NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements (unaudited) include the accounts and operations of Westmoreland Resource Partners, LP (the “Partnership”) and its consolidated subsidiaries and have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and require the use of management’s estimates. The financial information contained in this Quarterly Report on Form 10-Q (“Quarterly Report”) is unaudited, but reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Certain prior-period amounts have been reclassified to conform with the financial statement line items used by Westmoreland Coal Company (“WCC”), the parent of our general partner Westmoreland Resources GP, LLC (the “GP”). The results of operations for the
nine
months ended
September 30, 2017
are not necessarily indicative of results to be expected for the year ending December 31, 2017.
These unaudited quarterly consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended
December 31, 2016
(“
2016
Form 10-K”). There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes to the consolidated financial statements thereto contained in our
2016
Form 10-K, except as described below.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842)
which requires companies leasing assets to recognize on their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on contracts longer than one year. The lessee is permitted to make an accounting policy election to not recognize lease assets and lease liabilities for short-term leases. How leases are recorded on the balance sheet represents a significant change from previous GAAP guidance as described in Accounting Standards Codification (“ASC”) Topic 840,
Leases
. ASU 2016-02 maintains a distinction between finance leases and operating leases similar to the distinction under previous lease guidance for capital leases and operating leases.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. Adoption of the new lease accounting standard will require the Partnership to apply the new standard to the earliest period using a modified retrospective approach. The Partnership is currently in the process of evaluating the impact of the new standard, including the evaluation of the impact, if any, on changes to business processes, systems and controls to support recognition and disclosure under the new guidance, however, at this time is unable to determine the impact this standard will have on the financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This standard is effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the effect adopting this guidance will have on our consolidated financial statements and footnote disclosures.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
which was issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The Partnership intends to adopt the amended guidance as of January 1, 2018.
In March, April, May, and December 2016, the FASB issued the following updates, respectively, to provide supplemental adoption guidance and clarification to ASU 2014-09. These standards must be adopted concurrently upon the adoption of ASU 2014-09. We are currently evaluating the potential effects of adopting the provisions of these updates.
|
|
•
|
ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
.
|
|
|
•
|
ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing
.
|
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
|
|
•
|
ASU 2016-12,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients
.
|
|
|
•
|
ASU 2016-19,
Technical Corrections and Improvements
.
|
We have established an implementation team to execute a multi-phase plan to adopt the requirements of the new standard. The team has finalized its conclusions on how the guidance will be applied to our coal sales contracts and the Partnership does not believe the implementation of the new standard will have a material impact on its consolidated financial statements. The team is continuing to evaluate the expanded disclosures required by the new standard and reviewing our system capabilities, processes, and internal controls over financial reporting to ensure the appropriate information will be available for these disclosures.
Under the new standard, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We will be adopting the standard under the full retrospective approach.
2. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
(In thousands)
|
Coal stockpiles
|
$
|
4,217
|
|
|
$
|
4,518
|
|
Materials and supplies
|
10,781
|
|
|
13,091
|
|
Reserve for obsolete inventory
|
(50
|
)
|
|
(50
|
)
|
Total
|
$
|
14,948
|
|
|
$
|
17,559
|
|
3. RESTRICTED INVESTMENTS
The Partnership invests certain bond collateral in a limited selection of fixed-income investment options and receives the investment returns on these investments. These investments are not available to meet the Partnership’s general cash needs. These investments include available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses excluded from earnings and reported in
Accumulated other comprehensive income (loss)
.
The carrying value and estimated fair value of our restricted investments were as follows:
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
7,994
|
|
|
$
|
8,581
|
|
Available-for-sale securities
|
31,214
|
|
|
29,160
|
|
|
$
|
39,208
|
|
|
$
|
37,741
|
|
Available-for-Sale Restricted Investments
The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
(In thousands)
|
Cost basis
|
$
|
31,050
|
|
|
$
|
29,349
|
|
Gross unrealized holding gains
|
431
|
|
|
167
|
|
Gross unrealized holding losses
|
(267
|
)
|
|
(356
|
)
|
Fair value
|
$
|
31,214
|
|
|
$
|
29,160
|
|
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
4. IMPAIRMENT CHARGES
In April 2016, we entered into an agreement to purchase
1.0 million
tons of coal (“purchased coal”) from a third party through December 31, 2017. The purchased coal has been used to fulfill specific customer sales orders under preexisting long-term sales agreements. As a result of the purchased coal agreement, we down-sized our work force and incurred a
$0.3 million
severance charge for the three months ended June 30, 2016 and an impairment charge on excess equipment of
$4.2 million
for the three months ended June 30, 2016. Impairment charges for the three months ended September 30, 2016 were
$3.2 million
on a shovel which was parted and scrapped. There were
no
impairment charges incurred for the nine months ended
September 30, 2017
.
5. DEBT AND LINES OF CREDIT
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
(In thousands)
|
Term Loan
|
$
|
311,628
|
|
|
$
|
306,189
|
|
Capital lease obligations
|
14,407
|
|
|
16,351
|
|
Other
|
430
|
|
|
589
|
|
Total debt outstanding
|
326,465
|
|
|
323,129
|
|
Less debt issuance costs
|
(3,445
|
)
|
|
(5,483
|
)
|
Less current installments
|
(4,220
|
)
|
|
(3,819
|
)
|
Total debt outstanding, less current installments
|
$
|
318,800
|
|
|
$
|
313,827
|
|
The following table presents remaining aggregate contractual debt maturities of all long-term debt:
|
|
|
|
|
|
September 30, 2017
|
|
(In thousands)
|
2017
|
$
|
1,660
|
|
2018
|
315,804
|
|
2019
|
4,105
|
|
2020
|
1,694
|
|
2021
|
1,586
|
|
Thereafter
|
1,616
|
|
Total debt
|
$
|
326,465
|
|
Credit Facilities
Covenant Compliance
Our lending arrangements contain, among other terms, events of default and various affirmative and negative covenants, financial covenants and cross-default provisions. We are in compliance with all covenants and conditions under our debt agreements as of September 30, 2017, and based on our quarterly projections, we anticipate that we will maintain compliance with the financial covenants and have sufficient liquidity to meet our obligations as they become due within one year after the date of the filing of this Quarterly Report. Continuing to meet our obligations and to comply with our financial covenants depends on our ability to generate adequate cash flows and refinance or extend the maturity of debt obligations as they become due. Certain affirmative covenants provide that an audit opinion on our consolidated financial statements that includes an explanatory paragraph expressing substantial doubt about the Partnership's ability to continue as a going concern constitutes an event of default, which would cause the term loan of the Partnership ("Term Loan") to become immediately due and payable. Should we be unable to comply with any future covenant, we will be required to seek a waiver of such covenant to avoid an event of default. Covenant waivers and modifications may be expensive to obtain, or, potentially, unavailable.
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
Term Loan
Pursuant to the financing agreement (“2014 Financing Agreement”), dated as of December 31, 2014, by and among Oxford Mining Company, LLC, the Partnership and each of its subsidiaries, lenders from time to time party thereto, and U.S. Bank National Association, as administrative agent, the Term Loan matures on December 31, 2018 and pays interest on a quarterly basis at a variable rate equal to the 3-month London Interbank Offered Rate (“LIBOR”) at each period end (
1.30%
as of
September 30, 2017
), subject to a floor of
0.75%
, plus
8.50%
or the reference rate, as defined in the 2014 Financing Agreement. As of
September 30, 2017
, the cash interest rate was
9.80%
. The Term Loan is a primary obligation of Oxford Mining Company, LLC, a wholly owned subsidiary of the Partnership, is guaranteed by the Partnership and its subsidiaries, and is secured by substantially all of the Partnership’s and its subsidiaries’ assets.
The 2014 Financing Agreement also provides for Paid-In-Kind Interest (“PIK Interest”) at a variable rate between
1.00%
and
3.00%
based on our consolidated total net leverage ratio, as defined in the 2014 Financing Agreement. The rate of PIK Interest is determined on a quarterly basis with the PIK Interest added quarterly to the then-outstanding principal amount of the Term Loan. PIK Interest under the 2014 Financing Agreement was
$2.3 million
and
$7.0 million
for the three and
nine months ended September 30, 2017
, respectively. The outstanding Term Loan amount as of
September 30, 2017
represents the principal balance of
$288.6 million
, plus PIK Interest of
$23.1 million
.
The 2014 Financing Agreement requires mandatory prepayment of principal with proceeds from the receipt of oil and gas royalties. During the
three and nine
months ended
September 30, 2017
, respectively, we paid down
$0.3 million
and
$1.5 million
of the Term Loan with such proceeds.
The 2014 Financing Agreement limits cash distributions to an aggregate amount not to exceed
$15.0 million
(“Restricted Distributions”), if we have: (i) a consolidated total net leverage ratio of greater than
3.75
, or fixed charge coverage ratio of less than
1.00
(as such ratios are defined in the 2014 Financing Agreement), or (ii) liquidity of less than
$7.5 million
, after giving effect to such cash distribution and applying our availability under the Revolver. As of
September 30, 2017
, our consolidated total net leverage ratio is in excess of
3.75
, and we have made
$14.8 million
in Restricted Distributions. With the declaration of distribution on
October 27, 2017
, we will have utilized the full
$15.0 million
limit on Restricted Distributions and we will be restricted from making any further distributions under the terms of the 2014 Financing Agreement unless we meet the above ratios and liquidity requirements.
Revolver
On October 23, 2015, the Partnership and its subsidiaries entered into a loan and security agreement with the lenders party thereto and Canadian Imperial Bank of Commerce (formerly known as The PrivateBank and Trust Company), as administrative agent (the "Revolver"), which permits borrowings up to the aggregate principal amount of
$15.0 million
, subject to borrowing base calculations as defined in the agreement and letters of credit in an aggregate outstanding amount of up to
$10.0 million
, which reduces availability under the Revolver on a dollar-for-dollar basis. At
September 30, 2017
, availability under the Revolver was
$14.8 million
. The Revolver contains the same limitations on Restricted Distributions as described above under the 2014 Financing Agreement. The Revolver has a maturity date of December 31, 2017.
Capital Lease Obligations
The Partnership engages in leasing transactions for equipment utilized in its mining operations. The Partnership did not enter into any new capital leases during the
nine
months ended
September 30, 2017
.
6. DISTRIBUTIONS OF AVAILABLE CASH
We distribute
100%
of our available cash within
45
days after the end of each quarter to unitholders of record and to our GP, subject to the conditions and limitations within the 2014 Financing Agreement and the loan and security agreement governing the Revolver. Available cash is determined at the end of each quarter and is generally defined in the Partnership’s Fourth Amended and Restated Agreement of Limited Partnership, as amended (the “Partnership Agreement”), as all cash and cash equivalents on hand at the end of each quarter less reserves established by our GP in its reasonable discretion for future cash requirements. These reserves are retained to provide for the conduct of our business, the payment of debt principal and interest, to provide funds for future distributions for any one or more of the next four quarters, and to comply with applicable law. Our available cash may also include, if our GP so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
We made cash distributions as follows (in thousands):
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Limited partner common units
|
$
|
171
|
|
|
$
|
1,148
|
|
|
$
|
505
|
|
|
$
|
3,438
|
|
Series A convertible units
|
—
|
|
|
3,132
|
|
|
—
|
|
|
6,263
|
|
General partner units
|
5
|
|
|
8
|
|
|
15
|
|
|
23
|
|
Warrants
|
22
|
|
|
33
|
|
|
66
|
|
|
99
|
|
Both our 2014 Financing Agreement and loan and security agreement governing the Revolver restrict us from making cash distributions in excess of
$15.0 million
in the aggregate when certain ratios and liquidity requirements are not met. As of
September 30, 2017
, one of these ratios was not met, and we do not foresee it being met in the near future. As of
September 30, 2017
, we have made
$14.8 million
in Restricted Distributions. On
October 27, 2017
, we announced a quarterly cash distribution for the quarter ended
September 30, 2017
("Third Quarter Distribution"), of
$0.1155
per limited partner common unit, general partner unit and warrant with distribution rights. This
$0.1155
distribution is a per-unit reduction of
$0.0178
from the prior quarter distribution of
$0.1333
per limited partner common unit, general partner unit and warrant with distribution rights as a result of our cumulative distributions exhausting the
$15.0 million
in allowed Restricted Distributions. The cash distribution totaling approximately
$0.2 million
will be paid on
November 14, 2017
to all common unitholders and warrant holders of record as of
November 7, 2017
. Additionally, we declared a paid-in-kind unit distribution of
$0.1155
per Series A Convertible Unit. If we are unable to either refinance or modify our Term Loan or meet the required ratios noted in
Note 5. Debt And Lines Of Credit
to the consolidated financial statements (unaudited), we will no longer be permitted to make Restricted Distributions, including any cash distributions to WCC, subsequent to payment of the Third Quarter Distribution.
7. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. For other fair value disclosures, see also
Note 3. Restricted Investments
to the consolidated financial statements (unaudited).
|
|
•
|
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets.
|
|
|
•
|
Level 2, defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
The book values of cash and cash equivalents, receivables and accounts payable are considered to be representative of their respective fair values because of the immediate short-term maturity of these financial instruments.
In connection with our refinancing in June 2013, certain of the second lien lenders and lender affiliates received warrants entitling them to purchase common units. The warrants are measured at fair value at each balance sheet date. As of
September 30, 2017
, the fair value of each warrant was
$2.85
, based on the following: spot price of
$2.97
per unit as traded on the New York Stock Exchange, with an exercise price of
$0.12
per unit. The fair value of the warrants are a Level 1 measurement.
Long-term debt fair value estimates are based on observed prices for securities with an active trading market when available (Level 2) and otherwise using discount rate estimates based on interest rates (Level 3). As of
September 30, 2017
, the Partnership valued the Term Loan with Level 3 fair values. The estimated fair values of the Partnership’s debt with fixed and variable interest rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Interest Rate
|
|
Variable Interest Rate
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
(In thousands)
|
September 30, 2017
|
$
|
14,837
|
|
|
$
|
14,837
|
|
|
$
|
308,183
|
|
|
$
|
210,349
|
|
December 31, 2016
|
16,940
|
|
|
16,940
|
|
|
300,706
|
|
|
277,867
|
|
8. UNIT-BASED COMPENSATION
We grant employees and non-employee directors restricted common units under our Long-Term Incentive Plan (“LTIP”). We recognized compensation expense from unit-based arrangements as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(In thousands)
|
Recognition of fair value of restricted common units over the vesting period
|
$
|
83
|
|
|
$
|
63
|
|
|
$
|
164
|
|
|
$
|
190
|
|
A summary of restricted common unit award activity for the
nine
months ended
September 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted Average Grant-Date Fair Value
|
|
Unamortized Compensation Expense
(In thousands)
|
Unvested balance at December 31, 2016
|
63,780
|
|
|
$
|
3.92
|
|
|
|
Granted
|
82,240
|
|
|
3.04
|
|
|
|
Vested
|
(63,780
|
)
|
|
3.92
|
|
|
|
Unvested balance at September 30, 2017
|
82,240
|
|
|
$
|
3.04
|
|
|
$
|
128
|
|
9. 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, 2017
, the remaining terms of our long-term contracts range from
one
to
nine
years.
Purchase Commitments
In April 2016, we entered into a fixed price agreement to purchase
1.0 million
tons of coal from a third party through December 31, 2017. Through
September 30, 2017
we have purchased
0.9 million
coal tons under the purchase commitment.
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.
Litigation
There have been no material changes in our litigation since
December 31, 2016
. For additional information, refer to
Note
21. Commitments and Contingencie
s to the consolidated financial statements of our
2016
Form 10-K.
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
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.
10. PARTNERS' CAPITAL AND CONVERTIBLE UNITS
Our capital accounts are comprised of approximately
0.15%
beneficial general partner interests and
99.85%
limited partner interests as of
September 30, 2017
. Our limited partners have limited rights of ownership as provided for under our Partnership Agreement and the right to participate in our distributions. Our GP manages our operations and participates in our distributions, including certain incentive distributions pursuant to the incentive distribution rights, which are nonvoting limited partner interests held by our GP. Pursuant to our Partnership Agreement, our GP participates in losses and distributions based on its interest. The GP’s participation in the allocation of losses and distributions is not limited and therefore, such participation can result in a deficit to its capital account. Allocation of losses and distributions, including distributions for previous transactions between entities under common control, has resulted in a deficit to certain limited partners’ capital accounts included in our consolidated balance sheets.
Series A Convertible Units
WCC, the owner of our GP, holds and participates in distributions on our Series A Convertible Units. Series A Convertible Units have the right to share in distributions from us on a pro-rata basis with the common units. All or any portion of each distribution payable in respect to the Series A Convertible Units (the “Series A Convertible Unit Distribution”) may, at our Board of Directors’ ("Board") election, be paid in Series A paid-in-kind Units (“Series A PIK Units”). To the extent any portion of the Series A Convertible Unit Distribution is paid in Series A PIK Units for any quarter, the distribution to the holders of incentive distribution rights shall be reduced by that portion of the distribution that is attributable to the payment of those Series A PIK Units. The Series A Convertible Units will convert into common units, on a
one
-for-one basis, at the earlier of the date on which we first make a regular quarterly cash distribution with respect to any quarter to holders of common units in an amount at least equal to
$0.22
per common unit or upon a change of control. The Series A Convertible Units have the same voting rights as if they were outstanding common units and will vote together with the common units as a single class. In addition, the Series A Convertible Units are entitled to vote as a separate class on any matters that materially adversely affect the rights or preferences of the Series A Convertible Units in relation to other classes of partnership interests or as required by law.
Series B Convertible Units
On October 28, 2016, we issued
4,512,500
Series B Convertible Units representing limited partner interests in the Partnership (the “Series B Units”) to WCC in exchange for WCC’s
4,512,500
common units (the “Exchange”). Upon issuance of the Series B Units in the Exchange, WCC’s common units were canceled. The Series B Units do not share in distributions with the common units and are convertible at the option of the holder on a
one
-for-one basis into common units on the day after the record date for a cash distribution on the common units in which the Partnership is unable to make such a distribution without exceeding its restricted payment basket under the 2014 Financing Agreement. The Series B Units will convert automatically upon a change of control or a dissolution or liquidation of the Partnership. The Series B Units have the same voting rights as if they were outstanding common units and will vote together with the common units as a single class. In addition, the Series B Units are entitled to vote as a separate class on any matters that materially adversely affect the rights or preferences of the Series B Units in relation to other classes of partnership interests or as required by law. Concurrently with the Exchange, we entered into Amendment No. 2 to the Partnership Agreement, which established the terms of the Series B Units.
Liquidation Units
All subordinated units were transferred to WCC in connection with our GP being acquired on December 31, 2014. These units were then converted to liquidation units which have no distribution or voting rights, other than in connection with liquidation. For tax purposes, liquidation units are allocated additional taxable income but no additional taxable loss compared to other unit classes.
Warrants
In June 2013, in connection with a prior credit facility, certain lenders and lender affiliates received warrants entitling them to purchase
166,557
common units at
$0.12
per unit. The warrants participate in distributions whether or not exercised.
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
Outstanding Units
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Limited partner common units
|
1,284,840
|
|
|
1,221,060
|
|
Series A convertible units
|
16,793,429
|
|
|
15,656,551
|
|
Series B convertible units
|
4,512,500
|
|
|
4,512,500
|
|
Liquidation units
|
856,698
|
|
|
856,698
|
|
Warrants
|
166,557
|
|
|
166,557
|
|
General partner units
|
35,291
|
|
|
35,291
|
|
Net Income (Loss) Attributable to Limited Partners
Net income (loss) is allocated to the GP and the limited partners in accordance with their respective ownership percentages, after giving effect to distributions and declared distributions on Series A Convertible Units, and General Partner units, including incentive distribution rights. Basic and diluted limited partners’ net income (loss) per common unit is calculated by dividing limited partners’ interest in net income (loss) by the weighted average number of outstanding limited partner units during the period. We determined basic and diluted limited partners’ net loss per common unit as follows (in thousands, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net loss attributable to the Partnership
|
$
|
(1,360
|
)
|
|
$
|
(4,276
|
)
|
|
$
|
(12,528
|
)
|
|
$
|
(27,557
|
)
|
Less:
|
|
|
|
|
|
|
|
Paid and declared distributions on Series A convertible units
|
1,940
|
|
|
2,087
|
|
|
6,302
|
|
|
8,349
|
|
Series A convertible units share of undistributed loss
|
(2,573
|
)
|
|
(4,789
|
)
|
|
(14,311
|
)
|
|
(28,106
|
)
|
Series B convertible units share of undistributed loss
|
(695
|
)
|
|
—
|
|
|
(3,947
|
)
|
|
—
|
|
Paid and declared distributions on General Partner units
|
4
|
|
|
8
|
|
|
14
|
|
|
23
|
|
General Partner units share of undistributed loss
|
(6
|
)
|
|
(11
|
)
|
|
(31
|
)
|
|
(63
|
)
|
Paid and declared distributions on Warrants
|
19
|
|
|
22
|
|
|
63
|
|
|
88
|
|
Net loss available to limited partners
|
$
|
(49
|
)
|
|
$
|
(1,593
|
)
|
|
$
|
(618
|
)
|
|
$
|
(7,848
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of common units used in computation of Limited Partners' net loss per common unit (basic and diluted)
|
1,285
|
|
|
5,900
|
|
|
1,271
|
|
|
5,895
|
|
Limited Partners' net loss per common unit (basic and diluted)
|
$
|
(0.04
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(1.33
|
)
|
11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table reflects the changes in accumulated other comprehensive income (loss) arising from our available-for-sale securities (net of tax):
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
(In thousands)
|
Balance at December 31, 2016
|
$
|
(189
|
)
|
Other comprehensive income before reclassification
|
362
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(9
|
)
|
Balance at September 30, 2017
|
$
|
164
|
|
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the
three and nine
months ended
September 30, 2017
:
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONT.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from accumulated other comprehensive income (loss)
|
|
Affected line item in the statements where presented
|
Details about accumulated other comprehensive income (loss) components
|
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
|
|
|
(In thousands)
|
|
Realized gains on available-for-sale securities
|
|
$
|
(23
|
)
|
|
$
|
(9
|
)
|
|
Other income
|
12. RELATED PARTY TRANSACTIONS
In 2015, the Partnership and the GP entered into an administrative and operational services agreement (the “Services Agreement”). The Services Agreement is terminable by either party upon
120
days’ written notice prior to the end of any fiscal year. Under the terms of the Services Agreement, our GP provides services through its employees, or employees of its affiliates, to us and is reimbursed for all related costs incurred on our behalf. Pursuant to the Services Agreement, the Partnership engaged the GP to continue providing services such as general administrative and management, engineering, operations (including mining operations), geological, corporate development, real property, marketing, and other services to the Partnership. Administrative services include without limitation legal, finance and accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit and tax. Under the Services Agreement the Partnership pays the GP a fixed annual management fee of
$2.2 million
for certain executive and administrative services and reimburses the GP at cost for other expenses. Pursuant to Amendment 3 to the Services Agreement dated September 29, 2017, the current terms of the Services Agreement expires on March 31, 2018, and automatically renews for successive
one year
periods unless terminated. The primary reimbursements to our GP under the Service Agreement during the
three and nine
months ended
September 30, 2017
were for employee-related costs. Reimbursable costs under the Services Agreement totaling
$1.2 million
and
$2.7 million
were included in accounts payable as of
September 30, 2017
and December 31,
2016
, respectively. In December 2016, the Partnership prepaid the GP for the 2017 annual management fee of
$2.2 million
, of which
$0.5 million
was included in
Other current assets
at
September 30, 2017
.
On January 9, 2017, the Partnership acquired surface coal reserves (“Johnson Run”) through conveyance of leases and recoupable advance royalty payments from Buckingham Coal Company, LLC, a wholly owned subsidiary of WCC, for
$1.7 million
.
Finally, we sold coal to a subsidiary of WCC, which generated
$3.2 million
and
$15.3 million
in revenues for the
three and nine
months ended
September 30, 2017
, respectively, and
$6.2 million
and
$20.5 million
in revenues for the
three and nine
months ended
September 30, 2016
, respectively.
13. SEGMENT INFORMATION
We operate in
one
business segment. We operate surface coal mines in Ohio and Wyoming, selling high-value thermal coal to utilities, industrial customers, municipalities and other coal-related entities primarily in the Midwest and Wyoming. All of our operations have similar economic characteristics including but not limited to coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. Our operating and executive management makes its decisions based on consolidated reports. Our Ohio operating subsidiaries share customers and a particular customer may receive coal from any one of such Ohio operating subsidiaries. We also lease or sublease coal reserves to others through our Ohio operations in exchange for a per ton royalty rate.
14. SUBSEQUENT EVENTS
The Partnership has evaluated subsequent events in accordance with ASC 855,
Subsequent Events
, through the filing date of this Quarterly Report, and determined that no events have occurred that have not been disclosed elsewhere in the notes to the consolidated financial statements (unaudited) that would require adjustments to disclosures in the consolidated financial statements (unaudited).