Table of Contents

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, 2016
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 001-34815

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

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

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

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

As of November 1, 2016 , 1,221,060 common units representing limited partner interests in our Partnership (the “common units”) were outstanding. The common units trade on the New York Stock Exchange under the ticker symbol “WMLP.” 

Table of Contents

TABLE OF CONTENTS  
 
PAGE
 

Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 
September 30,
2016
 
December 31, 2015
 
(In thousands)
Assets
 
Current assets:
 
 
 
Cash
$
8,866

 
$
3,710

Receivables
38,752

 
32,552

Inventories
18,531

 
23,630

Assets held for sale
1,128

 
—

Other current assets
4,413

 
4,650

Total current assets
71,690

 
64,542

Property, plant and equipment:
 
 
 
Land and mineral rights
109,650

 
104,600

Plant and equipment
255,212

 
258,877

 
364,862

 
363,477

Less accumulated depreciation, depletion and amortization
(120,169
)
 
(85,836
)
Net property, plant and equipment
244,693

 
277,641

Advanced coal royalties
7,816

 
10,082

Restricted investments
37,765

 
34,526

Intangible assets, net of accumulated amortization of $3.6 million and $2.1 million, respectively
27,383

 
28,933

Deposits and other assets
720

 
1,554

Total Assets
$
390,067

 
$
417,278

Liabilities and Partners’ Capital
 
Current liabilities:
 
 
 
Current installments of long-term debt
$
3,330

 
$
2,563

Accounts payable and accrued expenses:
 
 
 
Trade
13,929

 
23,132

Deferred revenue
2,301

 
—

Production taxes
18,406

 
16,586

Asset retirement obligations
18,238

 
14,075

Other current liabilities
3,208

 
3,998

Total current liabilities
59,412

 
60,354

Long-term debt, less current installments
312,586

 
298,814

Asset retirement obligations, less current portion
39,204

 
42,559

Other liabilities
2,668

 
2,397

Total liabilities
413,870

 
404,124

Partners’ capital (deficit):
 
 
 
Limited partners (5,733,560 and 5,711,630 units outstanding as of September 30, 2016 and December 31, 2015, respectively)
(13,905
)
 
(3,176
)
Series A Convertible Units (15,656,551 and 15,251,989 units outstanding as of September 30, 2016 and December 31, 2015, respectively)
(43,154
)
 
(16,760
)
General partner (35,291 units outstanding as of September 30, 2016 and December 31, 2015, respectively)
33,293

 
33,360

Accumulated other comprehensive loss
(37
)
 
(270
)
Total Westmoreland Resource Partners, LP (deficit) capital
(23,803
)
 
13,154

Total liabilities and partners’ capital
$
390,067

 
$
417,278

See accompanying notes to consolidated financial statements. 

Table of Contents

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per unit data)
Revenues:
 
 
 
 
 
 
 
Coal revenues
$
89,576

 
$
93,000

 
$
260,232

 
$
288,827

Non-coal revenues
733

 
1,327

 
3,026

 
8,178

Total revenues
90,309

 
94,327

 
263,258

 
297,005

Costs and expenses:
 
 
 
 
 
 
 
Cost of coal revenues
65,822

 
77,625

 
199,707

 
238,671

Cost of non-coal revenues
127

 
234

 
403

 
3,624

Depreciation, depletion and amortization
11,554

 
15,471

 
41,366

 
44,281

Selling and administrative
3,178

 
4,039

 
9,290

 
12,885

Loss on sales of assets
302

 
1,334

 
1,938

 
3,035

Restructuring and impairment charges
3,366

 
—

 
8,067

 
656

Total cost and expenses
84,349

 
98,703

 
260,771

 
303,152

Operating income (loss)
5,960

 
(4,376
)
 
2,487

 
(6,147
)
Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(10,438
)
 
(8,731
)
 
(30,533
)
 
(20,674
)
Interest income
216

 
187

 
635

 
707

Other income
68

 
2

 
122

 
224

Change in fair value of warrants
(82
)
 
308

 
(268
)
 
785

Total other expenses
(10,236
)
 
(8,234
)
 
(30,044
)
 
(18,958
)
Loss before income taxes
(4,276
)
 
(12,610
)
 
(27,557
)
 
(25,105
)
Income tax expense
—

 
(112
)
 
—

 
(157
)
Net loss
(4,276
)
 
(12,722
)
 
(27,557
)
 
(25,262
)
Less net (loss) income allocated to general partner
(7
)
 
135

 
(44
)
 
4,189

Net loss allocated to limited partners
$
(4,269
)
 
$
(12,857
)
 
$
(27,513
)
 
$
(29,451
)
 
 
 
 
 
 
 
 
Net loss per common limited partner unit:
 
 
 
 
 
 
 
Basic and diluted
$
(0.27
)
 
$
(1.30
)
 
$
(1.33
)
 
$
(4.12
)

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

 
5,878,187

 
5,894,737

 
5,878,187


 
 
 
 
 
 
 
Cash distribution paid per common limited partner unit
$
0.20

 
$
0.20

 
$
0.60

 
$
0.40

Cash distribution paid per Series A convertible common unit
0.20

 
—

 
0.40

 
—

Cash distribution paid per general partner unit
0.20

 
0.20

 
0.60

 
0.40


See accompanying notes to consolidated financial statements. 

4
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WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net loss
$
(4,276
)
 
$
(12,722
)
 
$
(27,557
)
 
$
(25,262
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized and realized (loss) gain on available-for-sale securities
(29
)
 
(251
)
 
233

 
(751
)
Transferred to WCC
—

 
160

 
—

 
660

Other comprehensive (loss) income
(29
)
 
(91
)
 
233

 
(91
)
Comprehensive loss attributable to the Partnership
$
(4,305
)
 
$
(12,813
)
 
$
(27,324
)
 
$
(25,353
)
See accompanying notes to consolidated financial statements. 


5
Table of Contents

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

 
$
(3,176
)
 
15,251,989

 
$
(16,760
)
 
856,698

 
$
—

 
21,820,317

 
$
(19,936
)
 
35,291

 
$
33,360

 
$
(270
)
 
$
13,154

Net loss
—

 
(7,382
)
 
—

 
(20,131
)
 
—

 
—

 
—

 
(27,513
)
 
—

 
(44
)
 
—

 
(27,557
)
Equity-based compensation
—

 
190

 
—

 
—

 
—

 
—

 
—

 
190

 
—

 
—

 
—

 
190

Issuance of units to LTIP participants
21,930

 
—

 
—

 
—

 
—

 
—

 
21,930

 
—

 
—

 
—

 
—

 
—

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
233

 
233

Paid-in-kind Series A convertible unit distribution
—

 
—

 
404,562

 
—

 
—

 
—

 
404,562

 
—

 
—

 
—

 
—

 
—

Cash distribution to unitholders
—

 
(3,537
)
 
—

 
(6,263
)
 
—

 
—

 
—

 
(9,800
)
 
—

 
(23
)
 
—

 
(9,823
)
Balance at September 30, 2016
5,733,560

 
$
(13,905
)
 
15,656,551

 
$
(43,154
)
 
856,698

 
$
—

 
22,246,809

 
$
(57,059
)
 
35,291

 
$
33,293

 
$
(37
)
 
$
(23,803
)
 
See accompanying notes to consolidated financial statements. 

6
Table of Contents

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


 
Nine Months Ended September 30,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(27,557
)
 
$
(25,262
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
41,366

 
44,281

Accretion of asset retirement obligations
4,209

 
3,795

Restructuring and impairment charges
8,067

 
656

Non-cash interest expense
6,879

 
4,617

Amortization of debt issuance costs
1,953

 
1,483

Other
2,396

 
2,490

Changes in operating assets and liabilities:
 
 
 
Receivables, net
(6,200
)
 
5,937

Inventories
5,099

 
76

Accounts payable and accrued expenses
(9,100
)
 
(6,392
)
Accrued interest expense
241

 
1,909

Deferred revenue
2,301

 
(2,513
)
Asset retirement obligations
(7,413
)
 
(4,584
)
Other assets and liabilities
3,201

 
2,338

Net cash provided by operating activities
25,442

 
28,831

Cash flows from investing activities:
 
 
 
Additions to property, plant, equipment and other
(4,780
)
 
(11,596
)
Advance coal royalties payments
(33
)
 
(3,284
)
Change in restricted investments
(2,977
)
 
38

Net proceeds from sales of assets
498

 
308

Cost of acquisition
—

 
(115,000
)
Net cash used in investing activities
(7,292
)
 
(129,534
)
Cash flows from financing activities:
 
 
 
Borrowings from long-term debt
—

 
120,937

Repayments of long-term debt
(3,171
)
 
(9,096
)
Debt issuance costs and other refinancing costs
—

 
(3,196
)
Cash distributions to unitholders
(9,823
)
 
(2,367
)
Net cash (used in) provided by financing activities
(12,994
)
 
106,278

Net increase in cash
5,156

 
5,575

Cash, beginning of the period
3,710

 
6,004

Cash, end of the period
$
8,866

 
$
11,579

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
21,460

 
$
12,710

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

 
5,065

Asset retirement obligations capitalized in mine development
4,273

 
3,778

Fair value of Series A Units in excess of net assets received
—

 
115,000

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

 
—

 See accompanying notes to consolidated financial statements.

7
Table of Contents

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

1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts and operations of Westmoreland Resource Partners, LP, or the Partnership, and its consolidated subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and require the use of management’s estimates. The financial information contained in this Quarterly Report on Form 10-Q is unaudited, but reflects all adjustments which in the opinion of management are necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016.
These unaudited quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). There were no changes to our significant accounting policies from those disclosed in the audited consolidated financial statements and notes thereto contained in our 2015 Form 10-K, except as described below.
On August 1, 2015, Westmoreland Coal Company (“WCC”), who owns and controls the Westmoreland Resources GP, LLC (“GP”), the general partner of Westmoreland Resource Partners, LP, contributed 100% of the outstanding equity interests in Westmoreland Kemmerer, LLC (“WKL”) to the Partnership (the “Kemmerer Drop”). The Kemmerer Drop was accounted for as a reorganization of entities under common control in accordance with the provisions of Accounting Standards Codification (“ASC”) 805-50, which requires that the transaction be presented as though it occurred at the beginning of the period, and prior years retrospectively adjusted to furnish comparative information similar to the pooling method. Accordingly, our financial statements give retrospective effect to the Kemmerer Drop for periods as of and subsequent to December 31, 2014, the earliest point of common control. Information about our acquisition and the accounting for the Kemmerer Drop is in Note 1, “ Organization and Presentation ” and Note 3, “ Acquisition and Pushdown Accounting ,” in our 2015 Form 10-K.
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We adopted this standard on January 1, 2016 and retrospectively applied the guidance to prior periods.
Accounting Pronouncements Effective in the Future
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , issued as a new Topic, ASU Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to fiscal years beginning after December 15, 2017. The Partnership can either adopt these standards retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows and financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in ASU 2016-02 require companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations generated by contracts longer than one year. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The guidance is required to be applied by the modified retrospective transition approach. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows and financial position.



8
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Reclassifications
Certain prior-year amounts have been reclassified in our condensed statements of operations and statements of cash flows for the nine months ended September 30, 2015 to conform with the financial statement line items used by our GP's parent, WCC.
2. INVENTORIES
Inventories consisted of the following:
 
September 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Coal stockpiles
$
4,266

 
$
5,683

Fuel inventories
1,589

 
1,953

Materials and supplies
12,993

 
16,311

Reserve for obsolete inventory
(317
)
 
(317
)
Total
$
18,531

 
$
23,630

3. RESTRICTED INVESTMENTS
The Partnership invests certain bond collateral in a limited selection of fixed-income investment options and receives the investment returns on these investments. These investments are not available to meet the Partnership’s general cash needs.
These 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,
 
December 31,
 
2016
 
2015
 
(In thousands)
Cash and cash equivalents
$
7,156

 
$
7,409

Available-for-sale securities
30,609

 
27,117

 
$
37,765

 
$
34,526

Available-for-Sale Restricted Investments
The cost basis, gross unrealized holding gains and losses and fair value of available-for-sale securities were as follows:
 
September 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Cost basis
$
30,584

 
$
27,387

Gross unrealized holding gains
296

 
74

Gross unrealized holding losses
(271
)
 
(344
)
Fair Value
$
30,609

 
$
27,117



9
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. RESTRUCTURING AND IMPAIRMENT CHARGES
Restructuring Charges
Concurrent with WCC’s acquisition of the GP and approximately 79.1% of our limited partner interests completed in December 2014 (collectively, the “WCC Transactions”), we and WCC initiated a restructuring plan to streamline operations and eliminate duplicative roles and responsibilities across the two organizations. Total restructuring charges which concluded in the third quarter of 2015 related to the WCC Transactions of $3.4 million have been recorded to the restructuring and impairment expense line item within our consolidated statements of operations.
The table below represents the restructuring provision activity related to the restructuring plan:
 
WCC Transactions Restructuring Plan
 
(In thousands)
Balance, December 31, 2014
$
2,783

Restructuring Charges
656

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

Restructuring Charges
—

Cash Payments
(128
)
Balance, September 30, 2016
$
—

Impairment Charges
In April 2016, we entered into an agreement (the “Purchase Coal Agreement”) to purchase 1.0 million tons of coal (“Purchased Coal”) from a third party through December 31, 2017. The Purchased Coal will be used to fulfill specific customer sales orders under preexisting long-term sales agreements. As a result of the Purchased Coal Agreement, we down-sized our work force and incurred and paid $0.3 million severance charge during 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 during the three months ended September 30, 2016 . We intend to market and sell the excess equipment and have reflected the expected amount to be recovered, based on prices for similar assets, as “Assets held for sale” on the consolidated balance sheet.
5. LONG-TERM DEBT
Debt consisted of the following:
 
September 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Term loan facility
$
304,757

 
$
299,248

Capital lease obligations
16,686

 
9,351

Other
640

 
790

Total debt outstanding
322,083

 
309,389

Less debt issuance costs
(6,167
)
 
(8,012
)
Less current installments
(3,330
)
 
(2,563
)
Total debt outstanding, less current installments
$
312,586

 
$
298,814




10
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



The following table presents aggregate contractual debt maturities of all long-term debt:  
 
September 30,
 
2016
 
(In thousands)
2016
667

2017
3,712

2018
308,936

2019
4,243

2020
1,834

Thereafter
2,691

Total
$
322,083


Credit Facilities
On December 31, 2014, we entered into a Financing Agreement with the lenders party thereto and U.S. Bank National Association, as administrative and collateral agent (the “2014 Financing Agreement”). As of September 30, 2016 , we had a term loan of $304.8 million outstanding under the 2014 Financing Agreement. Borrowings on such term loan bear interest at a variable rate per annum equal to, at our option, the London Interbank Offered Rate (“LIBOR”) (floor of 0.75% plus 8.5% ) or the Reference Rate (as defined in the 2014 Financing Agreement). As of September 30, 2016 , the 2014 Financing Agreement had a cash interest rate of 9.25% , consisting of the LIBOR floor ( 0.75% ) plus 8.5% . The term loan under the 2014 Financing Agreement matures in December 2018 .
The 2014 Financing Agreement also provides for “PIK Interest” (as defined in the 2014 Financing Agreement) at a variable rate per annum between 1.00% and 3.00% based on our Consolidated Total Net Leverage Ratio (as defined in the 2014 Financing Agreement). The rate of PIK Interest is recalculated on a quarterly basis with the PIK Interest added quarterly to the then-outstanding principal amount of the term loan under the 2014 Financing Agreement. PIK Interest under the 2014 Financing Agreement was $2.3 million and $6.9 million for the three and nine months ended September 30, 2016 . The outstanding term loan amount represents the principal balance of $291.0 million , plus PIK Interest of $13.7 million .
During the three and nine months ended September 30, 2016 , we paid down $0.9 million and $1.4 million of the term loan under the 2014 Financing Agreement with proceeds from oil and gas royalties and right-of-way payments received. The 2014 Financing Agreement requires mandatory prepayment of principal with proceeds from such events.
In connection with the Kemmerer Drop, we amended the 2014 Financing Agreement on July 31, 2015 to (i) allow us to make cash distributions in an aggregate amount not to exceed $15.0 million (previously $7.5 million ) when our Consolidated Total Net Leverage ratio is more than 3.75 or Fixed Charge Coverage ratio is less than 1.00 (as such ratios are defined in the 2014 Financing Agreement) and (ii) at any time that we have a revolving loan facility available, require us to have liquidity of at least  $7.5 million  (previously  $5.0 million ), after giving effect to such cash distributions and applying availability under such revolving loan facility towards satisfying the liquidity requirement (“Restricted Distributions”). As of September 30, 2016 , we have made $14.1 million in Restricted Distributions.
As of September 30, 2016 , we were in compliance with all covenants under the terms of the 2014 Financing Agreement.
On October 23, 2015, WMLP and its subsidiaries entered into a loan and security agreement (the “Revolving Credit Facility”) with the lenders party thereto and The PrivateBank and Trust Company, as administrative agent, which permits borrowings up to the aggregate principal amount of  $15.0 million  and letters of credit in an aggregate outstanding amount of up to  $10.0 million , which reduces availability under the Revolving Credit Facility on a dollar-for-dollar basis. The Revolving Credit Facility contains the same terms as the 2014 Financing Agreement regarding Restricted Distributions. At September 30, 2016 , availability under the Revolving Credit Facility was $15.0 million .

11
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Deferred Financing Costs
Due to the adoption of ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, debt issuance costs related to our debt liabilities are now reported in the balance sheet as a direct deduction from the face amount of the notes. This change in accounting principle had the effect of reducing the non-current asset, Deposits and other assets and non-current liability, Long-term debt, less current installments , by $ 8.0 million as of December 31, 2015.
Capital Leases
During the nine months ended September 30, 2016 , we entered into $9.3 million of new capital leases.
6. POSTRETIREMENT MEDICAL BENEFITS, PENSION AND OTHER SAVING PLANS
Immediately prior to the Kemmerer Drop and in accordance with the Amended and Restated Contribution Agreement, dated July 31, 2015, between the Partnership and WCC (the “Contribution Agreement”), all employees of WKL were transferred to WCC. On August 1, 2015, WCC assumed all liabilities, including the pension assets, associated with the transferred employees, including but not limited to all post-retirement pension, medical, other benefits and the related deferred income tax assets and liabilities, which were not contributed as part of the transaction.
Prior to August 1, 2015, WKL provided postretirement medical benefits and a defined benefit pension plan to qualified full-time employees pursuant to collective bargaining agreements. The postretirement medical benefits were provided through self-insurance programs. The pension benefits are generally based on years of service and a specific dollar amount per year of service as specified in the plan agreement. As the Kemmerer Drop is accounted for as a transfer of net assets between entities under common control, our consolidated financial statements include the historical results of WKL, including postretirement medical expense, pension expense and income taxes, for the periods while under common control prior to the Kemmerer Drop (period of December 31, 2014 through August 1, 2015). In accordance with the Contribution Agreement, subsequent to the Kemmerer Drop, WCC, in compliance with the services agreement with our GP, as amended through the date hereof (the “Services Agreement”), and the Partnership’s fourth amended and restated partnership agreement, as amended (the “Partnership Agreement”), will allocate expenses incurred for postretirement medical liabilities and pension liabilities attributable to the transferred employees on a cash basis through the period ending December 31, 2017. Thereafter, WCC shall allocate such expenses in its sole discretion, in compliance with the Services Agreement and the Partnership Agreement.
Postretirement Medical Benefits
WKL provided postretirement medical benefits to retired employees and their dependents, as mandated by the Coal Industry Retiree Health Act of 1992 and pursuant to collective bargaining agreements. WKL also provided these benefits to qualified full-time employees pursuant to collective bargaining agreements. These benefits are provided through self-insured programs.
The components of net periodic postretirement medical benefit cost are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
—

 
$
272

 
$
—

 
$
1,904

Interest cost
—

 
214

 
—

 
1,499

Amortization of deferred items
—

 
—

 
—

 
—

Total net periodic benefit cost
$
—

 
$
486

 
$
—

 
$
3,403

These costs are included in the accompanying statements of operations in Cost of coal revenues and Selling and administrative expenses.

12
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Pension
WKL provided a defined benefit pension plan to qualified full-time employees pursuant to a collective bargaining agreement. WKL’s funding policy is to contribute annually the minimum amount prescribed, as specified by applicable regulations.
The components of net periodic benefit cost are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
—

 
$
104

 
$
—

 
$
727

Interest cost
—

 
205

 
—

 
1,433

Expected return on plan assets
—

 
(281
)
 
—

 
(1,969
)
Total net periodic benefit cost
$
—

 
$
28

 
$
—

 
$
191

These costs are included in the accompanying statements of operations in Cost of coal revenues and Selling and administrative expenses.
7. FAIR VALUE MEASUREMENTS
The book values of cash, accounts receivable and accounts payable are considered to be representative of their respective fair values because of the immediate short-term maturity of these financial instruments.
In connection with our refinancing in June 2013, certain of the second lien lenders and lender affiliates received warrants entitling them to purchase common units. The warrants are measured at fair value at each balance sheet date. As of September 30, 2016 , the fair value of each warrant was $5.49 , based on the following assumptions: spot price of $5.61 per unit as traded on the New York Stock Exchange, with an exercise price of $0.12 per unit. The fair value of the warrants are a Level 1 measurement.
See Note 3 for additional disclosures related to fair value measurements of restricted investments.
8. DISTRIBUTIONS OF AVAILABLE CASH
We distribute 100% of our available cash within 45 days after the end of each quarter to unitholders of record and to our GP, subject to the conditions and limitations within the 2014 Financing Agreement. Available cash is determined at the end of each quarter and is generally defined in the Partnership Agreement as all cash and cash equivalents on hand at the end of each quarter less reserves established by our GP in its reasonable discretion for future cash requirements. These reserves are retained to provide for the conduct of our business, the payment of debt principal and interest and to provide funds for future distributions for any one or more of the next four quarters, and to comply with applicable law. Our available cash may also include, if our GP so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
We made cash distributions as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Series A convertible units
3,132

 
—

 
6,263

 
—

Limited Partner common units
1,181

 
1,176

 
3,537

 
2,352

General Partner units
8

 
8

 
23

 
15



13
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

On October 28, 2016, we declared a quarterly cash distribution for the quarter ended September 30, 2016 , of $0.1333 per common unit and warrant with distribution rights. Additionally, we declared a paid-in-kind unit distribution of $0.1333 per Series A Convertible Unit. The cash distribution totaling approximately $0.2 million , will be paid to all common unitholders and warrant holders on November 14, 2016 to all unitholders of record as of November 7, 2016.
9. ASSET RETIREMENT OBLIGATIONS
As of September 30, 2016 , our asset retirement obligation (“ARO”) totaled $57.4 million , including amounts reported as current liabilities.
Changes in the Partnership’s ARO were as follows: 
 
Nine Months Ended September 30, 2016
 
Year Ended December 31, 2015
 
(In thousands)
Asset retirement obligations, January 1,
$
56,634

 
$
50,545

Accretion
4,209

 
5,085

Changes resulting from additional mines
653

 
2,285

Changes due to amount and timing of reclamation
5,023

 
6,265

Payments
(9,077
)
 
(7,546
)
Asset retirement obligations
57,442

 
56,634

Less current portion
(18,238
)
 
(14,075
)
Asset retirement obligations, less current portion
$
39,204

 
$
42,559

  
The $5.0 million increase in the asset retirement obligation for the nine months ended September 30, 2016 is the result of updated costs estimates, changes in mine plans and reclamation consents.
As of September 30, 2016 , the Partnership had $137.2 million in surety bonds outstanding to secure reclamation obligations.
10. LONG-TERM INCENTIVE PLAN
We grant employees and non-employee directors restricted common units under our Long-Term Incentive Plan (“LTIP”).
We recognized compensation expense from unit-based arrangements shown in the following table:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Recognition of fair value of restricted common units over the vesting period
$
63

 
$
93

 
$
190

 
$
376

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

 
$
11.40

 
 
 
Granted
63,775

 
3.92

 
 
 
Vested
(21,930
)
 
11.40

 
 
 
Non-vested at September 30, 2016
63,775

 
$
3.92

 
$
104

1  
1 Expected to be recognized over the next 5 months .

14
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 2016 , the remaining terms of our long-term contracts range from one to ten years.
Purchase Commitments  
In April 2016, we entered into a fixed price agreement to purchase 1.0 million tons of coal from a third party through December 31, 2017.
From time to time, we purchase coal from third parties in order to meet quality or delivery requirements under our customer contracts. We buy coal on the spot market, and the cost of that coal is dependent upon the market price and quality of the coal.
Legal and Regulatory
The Partnership is party to various lawsuits, claims and regulatory proceedings incidental to our business at any point in time. We record accruals for potential losses related to these matters when, in management’s opinion, such losses are probable and reasonably estimable. Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity. However, if the results of these matters were different from management’s current opinion and in amounts greater than our accruals, then they could have a material adverse effect.
Ohio Environmental Protection Agency
In May 2016 the Ohio Environmental Protection Agency’s Department of Permitting (“OEPA”) notified us in writing that they believe twelve of our previously remediated Oxford mines have failed to meet the performance goals set forth in their approved mitigation plans. The OEPA letters allow that we may either a) evidence that their listed mitigation deficiencies are actually meeting the performance standards, b) request an extension of up to 2 years to complete the outstanding mitigation obligations, or c) pursue other off-site mitigation credits. Our evaluation of the OEPA’s claims is not yet complete, however based on the nature of their claims we believe it is reasonably possible that some level of remediation efforts will be required, although we cannot reasonably determine an estimate of loss at this time.
Guarantees
Our GP and the Partnership guarantee certain obligations of our subsidiaries. We believe that these guarantees will expire without any liability to the guarantors, and therefore will not have a material adverse effect on our financial position, liquidity or operations.

15
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. PARTNERS' CAPITAL AND CONVERTIBLE UNITS
Our capital accounts are comprised of approximately 0.16% beneficial general partner interests and 99.84% limited partner interests as of September 30, 2016 . Our limited partners have limited rights of ownership as provided for under our Partnership Agreement and the right to participate in our distributions. Our General Partner manages our operations and participates in our distributions, including certain incentive distributions pursuant to the incentive distribution rights that are nonvoting limited partner interests held by our General Partner. Pursuant to our Partnership Agreement, our General Partner participates in losses and distributions based on its interest. The General Partner'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. As such, allocation of losses and distributions, including distributions for previous transactions between entities under common control, has resulted in a deficit to the Limited Partners’ capital account included in our condensed consolidated balance sheets.
Series A Convertible Units
WCC owner of our General Partner hold and participate 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 of the Series A Convertible Units (the “Series A Convertible Unit Distribution”) may, at our Board of Directors' 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 our General Partner 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.

16
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Outstanding Units
 
September 30, 2016
 
December 31, 2015
Series A convertible units
15,656,551

 
15,251,989

Series B convertible units
—

 
—

Liquidation units
856,698

 
856,698

Warrants
166,557

 
166,557

Limited Partner common units
5,733,560

 
5,711,630

General Partner units
35,291

 
35,291

Net Income (Loss) attributable to Limited Partners
Net income (loss) is allocated to the General Partner and the limited partners in accordance with their respective ownership percentages, after giving effect to distributions and declared distribution on Series A Convertible Units, and General Partner units, including incentive distribution rights. Unvested unit-based payment awards that contain non-forfeitable rights to distributions (whether paid or unpaid) are classified as participating securities and are included in our computation of basic and diluted limited partners' net income (loss) per common unit. 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 income (loss) per common unit as follows (in thousands, except per unit amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net loss attributable to the Partnership
$
(4,276
)
 
$
(12,722
)
 
$
(27,557
)
 
$
(25,262
)
Less:
 
 
 
 
 
 
 
Paid and declared distributions on Series A Units
2,087

 
3,050

 
8,349

 
3,050

Series A units share of undistributed loss
(4,789
)
 
(8,294
)
 
(28,106
)
 
(8,294
)
Paid and declared distributions on Warrants
22

 
33

 
88

 
99

Paid and declared distributions on General Partner Units
8

 
8

 
23

 
23

General Partner units share of undistributed income (loss)
(11
)
 
129

 
(63
)
 
4,099

Net loss available to Limited Partners
$
(1,593
)
 
$
(7,648
)
 
$
(7,848
)
 
$
(24,239
)
 
 
 
 
 
 
 
 
Weighted average number of common units used in computation of Limited Partners' net loss per common unit (basic and diluted) 1,2
5,899,577

 
5,878,187

 
5,894,737

 
5,878,187

Limited Partners' net loss per common unit (basic and diluted)
$
(0.27
)
 
$
(1.30
)
 
$
(1.33
)
 
$
(4.12
)
1 Unvested LTIP units are not dilutive units for the periods presented herein, but could be in the future. Anti-dilutive units are not used in calculating diluted average units.
2 Reflects the impact of the outstanding common unit warrants for the three and nine months ended September 30, 2016 and 2015, respectively.
The impact of the Kemmerer Drop on income (loss) per limited partner units for the three and nine months ended September 30, 2015 is as follows:
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
Predecessor Partnership basic and diluted earnings per unit
$
(1.65
)
 
$
(4.47
)
Impact of Kemmerer Drop basic and diluted earnings per unit
0.35

 
0.35

Basic and diluted earnings per unit
$
(1.30
)
 
$
(4.12
)

17
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table reflects the changes in accumulated other comprehensive income (loss) arising from our available-for-sale securities (net of tax):
 
Accumulated Other Comprehensive Income (Loss)
 
(In thousands)
Balance at December 31, 2015
$
(270
)
Other comprehensive loss before reclassification
149

Amounts reclassified from accumulated other comprehensive income
84

Balance at September 30, 2016
$
(37
)
The following table reflects the reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2016 :
 
Amount reclassified from accumulated other comprehensive income (loss)
 
Affected line item in the statement where net income (loss) is presented
Details about accumulated other comprehensive income (loss) components
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2016
 
 
(In thousands)
 
 
Realized gains and losses on available-for-sale securities
$
54

 
$
84

 
Other income (loss)
14. RELATED PARTY TRANSACTIONS
In connection with our formation in August 2007, the Partnership and Oxford Mining Company, LLC (“Oxford Mining”) entered into an administrative and operational services agreement (the “Services Agreement”) with our GP. The Services Agreement is terminable by either party upon thirty days’ written notice. Under the terms of the Services Agreement, our GP provides services through its employees to us and is reimbursed for all related costs incurred on our behalf. Pursuant to the Services Agreement, the Partnership engaged the GP to continue providing services such as general administrative and management, engineering, operations (including mining operations), geological, corporate development, real property, marketing, and other services to the Partnership. Administrative services include without limitation legal, finance and accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit and tax. Under the Services Agreement the Partnership pays the GP a fixed annual management fee of $2.2 million for certain executive and administrative services, and reimburses the GP at cost for other expenses and expenditures. The current terms of the Services Agreement expires on December 31, 2016 , and automatically renews for successive one year periods unless terminated. The primary reimbursements to our GP under the Service Agreement during the three and nine months ended September 30, 2016 , were for costs related to payroll. Reimbursable costs under the Services Agreement totaling $0.2 million and $4.2 million were included in accounts payable as of September 30, 2016 and December 31, 2015 , respectively. In December 2015, the Partnership prepaid the GP for the 2016 annual management fee of $2.2 million , of which $0.5 million was included in Other current assets at September 30, 2016 .
Finally, we sold coal to and performed various transportation and operational services for a subsidiary of WCC, which generated $6.2 million and $20.5 million in coal revenues and $0.01 million and $0.03 million in non-coal revenues for the three and nine months ended September 30, 2016 . As of September 30, 2016 and December 31, 2015 , receivables totaling $8.0 million and $3.4 million , respectively, were included in Receivables - trade .

18
WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

15. SUBSEQUENT EVENTS
The Partnership has evaluated subsequent events in accordance with ASC 855, Subsequent Events, through the filing of its Quarterly Report on Form 10-Q, and determined that there have been no events than have not be disclosed elsewhere in the Notes to the Consolidated Financial Statements that have occurred that would require adjustments to disclosures in the consolidated financial statements.

19

Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2015 included in our 2015 Form 10-K and filed with the United States Securities and Exchange Commission (the “SEC”). This discussion contains forward-looking statements that reflect management’s current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements or as a result of certain factors such as those set forth below under “Cautionary Statement About Forward-Looking Statements.”
Cautionary Statement About Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “may,” “plan,” “predict,” “project,” “should,” “could,” “will” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make throughout this report regarding recent significant transactions and their anticipated effects on us, and statements in “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding factors that may cause our results of operation in future periods to differ from our expectations.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include political, economic, business, competitive, market, weather and regulatory conditions and the following:
•
Existing and future legislation and regulation affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;
•
The effect of the Environmental Protection Agency’s inquiries into and regulations of the operations of the power plants to which we provide coal;
•
Our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements;
•
Inaccuracies in our estimates of our coal reserves;
•
The effect of consummating financing, acquisition and/or disposition transactions;
•
Our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses;
•
The effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers;
•
The inability to control costs;
•
Competition within our industry and with producers of competing energy sources;
•
Our relationships with, and other conditions affecting, our customers;
•
The availability and costs of key supplies or commodities, such as diesel fuel, steel, explosives and tires;
•
Potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties;
•
The inability to renew our mineral leases or material changes in lease royalties;
•
The effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage;
•
Our ability to pay our quarterly distributions which substantially depends upon our future operating performance (which may be affected by prevailing economic conditions in the coal industry), debt covenants, and financial, business and other factors, some of which are beyond our control. Additional information is found in our discussion below under Cash Distributions ;

20
Table of Contents

•
Adequacy and sufficiency of our internal controls;
•
Our potential need to recognize additional impairment and/or restructuring expenses associated with our operations, as well as any changes to previously identified impairment or restructuring expense estimates, including additional impairment and restructuring expenses associated with our Illinois Basin operations; and
•
Other factors that are described in “Risk Factors” in this report and under the heading “Risk Factors” found in our other reports filed with the SEC, including our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q.
Unless otherwise specified, the forward-looking statements in this report speak as of the filing date of this report. Factors or events that could cause our actual results to differ may emerge from time-to-time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether because of new information, future developments or otherwise, except as may be required by law.
Overview
Westmoreland Resource Partners, LP is a Delaware limited partnership listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “WMLP”. Westmoreland Coal Company, a Delaware corporation (“WCC”), owns 100% of our General Partner and, and as of the date of this filing, 93.8% beneficial limited partner interest on a fully diluted basis.
We are a low-cost producer and marketer of high-value thermal coal to U.S. utilities and industrial users, and we are the largest producer of surface mined coal in eastern Ohio and Lincoln County, Wyoming. We focus on acquiring thermal coal reserves that we can efficiently mine with our large-scale equipment. Our reserves and operations are strategically located to serve our primary market area of the Midwest, northeastern U.S. and Wyoming.
We operate in a single business segment and have five operating subsidiaries, Oxford Mining, Oxford Mining Company-Kentucky, LLC (“Oxford Mining Kentucky”), Westmoreland Kemmerer Fee Coal Holdings, LLC (“WKFCH”), Westmoreland Kemmerer, LLC (“WKL”) and Harrison Resources, LLC (“Harrison Resources”). Our operating subsidiaries are primarily in the business of utilizing surface mining techniques to mine domestic coal and prepare it for sale to our customers or leasing our controlled coal reserves to others to mine. Our WKFCH and Harrison Resources operating subsidiaries own and hold coal reserves. Harrison Resources’ coal reserves are surface mined and marketed by Oxford Mining. Oxford Mining Kentucky is an inactive operating subsidiary holding coal reserves in the Illinois Basin for which surface mining operation ceased in December 2013.
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.


21
Table of Contents

Results of Operations  
Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
Overview
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Total Revenues
$
90.3

 
$
94.3

 
$
(4.0
)
 
(4.2
)%
Net loss
(4.3
)
 
(12.7
)
 
8.4

 
(66.1
)%
Adjusted EBITDA 1
22.7

 
16.1

 
6.6

 
41.0
 %
1 Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Total revenue was $90.3 million for the three months ended September 30, 2016 , a decrease of $4.0 million , or 4.2% , from $94.3 million for the three months ended September 30, 2015 . Net loss for the three months ended September 30, 2016 was $4.3 million , compared to a net loss for the three months ended September 30, 2015 of $12.7 million . Adjusted EBITDA was $22.7 million for the three months ended September 30, 2016 , an increase of $6.6 million from $16.1 million for the three months ended September 30, 2015 .
Revenues
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Coal revenues
$
89.6

 
$
93.0

 
$
(3.4
)
 
(3.7
)%
Non-coal revenues
0.7

 
1.3

 
(0.6
)
 
(46.2
)%
Total Revenues
$
90.3

 
$
94.3

 
$
(4.0
)
 
(4.2
)%
Coal sales revenue was $89.6 million for the three months ended September 30, 2016 , a decrease of $3.4 million , or 3.7% , from $93.0 million for the three months ended September 30, 2015 . The decrease was primarily attributable to a 2.1% decrease in tons sold in the amount of $2.0 million , compounded by a $0.72 per ton, or an aggregate $1.5 million , decrease in the average sale price per ton for the three months ended September 30, 2016 .  
Non-coal revenues, primarily from limestone sales, non-coal services and other miscellaneous revenue was $0.7 million for the three months ended September 30, 2016 , a decrease of $0.6 million , from $1.3 million for the three months ended September 30, 2015 . The decrease was primarily attributable to a $0.1 million and $0.3 million decrease in other revenue and limestone, respectively, compounded by a $0.2 million decrease in oil and gas royalties.
Cost of Coal Revenues
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Cost of coal revenues
$
65.8

 
$
77.6

 
$
(11.8
)
 
(15.2
)%
Cost of coal revenues (excluding depreciation, depletion and amortization (“DD&A”) was $65.8 million for the three months ended September 30, 2016 , a decrease of $11.8 million , or 15.2% , from $77.6 million for the three months ended September 30, 2015 . The decrease was primarily attributable to a 2.1% decrease in tons sold, which corresponds to a $1.6 million decrease in cost of coal revenues, and a decrease in the cost to produce coal of $5.01 per ton, or an aggregate $10.2

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million , for the three months ended September 30, 2016 . The decrease in the cost to produce coal of $5.01 per ton was primarily attributed to lower fuel prices and mine operating efficiencies.
Depreciation, Depletion and Amortization
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Depreciation, depletion and amortization
$
11.6

 
$
15.5

 
$
(3.9
)
 
(25.2
)%
DD&A expense was $11.6 million for the three months ended September 30, 2016 , a decrease of $3.9 million , or 25.2% , from $15.5 million for the three months ended September 30, 2015 . Amortization expense was $0.9 million for the three months ended September 30, 2016 , a $1.7 million decrease from $2.6 million for the three months ended September 30, 2015 . The decrease was primarily attributable to changes in the asset retirement costs on closed mines resulting from revisions to cost estimates. Depreciation expense decreased $1.5 million , or 14.3% , to $9.0 million for the three months ended September 30, 2016 , from $10.5 million for the three months ended September 30, 2015 . The decrease was primarily attributable to a smaller operating fleet. Depletion expense was $1.7 million for the three months ended September 30, 2016 , a $0.7 million decrease from $2.4 million for the three months ended September 30, 2015 , which was primarily attributable to the production and sale of 44.0 thousand fewer coal tons during the three months ended September 30, 2016 .
Selling and Administrative
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Selling and administrative
$
3.2

 
$
4.0

 
$
(0.8
)
 
(20.0
)%
Selling and administrative expenses were $3.2 million for the three months ended September 30, 2016 , a decrease of $0.8 million , or 20.0% , from $4.0 million for the three months ended September 30, 2015 . The decrease is primarily the result of cost reduction efforts made during the three months ended September 30, 2016 . 
Nonoperating Results (including interest expense, interest income, other income, and change in fair value of warrants)
 
Three Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Interest expense
$
(10.4
)
 
$
(8.7
)
 
$
(1.7
)
 
19.5
 %
Interest income
0.2

 
0.2

 
—

 
—
 %
Other income
0.1

 
—

 
0.1

 
100.0
 %
Change in fair value of warrants
(0.1
)
 
0.3

 
(0.4
)
 
(100.0
)%
Our interest expense increased $1.7 million for the three months ended September 30, 2016 to $10.4 million compared to $8.7 million for the three months ended September 30, 2015 primarily due to the $120.0 million in additional debt incurred in connection with the Kemmerer Drop on August 1, 2015.
We recognized a loss in the change in fair value of warrants of $0.1 million for the three months ended September 30, 2016 , a decrease of $0.4 million compared to $0.3 million of income for the three months ended September 30, 2015 .

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Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
Overview
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Total Revenues
$
263.3

 
$
297.0

 
$
(33.7
)
 
(11.3
)%
Net loss
(27.6
)
 
(25.3
)
 
(2.3
)
 
9.1
 %
Adjusted EBITDA 1
58.3

 
49.8

 
8.5

 
17.1
 %
1 Adjusted EBITDA, a non-GAAP measure, is defined and reconciled to net income (loss) at the end of this “Results of Operations” section.

Total revenue was $263.3 million for the nine months ended September 30, 2016 , a decrease of $33.7 million , or 11.3% , from $297.0 million for the nine months ended September 30, 2015 . Net loss for the nine months ended September 30, 2016 was $27.6 million , compared to a net loss for the nine months ended September 30, 2015 of $25.3 million . Adjusted EBITDA was $58.3 million for the nine months ended September 30, 2016 , an increase of $8.5 million from $49.8 million for the nine months ended September 30, 2015 .
Revenues
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Coal revenues
$
260.2

 
$
288.8

 
$
(28.6
)
 
(9.9
)%
Non-coal revenues
3.1

 
8.2

 
(5.1
)
 
(62.2
)%
Total Revenues
$
263.3

 
$
297.0

 
$
(33.7
)
 
(11.3
)%
Coal sales revenue was $260.2 million for the nine months ended September 30, 2016 , a decrease of $28.6 million , or 9.9% , from $288.8 million for the nine months ended September 30, 2015 . The decrease was primarily attributable to a 7.8% decrease in sales tons in the amount of $22.6 million , compounded by a $1.01 per ton, or an aggregate $6.0 million , decrease in the average sale price per ton for the nine months ended September 30, 2016 .  
Non-coal revenues, primarily from limestone sales, non-coal services and other miscellaneous revenue was $3.1 million for the nine months ended September 30, 2016 , a decrease of $5.1 million , from $8.2 million for the nine months ended September 30, 2015 . The decrease was primarily attributable to a $3.1 million decrease in non-coal services, primarily due to $2.4 million in non-recurring coal handling and transportation service revenue performed on behalf of a subsidiary of WCC during the nine months ended September 30, 2015 . Additionally, other revenue decrease $1.4 million and limestone revenue decreased $0.9 million , offset in part by a $0.2 million increase in oil and gas royalties. The $1.4 million decrease in other revenue was due primarily to generating $1.8 million in June 2015 compared to $0.6 million in June 2016 in lost coal fees for granting two respective pipeline right-of-ways to multiple third parties.
Cost of Coal Revenues
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Cost of coal revenues
$
199.7

 
$
238.7

 
$
(39.0
)
 
(16.3
)%
Cost of coal revenues (excluding DD&A) was $199.7 million for the nine months ended September 30, 2016 , a decrease of $39.0 million , or 16.3% , from $238.7 million for the nine months ended September 30, 2015 . The decrease was

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primarily attributable to a decrease of 0.5 million in tons sold, which corresponds to a $18.7 million decrease in cost of coal revenues, and a decrease in the cost to produce coal of $3.43 per ton, or an aggregate $20.3 million , for the nine months ended September 30, 2016 . The decrease in the cost to produce coal of $3.43 per ton was primarily attributed to lower fuel prices and mine operating efficiencies.
Depreciation, Depletion and Amortization
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Depreciation, depletion and amortization
$
41.4

 
$
44.3

 
$
(2.9
)
 
(6.5
)%
DD&A expense was $41.4 million for the nine months ended September 30, 2016 , a decrease of $2.9 million , or 6.5% , from $44.3 million for the nine months ended September 30, 2015 . Amortization expense was $8.7 million for the nine months ended September 30, 2016 , a $3.4 million increase from $5.3 million for the nine months ended September 30, 2015 . The increase was primarily attributable to changes in the asset retirement costs on closed mines resulting from revisions to cost estimates. Depreciation expense decreased $4.7 million , or 14.6% , to $27.4 million for the nine months ended September 30, 2016 , from $32.1 million for the nine months ended September 30, 2015 . The decrease was primarily attributable to a smaller operating fleet. Depletion expense was $5.3 million for the nine months ended September 30, 2016 , a $1.6 million decrease from $6.9 million for the nine months ended September 30, 2015 , which was primarily attributable to the production and sale of 0.5 million fewer coal tons during the nine months ended September 30, 2016 .
Selling and Administrative
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Selling and administrative
$
9.3

 
$
12.9

 
$
(3.6
)
 
(27.9
)%
Selling and administrative expenses were $9.3 million for the nine months ended September 30, 2016 , a decrease of $3.6 million , or 27.9% , from $12.9 million for the nine months ended September 30, 2015 . The decrease is primarily the result of cost reduction efforts made during the nine months ended September 30, 2016 . 
Non-Operating Results (including interest expense, interest income, other income, and change in fair value of warrants)
 
Nine Months Ended September 30,
 
 
 
 
 
Increase / (Decrease)
 
2016
 
2015
 
$
 
%
 
(In millions)
Interest expense
$
(30.5
)
 
$
(20.7
)
 
$
(9.8
)
 
47.3
 %
Interest income
0.6

 
0.7

 
(0.1
)
 
(14.3
)%
Other income
0.1

 
0.2

 
(0.1
)
 
(50.0
)%
Change in fair value of warrants
(0.3
)
 
0.8

 
(1.1
)
 
(137.5
)%
Our interest expense increased $9.8 million for the nine months ended September 30, 2016 to $30.5 million compared to $20.7 million for the nine months ended September 30, 2015 primarily due to the $120.0 million in additional debt incurred in connection with the Kemmerer Drop on August 1, 2015.
Our interest income was $0.6 million for the nine months ended September 30, 2016 , a decrease of $0.1 million from $0.7 million for the nine months ended September 30, 2015 , resulting from a decrease in average cash on hand throughout the nine months ended September 30, 2016 .

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Table of Contents

We recognized expense from the change in fair value of warrants of $0.3 million for the nine months ended September 30, 2016 , a decrease of $1.1 million compared to $0.8 million of income for the nine months ended September 30, 2015 . The $0.3 million of expense is the result of the increase in value of our units traded on the NYSE during the nine months ended September 30, 2016 .
Non-GAAP Financial Measures
Adjusted EBITDA
EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, United States Generally Accepted Accounting Principals (“GAAP”). EBITDA and Adjusted EBITDA are key metrics used by us to assess our operating performance, and we believe that EBITDA and Adjusted EBITDA are useful to an investor in evaluating our operating performance because these measures:
•
are used widely by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; and
•
help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results.
Neither EBITDA nor Adjusted EBITDA is a measure calculated in accordance with GAAP. The items excluded from EBITDA and Adjusted EBITDA are significant in assessing our operating results. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
•
do not reflect our cash expenditures or future requirements for capital and major maintenance expenditures or contractual commitments;
•
do not reflect changes in, or cash requirements for, our working capital needs; and
•
do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on certain of our debt obligations.
In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. Other companies in our industry and in other industries may calculate EBITDA and Adjusted EBITDA differently from the way that we do, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only as supplemental data.
Distributable Cash Flow
Distributable Cash Flow represents Adjusted EBITDA less cash changes in deferred revenue, cash reclamation and mine closure expenditures, reserve replacement and maintenance capital expenditures, cash pension and postretirement medical expenditures, and cash interest expense (net of interest income). Cash interest expense represents the portion of our interest expense accrued and paid in cash during the reporting periods presented or that we will pay in cash in future periods as the obligations become due. Other maintenance capital expenditures represent expenditures for coal reserve replacement, and for plant, equipment and mine development. Cash reclamation expenditures represent the reduction to our reclamation and mine closure costs resulting from cash payments. Earnings attributable to the noncontrolling interest are not available for distribution to our unitholders and accordingly are deducted.
Distributable Cash Flow should not be considered as an alternative to net income (loss) attributable to our unitholders, income from operations, cash flows from operating activities or any other measure of performance presented in accordance with GAAP. Although Distributable Cash Flow is not a measure of performance calculated in accordance with GAAP, we believe Distributable Cash Flow is useful to investors because this measurement is used by many analysts and others in the industry as a performance measurement tool to evaluate our operating and financial performance, facilitating comparison with the performance of other publicly traded limited partnerships.

26
Table of Contents

The tables below show how we calculated EBITDA, Adjusted EBITDA and Distributable Cash Flow and reconcile EBITDA, Adjusted EBITDA and Distributable Cash Flow to Net Loss, the most directly comparable GAAP financial measure. 
Reconciliation of Net Loss to Distributable Cash Flows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Reconciliation of Adjusted EBITDA to Net Loss
 
 
 
 
 
 
 
Net loss
$
(4,276
)
 
$
(12,722
)
 
$
(27,557
)
 
$
(25,262
)
Income tax expense
—

 
112

 
—

 
157

Interest expense
10,222

 
8,544

 
29,898

 
19,967

Depreciation, depletion and amortization
11,554

 
15,471

 
41,366

 
44,281

Accretion of ARO and receivable
1,430

 
1,279

 
4,209

 
3,797

EBITDA
18,930

 
12,684

 
47,916

 
42,940

Restructuring and impairment charges
3,366

 
—

 
8,067

 
656

Loss on sale of assets
302

 
1,334

 
1,938

 
3,035

Share-based compensation
63

 
93

 
190

 
376

Other non-cash and non-recurring costs 1
14

 
1,949

 
146

 
2,767

Adjusted EBITDA
22,675

 
16,060

 
58,257

 
49,774

Deferred revenue
2,301

 
—

 
2,301

 
(2,513
)
Reclamation and mine closure costs
(3,483
)
 
(2,171
)
 
(9,107
)
 
(5,432
)
Maintenance capital expenditures and other capitalized items
(2,171
)
 
(4,699
)
 
(5,499
)
 
(11,736
)
Pension and postretirement medical
—

 
436

 
—

 
2,552

Cash interest expense, net of interest income
(7,182
)
 
(5,923
)
 
(21,073
)
 
(13,863
)
Distributable Cash Flow
$
12,140

 
$
3,703

 
$
24,879

 
$
18,782

1 Includes non-cash activity from the change in fair value of investments and warrants.
Liquidity and Capital Resources 
Liquidity 
We had the following liquidity at September 30, 2016 and December 31, 2015 :
 
September 30,
 
December 31,
 
2016
 
2015
 
(In millions)
Cash and cash equivalents
$
8.9

 
$
3.7

Revolving Credit Facility
15.0

 
15.0

Total
$
23.9

 
$
18.7

We anticipate that our cash from operations, cash on hand and available borrowing capacity will be sufficient to meet our investing, financing, and working capital requirements for the foreseeable future.
Our business is capital intensive and requires substantial capital expenditures for, among other things, purchasing, maintaining and upgrading equipment used in developing and mining our coal, and acquiring reserves. Our principal liquidity needs are to finance current operations, replace reserves, fund capital expenditures, including costs of acquisitions from time to time, service our debt and pay quarterly cash distributions to our unitholders. Our primary sources of liquidity to meet these needs have been cash generated by our operations, borrowings under the 2014 Financing Agreement, and availability under our Revolving Credit Facility.

27
Table of Contents

Our ability to satisfy our working capital requirements, meet debt service obligations and fund planned capital expenditures substantially depends upon our future operating performance, which may be affected by prevailing economic conditions in the coal industry. To the extent our future operating cash flow or access to financing sources and the costs thereof are materially different than expected, our future liquidity may be adversely affected.
As of September 30, 2016 , our available liquidity was $23.9 million , which included $8.9 million in cash and $15.0 million of availability under our Revolving Credit Facility.
Debt Obligations 
As of September 30, 2016 the outstanding balance on our 2014 Financing Agreement was $304.8 million . This amount represents the principal balance of $291.0 million , plus PIK interest of $13.7 million as of September 30, 2016 . As of September 30, 2016 , our 2014 Financing Agreement had a cash interest rate of 9.25% , consisting of the LIBOR floor ( 0.75% ) plus 8.50% .
As of September 30, 2016 , availability under the Revolving Credit Facility was $15.0 million .
Cash Distribution 
Our partnership agreement requires that we distribute all of our available cash quarterly. Under our partnership agreement, available cash is determined at the end of each quarter and generally defined as cash generated from our business in excess of the amount of cash reserves established by our general partner to provide for the conduct of our business, to comply with applicable law, to make payments related to any of our debt instruments or other agreements, or to provide for future distributions to our unitholders for any one or more of the next four quarters. Our available cash may also include, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
Both our 2014 Financing Agreement and Revolving Credit Facility restrict us from making cash distributions in excess of $15.0 million in the aggregate when certain ratios and liquidity requirements are not met, see Note 5 of Notes to Unaudited Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements.” As of September 30, 2016 , we have distributed $14.1 million in cash that count toward the $15.0 million in aggregate restricted distribution payments. On October 28, 2016, we declared a quarterly cash distribution for the quarter ended September 30, 2016 , of $0.1333 per common unit, warrant with distribution rights and a distribution of Series A PIK Units in lieu of a cash distribution for holders of Series A Convertible Units (“Third Quarter Distribution”). The Third Quarter Distribution, totaling approximately $0.2 million , for all common unitholders and warrant holders of record as of November 7, 2016, will be paid November 14, 2016. The Third Quarter Distribution will bring the aggregate remaining permitted restricted distributions total to $0.8 million at that time.
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.
Historical Sources and Uses of Cash
The following table summarizes net cash provided by (used in) operating activities, investing activities, and financing activities for the nine months ended September 30, 2016 and 2015 :
 
Nine Months Ended September 30,
 
2016
 
2015
 
(In thousands)
Net cash provided by (used in):
 
 
 
Operating activities
$
25,442

 
$
28,831

Investing activities
(7,292
)
 
(129,534
)
Financing activities
(12,994
)
 
106,278


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Net cash provided by operating activities was $25.4 million for the nine months ended September 30, 2016 compared to $28.8 million of net cash provided by operating activities for the nine months ended September 30, 2015 , a decrease of $3.4 million . The decrease of $3.4 million resulted from a net loss for the nine months ended September 30, 2016 of $27.6 million , an increase of $2.3 million , compared to net loss for the nine months ended September 30, 2015 of $25.3 million , a decrease of $8.6 million in cash provided by change in working capital and a $2.9 million decrease in depreciation, depletion and amortization expense, offset in part by an increase of $7.4 million in restructuring and impairment charges, and a $2.3 million increase in non-cash interest expense. The $8.6 million change in working capital resulted from $12.1 million decrease in cash flows from accounts receivables resulting from extending payment terms to a subsidiary of WCC, a decrease in cash flow of $2.8 million from the change in asset retirement obligation and a $2.7 million decrease in cash flows from a change in accounts payable and accrued expenses, offset in part by $4.8 million increase in cash flows from the change in deferred revenue and a $5.0 million in cash flow from inventory.
Net cash used in investing activities was $7.3 million for the nine months ended September 30, 2016 compared to $129.5 million for the nine months ended September 30, 2015 , a decrease of approximately $122.2 million . The $122.2 million decrease was attributable to $115.0 million in acquisition cost related to the August 1, 2015 acquisition of Westmoreland Kemmerer LLC compounded by a $6.8 million decrease in capital expenditure spend.
Net cash used in financing activities was $13.0 million for the nine months ended September 30, 2016 , down $119.3 million from net cash provided by financing activities of $106.3 million for the nine months ended September 30, 2015 . The $13.0 million of cash flows used in financing activities for the nine months ended September 30, 2016 , consisted of $9.8 million of cash used in distributions to partners and $3.2 million of cash used in the repayment of long-term debt.
Capital Expenditures 
Our mining operations require investments to maintain, expand, and upgrade existing operations and to meet environmental and safety regulations. We have funded and expect to continue funding capital expenditures primarily from cash generated by our operations, borrowings under the 2014 Financing Agreement, and proceeds from asset sales. In the future, we may also fund capital expenditures with borrowings under the Loan Facility.
The following table summarizes our capital expenditures by type for the three and nine months ended September 30, 2016 , and 2015 .
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Coal reserves
$
—

 
$
—

 
$
—

 
$
—

Mine development
281

 
437

 
810

 
1,117

Equipment and components
1,892

 
4,263

 
4,691

 
10,479

Total
$
2,173

 
$
4,700

 
$
5,501

 
$
11,596

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

29
Table of Contents

performance of our obligations relating to reclamation obligations. These arrangements are not reflected in our consolidated balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.
Our off-balance sheet arrangements are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 Form 10-K.

30
 

WESTMORELAND RESOURCE PARTNERS, LP AND SUBSIDIARIES

.


Item 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2015 . For additional information, refer to the “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of our 2015 Form 10-K.
Item 4 — CONTROLS AND PROCEDURES
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of September 30, 2016 . Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date.
Additionally, there have been no changes in internal control over financial reporting that occurred during the nine months ended September 30, 2016 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

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

 

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Table of Contents

SIGNATURES
   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WESTMORELAND RESOURCE PARTNERS, LP
 
 
By: 
WESTMORELAND RESOURCES GP, LLC, its general partner  
 
 
 
 
Date:
November 1, 2016
By: 
/s/ Jason W. Veenstra
 
 
 
Jason W. Veenstra
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer and A Duly Authorized Officer)  
 
 
 
 
Date:
November 1, 2016
By: 
/s/ Michael J. Meyer
 
 
 
Michael J. Meyer
 
 
 
Controller and Principal Accounting Officer
 
 
 
(Principal Accounting Officer and A Duly Authorized Officer)



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Table of Contents

Index to Exhibits
 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
File Number
 
Exhibit
 
Filing Date
 
Filed Herewith
3.1
 
Certificate of Limited Partnership of Westmoreland Resource Partners, LP (f/k/a Oxford Resource Partners, LP)
 
8-K
 
001-34815
 
2.1
 
8/4/2015
 
 
3.2
 
Fourth Amended and Restated Agreement of Limited Partnership of Westmoreland Resource Partners, LP

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

 
8-K
 
001-34815
 
2.1
 
8/6/2015
 
 
3.4
 
Amendment No. 2 to Fourth Amended and Restated Agreement of Limited Partnership of Westmoreland Resource Partners, LP
 
 
 
 
 
 
 
 
 
X
3.5
 
Certificate of Formation of Westmoreland Resources GP, LLC (f/k/a Oxford Resources GP, LLC)

 
S-1
 
333-165662

 
3.3
 
4/21/2010
 
 
3.6
 
Third Amended and Restated Limited Liability Company Agreement of Westmoreland Resources GP, LLC (f/k/a Oxford Resources GP, LLC)
 
8-K
 
001-34815
 
3.2
 
1/4/2011
 
 
3.7
 
First Amendment to Third Amended and Restated Limited Liability Company Agreement of Westmoreland Resources GP, LLC (f/k/a Oxford Resources GP, LLC)
 
8-K
 
001-34815
 
3.2
 
6/25/2013
 
 
3.8
 
First Amendment to Third Amended and Restated Limited Liability Company Agreement of Westmoreland 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 Westmoreland Resources GP, LLC dated June 24, 2013 (f/k/a Oxford Resources GP, LLC)
 
10-Q
 
001-34815
 
3.4B
 
5/6/2014
 
 
10.1
 
Exchange Agreement, dated as of October 28, 2016, by and between Westmoreland Coal Company and Westmoreland Resource Partners, LP
 
 
 
 
 
 
 
 
 
X
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
 
 
 
 
 
 
 
 
 
X
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
 
 
 
 
 
 
 
 
 
X
32
 
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 
 
 
 
 
 
 
 
 
X
95.1
 
Mine Safety Disclosure

 
 
 
 
 
 
 
 
 
X
101.INS
 
XBRL Instance Document

 
 
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema Document

 
 
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document

 
 
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Label Linkbase Document

 
 
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document

 
 
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Definition Document
 
 
 
 
 
 
 
 
 
X

33
EXHIBIT 3.4

AMENDMENT NO. 2 TO
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
WESTMORELAND RESOURCE PARTNERS, LP
This Amendment No. 2 (this “ Amendment ”) to the Fourth Amended and Restated Agreement of Limited Partnership of Westmoreland Resource Partners, LP (the “ Partnership ”), dated as of December 31, 2014, as amended on August 1, 2015 (the “ Partnership Agreement ”), is hereby adopted effective as of October 28, 2016 by Westmoreland Resources GP, LLC, a Delaware limited liability company (the “ General Partner ”), as general partner of the Partnership, pursuant to the authority granted to it in Section 5.6 and Section 13.1 of the Partnership Agreement. Capitalized terms used but not defined herein have the meaning given such terms in the Partnership Agreement.
WHEREAS , Section 5.6(a) of the Partnership Agreement provides that the Partnership may issue additional Partnership Interests and options, warrants, restricted units and appreciation rights relating to the Partnership Interests for any Partnership purpose at any time and from time to time to such Persons for such consideration and on such terms and conditions as the General Partner shall determine, all without the approval of any Limited Partners; and
WHEREAS , Section 13.1(d)(i) of the Partnership Agreement provides that the General Partner, without the approval of any Partner, may amend any provision of the Partnership Agreement to reflect a change that the General Partner determines does not adversely affect in any material respect the Limited Partners considered as a whole or any particular class of Partnership Interests as compared to other classes of Partnership Interests; and
WHEREAS , Section 13.1(g) of the Partnership Agreement provides that the General Partner, without the approval of any Partner, may amend any provision of the Partnership Agreement in connection with a change that the General Partner determines to be necessary or appropriate in connection with the authorization or issuance of any class or series of Partnership Interests or any options, rights, warrants, appreciation rights, tracking and phantom interests or other economic interests in the Partnership relating to Partnership Interests pursuant to Section 5.6 of the Partnership Agreement; and
WHEREAS , the board of directors of the General Partner has determined that the standards specified in Section 13.1(d)(i) and Section 13.1(g) are satisfied with respect to the amendments to be made by this Amendment; and
WHEREAS , Westmoreland Coal Company, a Delaware corporation (“ Westmoreland ”), entered into a certain Exchange Agreement with the Partnership, dated as of October 28, 2016 (the “ 2016 Exchange Agreement ”), pursuant to which Westmoreland agreed to exchange all of the Common Units it owns in the Partnership for a new class of Partnership Interests designated as the “Series B Convertible Units,” having the terms and definition set forth herein; and

1

EXHIBIT 3.4

WHEREAS , the General Partner deems it in the best interest of the Partnership to effect this Amendment in order to (i) specify the rights and obligations of the Series B Convertible Units and (ii) provide for such other matters as are provided herein.
NOW THEREFORE , the General Partner does hereby amend the Partnership Agreement as follows:
A. Amendment . The Partnership Agreement is hereby amended as follows:
1. Section 1.1 is hereby amended to add or restate, as applicable, the following definitions:
“2016 Exchange Agreement ” means that certain Exchange Agreement entered into between Westmoreland and the Partnership, dated as of October 28, 2016.
“Common Unit ” means a Partnership Interest representing a fractional part of the Partnership Interests of all Limited Partners, and having the rights and obligations specified with respect to Common Units in this Agreement. The term “Common Unit” does not refer to, or include, any Incentive Distribution Rights, any Series A Convertible Unit prior to the conversion of such Series A Convertible Unit into a Common Unit pursuant to the terms thereof, or any Series B Convertible Unit prior to the conversion of such Series B Convertible Unit into a Common Unit pursuant to the terms thereof.
“ Exchange Closing Date ” has the meaning assigned to such term in the 2016 Exchange Agreement.
“Financing Agreement” means that certain Financing Agreement dated as of December 31, 2014 among the Partnership, certain subsidiaries of the Partnership from time to time party thereto, the lenders from time to time party thereto and U.S. Bank National Association, as administrative and collateral agent, as amended from time to time.
“ Initial Unit Price ” means (a) with respect to the Common Units, the Catalyst Price, or (b) with respect to the Series A Convertible Units (including each Series A PIK Unit), the Series A Issue Price, or (c) with respect to the Series B Convertible Units, the Series B Issue Price, or (d) with respect to any other class or series of Units, the price per Unit at which such class or series of Units is initially issued by the Partnership, as determined by the General Partner, in each case adjusted as the General Partner determines to be appropriate to give effect to any distribution, subdivision or combination of Units.
“ Limited Partner Interest ” means the ownership interest of a Limited Partner in the Partnership, which may be evidenced by Common Units, Series A Convertible Units, Series B Convertible Units, Incentive Distribution Rights, Liquidation Units or other Partnership Interests or a combination thereof or interest therein, and includes any and all benefits to which such Limited Partner is entitled as provided in this Agreement, together with all obligations of such Limited Partner to comply with the terms and provisions of this Agreement; provided , however , that when the term “Limited Partner Interest” is used herein in the context of any vote or other

2

EXHIBIT 3.4

approval, including Article XIII and Article XIV, such term shall not, solely for such purpose, include any Incentive Distribution Right or Liquidation Units except as may be required by law or contemplated by Section 13.13.
“ Noncompensatory Option ” means a “noncompensatory option” within the meaning of Treasury Regulation Sections 1.721-2(f) and 1.761-3(b)(2) issued by the Partnership which, as of the date such option is issued by the Partnership, is not treated as a partnership interest pursuant to Treasury Regulation Section 1.761-3(a); provided, however, that, while the right of the Series A Convertible Units to be issued Series A PIK Units pursuant to Section 5.14(d) is not itself a “Noncompensatory Option,” the conversion features of the Series A Convertible Units and Series B Convertible Units are “Noncompensatory Options.”
“ Outstanding ” means, with respect to Partnership Interests, all Partnership Interests that are issued by the Partnership and reflected as outstanding on the Partnership’s books and records as of the date of determination; provided, however , that if at any time any Person or Group (other than the General Partner or its Affiliates) beneficially owns 20% or more of the Outstanding Partnership Interests of any class then Outstanding, all Partnership Interests owned by such Person or Group shall not be voted on any matter and shall not be considered to be Outstanding when sending notices of a meeting of Limited Partners to vote on any matter (unless otherwise required by law), calculating required votes, determining the presence of a quorum or for other similar purposes under this Agreement, except that Units so owned shall be considered to be Outstanding for purposes of Section 14.3(e)(v) (such Units shall not, however, be treated as a separate class of Partnership Interests for purposes of this Agreement or the Delaware Act); provided, further , that the foregoing limitation shall not apply to (i) any Person or Group who acquired 20% or more of the Outstanding Partnership Interests of any class then Outstanding directly from the General Partner or its Affiliates (other than the Partnership), (ii) any Person or Group who acquired 20% or more of the Outstanding Partnership Interests of any class then Outstanding directly or indirectly from a Person or Group described in clause (i) provided that the General Partner shall have notified such Person or Group in writing that such limitation shall not apply, or (iii) any Person or Group who acquired 20% or more of any Partnership Interests issued by the Partnership with the prior approval of the Board of Directors of the General Partner. For the avoidance of doubt, the Board of Directors and the General Partner have approved the issuance of the Series A Convertible Units to Westmoreland pursuant to the 2015 Contribution Agreement and the issuance of the Series B Convertible Units to Westmoreland pursuant to the 2016 Exchange Agreement in accordance with clause (iii) of the immediately preceding sentence, and any Series A Convertible Units, Series A PIK Units, Series A Conversion Units, Series B Convertible Units and Series B Conversion Units issued to Westmoreland shall be deemed to be approved by the Board of Directors in accordance with clause (iii) of the immediately preceding sentence and the foregoing limitations of the immediately preceding sentence shall not apply to Westmoreland with respect to its ownership (beneficially or of record) of the Series A Convertible Units, the Series A PIK Units, the Series A Conversion Units, the Series B Convertible Units and the Series B Conversion Units.
“ PBTC Loan Agreement ” means that certain Loan and Security Agreement dated as of October 23, 2015 among the Partnership, certain subsidiaries of the Partnership from time to

3

EXHIBIT 3.4

time party thereto, the lenders from time to time party thereto and The PrivateBank and Trust Company, as administrative agent, as amended from time to time.
“ Percentage Interest ” means, as of any date of determination, (a) as to the General Partner with respect to General Partner Units and as to any Unitholder with respect to Units (including the General Partner with respect to Units), the product obtained by multiplying (i) 100% less the percentage applicable to clause (b) below by (ii) the quotient obtained by dividing (A) the number of General Partner Units held by the General Partner or the number of Units held by such Unitholder (or, in the case of Series A Convertible Units, the number of Series A Conversion Units issuable upon conversion of such Series A Convertible Units held by such Unitholder or Assignee if such Series A Convertible Units were then converted in accordance with Section 5.14(c), or in the case of Series B Convertible Units, the number of Series B Conversion Units issuable upon conversion of such Series B Convertible Units held by such Unitholder or Assignee if such Series B Convertible Units were then converted in accordance with Section 5.15(b)), as the case may be, by (B) the total number of all Outstanding Units and General Partner Units and (b) as to the holders of other Partnership Interests issued by the Partnership in accordance with Section 5.6, the percentage established as a part of such issuance. The Percentage Interest with respect to an Incentive Distribution Right shall at all times be zero. The Percentage Interest with respect to a Liquidation Unit shall at all times be zero.
“ Record Date ” means the date established by the General Partner or otherwise in accordance with this Agreement for determining (a) the identity of the Record Holders entitled to notice of, or to vote at, any meeting of Limited Partners or entitled to vote by ballot or give approval of Partnership action in writing without a meeting or entitled to exercise rights in respect of any lawful action of Limited Partners, (b) the identity of Record Holders entitled to receive any report or distribution or to participate in any offer, (c) the identity of the Record Holders of Series A Convertible Units entitled to convert such Units, or (d) the identity of the Record Holders of Series B Convertible Units entitled to convert such Units.
“ Remaining Net Positive Adjustments ” means, as of the end of any taxable period, (i) with respect to the Unitholders holding Common Units, Series A Convertible Units or Series B Convertible Units the excess of (a) the Net Positive Adjustments of the Unitholders holding Common Units, Series A Convertible Units or Series B Convertible Units as of the end of such period over (b) the sum of those Unitholders’ Share of Additional Book Basis Derivative Items for each prior taxable period, (ii) with respect to the General Partner (as holder of the General Partner Units), the excess of (a) the Net Positive Adjustments of the General Partner as of the end of such period over (b) the sum of the General Partner’s Share of Additional Book Basis Derivative Items with respect to the General Partner Units for each prior taxable period and (iii) with respect to the holders of Incentive Distribution Rights, the excess of (a) the Net Positive Adjustments of the holders of Incentive Distribution Rights as of the end of such period over (b) the sum of the Share of Additional Book Basis Derivative Items of the holders of the Incentive Distribution Rights for each prior taxable period.
“ Restricted Distribution Amount ” means the maximum amount of distributions to the Partners that can be made to the Partners under Section 13.5 of the PBTC Loan Agreement and

4

EXHIBIT 3.4

Section 7.02 of the Financing Agreement without, in either case, providing any certification as to the satisfaction of any financial ratio.
“ Series B Conversion Date ” has the meaning assigned to such term in Section 5.15(b)(iv).
“ Series B Optional Conversion Start Date ” means the day after the Record Date for a cash distribution to the Partners where such cash distribution (together with the prior cash distributions) is less than or equal to the Restricted Distribution Amount and where a similar cash distribution for the next Quarter would cause the Partnership to exceed the Restricted Distribution Amount.
“ Series B Conversion Notice ” has the meaning assigned to such term in Section 5.15(b)(iii).
“ Series B Conversion Notice Date ” has the meaning assigned to such term in Section 5.15(b)(iii).
“ Series B Conversion Unit ” means a Common Unit issued upon conversion of a Series B Convertible Unit pursuant to Section 5.15(b).
“ Series B Convertible Unit ” means a Partnership Interest issued pursuant to Section 5.15 and representing a Limited Partner’s interest in the Partnership having the rights and obligations specified with respect to the Series B Convertible Units in this Agreement.
“ Series B Issue Price ” means the Capital Account of each Common Unit that is converted into a Series B Convertible Unit as of the Exchange Closing Date.
“ Series B Unitholder ” means a Record Holder of Series B Convertible Units.
“ Share of Additional Book Basis Derivative Items ” means, in connection with any allocation of Additional Book Basis Derivative Items for any taxable period, (i) with respect to the Unitholders holding Common Units, Series A Convertible Units or Series B Convertible Units, the amount that bears the same ratio to such Additional Book Basis Derivative Items as the Unitholders’ Remaining Net Positive Adjustments as of the end of such taxable period bears to the Aggregate Remaining Net Positive Adjustments as of that time, (ii) with respect to the General Partner (as holder of the General Partner Units), the amount that bears the same ratio to such Additional Book Basis Derivative Items as the General Partner’s Remaining Net Positive Adjustments as of the end of such period bears to the Aggregate Remaining Net Positive Adjustment as of that time, and (iii) with respect to the holders of Incentive Distribution Rights, the amount that bears the same ratio to such Additional Book Basis Derivative Items as the Remaining Net Positive Adjustments of the holders of the Incentive Distribution Rights as of the end of such period bears to the Aggregate Remaining Net Positive Adjustments as of that time.
“ Unit ” means a Partnership Interest that is designated as a “Unit” and shall include Common Units, Series A Convertible Units and Series B Convertible Units, but shall not include

5

EXHIBIT 3.4

(i) General Partner Units (or the General Partner Interest represented thereby), (ii) Incentive Distribution Rights or (iii) Liquidation Units.
“ Unit Majority ” means at least a majority of the Outstanding Common Units, Series A Convertible Units and Series B Convertible Units, voting together as a single class.
2. Section 4.1 is hereby amended and restated as follows:
Notwithstanding anything to the contrary in this Agreement, unless the General Partner shall determine otherwise in respect of some or all of any or all classes of Partnership Interests, Partnership Interests shall not be evidenced by physical certificates, provided, however , with respect to the issuance of any Series A Convertible Units, the Partnership shall issue such Certificates in accordance with Section 5.14(f) and, with respect to the issuance of any Series B Convertible Units, the Partnership shall issue such certificates in accordance with Section 5.15(f). Certificates that may be issued shall be executed on behalf of the Partnership by the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or any Vice President and the Secretary, any Assistant Secretary, or other authorized officer or director of the General Partner. If a Transfer Agent has been appointed for a class of Partnership Interests, no Certificate for such class of Partnership Interests shall be valid for any purpose until it has been countersigned by the Transfer Agent; provided , however , that, if the General Partner elects to cause the Partnership to issue Partnership Interests of such class in global form, the Certificate shall be valid upon receipt of a certificate from the Transfer Agent certifying that the Partnership Interests have been duly registered in accordance with the directions of the Partnership. With respect to any Units outstanding prior to the effectiveness of this Agreement that are represented by physical certificates, the General Partner may determine that such Units will no longer be represented by physical certificates and may, upon written notice to the holders of such Units and subject to applicable law, take whatever actions it deems necessary or appropriate to cause such Units to be registered in book entry or global form and may cause such physical certificates to be cancelled or deemed cancelled.
3. Section 4.8 is hereby amended to add a new Section 4.8(f) as follows:
(f) Any transfer of a Series B Conversion Unit shall be subject to the restrictions imposed by Section 6.11.
4. Section 5.5(a) is hereby amended and restated as follows:
(a) The Partnership shall maintain for each Partner (or a beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner) owning a Partnership Interest a separate Capital Account with respect to such Partnership Interest in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Partnership with respect to such Partnership Interest and (ii) all items of Partnership income and gain (including income and gain exempt from tax) computed in accordance with Section 5.5(b) and allocated with respect to such Partnership Interest pursuant to

6

EXHIBIT 3.4

Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed distributions of cash or property (other than Series A PIK Units) made with respect to such Partnership Interest and (y) all items of Partnership deduction and loss computed in accordance with Section 5.5(b) and allocated with respect to such Partnership Interest pursuant to Section 6.1. For the avoidance of doubt, the Series A Convertible Units and the Series B Convertible Units will be treated as a partnership interest in the Partnership that are “convertible equity” within the meaning of Treasury Regulation Section 1.721-2(g)(3), and, therefore, each holder of a Series A Convertible Unit or a Series B Convertible Unit will be treated as a partner in the Partnership, other than with respect to the conversion features of the Series A Convertible Units and the Series B Convertible Units. The initial Capital Account balance in respect of each Series A Convertible Unit (including each Series A PIK Unit) shall be the Series A Issue Price. The initial Capital Account balance in respect of each Series B Convertible Unit shall be the Series B Issue Price.
5. Section 5.5(c) is hereby amended to add a new Section 5.5(c)(iv) as follows:
(iv) Immediately prior to the transfer of a Series B Conversion Unit by a holder thereof (other than a transfer to an Affiliate unless the General Partner elects to have this Section 5.5(c)(iv) apply), the aggregate Capital Account maintained for such Person with respect to its Series B Conversion Units will (A) first, be allocated to the Series B Conversion Units to be transferred in an amount equal to the product of (x) the number of such Series B Conversion Units to be transferred and (y) the Per Unit Capital Amount for a Common Unit that is not a Series B Conversion Unit, and (B) second, any remaining positive balance in such Capital Account will be retained by the transferor, regardless of whether it has retained any Series B Conversion Units; provided that, if following the transfer, the transferor Partner retains no Units in the Partnership, and (I) the remaining Capital Account balance would be positive, items of Partnership loss and deduction shall be specially allocated to such transferor Partner in an amount and manner sufficient to eliminate its Capital Account as quickly as possible and (II) and if the remaining balance would be negative, items of Partnership income and gain shall be specially allocated to such transferor Partner in an amount and manner sufficient to eliminate the deficit in its Capital Account as quickly as possible. If, following the transfer, the transferor Partner retains Units in the Partnership, the transferor’s Capital Account, if any, maintained with respect to the retained Units will have a balance equal to the amount allocated under clause (B) above, and the transferee’s Capital Account established with respect to the transferred Series B Conversion Units will have a balance equal to the amount allocated under clause (A) above.
6. Section 5.5(d) is hereby amended to add a new Section 5.5(d)(v) as follows:
(v) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(s), immediately after the conversion of a Series B Convertible Unit into a Common Unit in accordance with Section 5.15(b), as applicable, the Capital Account of each Partner and the Carrying Value of each Partnership property shall be adjusted to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property for an amount equal to its fair market value immediately after such conversion and (A) first, all Unrealized Gain (if the Capital Account of

7

EXHIBIT 3.4

each such Series B Conversion Unit, as applicable, is less than the Per Unit Capital Amount for a then Outstanding Initial Common Unit) or Unrealized Loss (if the Capital Account of each such Series B Conversion Unit, as applicable, is greater than the Per Unit Capital Amount for a then Outstanding Initial Common Unit) had been allocated Pro Rata to each Partner holding Series B Conversion Units received upon such conversion until the Capital Account of each such Series B Conversion Unit, as applicable, is equal to the Per Unit Capital Amount for a then Outstanding Initial Common Unit; and (B) second, any remaining Unrealized Gain or Unrealized Loss had been allocated to the Partners at such time pursuant to Section 6.1(c) and Section 6.1(d). In determining such Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair market value of all Partnership assets immediately after the conversion of a Series B Convertible Unit shall be determined by the General Partner using such reasonable method of valuation as it may adopt (taking into account Section 7701(g) of the Code); provided, however , that the General Partner, in arriving at such valuation, must take fully into account the fair market value of the Partnership Interests of all Partners at such time and must make such adjustments to such valuation as required by Treasury Regulation Section 1.704-1(b)(2)(iv)(h)(2). The General Partner shall allocate such aggregate value among the assets of the Partnership in such manner as it determines in its discretion to be reasonable. If, after making the allocations of Unrealized Gain and Unrealized Loss as set forth above in this Section 5.5(d)(v), the Capital Account of each Partner with respect to each Series B Conversion Unit, as applicable, received upon such conversion of the Series B Convertible Unit, as applicable, is less than the Per Unit Capital Amount for a then Outstanding Initial Common Unit, then Capital Account balances shall be reallocated between the Partners holding Common Units (other than Series B Conversion Units) and Partners holding Series B Conversion Units, as applicable, so as to cause the Capital Account of each Partner holding a Series B Conversion Unit, as applicable, to equal, on a per Unit basis with respect to each such Series B Conversion Unit, the Per Unit Capital Amount for a then Outstanding Initial Common Unit.
7. Section 5.9(a) is hereby amended and restated as follows:
(a) Subject to Section 5.9(d), Section 6.6 and Section 6.9 (dealing with adjustments of distribution levels), the Partnership may make a Pro Rata distribution of Partnership Interests to all Record Holders or may effect a subdivision or combination of Partnership Interests so long as, after any such event, each Partner shall have the same Percentage Interest in the Partnership as before such event, and any amounts calculated on a per Unit basis or stated as a number of Units (including the number of Common Units into which Series A Convertible Units or Series B Convertible Units may convert) are proportionately adjusted.
8. Section 5.9 is hereby amended to add a new Section 5.9(g) as follows:
(g) For the avoidance of doubt, upon any Pro Rata distribution of Partnership Interests to all Record Holders of Common Units or any subdivision or combination (or reclassification into a greater or smaller number) of Common Units, the Partnership will proportionately adjust the number of Series B Convertible Units as follows: (i) if the Partnership issues Partnership Interests as a distribution on its Common Units or subdivides the Common Units (or reclassifies them into a greater number of Common Units), then the Series B Convertible Units shall be

8

EXHIBIT 3.4

subdivided into a number of Series B Convertible Units equal to the result of multiplying the number of Series B Convertible Units by a fraction, (A) the numerator of which shall be the sum of the number of Common Units outstanding immediately prior to such distribution or subdivision plus the total number of Partnership Interests constituting such distribution or newly created by such subdivision, and (B) the denominator of which shall be the number of Common Units outstanding immediately prior to such distribution or subdivision, and (ii) if the Partnership combines the Common Units (or reclassifies them into a smaller number of Common Units), then the Series B Convertible Units shall be combined into a number of Series B Convertible Units equal to the result of multiplying the number of Series B Convertible Units by a fraction, (A) the numerator of which shall be the sum of the number of Common Units outstanding immediately following such combination, and (B) the denominator of which shall be the number of Common Units outstanding immediately prior to such combination.
9. Section 5.14(e) is hereby amended and restated as follows:
The Series A Convertible Units will have such voting rights pursuant to the Agreement as such Series A Convertible Units would have if they were Common Units that were then outstanding and shall vote together with the Common Units and the Series B Convertible Units as a single class, except that the Series A Convertible Units shall be entitled to vote as a separate class on any matter on which Unitholders are entitled to vote that adversely affects the rights or preferences of the Series A Convertible Units in relation to other classes of Partnership Interests in any material respect or as required by law. The approval of a majority of the Outstanding Series A Convertible Units shall be required to approve any matter for which the holders of the Series A Convertible Units are entitled to vote as a separate class. For the avoidance of doubt, each reference in this Agreement to the vote of, approval by, or notice to be given to, Unitholders holding Common Units shall be deemed to be a reference to the vote of, approval by, or notice to be given to, Unitholders of Common Units, Series A Convertible Units and Series B Convertible Units and each reference to the vote of, approval by, or notice to be given to, a majority of the Outstanding Common Units shall be deemed to be a reference to the vote of, approval by, or notice to be given to, a majority of the Common Units, Series A Convertible Units and Series B Convertible Units, each as Outstanding at such time.
10. Article V is hereby amended to add a new Section 5.15 as follows:
Section 5.15 Establishment of Series B Convertible Units .
(a) General. The Partnership hereby designates and creates a series of Units to be designated as “ Series B Convertible Units ” and consisting of a total of 4,512,500 Series B Convertible Units, having the same rights, preferences and privileges, and subject to the same duties and obligations, as the Common Units, except as set forth in this Section 5.15.
(b) Conversion of Series B Convertible Units .
(i) At any time after the Series B Optional Conversion Start Date, the Series B Convertible Units owned by any Series B Convertible Unitholder shall be convertible, in

9

EXHIBIT 3.4

whole or in part, upon the request of the Series B Convertible Unitholder into Common Units on a one-for-one basis.
(ii) Immediately before any event causing the dissolution or liquidation of the Partnership or a Change of Control, the Series B Convertible Units shall automatically convert into Common Units on a one-for-one basis.
(iii) To convert Series B Convertible Units into Common Units pursuant to Section 5.15(b)(i), the Series B Convertible Unitholder shall give written notice (a “ Series B Conversion Notice ”) to the Partnership in the form of Exhibit B attached hereto stating that such Series B Convertible Unitholder elects to so convert Series B Convertible Units and shall state therein with respect to Series B Convertible Units to be converted pursuant to Section 5.15(b)(i) the following: (a) the number of Series B Convertible Units to be converted, (b) the Certificate(s) evidencing the Series B Convertible Units to be converted and duly endorsed, (c) the name or names in which such Series B Convertible Unitholder wishes the Certificate or Certificates for Series B Conversion Units to be issued, and (d) such Series B Convertible Unitholder’s computation of the number of Series B Conversion Units to be received by such Series B Convertible Unitholder (or designated recipient(s)). The date any Series B Conversion Notice is received by the Partnership shall be hereinafter be referred to as a “ Series B Conversion Notice Date .”
(iv) If a Series B Conversion Notice is delivered by a Series B Convertible Unitholder to the Partnership in accordance with Section 5.15(b)(iii), the Partnership shall issue the Series B Conversion Units no later than seven (7) days after a Series B Conversion Notice Date. The date of issuance of such Common Units pursuant to the preceding sentence or of the date of conversion specified in Section 5.15(b)(ii), in either case, shall be the “ Series B Conversion Date .”
(v) Immediately upon any conversion of Series B Convertible Units, all rights of a holder of converted Series B Convertible Units as a holder of Series B Convertible Units shall cease with respect to such converted Series B Convertible Units, including any rights under this Agreement with respect to holders of Series B Convertible Units, and such Person shall continue to be a Limited Partner and have the rights of a holder of Common Units under this Agreement. Upon the Series B Conversion Date, all Series B Convertible Units shall be deemed to be transferred to, and cancelled by, the Partnership in exchange for the Series B Conversion Units into which the Series B Convertible Units converted. On the Series B Conversion Date, the Partnership shall issue to such Series B Unitholder (or designated recipient(s)) a Certificate or Certificates for the number of Series B Conversion Units to which such holder shall be entitled. In lieu of delivering physical Certificates representing the Series B Conversion Units issuable upon conversion of Series B Preferred Units, provided the Transfer Agent is participating in the Depository’s Fast Automated Securities Transfer program, upon request of the Series B Unitholder, the Partnership shall use its commercially reasonable efforts to cause its Transfer Agent to electronically transmit the Series B Conversion Units issuable upon

10

EXHIBIT 3.4

conversion or distribution payment to such Series B Unitholder (or designated recipient(s)), by crediting the account of the Series B Unitholder (or designated recipient(s)) prime broker with the Depository through its Deposit Withdrawal Agent Commission system. The parties agree to coordinate with the Depository to accomplish this objective.
(vi) The Partnership shall pay any documentary, stamp or similar issue or transfer taxes or duties relating to the issuance or delivery of Common Units upon a conversion of the Series B Convertible Units. However, the holder shall pay any tax or duty which may be payable relating to any transfer involving the issuance or delivery of Common Units in a name other than the holder’s name. The Transfer Agent may refuse to deliver the Certificate representing Common Units being issued in a name other than the holder’s name until the Transfer Agent receives a sum sufficient to pay any tax or duties which will be due because the Common Units are to be issued in a name other than the holder’s name. Nothing herein shall preclude any tax withholding required by law or regulation.
(vii)    (A) The Partnership shall keep free from preemptive rights a sufficient number of Common Units to permit the conversion of all outstanding Series B Convertible Units into Common Units to the extent provided in, and in accordance with, this Section 5.15(b).
(B) All Common Units delivered upon conversion of the Series B Convertible Units shall be newly issued, duly authorized and validly issued, free from preemptive rights and free of any lien or adverse claim.
(C) The Partnership shall comply with all applicable securities laws regulating the offer and delivery of any Common Units upon conversion of Series B Convertible Units and, if the Common Units are then listed or quoted on the New York Stock Exchange, or any other National Securities Exchange or other market, shall list or cause to have quoted and keep listed and quoted the Common Units issuable upon conversion of the Series B Convertible Units to the extent permitted or required by the rules of such exchange or market.
(D) Notwithstanding anything herein to the contrary, nothing herein shall give to any holder of Series B Convertible Units any rights as a creditor in respect of its right to conversion.
(c) Allocations . Except as otherwise provided in this Amendment, all items of Partnership income, gain, loss, deduction and credit, including Unrealized Gain or Unrealized Loss to be allocated to the Partners pursuant to Section 6.1, shall be allocated to the Series B Convertible Units to the same extent as such items would be so allocated if the Series B Convertible Units were Common Units then Outstanding.
(d) Distributions . The Series B Convertible Units shall not be entitled to receive distributions pursuant to Sections 6.3, 6.4 or 6.5.

11

EXHIBIT 3.4

(e) Voting. The Series B Convertible Units will have such voting rights pursuant to the Agreement as such Series B Convertible Units would have if they were converted into Common Units as of the Record Date for any such vote and shall vote together with the Common Units and the Series A Convertible Units as a single class, except that the Series B Convertible Units shall be entitled to vote as a separate class on any matter on which Unitholders are entitled to vote that adversely affects the rights or preferences of the Series B Convertible Units in relation to other classes of Partnership Interests in any material respect or as required by law. The approval of a majority of the Outstanding Series B Convertible Units shall be required to approve any matter for which the holders of the Series B Convertible Units are entitled to vote as a separate class. For the avoidance of doubt, each reference in this Agreement to the vote of, approval by, or notice to be given to, Unitholders holding Common Units shall be deemed to be a reference to the vote of, approval by, or notice to be given to, Unitholders of Common Units, Series A Convertible Units and Series B Convertible Units and each reference to the vote of, approval by, or notice to be given to, a majority of the Outstanding Common Units shall be deemed to be a reference to the vote of, approval by, or notice to be given to, a majority of the Common Units, Series A Convertible Units and Series B Convertible Units, each as Outstanding at such time.
(f) Certificates .
(i) The Series B Convertible Units shall be evidenced by Certificates in such form as the General Partner may approve and, subject to the satisfaction of any applicable legal, regulatory and contractual requirements, may be assigned or transferred in a manner identical to the assignment and transfer of other Units; unless and until the General Partner determines to assign the responsibility to another Person, the Partnership will act as the registrar and transfer agent for the Series B Convertible Units. The Certificates evidencing Series B Convertible Units shall be separately identified and shall not bear the same CUSIP number as the Certificates evidencing Common Units.
(ii) The certificate(s) representing the Series B Convertible Units shall be imprinted with a legend in substantially the following form:
“NEITHER THE OFFER NOR SALE OF THESE SECURITIES HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER AND, IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT OR THE PARTNERSHIP HAS RECEIVED DOCUMENTATION REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER SUCH ACT. THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, DATED AS OF DECEMBER 31, 2014, AS AMENDED, A

12

EXHIBIT 3.4

COPY OF WHICH MAY BE OBTAINED FROM THE PARTNERSHIP AT ITS PRINCIPAL EXECUTIVE OFFICES.”
11. Section 6.1(d)(iii)(A) is hereby amended and restated as follows:
(A)    If the amount of cash or the Net Agreed Value of any property distributed (except cash or property distributed pursuant to Section 12.4) to any Unitholder with respect to its Units for a taxable year is greater (on a per Unit basis) than the amount of cash or the Net Agreed Value of property distributed to the other Unitholders (except a Unitholder holding Series B Convertible Units with respect to any Record Date prior to the Series B Conversion Date) with respect to their Units (on a per Unit basis), then (1) there shall be allocated gross income and gain to each Unitholder receiving such greater cash or property distribution until the aggregate amount of such items allocated pursuant to this Section 6.1(d)(iii)(A) for the current taxable year and all previous taxable years is equal to the product of (aa) the amount by which the distribution (on a per Unit basis) to such Unitholder exceeds the distribution (on a per Unit basis) to the Unitholders (not including Unitholders holding Series B Convertible Units with respect to any Record Date prior to the Series B Conversion Date) receiving the smallest distribution and (bb) the number of Units owned by the Unitholder receiving the greater distribution; and (2) the General Partner shall be allocated gross income and gain in an aggregate amount equal to the product obtained by multiplying (aa) the quotient determined by dividing (x) the General Partner’s Percentage Interest at the time in which the greater cash or property distribution occurs by (y) the sum of 100 less the General Partner’s Percentage Interest at the time in which the greater cash or property distribution occurs times (bb) the sum of the amounts allocated in clause (1) above.

12. Section 6.1(d)(x)(A) is hereby amended and restated as follows:
(A) With respect to an event triggering an adjustment to the Carrying Value of Partnership property pursuant to Section 5.5(d) during any taxable period of the Partnership ending upon, or after, the issuance of IDR Reset Common Units pursuant to Section 5.11, of Post-Initial Issuance Series A Convertible Units or of Series B Conversion Units, any Unrealized Gains and Unrealized Losses shall be allocated among the Partners in a manner that to the nearest extent possible results in the Capital Accounts maintained with respect to all IDR Reset Common Units, Post-Initial Issuance Series A Convertible Units and Series B Conversion Units equaling the product of (i) the Aggregate Quantity of IDR Reset Common Units, the total Post-Initial Issuance Series A Convertible Units Outstanding and the total Series B Conversion Units Outstanding and (ii) the Per Unit Capital Amount for an Initial Common Unit.
13. Section 6.1(d)(x) is hereby amended to add a new Section 6.1(d)(x)(D) as follows:
(D) At the election of the General Partner, after application of Section 5.5(d)(v), with respect to any taxable period ending upon, or after, the conversion of any Series B Convertible Units into Common Units, all or a portion of the remaining items of Partnership gross income or gain for such taxable period shall be allocated to each Partner holding Series B Conversion Units in the proportion of the number of Series B Conversion Units held by such Partner to the total number of Series B Conversion Units then outstanding, until each such Partner has been

13

EXHIBIT 3.4

allocated an amount of gross income or gain that increases the Capital Account maintained with respect to such Series B Conversion Units to an amount that, after taking into account the other allocations of income, gain, loss and deduction to be made with respect to such taxable period, will be equal to the product of (i) the number of Series B Conversion Units held by such Partner and (ii) the Per Unit Capital Amount for a Common Unit that is not a Series B Conversion Unit. The purpose of this allocation is to establish uniformity between the Capital Accounts underlying Series B Conversion Units and the Capital Accounts underlying Common Units that are not Series B Conversion Units.
14. Section 6.3(a) is hereby amended and restated as follows :
(a) Within 45 days following the end of each Quarter, an amount equal to 100% of Available Cash with respect to such Quarter shall, subject to Section 17-607 of the Delaware Act, be distributed in accordance with this Article VI by the Partnership to the Partners as of the Record Date selected by the General Partner, provided, however , that Common Units and Series A Convertible Units issued in connection with the 2015 Contribution Agreement shall not be entitled to distributions and allocations with respect to any Quarter ending on or prior to the Closing Date, and Series B Convertible Units issued in connection with the 2016 Exchange Agreement (prior to conversion to Series B Conversion Units) shall not be entitled to distributions. All amounts of Available Cash distributed by the Partnership on any date following the Westmoreland Closing Date from any source shall be deemed to be Operating Surplus until the sum of all amounts of Available Cash distributed by the Partnership to the Partners following the Westmoreland Closing Date pursuant to Section 6.4(b) equals the Operating Surplus from the Westmoreland Closing Date through the close of the immediately preceding Quarter. Any remaining amounts of Available Cash distributed by the Partnership on such date shall, except as otherwise provided in Section 6.5, be deemed to be “Capital Surplus.” Notwithstanding any provision to the contrary contained in this Agreement, the Partnership shall not make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate the Delaware Act or any other applicable law.
15. Section 6.10 is hereby amended to change all references to “Section 5.5(d)(iii)” to “Section 5.5(d)(iv).”
16. Article VI is hereby amended to add a new Section 6.11 as follows:
6.11     Special Provisions Relating to Series B Convertible Unitholders .
(a) Subject to transfer restrictions in Section 4.8 of this Agreement, a Unitholder holding a Series B Conversion Unit shall provide notice to the Partnership of any Transfer of a Series B Conversion Unit by the earlier of (i) thirty (30) days following such Transfer and (ii) the last Business Day of the calendar year during which such Transfer occurred, unless (x) the Transfer is to an Affiliate of such Unitholder or (y) by virtue of the application of Section 5.5(d)(v) and Section 6.1(d)(x), the Partnership has previously determined, based on the advice of counsel, that the Series B Conversion Unit should have, as a substantive matter, like intrinsic economic and federal income tax characteristics of an Initial Common Unit. In connection with the condition imposed by this Section 6.11, the Partnership shall take whatever steps are required to provide

14

EXHIBIT 3.4

economic uniformity to the Series B Conversion Unit in preparation for a Transfer of such Unit; provided, however , that no such steps may be taken that would have a material adverse effect on the Unitholders holding Common Units (for this purpose the allocations of income, gain, loss and deductions, and the making of any guaranteed payments or any reallocation of Capital Account balances among the Partners in accordance with Section 5.5(d)(v) or Section 6.1(d)(x) and Treasury Regulation Section 1.704-1(b)(2)(iv)(s)(4) with respect to Series B Convertible Units or Series B Conversion Units will be deemed not to have a material adverse effect on the Unitholders holding Common Units).
(b) Notwithstanding anything to the contrary set forth in this Agreement, the holders of the Series B Convertible Units (i) shall (A) possess the rights and obligations provided in this Agreement with respect to a Limited Partner pursuant to Article III and Article VII and (B) have a Capital Account as a Partner pursuant to Section 5.5 and all other provisions related thereto and (ii) shall not (A) be entitled to vote on any matters requiring the approval or vote of the holders of Outstanding Units, except as provided in Section 5.15 or (B) be entitled to any distributions other than as provided in Section 5.15, Article VI and Article XII.
B. Agreement in Effect . Except as hereby amended, the Partnership Agreement shall remain unchanged and unmodified and in full force and effect.
C. Applicable Law . This Amendment shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of laws.
D. Severability . Each provision of this Amendment shall be considered severable and if for any reason any provision or provisions herein are determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of this Amendment that are valid, enforceable and legal.

15

EXHIBIT 3.4

IN WITNESS WHEREOF , the undersigned has executed this Amendment as of the effective date written above.
GENERAL PARTNER:
WESTMORELAND RESOURCES GP, LLC
By: /s/ Jennifer S. Grafton    
Name: Jennifer S. Grafton    
Title: Chief Legal Officer    









16

EXHIBIT 3.4

EXHIBIT B
TO
AMENDMENT NO. 2 TO
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
WESTMORELAND RESOURCE PARTNERS, LP

NOTICE OF CONVERSION


This Notice of Conversion is executed by the undersigned holder (the “ Holder ”) in connection with the conversion of Series B Convertible Units of Westmoreland Resource Partners, LP, a Delaware limited partnership (the “ Partnership ”), pursuant to the terms and conditions of that certain Fourth Amended and Restated Agreement of Limited Partnership of the Partners, as amended (the “ Partnership Agreement ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Partnership Agreement.

Conversion : In accordance with and pursuant to such Partnership Agreement, the Holder hereby elects to convert the number of Series B Convertible Units indicated below into Common Units of the Partnership as of the date specified below.



Series B Convertible Units held Prior to Conversion:          

Certificates evidencing Series B Convertible Units to be Converted (attached herewith, duly endorsed):          

Series B Convertible Units Being Converted Hereby:          

Common Units Due:          

Series B Convertible Units held After Conversion:          
Name(s) for Common Unit Certificate:          
Address for Delivery of Certificate:          

Authority : Any individual executing this Notice of Conversion on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Notice of Conversion on behalf of such entity.
[SIGNATURE PAGE FOLLOWS]



Westmoreland Resource Partners LP: Notice of Conversion of Series B Convertible Units    Page 1
EXHIBIT 3.4

IN WITNESS WHEREOF, the undersigned has executed this Notice of Conversion.
HOLDER:

[INSERT SIGNATURE BLOCK]


Westmoreland Resource Partners LP: Notice of Conversion of Series B Convertible Units    Page 2
EXHIBIT 10.1

EXCHANGE AGREEMENT

THIS EXCHANGE AGREEMENT (this “ Agreement ”) is made and entered into to be effective for all purposes as of October 28, 2016 (the “ Exchange Closing Date ”), by and between Westmoreland Resource Partners, LP, a Delaware limited partnership (the “ Partnership ”), and Westmoreland Coal Company, a Delaware corporation (“ WCC ”).

RECITALS

WHEREAS, WCC is the 100% owner of Westmoreland Resources GP, LLC, a Delaware limited liability company and the general partner of the Partnership (the “ GP ”);
WHEREAS, WCC owns 4,512,500 common units representing limited partner interests in the Partnership (the “ WCC Common Units ”);
WHEREAS, WCC desires to cancel all of the WCC Common Units in exchange for the issuance by the Partnership of 4,512,500 Series B Convertible Units representing limited partner interests in the Partnership (the “ Series B Units ”) the terms of which are specified in the LPA Amendment (as hereinafter defined);
WHEREAS, in order to facilitate the exchange of the WCC Common Units for the Series B Units, WCC has caused the GP to execute and deliver Amendment No. 2 (the “ LPA Amendment ”) to the Fourth Amended and Restated Agreement of Limited Partnership of Westmoreland Resource Partners, LP (as amended, the “ Partnership Agreement ”) simultaneously with the execution and delivery of this Agreement by the parties hereto.
NOW, THEREFORE, in consideration of the premises, warranties and mutual covenants set forth herein, the parties hereto agree as follows:
1. Cancellation . As of the effectiveness of the LPA Amendment on the Exchange Closing Date, WCC shall grant, sell, assign, convey and deliver to the Partnership for cancellation all of the WCC Common Units free and clear of any encumbrances, and the Partnership shall cancel the WCC Common Units effective as of such time (the “ Cancellation ”).
2. Exchange . In exchange for the Cancellation and following the GP’s execution and delivery to the Partnership of the LPA Amendment, the Partnership shall issue the Series B Units to WCC, which Series B Units shall be subject to the terms and conditions of the Partnership Agreement as amended by the LPA Amendment.
3. Tax Treatment . The parties agree and acknowledge that the exchange of the WCC Common Units for the Series B Units is a non-taxable transaction for federal tax purposes.

 
EXHIBIT 10.1

4. Acknowledgements by WCC . WCC represents, warrants and acknowledges that, other than (a) the Series A Convertible Units representing limited partner interests in the Partnership (the “ Series A Units ”) held by WCC, (b) warrants to purchase 55,519 common units representing limited partner interests in the Partnership (the “Warrants”), (c) the General Partner Units (“ GP Units ”) and (d) the Incentive Distribution Rights (“ IDRs ”) in the Partnership held by the GP, the WCC Common Units represent all of WCC’s economic interest in the Partnership and, following the effectiveness of the transactions contemplated by clauses 1 and 2 above, other than with respect to the GP Units, the IDRs, the Warrants, the Series A Units and the Series B Units, the rights of WCC shall not include any rights to profits or losses or any rights to receive distributions from operations or upon the liquidation or winding-up of the Partnership.
5. Acknowledgements by the Partnership . The Series B Units to be issued under this Agreement, when issued and delivered by the Partnership in accordance with the terms of this Agreement, will be validly issued and fully paid (to the extent required by the Partnership Agreement) and non-assessable (except as such non-assessability may be affected by Sections 17-303, 17-607 and 17-804 of the Delaware Revised Uniform Limited Partnership Act).
6. Successors and Assigns; Third Party Beneficiaries . This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto or the parties’ respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.
7. Further Assurances . From time to time and without additional consideration, each of the Partnership and WCC shall execute and deliver, or cause to be executed and delivered, such additional and further transfers, assignments, endorsements, consents and other instruments and take such other action as may be necessary or advisable to effect the actions and consummate the transactions contemplated by this Agreement.
8. Modification and Waiver . No supplement, modification, waiver or termination of this Agreement or any provision hereof shall be binding unless executed in writing by the parties to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
9. Execution in Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement.

 
EXHIBIT 10.1

10. Governing Law . This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof.
[ Signature page follows ]
 
 

 
EXHIBIT 10.1


IN WITNESS WHEREOF, this Agreement is executed to be effective as of the Exchange Closing Date.
 
 
 
 
 
 
 
 
 
 
WESTMORELAND RESOURCE PARTNERS, LP
 

By: Westmoreland Resources GP, LLC, its general partner
 

By: /s/ Samuel N. Hagreen __________
Name: Samuel N. Hagreen
 
Title: Secretary

 
 
 
WESTMORELAND COAL COMPANY
 
 
 
By:   /s/ Jennifer S. Grafton ______________
Name: Jennifer S. Grafton
 
Title: Chief Administrative Officer, SVP and Secretary

 
 
 
 
 
 
 
 
 
 
 









[ Signature Page to Exchange Agreement ]

 


Exhibit 31.1
Certification
I, Kevin A. Paprzycki, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Westmoreland 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;
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:
November 1, 2016
/s/ Kevin A. Paprzycki
 
 
Name:
Kevin A. Paprzycki
 
 
Title:
Chief Executive Officer
 
 
 
(Principal Executive Officer)






Exhibit 31.2
Certification
I, Jason W. Veenstra, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Westmoreland 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;
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:
November 1, 2016
/s/ Jason W. Veenstra
 
 
Name:
Jason W. Veenstra
 
 
Title:
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer and A Duly Authorized Officer)  





Exhibit 32
Statement Pursuant to 18 U.S.C. § 1350
Pursuant to 18 U.S.C. § 1350, each of the undersigned certifies that this Quarterly Report on Form 10-Q for the period ended September 30, 2016 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Westmoreland Resource Partners, LP.
Date:
November 1, 2016
/s/ Kevin A. Paprzycki
 
 
Name:
Kevin A. Paprzycki
 
 
Title:
Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
November 1, 2016
/s/ Jason W. Veenstra
 
 
Name:
Jason W. Veenstra
 
 
Title:
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer and A Duly Authorized Officer)  

A signed original of this written statement required by Section 906 has been provided to Westmoreland Resource Partners, LP and will be retained by Westmoreland Resource Partners, LP and furnished to the Securities and Exchange Commission or its staff upon request.





EXHIBIT 95.1
Mine Safety Disclosure
The following disclosures are provided pursuant to Securities and Exchange Commission (SEC) regulations, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate coal mines regulated under the Federal Mine Safety and Health Act of 1977 (the Mine Act). The disclosures reflect United States (U.S.) mining operations only, as these requirements do not apply to our mines operated outside the U.S. 
Mine Safety Information.   Whenever the Mine Safety and Health Administration (MSHA) believes that a violation of the Mine Act, any health or safety standard, or any regulation has occurred, it may issue a violation which describes the associated condition or practice and designates a timeframe within which the operator must abate the violation. In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until hazards are corrected. Whenever MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the violation that the operator is ordered to pay. Citations and orders can be contested and appealed and, as part of that process, are often reduced in severity and amount, and are sometimes vacated. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the company and mine. Since MSHA is a branch of the U.S. Department of Labor, its jurisdiction applies only to our U.S. mines. As such, the mine safety disclosures that follow contain no information for our Canadian mines.
The table that follows reflects citations and orders issued to us by MSHA during the quarter ended September 30, 2016 . The table includes only those mines that were issued orders or citations during the period presented and, commensurate with SEC regulations, does not reflect orders or citations issued to independent contractors working at our mines. Due to timing and other factors, our data may not agree with the mine data retrieval system maintained by MSHA. The proposed assessments for the quarter ended September 30, 2016 were taken from the MSHA system as of October 26, 2016 .

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Westmoreland Resources Partners, LP
10-Q Safety Statistics
Quarter Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Received
Received
 
 
 
 
 
 
 
 
 
 
Total
Notice of
Notice of
Legal
 
 
 
 
 
Section
 
 
Total Dollar
Number
Pattern of
Potential
Actions
Legal
Legal
Mine or
 
 
104(d)
 
 
Value of
of
Violations
to Have
Pending
Actions
Actions
Operating
Section
Section
Citations
Section
Section
MSHA
Mining
Under
Pattern
as of
Initiated
Resolved
Name/MSHA
104 S&S
104(b)
and
110(b)(2)
107(a)
Assessments
Related
Section
Under
Last Day
During
During
Identification
Citations
Orders
Orders
Violations
Orders
Proposed
Fatalities
(yes/no)
(yes/no)
of Period
Period
Period
Number
(#)(1)
(#)(2)
(#)(3)
(#)(4)
(#)(5)
($)(6)
(#)(7)
(8)
(8)
(#)(9)
(#)(9)
(#)(9)
Kemmerer Mine
 
 
 
 
 
 
 
 
 
 
 
 
48-00086
2

—

—

—

—

$
5,601

—

No
No
10

6

—

Oxford Mine
 
 
 
 
 
 
 
 
 
 
 
 
33-03907
—

—

—

—

—

$
342

—

No
No
1

—

—


(1)
Mine Act Section 104(a) citations are for alleged violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal mine safety or health hazard.
(2)
Mine Act Section 104(b) orders are for alleged failures to totally abate a citation within the period of time specified in the citation.
(3)
Mine Act Section 104(d) citations and orders are for an alleged unwarrantable failure to comply with mandatory health or safety standards.
(4)
Total number of flagrant violations issued under Section 110(b)(2) of the Mine Act.
(5)
Mine Act Section 107(a) orders are for alleged conditions or practices that could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated and result in orders of immediate withdrawal from the area of the mine affected by the condition.
(6)
Total dollar value of MSHA assessments proposed during the quarter ended September 30, 2016 .
(7)
Total number of mining-related fatalities during the quarter ended September 30, 2016 .
(8)
Mine Act Section 104(e) written notices are for an alleged pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of a coal mine health or safety hazard, or the potential to have such a pattern.
(9)
Any pending legal action before the Federal Mine Safety and Health Review Commission (the “Commission”) involving a coal mine owned and operated by us.  The number of legal actions pending as of September 30, 2016 that fall into each of the following categories is as follows:
(a)  Contests of citations and orders:  0
(b)  Contests of proposed penalties:  0
(c)  Complaints for compensation: 0
(d)  Complaints of discharge, discrimination or interference: 0
(e)  Applications for temporary relief: 0
(f)  Appeals of judges' decisions or orders to the Federal Mine Safety and Health Review Commission: 0


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