coal mine for which we or a subsidiary of ours was an operator within the meaning of Section 3 of the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) during the third quarter of 2014, we include the following table that sets forth: (A) the total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under Section 104 of the Mine Act for which we received a citation from the Mine Safety and Health Administration (“MSHA”); (B) the total number of failure to abate orders issued under Section 104(b) of the Mine Act; (C) the total number of citations and orders for unwarrantable failure to comply with mandatory health or safety standards under Section 104(d) of the Mine Act; (D) the total number of flagrant violations under Section 110(b)(2) of the Mine Act; (E) the total number of imminent danger orders issued under Section 107(a) of the Mine Act; (F) the total dollar value of the proposed MSHA assessments under the Mine Act; and (G) the total number of mining-related fatalities.
In addition, no coal mine for which we or a subsidiary of ours was the operator received written notice from MSHA of a pattern of violations, or the potential to have such a pattern, of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under Section 104(e) of the Mine Act.
The total number of legal actions pending before the Federal Mine Safety and Review Commission (the “FMSR Commission”) as of September 30, 2014 was one (1). The aggregate number of legal actions during the period covered by this report instituted (either by MSHA or by us) was one (1) and resolved (meaning final order entered and not appealed) was one (1). Of the legal actions pending before the FMSR Commission as of September 30, 2014, the number of such legal actions that fall into each of the following categories was as follows: (a) contests of citations and orders: zero (0); (b) contests of proposed penalties: one (1); (c) complaints for compensation under Section 111 of the Mine Act: zero (0); (d) complaints of discharge, discrimination or interference under Section 105 of the Mine Act: zero (0); (e) applications for temporary relief under Section 105(b)(2) of the Mine Act: zero (0); and (f) appeals of judges' decisions or orders to the FMSR Commission: zero (0).


1




Oxford
Complex
MSHA
Mine
ID
MSHA Mine Name
(A)
Section
104
S&S
Citations
(#)
(B)

Section
104(b)
Orders
(#)
(C)
Section
104(d)
Citations & Orders
(#)
(D)

Section
110(b)(2)
Violations
(#)
(E)

Section
107(a)
Orders
(#)
(F)
Total Value of Proposed MSHA
Assessments1
($)
(G)



Fatalities
(#)
Muhlenberg
1518134
Halls Creek
—

—

—

—

—

—

—

1518912
Island Dock
—

—

—

—

—

—

—

1519365
Schoate Preparation Plant
—

—

—

—

—

—

—

1519452
Star
—

—

—

—

—

—

—

1519466
Rose France
—

—

—

—

—

—

—

1519655
Geibel
—

—

—

—

—

—

—

Belmont
3300965
Rice #1
—

—

—

—

—

—

—

3302937
Loading Dock
—

—

—

—

—

—

—

3303758
Valley Mining Inc.
Auger #1
—

—

—

—

—

—

—

Cadiz
3304413
Standing Stone Mine
—

—

—

—

—

—

—

3304414
Snyder Mine
—

—

—

—

—

$
100

—

3304538
Dairy Jean
1

—

—

—

—

$
560

—

4609067
Crosscreek Mine
—

—

—

—

—

—

—

Harrison
3304577
Harrison Resources, LLC Sexton 2 Pit
—

—

—

—

—

$
100

—

New Lexington
3304336
Oxford Mining #3
—

—

—

—

—

—

—

3304637
Athens
—

—

—

—

—

—

—

Noble
3303770
Rice #2
—

—

—

—

—

—

—

3304624
Oxford Guemsey
—

—

—

—

—

—

—

Plainfield
3303288
Rice #7
—

—

—

—

—

—

—

3303907
Conesville Plant
—

—

—

—

—

—

—

3304180
Coshocton Strip
—

—

—

—

—

—

—

3304213
Oxford Mining #2
—

—

—

—

—

—

—

Tuscarawas
3303930
Lisban Mine
—

—

—

—

—

—

—

3304179
Tuscarawas Strip
—

—

—

—

—

$
485

—

3304181
Stark Strip
—

—

—

—

—

—

—

     TOTAL
1

—

—

—

—

$
1,245

—

1 The total dollar value of proposed MSHA assessments is the amount issued during the current reporting period for all citations, orders or violations, not just those indicated herein, and does not necessarily relate to the citations, orders or violations issued by MSHA during the current reporting period or to the pending legal actions reported in Exhibit 95.

2