Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of Estimates |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Purchase and Pushdown Accounting |
WCC's acquisition of our GP was accounted for using the acquisition method under ASC 805, Business Combination. Under the acquisition method, the purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates. These adjustments may be significant and will be accounted for retrospectively. |
Per ASC 805-50-25-4 (effective November 18, 2014), we, as an acquiree of WCC through our GP, have the option to apply pushdown accounting in our consolidated financial statements when an acquirer (WCC) obtained control of us. We have chosen adopt pushdown accounting and will reflect purchase accounting adjustments in our consolidated financial statement. |
Cash |
Cash consists of cash held with reputable depository institutions and is stated at cost which approximates fair value. At times, such deposits may be in excess of the FDIC insurance limit. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk relating to such amounts. |
Trade Receivables |
Trade receivables are recorded at the invoiced amount and do not bear interest. The Partnership evaluates the need for an allowance for doubtful accounts based on a review of collectability. There was no allowance for doubtful accounts as of December 31, 2014 and 2013. |
Inventory |
Inventory, which includes materials and supplies as well as raw coal, is stated at the lower of cost or market. Cost is determined using the average cost method. Coal inventory costs include labor, supplies, equipment, operating overhead and other related costs. |
Restricted Investments and Bond Collateral |
We had restricted cash related to Harrison Resources of $3,969 as of December 31, 2013, which is included in our consolidated balance sheets as Restricted investments and bond collateral. Harrison Resources’ cash, which is deemed to be restricted due to the limitations of its use for Harrison Resources’ operations, primarily relates to funds set aside for future reclamation obligations. There are not any further restrictions on Harrison Resources' cash following the redemption of the noncontrolling interest effective October 1, 2014. See the Noncontrolling Interest section of this Note 2 and Note 15. |
Exploration and Mine Development |
Exploration expenditures are charged to Cost of coal revenues as incurred, including costs related to drilling and study costs incurred to convert or upgrade mineral resources to reserves. |
At existing surface mines, additional pits may be added to increase production capacity. These expansions may require significant capital to purchase or relocate equipment, build or improve existing haul roads and create the initial cut to remove overburden for new pits at existing mines. If these pits operate in a separate and distinct area of the mine, the costs associated with initially uncovering coal for production are capitalized and amortized over the life of the developed pit consistent with coal industry practices. Once production has begun, mining costs are then expensed as incurred. |
Where new pits are routinely developed as part of a contiguous mining sequence, the Partnership expenses such costs as incurred. The development of a contiguous pit typically reflects the planned progression of an existing pit, thus maintaining production levels from the same mining area utilizing the same employee group and equipment. |
Property, Plant and Equipment |
Property, plant and equipment are recorded at cost or fair value as a result of purchase accounting as previously discussed. Expenditures that extend the useful lives of existing plant and equipment or increase productivity of the assets are capitalized. Maintenance and repair costs that do not extend the useful life or increase productivity of the asset are expensed as incurred. Coal reserves are recorded at cost, or at fair value originally in the case of acquired businesses and application of pushdown accounting. |
Coal reserves, mineral rights and mine development costs are depleted based upon estimated recoverable proven and probable reserves. Plant and equipment are depreciated on a straight-line basis over the assets’ estimated useful lives as follows: |
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| Years | | | | | | | |
Buildings and tipple | 25 - 39 | | | | | | | |
Machinery and equipment | 1 - 12 | | | | | | | |
Vehicles | 7-May | | | | | | | |
Furniture and fixtures | 7-Mar | | | | | | | |
We assess the carrying value of our property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing estimated undiscounted cash flows expected to be generated from such assets to their net book value. If net book value exceeds estimated cash flows, the asset is written down to fair value. When an asset is retired or sold, its cost and related accumulated depreciation and depletion are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss. Fully depreciated plant and equipment still in use are not eliminated from the accounts. Amortization of capital leases is included in Depreciation, depletion and amortization. |
Advanced Coal Royalties |
A portion of our reserves are leased. Advanced coal royalties are advance payments made to lessors under terms of lease agreements that are typically recoupable through an offset or credit against royalties payable on future production. We write-off advanced coal royalties when recoverability is no longer probable based on future mining plans. |
Deferred Financing Costs |
We capitalize costs incurred in connection with borrowings or establishment of credit facilities and issuance of debt securities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or term of the credit facility using the effective interest method. These amounts are recorded in Deferred financing costs, net in the accompanying consolidated balance sheets. |
Financial Instruments |
Our financial instruments include cash, accounts receivable, restricted investments and bond collateral, accounts payable, fixed rate debt and variable rate debt. In 2012, we also had an interest rate swap agreement. We do not hold or purchase financial instruments or derivative financial instruments for trading purposes. |
Our financial instruments include fixed price forward contracts for diesel fuel. Our risk management policy allows us to purchase up to 80% of our unhedged diesel fuel gallons on fixed price forward contracts. These contracts meet the normal purchases and sales exclusion and therefore are not accounted for as derivatives. These forward fuel contracts usually have a term of 1 year or less, and we take physical delivery of all the fuel supplied under these contracts except in the case of one Illinois Basin contract which was modified in connection with its cancellation. |
Warrants |
In connection with our refinancing in June 2013, certain of the second lien lenders and lender affiliates received warrants entitling them to purchase common and subordinated units under a freestanding contract. The subordinated unit warrants were canceled on December 31, 2014. Pursuant to Financial Accounting Standards Board's Codification Topic 470-20, “Debt With Conversion and Other Options” (ASC 470-20), freestanding contracts that are settled in a company’s own stock, including common and subordinated unit warrants, are to be designated as an asset, liability or equity instrument. Both the common and subordinated unit warrants were determined to be liabilities and were recorded at fair value as determined using the Black-Scholes Pricing Model. ASC 470-20 further requires that the warrants' fair value be remeasured each reporting period, with the change in fair value being reported in the consolidated statements of operations. Fair value determinations prepared using the Black-Scholes Pricing Model require assumptions related to interest rates, unit price, exercise price, term and volatilities. |
Intangible Assets |
Identifiable intangible assets acquired in a business combination must be recognized and reported separately from goodwill. These intangible assets are amortized on a straight-line basis over the respective useful life of the asset. See Note 8 for further details. |
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Deferred Revenue |
Deferred revenues represent funding received upon the negotiation of contracts for coal royalty and limestone sales. These deferred revenues are recognized as deliveries of the reserved coal or limestone are made in accordance with the contracts. At December 31, 2014, deferred revenue was adjusted to fair value of zero in purchase accounting since there is no future legal performance obligation of the Successor. |
Asset Retirement Obligations |
Our asset retirement obligations, or ARO, primarily consists of estimated costs to reclaim surface land and support facilities at our mines and in accordance with federal and state reclamation laws as established by each mining permit. |
We estimate ARO for final reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future costs for a third party to perform the required work. These estimates are based on projected pit configurations at the end of mining and are escalated for inflation, and then discounted at a credit adjusted risk-free rate. We record mineral rights associated with the initial recorded liability. Mineral rights are amortized based on the units of production method over the estimated recoverable, proven and probable reserves at the related mine, and the ARO is accreted to the projected settlement date. Changes in estimates could occur due to revisions of mine plans, changes in estimated costs, and changes in timing of the performance of reclamation activities. See Note 10. |
Income Taxes |
As a partnership, we are not a taxable entity for federal or state income tax purposes; the tax effect of our activities passes through to our unitholders. Therefore, no provision or liability for federal or state income taxes is included in our financial statements. Net income (loss) for financial statement purposes may differ significantly from taxable income (loss) reportable to our unitholders as a result of timing or permanent differences between financial reporting under US GAAP and the regulations promulgated by the Internal Revenue Service. |
Revenue Recognition |
Revenue from coal sales is recognized at the time title and risk of loss passes to the customer in accordance with the terms of the underlying sales agreements and after any contingent performance obligations have been satisfied. Coal sales prices are subject to premiums and reductions based on variations in coal quality delivered versus specifications in our coal supply contracts, but such adjustments are typically confirmed in a matter of days. Risk of loss typically transfers to the customer at the mine or dock, when the coal is loaded on the rail, barge, or truck. |
Royalty revenue relates to coal reserves which we lease to others and oil and gas rights. For the years ended 2014, 2013 and 2012, we received royalties of $0.3 million, $0.01 million and $1.5 million, respectively. |
Non-coal revenue consists primarily of clay and limestone sales, service fees, and other miscellaneous revenue. Clay and limestone sales relate to material we recover during the coal mining process and sell to third parties. Additionally service fees are earned for operating a coal unloading facility, providing river barge loading services, and hauling ash. Periodically, we recognize miscellaneous revenue related to lost coal claims that result from granting third-party right-of-way access through small portions of various mine complexes. In 2014, we also received $19.5 million from a former customer to compensate us for lost profits on a wrongfully terminated contract. |
Below-Market Coal Sales Contracts |
Our below-market coal sales contracts were acquired through the Phoenix Coal acquisition in 2009 and represent contracts for which the prevailing market price for the specified coal was in excess of the contract price. The fair value was based on discounted cash flows resulting from the difference between the below-market contract price and the prevailing market price at the date of acquisition. The fair value adjustments are amortized into coal sales on the basis of tons shipped over the terms of the respective contracts. Amortization of these below-market contracts included in revenue was $0.1 million and $0.6 million for the years ended December 31, 2013 and 2012, respectively. The current portion of the net carrying value of our below-market coal sales contracts was reflected in our consolidated balance sheets as Other current liabilities. No such amounts remained at December 31, 2013. |
Equity-Based Compensation |
Equity-based compensation expense is generally measured at the grant date and recognized as expense over the vesting period of the entire award. These costs are recorded in Cost of coal revenues and Selling and administrative in the accompanying consolidated results of operations. See Note 13. |
Noncontrolling Interest |
Noncontrolling interest is reported as a separate component of equity. The amount of net income (loss) attributable to the noncontrolling interest is recorded in Net income (loss) attributable to noncontrolling interest in our consolidated statements of operations. See Note 15. |
Earnings (Losses) Per Unit |
For purposes of our earnings per unit calculation, we apply the two class method. All outstanding limited partner units and general partner units share pro rata in income (loss) allocations and distributions, but only our general partner has voting rights. Limited partner units are further segregated into common units and subordinated units. As of December 31, 2014, the subordinated units were converted to liquidation units. |
Limited Partner Units: Basic earnings (losses) per unit are computed by dividing net income (loss) attributable to limited partners by the weighted average units outstanding, including unexercised participating warrants, during the reporting period. Diluted earnings (losses) per unit are computed similar to basic earnings (losses) per unit except that the weighted average units outstanding and net income (loss) attributable to limited partners are increased to include the dilutive effect of phantom units that would be issued assuming conversion to limited partnership units upon vesting. No such items were included in the computation of diluted loss per unit for the years ended 2014, 2013 or 2012 because we incurred a loss in each of these periods and the effect of inclusion would have been anti-dilutive. |
General Partner Units: Basic earnings (losses) per unit are computed by dividing net income (loss) attributable to our GP by the weighted average units outstanding, including unexercised participating warrants, during the reporting period. Diluted earnings (losses) per unit for our GP are computed similar to basic earnings (losses) per unit except that the net income (loss) attributable to the general partner units is adjusted for the dilutive impact of the phantom units. No such items were included in the computation of diluted loss per unit for the years ended 2014, 2013 or 2012 because we incurred a loss in each of these periods and the effect of inclusion would have been anti-dilutive. |
The table below shows the number of units that were excluded from the calculation of diluted loss per unit because their inclusion would be anti-dilutive to the calculation: |
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| Year Ended December 31, |
| 2014 | | 2013 | | 2012 |
Long-term incentive plan units | 70,298 | | | 42,694 | | | 371 | |
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Accounting Pronouncement Effective in the Future |
In April 2014, the FASB issued ASU 2014-8, Presentation of Financial Statements and Property, Plant and Equipment, which changes the presentation of discontinued operations on the statements of operations and other requirements for reporting discontinued operations. Under the new standard, a disposal of a component or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component meets the criteria to be classified as held for sale or is disposed. The amendments in this update also require additional disclosures about discontinued operations and disposal of an individually significant component of an entity that does not qualify for discontinued operations. The new guidance is effective for interim and annual periods beginning after December 15, 2014. We adopted ASU 2014-8 effective January 1, 2015. |
In May 2014, the FASB issued ASU 2014-9, Revenue From Contracts With Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to receive in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The new guidance is effective for the interim and annual periods beginning after December 15, 2016; early adoption is not permitted. We are currently assessing the impact that this standard will have on our consolidated financial statements. |
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared based on the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The new guidance is effective for the interim and annual periods beginning after December 15, 2016; early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. |
In August 2014, the FASB issued ASU 2014-17, Pushdown Accounting, which allows entities the option to elect pushdown of purchase accounting each time there is a change-in-control event in which an acquirer obtains control of the acquiree. If an acquiree does not initially elect to apply pushdown accounting upon a change-in-control event, it can subsequently elect to apply pushdown accounting to its most recent change-in-control event in a later reporting period as a change in accounting principle. Once made, the election to apply pushdown accounting is irrevocable. Entities applying pushdown accounting are required to measure the individual assets and liabilities of the acquired entity based on the measurement guidance in ASC 805, including the recognition of goodwill. However, any bargain purchase gain recognized by the acquirer should not be recognized in the acquiree’s income statement, but rather as an adjustment to additional paid-in capital. Acquisition-related debt is recognized by the acquiree only if the acquired entity is required to recognize a liability for debt in accordance with other applicable guidance. See our application of ASU 2014-17 in Note 3. |
Reclassifications |
Certain prior-year amounts have been reclassified in our consolidated balance sheets, statements of operations and statements of cash flows as of December 31, 2013 and 2012 to conform with the financial statement line items used by our GP's parent, WCC. |