UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2008
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number:
001-33466
PATRIOT COAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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20-5622045
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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12312 Olive Boulevard, Suite 400
St. Louis, Missouri
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63141
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(Address of principal executive offices)
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(Zip Code)
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(314) 275-3600
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
There were
77,383,116 shares of common stock with a par value of $0.01 per share outstanding on
August 11, 2008.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PATRIOT COAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended June 30,
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Six Months Ended June 30,
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2008
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2007
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2008
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2007
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(Dollars in thousands)
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Revenues
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Sales
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$
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328,469
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$
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255,466
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$
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607,570
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$
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524,507
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Other revenues
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11,211
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755
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16,444
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1,377
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Total revenues
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339,680
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256,221
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624,014
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525,884
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Costs and Expenses
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Operating costs and expenses
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295,447
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272,324
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554,565
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549,989
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Depreciation, depletion and amortization
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20,905
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19,560
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39,515
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40,918
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Asset retirement obligation expense
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3,259
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3,640
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6,675
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9,295
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Selling and administrative expenses
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9,488
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10,889
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17,777
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21,798
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Net gain on disposal or exchange of assets
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(6,336
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(45,800
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(6,530
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(81,026
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Operating Profit (Loss)
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16,917
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(4,392
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12,012
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(15,090
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Interest expense
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5,216
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1,963
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7,538
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4,788
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Interest income
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(3,621
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(2,120
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(6,870
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(4,766
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Income (Loss) Before Income Taxes and
Minority Interests
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15,322
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(4,235
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11,344
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(15,112
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Income tax provision
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3,507
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2,595
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Minority interests
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1,579
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2,653
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Net Income (Loss)
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$
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11,815
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$
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(5,814
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$
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8,749
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$
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(17,765
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Weighted average shares outstanding
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Basic
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53,141,880
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53,141,880
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Effect of dilutive securities
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705,588
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704,948
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Diluted
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53,847,468
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N/A
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53,846,828
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N/A
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Earnings per share, basic and diluted
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$
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0.22
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N/A
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$
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0.16
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N/A
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See accompanying notes to unaudited condensed consolidated financial statements.
1
PATRIOT COAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited)
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June 30, 2008
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December 31, 2007
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(Dollars in thousands)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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2,993
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$
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5,983
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Accounts receivable and other, net of allowance for doubtful accounts of
$541 and $251 as of June 30, 2008 and December 31, 2007, respectively
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163,179
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125,985
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Inventories
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34,518
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31,037
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Prepaid expenses and other current assets
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11,791
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6,214
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Restricted cash
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193,100
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Total current assets
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405,581
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169,219
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Property, plant, equipment and mine development
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Land and coal interests
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695,876
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689,338
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Buildings and improvements
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313,670
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282,703
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Machinery and equipment
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329,717
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330,338
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Less accumulated depreciation, depletion and amortization
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(462,368
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(426,090
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Property, plant, equipment and mine development, net
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876,895
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876,289
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Notes receivable
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132,960
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126,381
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Investments and other assets
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52,527
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27,948
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Total assets
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$
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1,467,963
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$
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1,199,837
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Short-term borrowings
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$
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20,000
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$
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Trade accounts payable
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79,504
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66,811
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Accrued expenses
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132,589
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117,708
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Total current liabilities
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232,093
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184,519
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Long-term debt, less current maturities
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210,453
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11,438
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Asset retirement obligations
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136,005
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134,364
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Workers compensation obligations
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189,306
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192,730
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Accrued postretirement benefit costs
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531,546
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527,315
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Obligation to industry fund
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29,450
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31,064
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Other noncurrent liabilities
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38,950
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36,091
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Total liabilities
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1,367,803
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1,117,521
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Stockholders equity:
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Common stock ($0.01 par value; 100,000,000 shares authorized; 53,514,426
and 53,517,536 shares issued and outstanding at June 30, 2008 and
December 31, 2007, respectively)
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535
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535
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Additional paid-in capital
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193,382
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189,184
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Accumulated deficit
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(24,614
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(33,363
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Accumulated other comprehensive loss
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(69,143
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(74,040
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Total stockholders equity
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100,160
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82,316
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Total liabilities and stockholders equity
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$
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1,467,963
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$
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1,199,837
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See accompanying notes to unaudited condensed consolidated financial statements.
2
PATRIOT COAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended June 30,
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2008
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2007
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(Dollars in thousands)
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Cash Flows From Operating Activities
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Net income (loss)
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$
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8,749
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$
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(17,765
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Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
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Depreciation, depletion and amortization
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39,515
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40,918
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Net gain on disposal or exchange of assets
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(6,530
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(81,026
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Income tax provision
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2,595
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Stock-based compensation expense
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4,207
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Changes in current assets and liabilities:
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Accounts receivable
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(37,194
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6,664
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Inventories
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(3,481
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(16,089
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Other current assets
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(5,577
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(3,484
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Accounts payable and accrued expenses
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24,921
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(8,294
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Interest on notes receivable
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(6,426
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)
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(3,508
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Asset retirement obligations
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3,934
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(5,430
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Workers compensation obligations
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(4,574
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3,209
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Accrued postretirement benefit costs
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10,380
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14,248
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Obligation to industry fund
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(1,716
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7,976
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Other, net
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2,409
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1,116
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Net cash provided by (used in) operating activities
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31,212
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(61,465
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Cash Flows From Investing Activities
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Additions to property, plant, equipment and mine development
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(33,422
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(26,486
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Additions to advance mining royalties
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(3,130
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(2,114
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Investment in joint ventures
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(14,650
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)
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Proceeds from disposal or exchange of assets, net of notes receivable
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1,259
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33,942
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Net change in receivables from former affiliates
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66,258
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Net cash provided by (used in) investing activities
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(49,943
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)
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71,600
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Cash Flows From Financing Activities
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Convertible notes proceeds
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200,000
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Restricted cash for Magnum acquisition
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(193,100
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)
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Short-term borrowings
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20,000
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Deferred financing costs
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(10,232
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)
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Long-term debt payments
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(927
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)
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(631
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)
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Net cash provided by (used in) financing activities
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15,741
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(631
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)
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Net increase (decrease) in cash and cash equivalents
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(2,990
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)
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9,504
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Cash and cash equivalents at beginning of year
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5,983
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|
398
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Cash and cash equivalents at end of period
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$
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2,993
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$
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9,902
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See accompanying notes to unaudited condensed consolidated financial statements.
3
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(1) Basis of Presentation
Basis of Presentation
Effective October 31, 2007, Patriot Coal Corporation (Patriot) was spun off from Peabody
Energy Corporation (Peabody). Patriot includes coal assets in Appalachia and the Illinois Basin,
and includes operations in West Virginia and Kentucky. The spin-off was accomplished through a
dividend of all outstanding shares of Patriot, resulting in Patriot becoming a separate,
publicly-traded company traded on the New York Stock Exchange (symbol PCX).
All significant transactions, profits and balances have been eliminated between Patriot and
its subsidiaries. Patriot operates in two domestic coal segments; Appalachia and the Illinois
Basin (see Note 9).
The statements of operations and cash flows and related discussions below for the three and
six months ended June 30, 2007 primarily relate to Patriots historical results and may not
necessarily reflect what its results of operations and cash flows will be in the future or would
have been as a stand-alone company. Upon the completion of the spin-off, Patriots capital
structure changed significantly. At the spin-off date, Patriot entered into various operational
agreements with Peabody, including certain on-going agreements that enhance both the financial
position and cash flows of Patriot. Such agreements include the assumption by Peabody of certain
retiree healthcare liabilities and the repricing of a major coal supply agreement to be more
reflective of the then current market pricing for similar quality coal.
The accompanying condensed consolidated financial statements as of June 30, 2008 and for
the three and six months ended June 30, 2008 and 2007, and the notes thereto, are unaudited.
However, in the opinion of management, these financial statements reflect all normal, recurring
adjustments necessary for a fair presentation of the results of the periods presented. Operating
results for the three and six months ended June 30, 2008 may not necessarily be indicative of
the results for the year ended December 31, 2008. The balance sheet information as of December
31, 2007 was derived from Patriots audited consolidated balance sheet.
Effective August 11, 2008, Patriot implemented a 2-for-1 stock split to be effected in the
form of a 100% stock dividend. All share and per share amounts in these unaudited condensed
consolidated financial statements and related notes reflect this stock split, including share
information related to the newly-issued Convertible Senior Notes and the recent Magnum Coal
Company (Magnum) acquisition.
Magnum Acquisition
On April 2, 2008, Patriot entered into an agreement to acquire Magnum. Magnum is one of the
largest coal producers in Appalachia, operating 11 mines and 7 preparation plants with more than
60% of its production from surface mines and controlling more than 600 million tons of proven
and probable coal reserves. On July 23, 2008, Patriot consummated the acquisition of Magnum. See
Note 14 for additional information on the acquisition. In conjunction with the acquisition,
Patriot issued additional debt in order to repay Magnums existing senior secured indebtedness.
See Note 10 for additional information.
Description of Business
Patriot is engaged in the mining of thermal coal, also known as steam coal, for sale
primarily to electric utilities and metallurgical coal for sale to steel mills and independent
coke producers. Patriots mining operations and coal reserves are located in the eastern and
midwestern United States, primarily in West Virginia and Kentucky.
(2) New Accounting Pronouncements
FASB Statement No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measures. SFAS No. 157 clarifies that fair
value is a market-based measurement that should be determined based on the assumptions that
market participants would use in pricing an asset or liability
.
SFAS No. 157 establishes a
three-level fair value hierarchy for fair value to be measured based on the observability of the
inputs utilized in the valuation. The levels are Level 1 quoted prices in an active market,
Level 2 inputs other than a quoted price market that are directly or indirectly observable
through market corroborated inputs and Level 3 inputs that are unobservable and require
assumptions about pricing by market participants. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The provisions of SFAS No. 157 are to be applied on a
prospective basis, with the exception of certain financial instruments for which retrospective
application is required. The Company adopted SFAS No. 157 on January 1, 2008, with no impact
upon adoption. Subsequent transactions were recorded in accordance with SFAS No. 157.
4
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
FASB Statement No. 159
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently required to
be measured at fair value. Entities electing the fair value option are required to recognize
changes in fair value in earnings and to expense upfront costs and fees associated with each
item for which the fair value option is elected. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company adopted SFAS No. 159 on January 1, 2008, with no
impact to the financial statements since the Company did not elect fair value treatment for any
items not currently required to be measured at fair value.
(3) Gain on Disposal or Exchange of Assets and Other Commercial Transactions
In June 2008, Patriot entered into an agreement to swap certain leasehold coal mineral
rights with another coal producer. Additionally, Patriot sold approximately 2.7 million tons of
adjacent leasehold coal mineral rights in Appalachia for $1 million. Patriot recognized gains
totaling $6.3 million on these transactions. The swap transaction was recorded at fair value in
accordance with SFAS No. 153 Exchanges of Nonmonetary Assets and SFAS No. 157. The Company
utilized Level 3 inputs as defined by SFAS No. 157 in a discounted cash flows model to calculate
the fair value of the coal reserve swap due to the lack of an active, quoted market and due to
the inability to use other transaction comparisons because of the unique nature of each coal
seam.
Also in the second quarter of 2008, Patriot recorded a $4.9 million gain related to a
structured settlement on a property transaction and received a $4.5 million settlement for past
due coal royalties, which had previously been fully reserved due to the uncertainty of
collection. Both transactions were recorded as Other Revenues in the statement of operations.
Also in the second quarter of 2008, Patriot entered into two joint ventures for which it
contributed cash totaling $14.7 million and committed certain coal reserve rights. Patriot holds
a 49% interest in each joint venture and accounts for the interests under the equity method of
accounting. Patriots maximum exposure to loss is the value contributed plus additional future
committed capital contributions, which, for one of the joint ventures, is capped at $5.8
million. The investment in these joint ventures was recorded in Investments and Other Assets in
the balance sheet. One of the joint ventures is expected to commence operations in the second
half of 2008 and the other is expected to commence operations in the first half of 2009.
During the six months ended June 30, 2007, Patriot sold approximately 88 million tons of
non-strategic coal reserves and over 18,000 acres of surface land located in Kentucky for cash
of $26.5 million and notes receivable of $69.4 million. Patriot recognized gains totaling $78.5
million on these transactions.
(4) Income Tax Provision
The Company reported an income tax provision of $3.5 million and $2.6 million for the three
and six months ended June 30, 2008, respectively, based on the forecasted effective tax rate for
the current year. For the three and six months ended June 30, 2007, no income tax provision was
recorded due to projected net operating losses for the year ended December 31, 2007.
(5) Earnings per Share
Basic
earnings per share is computed by dividing net income by the
split-adjusted number of weighted
average common shares outstanding during the reporting period. Diluted earnings per share is
calculated to give effect to all potentially dilutive common shares that were outstanding during
the reporting period. Earnings (loss) per share is not presented for periods prior to October
31, 2007, because Patriot was wholly-owned by Peabody and its affiliates prior to the initial
distribution.
5
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(6) Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
(Dollars in thousands)
|
|
Saleable coal
|
|
$
|
15,929
|
|
|
$
|
13,519
|
|
Materials and supplies
|
|
|
14,307
|
|
|
|
13,385
|
|
Raw coal
|
|
|
4,282
|
|
|
|
4,133
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,518
|
|
|
$
|
31,037
|
|
|
|
|
|
|
|
|
Saleable coal represents coal stockpiles that will be sold in current condition. Raw coal
represents coal stockpiles that may be sold in current condition or may be further processed
prior to shipment to a customer. Coal inventory costs include labor, supplies, equipment,
operating overhead and other related costs. Materials, supplies and coal inventory are valued at
the lower of average cost or market.
(7) Comprehensive Income
The following table sets forth the after-tax components of comprehensive income for the
three and six months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
Net income (loss)
|
|
$
|
11,815
|
|
|
$
|
(5,814
|
)
|
|
$
|
8,749
|
|
|
$
|
(17,765
|
)
|
Accumulated actuarial loss and prior service
cost realized in net income (loss)
|
|
|
2,418
|
|
|
|
9,517
|
|
|
|
4,897
|
|
|
|
19,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
14,233
|
|
|
$
|
3,703
|
|
|
$
|
13,646
|
|
|
$
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income differs from net income by the net amount of unrealized gains and
losses resulting from the amortization of actuarial gains and losses and prior service cost as
required by SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans.
(8) Postretirement Benefit Costs
Net periodic postretirement benefit costs included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
Service cost for benefits earned
|
|
$
|
202
|
|
|
$
|
146
|
|
|
$
|
405
|
|
|
$
|
292
|
|
Interest cost on accumulated Postretirement benefit obligation
|
|
|
9,391
|
|
|
|
18,272
|
|
|
|
18,589
|
|
|
|
36,544
|
|
Amortization of prior service cost
|
|
|
(170
|
)
|
|
|
(86
|
)
|
|
|
(340
|
)
|
|
|
(173
|
)
|
Amortization of actuarial loss
|
|
|
3,244
|
|
|
|
9,794
|
|
|
|
6,489
|
|
|
|
19,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement
benefit costs
|
|
$
|
12,667
|
|
|
$
|
28,126
|
|
|
$
|
25,143
|
|
|
$
|
56,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefits costs for the three and six months ended June 30, 2007
included costs related to certain retiree healthcare liabilities that were assumed by Peabody at
the spin-off.
6
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(9) Segment Information
Patriot reports its operations through two reportable operating segments, Appalachia and
Illinois Basin. The Appalachia and Illinois Basin segments primarily consist of Patriots mining
operations in West Virginia and Kentucky, respectively. The principal business of the Appalachia
segment is the mining, preparation and sale of thermal coal, sold primarily to electric
utilities and metallurgical coal, sold to steel and coke producers. The principal business of
the Illinois Basin segment is the mining, preparation and sale of thermal coal, sold primarily
to electric utilities. For the six months ended June 30, 2008, 75% of Patriots sales were to
electricity generators and 25% to steel and coke producers. For the six months ended June 30,
2008 and 2007, Patriots revenues attributable to foreign countries, based on where the product
was shipped, were $116.6 million and $57.1 million, respectively. Patriot primarily utilizes
underground mining methods and produces coal with high and medium Btu content. Patriots
operations have relatively short shipping distances from the mine to most of its domestic
utility customers and certain metallurgical coal customers. Corporate and Other includes
selling and administrative expenses, net gains on disposal or exchange of assets and costs
associated with past mining obligations.
Patriots chief operating decision makers use Adjusted EBITDA as the primary measure of
segment profit and loss. Adjusted EBITDA is defined as net income (loss) before deducting net
interest expense, income taxes, minority interests, asset retirement obligation expense and
depreciation, depletion and amortization. Because Segment Adjusted EBITDA is not calculated
identically by all companies, Patriots calculation may not be comparable to similarly titled
measures of other companies.
Operating segment results for the three and six months ended June 30, 2008 and 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
Appalachia
(1)
|
|
Basin
|
|
and Other
(2)
|
|
Total
|
|
Appalachia
(1)
|
|
Basin
|
|
and Other
(2)
|
|
Total
|
|
|
(Dollars in thousands)
|
Revenues
|
|
$
|
264,348
|
|
|
$
|
75,332
|
|
|
$
|
|
|
|
$
|
339,680
|
|
|
$
|
482,343
|
|
|
$
|
141,671
|
|
|
$
|
|
|
|
$
|
624,014
|
|
Adjusted EBITDA
|
|
|
63,096
|
|
|
|
2,759
|
|
|
|
(24,774
|
)
|
|
|
41,081
|
|
|
|
105,094
|
|
|
|
8,098
|
|
|
|
(54,990
|
)
|
|
|
58,202
|
|
Additions to
property, plant,
equipment and mine
development
|
|
|
17,618
|
|
|
|
2,924
|
|
|
|
850
|
|
|
|
21,392
|
|
|
|
28,020
|
|
|
|
3,967
|
|
|
|
1,435
|
|
|
|
33,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007
|
|
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
Appalachia
|
|
Basin
|
|
and Other
(2)
|
|
Total
|
|
Appalachia
|
|
Basin
|
|
and Other
(2)
|
|
Total
|
|
|
(Dollars in thousands)
|
Revenues
|
|
$
|
197,735
|
|
|
$
|
58,486
|
|
|
$
|
|
|
|
$
|
256,221
|
|
|
$
|
399,810
|
|
|
$
|
126,074
|
|
|
$
|
|
|
|
$
|
525,884
|
|
Adjusted EBITDA
|
|
|
21,018
|
|
|
|
1,229
|
|
|
|
(3,439
|
)
|
|
|
18,808
|
|
|
|
44,585
|
|
|
|
8,032
|
|
|
|
(17,494
|
)
|
|
|
35,123
|
|
Additions to
property, plant,
equipment and mine
development
|
|
|
10,116
|
|
|
|
|
|
|
|
|
|
|
|
10,116
|
|
|
|
24,344
|
|
|
|
2,142
|
|
|
|
|
|
|
|
26,486
|
|
|
|
|
(1)
|
|
Appalachia results include two structured settlements discussed in Note 3.
|
|
(2)
|
|
Corporate and Other results include the gains on disposal or
exchange of assets discussed in Note 3.
|
7
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
A reconciliation of Adjusted EBITDA to net income (loss) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
Total Adjusted EBITDA
|
|
$
|
41,081
|
|
|
$
|
18,808
|
|
|
$
|
58,202
|
|
|
$
|
35,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
(20,905
|
)
|
|
|
(19,560
|
)
|
|
|
(39,515
|
)
|
|
|
(40,918
|
)
|
Asset retirement obligation expense
|
|
|
(3,259
|
)
|
|
|
(3,640
|
)
|
|
|
(6,675
|
)
|
|
|
(9,295
|
)
|
Interest expense
|
|
|
(5,216
|
)
|
|
|
(1,963
|
)
|
|
|
(7,538
|
)
|
|
|
(4,788
|
)
|
Interest income
|
|
|
3,621
|
|
|
|
2,120
|
|
|
|
6,870
|
|
|
|
4,766
|
|
Income tax provision
|
|
|
(3,507
|
)
|
|
|
|
|
|
|
(2,595
|
)
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
(2,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,815
|
|
|
$
|
(5,814
|
)
|
|
$
|
8,749
|
|
|
$
|
(17,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10) Long-Term Debt
Credit Facility
Effective October 31, 2007, Patriot entered into a $500 million, four-year revolving credit
facility, which includes a $50 million swingline sub-facility and a letter of credit
sub-facility. This facility is available for Patriots working capital requirements, capital
expenditures and other corporate purposes. As of June 30, 2008, the balance of outstanding
letters of credit issued against the credit facility totaled $296.3 million, and there was $20.0
million of outstanding short-term borrowings under the facility. Credit facility availability as
of June 30, 2008 was $183.7 million.
The obligations under Patriots credit facility are secured by a first lien on
substantially all of its assets, including but not limited to certain of its mines and coal
reserves and related fixtures and accounts receivable. The credit facility contains certain
customary covenants, including financial covenants limiting its total indebtedness (maximum
leverage ratio of 2.75) and requiring minimum EBITDA coverage of interest expense (minimum
interest coverage ratio of 4.0), as well as certain limitations on, among other things,
additional debt, liens, investments, acquisitions and capital expenditures, future dividends and
asset sales. The credit facility calls for quarterly reporting of compliance with financial
covenants. The rolling four quarters compliance calculation contains a phase-in provision for
2008. The terms of the credit facility also contain certain customary events of default, which
will give the lender the right to accelerate payments of outstanding debt in certain
circumstances. Customary events of default include breach of covenants, failure to maintain
required ratios, failure to make principal payments or to make interest or fee payments within a
grace period, and default, beyond any applicable grace period, on any of Patriots other
indebtedness exceeding a certain amount.
In connection with the merger agreement with Magnum, Patriot entered into an amendment
dated as of April 2, 2008 to its credit facility. The amendment, among other things, (i) permits
the merger with Magnum and the transactions contemplated by the merger agreement, (ii) increases
the rate of interest applicable to loans under the credit facility and (iii) modifies certain
covenants and related definitions to allow for changes in permitted indebtedness, permitted
liens, permitted capital expenditures and other changes in respect of Patriot and our
subsidiaries in connection with the acquisition. The increase in the interest rate and covenant
modifications were effective with the closing of the acquisition. In connection with the
Convertible Senior Notes discussed below, Patriot entered into an amendment dated
as of May 19, 2008 to the credit facility allowing the issuance of the Convertible Senior
Notes and modifying certain covenants for the period prior to the closing of the Magnum
acquisition.
Private Convertible Notes Issuance
On May 28, 2008, we completed a private offering of $200 million in aggregate principal
amount of 3.25% Convertible Senior Notes due 2013 (the notes), including $25 million related to
the underwriters overallotment option. The net proceeds of the offering were approximately
$192.8 million after deducting the initial purchasers commissions and estimated fees and
expenses of the offering. As of June 30, 2008, the proceeds from the notes were held in escrow
and reflected as restricted cash on the balance sheet.
8
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
Interest on the notes is payable semi-annually in arrears on May 31 and November 30 of each
year, beginning November 30, 2008. The notes mature on May 31, 2013, unless converted,
repurchased or redeemed in accordance with their terms prior to such date. The notes are senior
unsecured obligations and rank equally with all of the Companys existing and future senior debt
and are senior to any subordinated debt. Subsequent to June 30, 2008, Patriot used the proceeds
of the offering to repay Magnums existing senior secured indebtedness and acquisition related
fees and expenses. All remaining amounts will be used for other general corporate purposes.
The notes are convertible into cash and shares of Patriots common stock during the period
from issuance to February 15, 2013, subject to certain conditions of conversion as described
below. As adjusted for the stock split, the conversion rate for the notes is 14.7778
shares of Patriots common stock per $1,000 principal amount of
notes, which is equivalent to a
conversion price of approximately $67.67 per share of common stock on a split-adjusted
basis. The conversion rate and the conversion price are subject to adjustment for certain
dilutive events, such as future stock splits or a distribution of a stock dividend.
The notes require Patriot to settle all conversions by paying cash for the lesser of the
principal amount or the conversion value of the notes, and by settling any excess of the conversion value
over the principal amount in cash or shares, at the Companys option.
Holders of the notes may convert their notes prior to the close of business on the business
day immediately preceding February 15, 2013, only under the following circumstances: (1) during
the five trading day period after any ten consecutive trading day period (the measurement
period) in which the trading price per note for each trading day of that measurement period was
less than 97% of the product of the last reported sale price of Patriots common stock and the
conversion rate on each such trading day; (2) during any calendar quarter after the calendar
quarter ending September 30, 2008, and only during such calendar quarter, if the last reported
sale price of Patriots common stock for 20 or more trading days in a period of 30 consecutive
trading days ending on the last trading day of the immediately preceding calendar quarter
exceeds 130% of the conversion price in effect on each such trading day; (3) if such holders
notes have been called for redemption or (4) upon the occurrence of corporate events specified
in the indenture. The notes will be convertible, regardless of the foregoing circumstances, at
any time from, and including, February 15, 2013 until the close of business on the business day
immediately preceding the maturity date.
The number of shares of Patriots common stock that it may deliver upon conversion will
depend on the price of its common stock during an observation period
as described in the
indenture. Specifically, the number of shares deliverable upon conversion will increase as the
common stock price increases above the conversion price of $67.67 per share during the
observation period. The maximum number of shares that Patriot may deliver is 2,955,560 on a
split-adjusted basis. However, if certain fundamental changes occur in Patriots business that
are deemed make-whole fundamental changes in the indenture, the number of shares deliverable
on conversion may increase, up to a maximum amount of 4,137,788 shares on a split-adjusted
basis. These maximum amounts are subject to adjustment for certain dilutive events, such as a
stock split or a distribution of a stock dividend.
Holders of the notes may require Patriot to repurchase all or a portion of their notes upon
a fundamental change in Patriots business, as defined in the indenture. The holders would
receive cash for 100% of the principal amount of the notes, plus any accrued and unpaid
interest.
Patriot may redeem (i) some or all of the notes at any time on or after May 31, 2011, but
only if the last reported sale price of Patriots common stock for 20 or more trading days in a
period of 30 consecutive trading days ending on the trading day prior to the date Patriot
provides the relevant notice of redemption exceeds 130% of the conversion price in effect on
each such trading day, or (ii) all the notes if at any time less than $20 million in aggregate
principal amount of notes remain outstanding. In both cases, notes will be redeemed for cash at
a redemption price equal to 100% of the
principal amount of the notes to be redeemed, plus any accrued and unpaid interest up to,
but excluding, the relevant redemption date.
Under the indenture for the notes, if Patriot fails to timely file any document or report
required to be filed with the Securities Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, (other than reports on Form 8-K), Patriot is
required to pay additional interest on the notes of 0.50% of the principal balance of the notes.
Per the guidance set forth in SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), this additional interest feature is considered an embedded
derivative. Management has determined the fair value of this embedded derivative is de minimis
as the probability of reports not being filed timely is remote and the Company has no history of
late submissions.
9
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
The notes and any shares of common stock issuable upon conversion have not been registered
under the Securities Act of 1933, as amended (the Securities Act), or any state securities laws.
The notes were only offered to qualified institutional buyers pursuant to Rule 144A promulgated
under the Securities Act.
Bridge Loan Facility
In connection with the acquisition agreement, Patriot obtained a subordinated bridge loan
financing commitment, allowing it to draw up to $150 million under the related bridge loan
facility at the effective date of the acquisition to repay a portion of the outstanding debt of
Magnum and to pay related fees and expenses. Patriot terminated the financing commitment on May
30, 2008, as a result of the Convertible Senior Notes issuance. Patriot paid $1.5 million in
commitment fees in connection with the financing commitment, which was included in Interest
Expense in the statement of operations.
(11) Commitments and Contingencies
Commitments
As of June 30, 2008, purchase commitments for capital expenditures were $33.2 million.
Other
At times Patriot becomes a party to claims, lawsuits, arbitration proceedings and
administrative procedures in the ordinary course of business. Management believes that the
ultimate resolution of such pending or threatened proceedings is not reasonably likely to have a
material effect on Patriots financial position, results of operations or cash flows.
(12) Guarantees
In the normal course of business, Patriot is a party to guarantees and financial
instruments with off-balance-sheet risk, such as bank letters of credit, performance or surety
bonds and other guarantees and indemnities, which are not reflected in the accompanying
condensed consolidated balance sheets. Such financial instruments are valued based on the amount
of exposure under the instrument and the likelihood of required performance. In Patriots past
experience, virtually no claims have been made against these financial instruments. Management
does not expect any material losses to result from these guarantees or off-balance-sheet
instruments.
As of June 30, 2008, Peabody continued to guarantee certain bonds related to Patriot
liabilities that had not yet been replaced by Patriot surety bonds, in the aggregate amount of
$2.8 million.
Other Guarantees
Patriot is the lessee and sublessee under numerous equipment and property leases. It is
common in such commercial lease transactions for Patriot, as the lessee, to agree to indemnify
the lessor for the value of the property or equipment leased, should the property be damaged or
lost during the course of Patriots operations. Patriot expects that losses with respect to
leased property would be covered by insurance (subject to deductibles). Patriot and certain of
its subsidiaries have guaranteed other subsidiaries performance under their various lease
obligations. Aside from indemnification of the lessor for the value of the property leased,
Patriots maximum potential obligations under their leases are equal to the respective future
minimum lease payments, assuming no amounts could be recovered from third parties.
(13) Related Party Transactions
Prior to the spin-off, Patriot routinely entered into transactions with Peabody and its
affiliates. The terms of these transactions were outlined in agreements executed by Peabody and
its affiliates.
Selling and administrative expenses include $10.9 million and $21.8 million for the three
and six months ended June 30, 2007, respectively, for services provided by Peabody and represent
an allocation of Peabody general corporate expenses to all of its mining operations, both
foreign and domestic, based on principal activity, headcount, tons sold and revenues as
applicable to the specific expense being allocated. The allocated expenses generally reflected
service costs for: marketing and sales, legal, finance and treasury, public relations, human
resources, environmental engineering and internal audit. Different general accounting allocation
bases or methods could have been used and could have resulted in significantly different
operating results. The allocation from Peabody was not necessarily indicative of the selling and
administrative expenses that would have been incurred if Patriot had been an independent entity.
10
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
Patriot recognized interest expense of $1.2 million and $2.5 million for the three and six
months ended June 2007, respectively, related to a $62.0 million intercompany demand note
payable to Peabody, which was forgiven at spin-off.
For the three and six months ended June 30, 2007, substantially all of Patriots tons sold
were through a marketing affiliate of Peabody, which negotiated and maintained coal sales
contracts. These sales were made at prices paid by outside third-party customers. For the three
and six months ended June 30, 2008, the Company had sales to this Peabody marketing affiliate of
3.5 million and 6.8 million tons of coal, respectively, which resulted in revenues of $168.3
million and $328.6 million, respectively.
Patriot entered into certain agreements with Peabody to provide certain transition services
following the spin-off. At June 30, 2008, Peabody continues to provide support to Patriot
related to information technology, engineering and land management. For the three and six months
ended June 30, 2008, transition services expense was $0.6 million and $1.4 million, respectively
and is included in Selling and Administrative Expenses in the statement of operations.
(14) Subsequent Events
On July 23, 2008, Patriot consummated the acquisition of Magnum. Magnum stockholders
received 23,803,312 split-adjusted shares of newly-issued Patriot common stock and cash in lieu
of fractional shares. The total purchase price was approximately $740 million, including the
assumption of $147.3 million of long-term debt.
The acquisition will be accounted for by Patriot using the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the fair value of the
net assets acquired. The excess purchase price over the fair value of the assets acquired, if
any, will be allocated to goodwill. Magnums results will be consolidated beginning July 23,
2008.
Upon consummation of the transaction, the net proceeds of the notes issuance were released
from escrow. On July 23, 2008, Patriot terminated Magnums credit facility and utilized the
proceeds from the notes issuance to repay $135.5 million of principal and $1.0 million of
accrued interest under Magnums credit facility. In conjunction with the acquisition, Patriot
issued $18.1 million of additional letters of credit related to Magnum operations.
11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Notice Regarding Forward-Looking Statements
This report and other materials filed or to be filed by Patriot Coal Corporation include
statements of our expectations, intentions, plans and beliefs that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection
provided by those sections. You can identify these forward-looking statements by the use of
forward-looking words such as outlook, believes, expects, potential, continues, may,
will, should, seeks, approximately, predicts, intends, plans, estimates,
anticipates, foresees or the negative version of those words or other comparable words and
phrases. Any forward-looking statements contained in this report are based upon our historical
performance and on current plans, estimates and expectations. The inclusion of this
forward-looking information should not be regarded as a representation by us or any other person
that the future plans, estimates or expectations contemplated by us will be achieved.
Without limiting the foregoing, all statements relating to our future outlook, anticipated
capital expenditures, future cash flows and borrowings, and sources of funding are
forward-looking statements. These forward-looking statements are based on numerous assumptions
that we believe are reasonable but are subject to a wide range of uncertainties, and business
risks and actual risks may differ materially from those discussed in the statements. Among the
factors that could cause actual results to differ materially are:
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difficulty in implementing our business strategy;
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geologic, equipment and operational risks associated with mining;
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the outcome of commercial negotiations involving sales contracts or other transactions;
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customer performance and credit risks;
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supplier and contract miner performance, and the availability and cost of key equipment and
commodities;
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availability and costs of transportation;
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our ability to replace proven and probable coal reserves;
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labor availability and relations;
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the effects of mergers, acquisitions and divestitures, including our ability to
successfully integrate mergers and acquisitions;
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our ability to respond to changing customer preferences;
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availability and costs of credit, surety bonds and letters of credit;
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our dependence on Peabody for a substantial portion of our revenues;
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price volatility and demand, particularly in higher margin products;
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reductions of purchases by major customers;
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failure to comply with debt covenants;
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regulatory and court decisions including, but not limited to, those impacting permits
issued pursuant to the Clean Water Act;
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environmental laws and regulations including those affecting our operations and those
affecting our customers coal usage;
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developments in greenhouse gas emission regulation and treatment, including any
development of commercially successful carbon capture and storage techniques;
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coal mining laws and regulations;
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the outcome of pending or future litigation;
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coal and power market conditions;
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weather patterns affecting energy demand;
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competition in our industry;
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changes in postretirement benefit obligations;
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changes to contribution requirements to multi-employer benefit funds;
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availability and costs of competing energy resources;
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worldwide economic and political conditions;
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interest rate fluctuation;
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12
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inflationary trends, including those impacting materials used in our business;
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economic strength and political stability of countries in which we serve customers;
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downturns in consumer and company spending;
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wars and acts of terrorism or sabotage;
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impact of pandemic illness; and
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other factors, including those discussed in Legal Proceedings set forth in Item 3 of
our Annual Report on Form 10-K and Part II, Item 1 of this report.
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These factors should not be construed as exhaustive and should be read in conjunction with
the other cautionary statements that are included in our Annual Report on Form 10-K. If one or
more of these or other risks or uncertainties materialize, or if our underlying assumptions
prove to be incorrect, actual results may vary materially from what we projected. Consequently,
actual events and results may vary significantly from those included in or contemplated or
implied by our forward-looking statements. We do not undertake any obligation to update the
forward-looking statements, except as required by federal securities laws.
Overview
Effective October 31, 2007, Peabody Energy Corporation (Peabody) spun-off our group by
distributing all of our common stock to the stockholders of Peabody as a dividend. We entered
into various agreements with Peabody containing key provisions relating to the separation of our
business. See our Annual Report on Form 10-K for more information about the spin-off and our
operations.
We are a leading producer of thermal coal in the eastern United States, with operations and
coal reserves in Appalachia and the Illinois Basin. We are also a leading U.S. producer of
metallurgical quality coal. We and our predecessor companies have operated in these regions for
more than 50 years. In 2007, we sold 22.1 million tons of coal, of which 77% was sold to
domestic electric utilities and 23% was sold to domestic and international steel producers.
During the first six months of 2008, we sold 10.9 million tons of coal, of which 75% was sold to
domestic electric utilities and other international customers and 25% was sold to domestic and
international steel producers. We control 1.3 billion tons of proven and probable coal reserves.
Our proven and probable coal reserves include premium coking coal and medium- and high-Btu
thermal coal, with low, medium and high sulfur content.
Our operations consist of 11 company-operated mines and numerous contractor-operated mines
serviced by eight coal preparation facilities, with one in northern West Virginia, four in
southern West Virginia and three in western Kentucky. We ship coal to electric utilities,
industrial users and metallurgical coal customers via third-party loading facilities and
multiple rail and river transportation routes.
Our mining operations and coal reserves are as follows:
Appalachia.
In southern West Virginia, we have six company-operated mines and numerous
contractor-operated mines, serviced by four coal preparation plants. These operations and
related infrastructure are located in Boone and Kanawha counties. In northern West Virginia, we
have one company-operated mine, serviced by a preparation plant and related infrastructure.
These operations are located in Monongalia County. We sold 14.4 million and 6.9 million tons of
coal in the year ended December 31, 2007 and the six months ended June 30, 2008, respectively.
As of December 31, 2007, we controlled 586 million tons of proven and probable coal reserves in
Appalachia, of which 283 million tons were assigned to current operations.
Illinois Basin.
In the Illinois Basin, we have four company-operated mines, serviced by
three preparation plants. These operations and related infrastructure are located in Union and
Henderson counties in western Kentucky. We sold 7.7 million and 4.0 million tons of coal in the
year ended December 31, 2007 and the six months ended June 30, 2008, respectively. As of
December 31, 2007, we controlled 676 million tons of proven and probable coal reserves in the
Illinois Basin, of which 131 million tons were assigned to current operations.
Stock Split
Effective August 11, 2008, Patriot implemented a 2-for-1 stock split to be effected in the
form of a 100% stock dividend. All share and per share amounts in this Quarterly Report on Form
10-Q reflect this stock split, unless specifically noted otherwise.
13
Magnum Transaction
On April 2, 2008, Patriot entered into an agreement to acquire Magnum Coal Company
(Magnum). Magnum is one of the largest coal producers in Appalachia, operating 11 mines and 7
preparation plants with more than 60% of its production from surface mines and controlling more
than 600 million tons of proven and probable coal reserves. On July 23, 2008, Patriot
consummated the acquisition of Magnum. Magnum stockholders received 23,803,312 split-adjusted
shares of newly-issued Patriot common stock and cash in lieu of fractional shares. The total
purchase price was approximately $740 million, including the assumption of $147.3 million of
long-term debt.
Also in connection with the acquisition, on May 28, 2008, we completed a private offering
of $200 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2013 (the
notes). The proceeds from the notes were held in escrow until the consummation of the Magnum
acquisition. See Liquidity and Capital Resources Private Convertible Notes Issuance for more
details. On July 23, 2008, Patriot terminated Magnums credit facility and utilized the proceeds
from the notes to repay $135.5 million of principal and $1.0 million of accrued interest under
Magnums credit facility. In conjunction with the acquisition, Patriot issued $18.1 million of
additional letters of credit related to Magnum operations.
The acquisition will be accounted for by Patriot using the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the fair value of the
net assets acquired. The excess purchase price over the fair value of the assets acquired, if
any, will be allocated to goodwill. Magnums results will be consolidated beginning July 23,
2008.
In connection with the agreement to acquire Magnum, we entered into an amendment to our
credit facility dated April 2, 2008. In connection with the issuance of the notes, we entered
into an amendment to our credit facility dated as of May 19, 2008. See Liquidity and Capital
Resources Credit Facility below for further details.
Basis of Presentation
The statement of operations for the three and six months ended June 30, 2007 and cash flows
for the six months ended June 30, 2007 and related discussions below primarily relate to our
historical results prior to the spin-off from Peabody. These results may not necessarily reflect
what our results of operations and cash flows will be in the future or would have been as a
stand-alone company. Upon the completion of the spin-off, our capital structure changed
significantly. At the spin-off date, we entered into various operational agreements with
Peabody, including certain on-going agreements that enhance both our financial position and cash
flows. Such agreements include the assumption by Peabody of certain retiree healthcare
liabilities and the repricing of a major coal supply agreement to be more reflective of the then
current market pricing for similar quality coal.
We encourage you to read our Unaudited Pro Forma Consolidated Financial Data provided
within this Managements Discussion and Analysis of Financial Condition and Results of
Operations to better understand how our results have been impacted by the separation from
Peabody and the various separation agreements that were effective with the spin-off transaction.
The unaudited condensed consolidated financial statements presented herein include allocations
of Peabody expenses, assets and liabilities through the date of the spin-off, including the
following items:
Selling and Administrative Expenses
For the periods prior to the spin-off, our historical selling and administrative expenses
were based on an allocation of Peabody general corporate expenses to all of its mining
operations, both foreign and domestic, based on principal activity, headcount, tons sold or
revenues as appropriate. The allocated expenses generally reflected service costs for marketing
and sales, general accounting, legal, finance and treasury, public relations, human resources,
environmental, engineering and internal audit. These allocated expenses are not necessarily
indicative of the costs we would have incurred as a stand-alone company.
Interest Expense
For the periods prior to the spin-off, our historical interest expense primarily related to
fees for letters of credit and surety bonds used to guarantee our reclamation, workers
compensation, retiree healthcare, and lease obligations as well as interest expense related to
intercompany notes with Peabody. Our capital structure changed following the spin-off from
Peabody, and effective October 31, 2007, we entered into a four-year revolving credit facility.
See Liquidity and Capital Resources Credit Facility for more information about our credit
facility. The intercompany demand note totaling $62.0 million with Peabody was forgiven at
spin-off.
14
Results of Operations
Adjusted EBITDA
The discussion of our results of operations below includes references to and analysis of
our Appalachia and Illinois Basin Segments Adjusted EBITDA results. Adjusted EBITDA is defined
as net income (loss) before deducting interest expense and income, income taxes, minority
interests, asset retirement obligation expense and depreciation, depletion and amortization.
Segment Adjusted EBITDA is used by management primarily as a measure of our segments operating
performance. Because Segment Adjusted EBITDA is not calculated identically by all companies, our
calculation may not be comparable to similarly titled measures of other companies. Adjusted
EBITDA is reconciled to its most comparable measure, under generally accepted accounting
principles, in Note 9 to our unaudited condensed consolidated financial statements. Segment
Adjusted EBITDA excludes selling, general and administrative expenses, past mining obligation
expense and gain on disposal or exchange of assets and is reconciled to its most comparable
measure below under Net Income (Loss).
Three and Six Months Ended June 30, 2008 Compared to June 30, 2007
Tons Sold and Revenues
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Three Months Ended
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Six Months Ended
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June 30,
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Increase (Decrease)
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June 30,
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Increase (Decrease)
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2008
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2007
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Tons/$
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%
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2008
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2007
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Tons/$
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%
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(Dollars and tons in thousands)
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Tons Sold:
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Appalachia Mining
Operations
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3,723
|
|
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3,574
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|
149
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4.2
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%
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6,903
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7,224
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|
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|
(321
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)
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(4.4
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)%
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Illinois Basin Mining Operations
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2,138
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1,771
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367
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20.7
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%
|
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|
4,043
|
|
|
|
3,870
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|
|
|
173
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|
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|
4.5
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%
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Total Tons Sold
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5,861
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5,345
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516
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9.7
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%
|
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10,946
|
|
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|
11,094
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|
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(148
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)
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(1.3
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)%
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Revenue:
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Appalachia Mining
Operations
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$
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253,137
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$
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196,980
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$
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56,157
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28.5
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%
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|
$
|
465,899
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$
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398,433
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$
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67,466
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16.9
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%
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Illinois Basin Mining Operations
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75,332
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58,486
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16,846
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28.8
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%
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141,671
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|
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126,074
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15,597
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12.4
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%
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Appalachia Other
|
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11,211
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|
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|
755
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10,456
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n/a
|
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16,444
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|
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1,377
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|
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15,067
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n/a
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Total Revenues
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$
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339,680
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$
|
256,221
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$
|
83,459
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|
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32.6
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%
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|
$
|
624,014
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|
|
$
|
525,884
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|
|
$
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98,130
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|
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18.7
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%
|
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Average sales price
per ton sold:
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Appalachia
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$
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67.99
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$
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55.11
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$
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12.88
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|
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|
23.4
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%
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|
$
|
67.49
|
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|
$
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55.15
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$
|
12.34
|
|
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22.4
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%
|
Illinois Basin
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35.23
|
|
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|
33.02
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2.21
|
|
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6.7
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%
|
|
|
35.04
|
|
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32.58
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2.46
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|
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|
7.6
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%
|
Revenues in the Appalachia segment were higher in the three and six months ended June 30,
2008 compared to the same period in 2007. The increase in revenues for the three months ended
June 30, 2008 was primarily related to higher average sales prices and improved sales volumes.
The increase in revenues for the six months ended June 30, 2008 was primarily due to higher
average sales prices.
Average sales prices increased reflecting higher contract pricing, including the repricing
of a major coal supply agreement with Peabody as part of the spin-off, as well as higher spot
sales prices, particularly for coal sold into the export market. The Appalachia coal markets
experienced a major increase in spot coal prices, generally driven by increases in international
coal prices and supply/demand imbalance.
15
In the six months ended June 30, 2008, sales volumes in the Appalachia segment were
slightly lower compared to the same period in 2007. Sales volumes were reduced primarily due to
production shortfalls stemming from two roof falls at our Federal mine in the first quarter.
Longwall production resumed in the second quarter of 2008, but was curtailed through the latter
portion of the first quarter of 2008. Partially offsetting this reduction to sales volumes were
higher volumes at three of our other Appalachia mining complexes. In early 2007, we experienced
performance difficulties and adverse geological conditions at several of our company-operated
and contract mines. We made changes in the second and third quarters of 2007, suspending the
operations at some locations and transferring equipment and supplies to better performing
business units.
Revenues in the Illinois Basin segment were higher for the three and six months ended June
30, 2008 compared to the prior year due to higher average sales prices and improved sales
volumes. Average sales prices increased reflecting higher contract pricing, including the
repricing of a major contract, and higher spot sales in 2008.
Other Appalachia revenues were higher in the three and six months ended June 30, 2008
compared to the same period in 2007. In addition to royalty income, other revenues for the three
months ended June 30, 2008 included a structured settlement on a property transaction and a
settlement for past due coal royalties, which had previously been fully reserved due to the
uncertainty of collection. In addition to these items, other revenues for the six months ended
June 30, 2008 included gains on the sale of purchased coal.
Segment Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachia Mining Operations and Other
|
|
$
|
63,102
|
|
|
$
|
20,959
|
|
|
$
|
42,143
|
|
|
|
201.1
|
%
|
|
$
|
105,094
|
|
|
$
|
44,585
|
|
|
$
|
60,509
|
|
|
|
135.7
|
%
|
Illinois Basin Mining Operations
|
|
|
2,753
|
|
|
|
1,288
|
|
|
|
1,465
|
|
|
|
113.7
|
%
|
|
|
8,098
|
|
|
|
8,032
|
|
|
|
66
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA
|
|
$
|
65,855
|
|
|
$
|
22,247
|
|
|
$
|
43,608
|
|
|
|
196.0
|
%
|
|
$
|
113,192
|
|
|
$
|
52,617
|
|
|
$
|
60,575
|
|
|
|
115.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA for Appalachia increased in the three and six months ended June 30,
2008 from the prior year primarily due to higher average selling prices, partially offset by
higher operating costs. Higher operating costs primarily related to start-up costs as we ramped
up production at our Kanawha Eagle and Big Mountain complexes, higher material and supply costs
and increased taxes and royalties due to higher average selling prices. Segment Adjusted EBITDA
for Appalachia also increased for the three and six months ended June 30, 2008 from the prior
year primarily due to the structured settlements referenced above. In addition to these items,
the six months ended June 30, 2008 included gains on the sale of purchased coal.
Segment Adjusted EBITDA for the Illinois Basin increased in the three months ended June 30,
2008 from the prior year primarily due to higher average selling prices and higher sales volumes
as discussed above, partially offset by higher labor costs and higher fuel costs. Segment
Adjusted EBITDA for the Illinois Basin for the six months ended June 30, 2008 was comparable to
the same period in 2007.
16
Net Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
June 30,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
Segment Adjusted EBITDA
|
|
$
|
65,855
|
|
|
$
|
22,247
|
|
|
$
|
43,608
|
|
|
|
196.0
|
%
|
|
$
|
113,192
|
|
|
$
|
52,617
|
|
|
$
|
60,575
|
|
|
|
115.1
|
%
|
Corporate and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past mining obligations
|
|
|
(21,622
|
)
|
|
|
(38,350
|
)
|
|
|
16,728
|
|
|
|
43.6
|
%
|
|
|
(43,743
|
)
|
|
|
(76,722
|
)
|
|
|
32,979
|
|
|
|
43.0
|
%
|
Net gain on
disposal of assets
|
|
|
6,336
|
|
|
|
45,800
|
|
|
|
(39,464
|
)
|
|
|
(86.2)
|
%
|
|
|
6,530
|
|
|
|
81,026
|
|
|
|
(74,496
|
)
|
|
|
(91.9)
|
%
|
Selling and
administrative expenses
|
|
|
(9,488
|
)
|
|
|
(10,889
|
)
|
|
|
1,401
|
|
|
|
12.9
|
%
|
|
|
(17,777
|
)
|
|
|
(21,798
|
)
|
|
|
4,021
|
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate and Other
|
|
|
(24,774
|
)
|
|
|
(3,439
|
)
|
|
|
(21,335
|
)
|
|
|
n/a
|
|
|
|
(54,990
|
)
|
|
|
(17,494
|
)
|
|
|
(37,496
|
)
|
|
|
(214.3
|
)%
|
Depreciation,
depletion and amortization
|
|
|
(20,905
|
)
|
|
|
(19,560
|
)
|
|
|
(1,345
|
)
|
|
|
(6.9)
|
%
|
|
|
(39,515
|
)
|
|
|
(40,918
|
)
|
|
|
1,403
|
|
|
|
3.4
|
%
|
Asset retirement
obligation expense
|
|
|
(3,259
|
)
|
|
|
(3,640
|
)
|
|
|
381
|
|
|
|
10.5
|
%
|
|
|
(6,675
|
)
|
|
|
(9,295
|
)
|
|
|
2,620
|
|
|
|
28.2
|
%
|
Interest expense
|
|
|
(5,216
|
)
|
|
|
(1,963
|
)
|
|
|
(3,253
|
)
|
|
|
(165.7
|
)%
|
|
|
(7,538
|
)
|
|
|
(4,788
|
)
|
|
|
(2,750
|
)
|
|
|
(57.4
|
)%
|
Interest income
|
|
|
3,621
|
|
|
|
2,120
|
|
|
|
1,501
|
|
|
|
70.8
|
%
|
|
|
6,870
|
|
|
|
4,766
|
|
|
|
2,104
|
|
|
|
44.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and minority interests
|
|
|
15,322
|
|
|
|
(4,235
|
)
|
|
|
19,557
|
|
|
|
n/a
|
|
|
|
11,344
|
|
|
|
(15,112
|
)
|
|
|
26,456
|
|
|
|
n/a
|
|
Income tax provision
|
|
|
(3,507
|
)
|
|
|
|
|
|
|
(3,507
|
)
|
|
|
n/a
|
|
|
|
(2,595
|
)
|
|
|
|
|
|
|
(2,595
|
)
|
|
|
n/a
|
|
Minority interests
|
|
|
|
|
|
|
(1,579
|
)
|
|
|
1,579
|
|
|
|
n/a
|
|
|
|
|
|
|
|
(2,653
|
)
|
|
|
2,653
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,815
|
|
|
$
|
(5,814
|
)
|
|
$
|
17,629
|
|
|
|
n/a
|
|
|
$
|
8,749
|
|
|
$
|
(17,765
|
)
|
|
$
|
26,514
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past mining obligations were lower in the three and six months ended June 30, 2008 than the
corresponding period in the prior year primarily due to the retention by Peabody of a portion of
the retiree healthcare liability at spin-off and a higher discount rate associated with the 2008
expenses. See our Unaudited Pro Forma Consolidated Financial Data below for more information.
Net gain on disposal or exchange of assets was lower in the three and six months ended June
30, 2008 compared to the prior year. In 2008, net gain on disposal or exchange of assets
included a $6.3 million gain on the exchange/sale of certain leasehold mineral interests. The
three and six months ended June 30, 2007 included coal reserve transactions that resulted in
gains of $43.3 million and $78.5 million, respectively. Property sales in 2007 are not
indicative of the level we expect on an ongoing basis.
Our historical selling and administrative expenses for the three and six months ended June
30, 2007 were based on an allocation of Peabody general corporate expenses to all of its mining
operations, both foreign and domestic. Selling and administrative expenses for the three and six
months ended June 30, 2008 represent our actual expenses incurred as a stand-alone company.
Depreciation, depletion and amortization increased in the three months ended June 30, 2008
compared to the prior year primarily due to higher depletion on coal reserves associated with
increased production at our mines and on leased reserves. Depreciation, depletion and
amortization decreased in the six months ended June 30, 2008 compared to the prior year
primarily due to the closure or suspension of several contractor-operated mines and higher
advance mining royalty and purchased contract amortization in 2007.
Asset retirement obligation expense decreased in the three months ended June 30, 2008
compared to the prior year due to the acceleration of reclamation work performed in 2007. Asset
retirement obligation expense decreased in the six months ended June 30, 2008 compared to the
prior year primarily due to the acceleration of reclamation work performed in the first half of
2007, the acceleration of a mine closure in early 2007 and the extension of the life of our
Federal mine in mid-2007 as a result of the acquisition of adjoining coal reserves.
17
The increase in interest expense in the first half of 2008 was primarily due to interest
related to our credit facility, which we did not have in place prior to the spin-off, a
commitment fee expensed due to the termination of a bridge loan facility related to our
assumption of Magnums debt and interest related to our newly-issued convertible debt. This
increase was partially offset by a reduction to interest expense in 2008 as a demand note with
Peabody was forgiven at the spin-off, resulting in no similar interest expense in 2008. See
Liquidity and Capital Resources for details concerning our outstanding debt and credit facility.
Interest income increased in 2008 compared to the prior year due to additional interest
income on notes receivable that resulted from the sale of Kentucky coal reserves in the first
half of 2007.
We reported income tax expense of $3.5 million and $2.6 million for the three and six
months ended June 30, 2008 respectively, based on the forecasted effective tax rate for the
current year. For the three and six months ended June 30, 2007, no income tax provision was
recorded due to projected net operating losses for the year ended December 31, 2007.
We acquired an effective controlling interest in KE Ventures, LLC during the first quarter
of 2006, and began consolidating KE Ventures, LLC in our results in 2006. The portion of
earnings that represent the interests of the minority owners are deducted from our income (loss)
before income taxes and minority interests to determine net income (loss). The minority interest
recorded in 2007 represented the share of KE Ventures, LLC earnings in which the minority
holders were entitled to participate. In the second half of 2007, we increased our ownership in
KE Ventures to 100%.
Unaudited Pro Forma Consolidated Financial Data
The unaudited pro forma consolidated financial information presented below has been derived
from our unaudited historical condensed consolidated financial statements as of and for the six
months ended June 30, 2007. This unaudited pro forma consolidated financial information should
be read in conjunction with Results of Operations and the unaudited condensed consolidated
financial statements and notes related thereto included elsewhere in this Quarterly Report on
Form 10-Q.
The pro forma adjustments are based on assumptions that management believes are reasonable.
The unaudited pro forma consolidated financial information is for illustrative and informational
purposes only and is not intended to represent or be indicative of what our results of
operations or financial position would have been had the separation and distribution and related
transactions occurred on January 1, 2007. The unaudited pro forma consolidated financial
information also should not be considered representative of our future results of operations or
financial position.
The unaudited pro forma consolidated statement of operations for the six months ended June
30, 2007 reflects adjustments to our historical financial statements to present our results as
if the spin-off occurred on January 1, 2007. These adjustments include, among other things, an
increase to revenue (and related royalties and taxes) from repricing of a coal supply agreement
to reflect the then current market pricing for similar quality coal and a reduction to our costs
associated with the assumption by Peabody of certain of our retiree healthcare liabilities.
18
Unaudited Pro Forma Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro forma
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Sales
|
|
$
|
524,507
|
|
|
$
|
13,592
|
(a)
|
|
$
|
538,099
|
|
Other revenue
|
|
|
1,377
|
|
|
|
|
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
525,884
|
|
|
|
13,592
|
|
|
|
539,476
|
|
|
Operating costs and expenses
|
|
|
549,989
|
|
|
|
(31,125
|
)
(b)
|
|
|
519,548
|
|
|
|
|
|
|
|
|
(675
|
)
(c)
|
|
|
|
|
|
|
|
|
|
|
|
1,359
|
(a)
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
40,918
|
|
|
|
(877
|
)
(d)
|
|
|
40,041
|
|
Asset retirement obligation expense
|
|
|
9,295
|
|
|
|
|
|
|
|
9,295
|
|
Selling and administrative expenses
|
|
|
21,798
|
|
|
|
(6,348
|
)
(e)
|
|
|
15,450
|
|
Net gain on disposal of assets
|
|
|
(81,026
|
)
|
|
|
|
|
|
|
(81,026
|
)
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
(15,090
|
)
|
|
|
51,258
|
|
|
|
36,168
|
|
Interest expense
|
|
|
1,743
|
|
|
|
3,612
|
(f)
|
|
|
5,355
|
|
Interest expense related to Peabody
|
|
|
3,045
|
|
|
|
(3,045
|
)
(g)
|
|
|
|
|
Interest income
|
|
|
(4,766
|
)
|
|
|
|
|
|
|
(4,766
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and
minority interest
|
|
|
(15,112
|
)
|
|
|
50,691
|
|
|
|
35,579
|
|
Income tax provision
|
|
|
|
|
|
|
17,055
|
(h)
|
|
|
17,055
|
|
Minority interest
|
|
|
2,653
|
|
|
|
|
|
|
|
2,653
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(17,765
|
)
|
|
$
|
33,636
|
|
|
$
|
15,871
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma Consolidated Statement of Operations
|
|
|
(a)
|
|
Reflects an increase to revenues (and related royalties and taxes) related to the repricing
of a coal supply agreement to increase the price paid to Patriot to be more reflective of the
then current market pricing for similar quality coal at the time of the spin-off.
|
|
(b)
|
|
Reflects a decrease to operating costs and expenses for the impact of Peabodys agreement to
assume certain of Patriots retiree healthcare liabilities, which totaled $603.4 million as of
December 31, 2007.
|
|
(c)
|
|
Reflects reversal of historical expense related to pension benefit obligations that were not
assumed by Patriot.
|
|
(d)
|
|
Reflects the non-cash transfer to Peabody of an intangible asset related to a purchased
contract right recorded on Patriots historical financial statements in Investments and Other
Assets and historically sourced from Patriot mining operations. As part of the spin-off, Peabody
retained the coal supply contract with the ultimate customer.
|
19
|
|
|
(e)
|
|
Reflects adjustment for estimated selling and administrative costs for Patriots
stand-alone management and administrative structure and functions. Prior to the spin-off,
these services were provided by Peabody under various agreements between Peabody and its
subsidiaries, and the historical amount was the result of an allocation of Peabodys
overall general and administrative costs. The allocation of these Peabody costs was not
deemed reasonable for Patriot on a stand-alone basis and a pro forma amount was estimated
based on a detailed build-up of expected support costs by function for the Patriot
operations as a stand-alone business. The costs allocated to Patriot by Peabody are higher
than Patriots pro forma estimate because the Peabody allocation reflected higher costs for
areas such as government relations, information systems development, office space,
executive incentive compensation, and support departments such as accounting, law,
engineering and human resources. In addition, the Peabody allocation included costs for
major strategy and growth initiatives, most of which did not directly impact the Patriot
operations.
|
|
(f)
|
|
Reflects higher costs for surety bonds and letters of credit based on current rates for
these instruments and on Patriots requirements to secure financial obligations for
reclamation, workers compensation and postretirement benefits. The historical financial
statements reflect an allocation of Peabodys fees related to these guarantees.
|
|
(g)
|
|
Reflects the reversal of the interest expense related to the intercompany note payable
to Peabody.
|
|
(h)
|
|
Reflects tax impact of pro forma adjustments based on the statutory rate adjusted for
tax accounting as follows:
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2007
|
|
Expected tax statutory
|
|
$
|
17,742
|
|
State income tax
|
|
|
1,678
|
|
Percentage depletion
|
|
|
(7,292
|
)
|
Valuation allowance
|
|
|
4,927
|
|
|
|
|
|
Pro forma tax impact
|
|
$
|
17,055
|
|
|
|
|
|
Outlook
As discussed more fully in Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2007, our results of operations in the near-term could be negatively
impacted by poor weather conditions, unforeseen adverse geologic conditions or equipment
problems at mining locations, the unavailability of transportation for coal shipments, increased
labor costs due to the shortage of skilled labor, rising prices of key supplies, mining
equipment and commodities and the inability of contract miners to fulfill delivery terms of
their contracts. On a long-term basis, our results of operations could be impacted by our
ability to secure or acquire high-quality coal reserves; our ability to attract and retain
skilled employees and contract miners; our ability to find replacement buyers for coal under
contracts with comparable terms to existing contracts; and the passage of new or expanded
regulations that could limit our ability to mine, increase our mining costs, or limit our
customers ability to utilize coal as fuel for electricity
generation. If upward pressure on costs exceeds our ability to realize sales increases, or
if we experience unanticipated operating or transportation difficulties, our operating margins
would be negatively impacted. We are experiencing increases in operating costs related to
steel-related products (including roof control), replacement parts, belting products, fuel,
explosives, contract mining and healthcare, and have taken measures to attempt to mitigate the
increases in these costs. Management plans to aggressively control costs and operating
performance to mitigate external cost pressures and geologic conditions.
Our operating results are also impacted by market conditions. International coal markets
continue to grow, driven by increased demand from the growing economies of China and India where
coal is both the primary domestic source of fuel and the lowest-cost imported fuel for
electricity generation. We do not currently sell coal into China, but Chinese demand is
important in determining worldwide coal prices. In addition to the increased demand in China and
India, domestic demand increases in Indonesia, South Africa and Russia are resulting in lower exports.
Brazil is experiencing increased steel production resulting in the need for more coal imports.
Additionally, coal exports from Australia, a major coal producer, have been impacted by
infrastructure limitations driven by rail and port constraints.
20
Metallurgical coal continues to sell at a significant premium to steam coal and we expect
to participate in the strong international and domestic market for metallurgical coal through
production and export sales of metallurgical coal from our operations. International 2008/2009
contracts for metallurgical coal were reported at over $300 per tonne
(Free On Board Trimmed loading
vessel, low volatility). Central Appalachia spot prices for metallurgical coal and thermal coal
have increased significantly since the beginning of 2008. We believe strong coal markets will
continue worldwide, as long as coal consumption continues to increase in the U.S., Asia, South
America and other economies that have increasing coal demand for electricity generation and
steelmaking.
In addition to the international supply/demand imbalance, Central Appalachia has been
experiencing reduced coal production due to permitting, equipment and labor constraints, and
safety regulations. Production in the region is reported to be lower by 0.9 million tons
year-to-date as compared to last year.
For 2008, including Magnum beginning July 23, we are anticipating sales volumes in the
range of 30.0 to 32.0 million tons. As of June 30, 2008, including Magnum, less than 0.5 million tons of expected 2008
metallurgical and thermal volumes remain unpriced. As of
June 30, 2008, including Magnum for the full year, our total unpriced
planned production for 2009 was 6.0 to 7.0 million tons of metallurgical and 5.0 to 6.0 million
tons of thermal volumes and for 2010 was 9.5 to 10.5 million tons of metallurgical and 17.0 to
18.0 tons of thermal volumes.
The guidance provided under this caption Outlook should be read in conjunction with, and is
subject to risks, including risks set forth under the section entitled Cautionary Notice
Regarding Forward-Looking Statements and Item 1A, Risk Factors in this report and in Part 1A,
Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2007.
Liquidity and Capital Resources
Our primary sources of cash include sales of our coal production to customers, sales of
non-core assets and financing transactions. Our primary uses of cash include our cash costs of
coal production, capital expenditures, interest costs and costs related to past mining
obligations as well as planned acquisitions. Our ability to service our debt (interest and
principal) and acquire new productive assets or businesses is dependent upon our ability to
continue to generate cash from the primary sources noted above in excess of the primary uses. We
expect to fund all of our capital expenditure requirements with cash generated from operations
or borrowed funds as necessary.
Net cash provided by operating activities was $31.2 million for the six months ended June
30, 2008 compared to $61.5 million used in operating activities in the same period of 2007. The
increase in cash provided by operating activities primarily related to improved operating
results.
Net cash used in investing activities was $49.9 million for the six months ended June 30,
2008 compared to net cash provided by investing activities of $71.6 million in the same period
of 2007. The decrease in cash provided reflected a decrease in net transactions with Peabody of
$66.3 million and a decrease in the proceeds from disposal of assets of $32.7 million,
investment in joint ventures of $14.7 million and higher capital expenditures of $6.9 million.
In the second quarter, we entered into two joint ventures for which we contributed cash totaling
$14.7 million and committed certain coal reserve rights.
Net cash provided by financing activities was $15.7 million for the six months ended June
30, 2008, largely driven by short-term borrowings of $20.0 million.
Credit Facility
On October 31, 2007, in connection with the spin-off of Patriot, we entered into a $500
million, four-year revolving credit facility, which includes a $50 million swingline
sub-facility and a letter of credit sub-facility. This facility is available for working capital
requirements, capital expenditures and other corporate purposes. As of June 30, 2008, the
balance of outstanding letters of credit issued against the credit facility totaled $296.3
million. At June 30, 2008, there was $20.0 million of outstanding short-term borrowings on this
facility. Availability under the credit facility as of June 30, 2008 was $183.7 million.
The obligations under our credit facility are secured by a first lien on substantially all
of our assets, including but not limited to certain of our mines and coal reserves and related
fixtures and accounts receivable. The credit facility contains certain customary covenants,
including financial covenants limiting our total indebtedness (maximum leverage ratio of 2.75)
and requiring minimum EBITDA coverage of interest expense (minimum interest coverage ratio of
4.0),
21
as well as certain limitations on, among other things, additional debt, liens,
investments, acquisitions and capital expenditures, future dividends and asset sales. The credit
facility calls for quarterly reporting of compliance with financial covenants. The rolling four
quarters compliance calculation contains a phase-in provision for 2008. The terms of the credit
facility also contain certain customary events of default, which give the lender the right to
accelerate payments of outstanding debt in certain circumstances. Customary events of default
include breach of covenants, failure to maintain required ratios, failure to make principal
payments or to make interest or fee payments within a grace period, and default, beyond any
applicable grace period, on any of our other indebtedness exceeding a certain amount. At June
30, 2008, we were in compliance with the covenants of our credit facility.
In connection with the merger agreement with Magnum, Patriot entered into an amendment
dated as of April 2, 2008 to the credit facility. The amendment among other things, (i) permits
the merger with Magnum and the transactions contemplated by the merger agreement, (ii) increases
the rate of interest applicable to loans and letters of credit fees under the credit facility
and (iii) modifies certain covenants and related definitions to allow for changes in permitted
indebtedness, permitted liens, permitted capital expenditures and other changes in respect of us
and our subsidiaries in connection with the acquisition. The increase in the interest rate and
covenant modifications were effective with the closing of the acquisition. In connection with
Patriots issuance of the convertible notes discussed below, Patriot entered into an amendment
dated as of May 19, 2008 to the credit facility allowing the issuance of the convertible notes
and modifying certain covenants for the period prior to the closing of the Magnum acquisition.
Private Convertible Notes Issuance
On May 28, 2008, we completed a private offering of $200 million in aggregate principal
amount of 3.25% Convertible Senior Notes due 2013 (the notes), including $25 million related to
the underwriters overallotment option. The net proceeds of the offering were approximately
$192.8 million after deducting the initial purchasers commissions and estimated fees and
expenses of the offering. As of June 30, 2008, the proceeds from the notes were held in escrow
and reflected as restricted cash on the balance sheet.
Interest on the notes is payable semi-annually in arrears on May 31 and November 30 of each
year, beginning November 30, 2008. The notes mature on May 31, 2013, unless converted,
repurchased or redeemed in accordance with their terms prior to such date. The notes are senior
unsecured obligations and rank equally with all of the Companys existing and future senior debt
and are senior to any subordinated debt. Subsequent to June 30, 2008, Patriot used the proceeds
of the offering to repay Magnums existing senior secured indebtedness and acquisition related
fees and expenses. All remaining amounts will be used for other general corporate purposes.
The notes are convertible into cash and shares of Patriots common stock during the period
from issuance to February 15, 2013, subject to certain conditions of conversion as described
below. As adjusted for the stock split, the conversion rate for the notes is 14.7778
shares of Patriots common stock per $1,000 principal amount of
notes, which is equivalent to a conversion price of approximately $67.67 per share of common stock on a split-adjusted
basis. The conversion rate and the conversion price are subject to adjustment for certain
dilutive events, such as a future stock split or a distribution of a stock dividend.
The notes require Patriot to settle all conversions by paying cash for the lesser of the
principal amount or the conversion value of the notes, and by settling any excess of the conversion value
over the principal amount in cash or shares, at the Companys option.
Holders of the notes may convert their notes prior to the close of business on the business
day immediately preceding February 15, 2013, only under the following circumstances: (1) during
the five trading day period after any ten consecutive trading day period (the measurement
period) in which the trading price per note for each trading day of that measurement period was
less than 97% of the product of the last reported sale price of Patriots common stock and the
conversion rate on each such trading day; (2) during any calendar quarter after the calendar
quarter ending September 30, 2008, and only during such calendar quarter, if the last reported
sale price of Patriots common stock for 20 or more trading days in a period of 30 consecutive
trading days ending on the last trading day of the immediately preceding calendar quarter
exceeds 130% of the conversion price in effect on each such trading day; (3) if such holders
notes have been called for redemption or (4) upon the occurrence of corporate events specified
in the indenture. The notes will be convertible, regardless of the foregoing circumstances, at
any time from, and including, February 15, 2013 until the close of business on the business day
immediately preceding the maturity date.
22
The number of shares of Patriots common stock that it may deliver upon conversion will
depend on the price of its common stock during an observation period
as described in the
indenture. Specifically, the number of shares deliverable upon conversion will increase as the
common stock price increases above the conversion price of $67.67 per share during the
observation period. The maximum number of shares that Patriot may deliver is 2,955,560 on a
split-adjusted basis. However, if certain fundamental changes occur in Patriots business that
are deemed make-whole fundamental changes in the indenture, the number of shares deliverable
on conversion may increase, up to a maximum amount of 4,137,788 shares on a split-adjusted
basis. These maximum amounts are subject to adjustment for certain dilutive events, such as a
stock split or a distribution of a stock dividend.
Holders of the notes may require Patriot to repurchase all or a portion of their notes upon
a fundamental change in Patriots business, as defined in the indenture. The holders would
receive cash for 100% of the principal amount of the notes, plus any accrued and unpaid
interest.
Patriot may redeem (i) some or all of the notes at any time on or after May 31, 2011, but
only if the last reported sale price of Patriots common stock for 20 or more trading days in a
period of 30 consecutive trading days ending on the trading day prior to the date Patriot
provides the relevant notice of redemption exceeds 130% of the conversion price in effect on
each such trading day, or (ii) all of the notes if at any time less than $20 million in
aggregate principal amount of notes remain outstanding. In both cases, notes will be redeemed
for cash at a redemption price equal to 100% of the principal amount of the notes to be
redeemed, plus any accrued and unpaid interest up to, but excluding, the relevant redemption
date.
Under the indenture for the notes, if Patriot fails to timely file any document or report
required to be filed with the Securities Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, (other than reports on Form 8-K), Patriot is
required to pay additional interest on the notes of 0.50% of the principal balance of the notes.
Per the guidance set forth in SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), this additional interest feature is considered an embedded
derivative. Management has determined the fair value of this embedded derivative is de minimis
as the probability of reports not being filed timely is remote and the Company has no history of
late submissions.
The notes and any shares of common stock issuable upon conversion have not been registered
under the Securities Act of 1933, as amended (the Securities Act), or any state securities laws.
The notes were only offered to qualified institutional buyers pursuant to Rule 144A promulgated
under the Securities Act.
Bridge Loan Facility
In connection with the acquisition agreement, Patriot obtained a subordinated bridge loan
financing commitment, allowing it to draw up to $150 million under the related bridge loan
facility at the effective date of the acquisition to repay a portion of the outstanding debt of
Magnum and to pay related fees and expenses. Patriot terminated the financing commitment on May
30, 2008, as a result of the Convertible Senior Notes issuance. Patriot paid $1.5 million in
commitment fees in connection with the financing commitment, which was included in Interest
Expense in the statement of operations.
Newly Adopted Accounting Pronouncements
FASB Statement No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measures. SFAS No. 157 clarifies that fair
value is a market-based measurement that should be determined based on the assumptions that
market participants would use in pricing an asset or liability
.
SFAS No. 157 establishes a
three-level fair value hierarchy for fair value to be measured based on the observability of the
inputs utilized in the valuation. The levels are Level 1 quoted prices in an active market,
Level 2 inputs other than a quoted price market that are directly or indirectly observable
through market corroborated inputs and Level 3 inputs that are unobservable and require
assumptions about pricing by market participants. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The provisions of SFAS No. 157 are to be applied on a
prospective basis, with the exception of certain financial instruments for which retrospective
application is required. The Company adopted SFAS No. 157 on January 1, 2008, with no impact
upon adoption.
23
FASB Statement No. 159
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not currently required to
be measured at fair value. Entities electing the fair value option are required to recognize
changes in fair value in earnings and to expense upfront costs and fees associated with each
item for which the fair value option is elected. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008, with no impact to
the financial statements since we did not elect fair value treatment for any items not currently
required to be measured at fair value.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Commodity Price Risk
The potential for changes in the market value of our coal portfolio is referred to as
market risk. Due to lack of quoted market prices and the long term, illiquid nature of the
positions, we have not quantified market risk related to our portfolio of coal supply
agreements. We manage our commodity price risk for our coal contracts through the use of
long-term coal supply agreements, rather than through the use of derivative instruments. We sold
83% of our sales volume under coal supply agreements with terms of one year or more during 2007.
As of June 30, 2008, including Magnum, our total unpriced planned production for 2008 was less
than 0.5 million tons, for 2009 was 11.0 to 13.0 million tons and for 2010 was 26.5 to
28.5 million tons.
In connection with the spin-off, we entered into long-term coal contracts with marketing
affiliates of Peabody. The arrangements, except as described below under Credit Risk, have
substantially similar terms and conditions as the pre-existing contractual obligations of
Peabodys marketing affiliate. These arrangements may be amended or terminated only with the
mutual agreement of Peabody and Patriot.
Credit Risk
A major portion of our revenues is generated through sales to a marketing affiliate of
Peabody, and we will continue to supply coal to Peabody on a contract basis as described above,
so Peabody can meet its commitments under pre-existing customer agreements sourced from our
operations. One of these arrangements with Peabody provides for the adjustment of a major
existing coal sales agreement sourced from Patriots operations to increase the price paid to us
thereunder. The term of the arrangement between Patriot and Peabody will expire on December 31,
2012. Our remaining sales are made directly to electric utilities, industrial companies and
steelmakers. Therefore, our concentration of credit risk is primarily with Peabody, as well as
electric utilities and steelmakers. Our policy is to independently evaluate each customers
creditworthiness prior to entering into transactions and to constantly monitor the credit
extended. In the event that we engage in a transaction with a counterparty that does not meet
our credit standards, we will protect our position by requiring the counterparty to provide
appropriate credit enhancement. When appropriate (as determined by our credit management
function), we have taken steps to reduce our credit exposure to customers or counterparties
whose credit has deteriorated and who may pose a higher risk of failure to perform under their
contractual obligations. These steps include obtaining letters of credit or cash collateral,
requiring prepayments for shipments or the creation of customer trust accounts held for our
benefit to serve as collateral in the event of a failure to pay. Additionally, as of June 30,
2008, we had $137.2 million in notes receivable outstanding from counterparties not
affiliated with us or Peabody arising out of the sale of coal reserves and surface land
discussed above. Of this amount, 96% is from a single counterparty. Each of these notes contains
a cross-collaterization provision secured primarily by the underlying coal reserves and surface
land.
Item 4. Controls and Procedures.
Our disclosure controls and procedures are designed to, among other things, provide
reasonable assurance that material information, both financial and non-financial, and other
information required under the securities laws to be disclosed is accumulated and communicated
to senior management, including the Chief Executive Officer and Chief Financial Officer, on a
timely basis. Under the direction of the Chief Executive Officer and Chief Financial Officer,
management has evaluated our disclosure controls and procedures as of June 30, 2008, and has
concluded that the disclosure controls and procedures were adequate and effective as of such
date.
There have not been any significant changes in our internal control over financial
reporting during the fiscal quarter to which this report relates that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 11 to the unaudited consolidated financial statements included in Part I, Item 1
of this report relating to certain legal proceedings, which information is incorporated by
reference herein.
Item 1A. Risk Factors.
Patriots operations are subject to geologic equipment and operational risks associated
with mining.
Patriots coal mining operations are conducted, in large part, in underground mines. The
level of Patriots production at these mines is subject to operating conditions and events
beyond its control that could disrupt operations, affect production and the cost of mining at
particular mines for varying lengths of time and have a significant impact on its operating
results.
If these conditions or events occur in the future, reduced production could adversely
affect Patriots results of operations, cash flows and financial condition. For example,
Patriots Federal mine experienced two roof falls during the first quarter of 2008. As a result
of the roof falls, Federals longwall production was curtailed for approximately one month,
contributing to a decrease of 415,000 tons in the volume of coal sales from Appalachia in the
first quarter of 2008, compared to the 2007 first quarter and leading to a decrease in Adjusted
EBITDA for the first quarter of 2008 of an estimated $17.0 million. Patriots fourth quarter
2007 results were also negatively impacted by a delayed longwall move at Federal. The decrease
in production caused Patriot to invoke the force majeure provisions of several of its coal sales
contracts, requiring Patriot to make up lost tonnages in certain instances during 2008 and
possibly into 2009.
There is no assurance that the adverse geologic conditions at the Federal mine may not
re-occur, with the same or more adverse impact on Patriots financial condition and results of
operations, or that similar adverse geologic conditions may not occur at one or more of
Patriots other mines.
The acquisition of Magnum presents integration challenges and incremental costs.
The acquisition of Magnum was consummated on July 23, 2008. Patriot may face significant
challenges in combining Magnums operations into our operations in a timely and efficient manner
and in retaining key Magnum personnel. The integration of the two companies will require
resources and management attention in the areas of information technology, human resources, land
management and finance. The failure to successfully integrate Magnum and to successfully manage
the challenges presented by the integration process may result in us not achieving the
anticipated benefits of the merger.
Patriot and Magnum incurred costs associated with transaction fees and other costs related
to the merger. Specifically, Patriot incurred approximately $10 million for transaction costs
related to the merger, which costs are recorded as a component of the purchase price. Magnum
incurred approximately $18 million for transaction costs related to the merger, which costs were
expensed as incurred. In addition to transaction costs incurred in connection with the merger,
we will incur integration and restructuring costs as we integrate our businesses with those of
Magnum.
Although Patriot expects that the realization of efficiencies related to the integration of
the businesses will offset incremental transaction, integration and restructuring costs over
time, Patriot cannot give any assurance that this net benefit will be achieved in the near term,
if at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Information under this Item has previously been reported on our Form 8-K filed on May 29,
2008 and is incorporated by reference.
25
Item 4. Submission of Matters to a Vote of Security Holders.
Patriot Coal Corporations annual meeting of stockholders was held on May 12, 2008. The shares of common stock eligible to vote were based on a record date of March 20, 2008. Two Class
I directors were elected to serve for three-year terms expiring in 2011. A tabulation of votes
(on a pre-split basis) for each director is set forth below:
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Withheld
|
J. Joe Adorjan
|
|
|
24,560,737
|
|
|
|
94,208
|
|
|
|
|
|
|
|
|
|
|
Michael M. Scharf
|
|
|
23,141,934
|
|
|
|
1,513,011
|
|
Other directors whose term of office continued after the meeting were Irl F. Engelhardt,
B.R. Brown, John E. Lushefski, Robert O. Viets and Richard M. Whiting.
Stockholders also voted to ratify Ernst & Young LLP as our independent registered public
accounting firm for 2008 (votes are on a pre-split basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
For
|
|
Against
|
|
Abstentions
|
|
Non-votes
|
Ratification of
independent
registered public
accounting firm
|
|
|
24,609,186
|
|
|
|
30,260
|
|
|
|
13,847
|
|
|
|
1,656
|
|
Patriot held a special meeting of stockholders on July 22, 2008. The shares of common stock
eligible to vote were based on a record date of June 16, 2008. Stockholders approved the
issuance of new shares of Patriot common stock for issuance to the shareholders of Magnum in
relation to the acquisition of Magnum Coal Company. A tabulation of votes (on a pre-split
basis) is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstentions
|
Approving the
issuance of Patriot
common stock
issuable to the
holders of Magnum
common stock
pursuant to the
merger agreement
|
|
|
21,142,819
|
|
|
|
35,656
|
|
|
|
305,489
|
|
Item 6. Exhibits.
See Exhibit Index on page 28 of this report.
26
SIGNATURE
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.
|
|
|
|
|
|
PATRIOT COAL CORPORATION
|
|
|
Date: August 12, 2008
|
By:
|
/s/ MARK N. SCHROEDER
|
|
|
|
Mark N. Schroeder
|
|
|
|
Senior Vice President and
Chief Financial Officer
(On behalf of the registrant and as Principal Financial and
Accounting Officer)
|
|
|
27
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
2.1
|
|
Separation Agreement, Plan of Reorganization and Distribution, dated October 22, 2007,
between Peabody Energy Corporation and Patriot Coal Corporation (Incorporated by reference to
Exhibit 2.1 of the Registrants Current Report on Form 8-K, filed on October 25, 2007).
|
|
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of April 2, 2008, by and among Magnum Coal Company,
Patriot Coal Corporation, Colt Merger Corporation, and ArcLight Energy Partners Fund I, L.P. and
ArcLight Energy Partners Fund II, L.P., acting jointly, as Stockholder Representative (Incorporated
by reference to Exhibit 2.1 of the Registrants Current Report on Form 8-K, filed on April 8,
2008).
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit
3.1 of the Registrants Current Report on Form 8-K, filed on October 25, 2007).
|
|
|
|
3.2
|
|
Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.2 of the
Registrants Current Report on Form 8-K, filed on October 25, 2007).
|
|
|
|
4.1
|
|
Rights Agreement, dated October 22, 2007, between Patriot Coal Corporation and
American Stock Transfer & Trust Company (Incorporated by reference to Exhibit 4.1 of the
Registrants Current Report on Form 8-K, filed on October 25, 2007).
|
|
|
|
4.2
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock (Incorporated by
reference to Exhibit 4.1 of the Registrants Current Report on Form 8-K, filed on November 6,
2007).
|
|
|
|
4.3
|
|
First Amendment to Rights Agreement, dated as of April 2, 2008, to the Rights Agreement, dated
as of October 22, 2007 between Patriot Coal Corporation and American Stock Transfer & Trust
Company, as Rights Agent (Incorporated by reference to Exhibit 4.1 of the Registrants Current
Report on Form 8-K, filed on April 8, 2008).
|
|
|
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4.4
|
|
Indenture dated as of May 28, 2008, by and between Patriot Coal Corporation, as Issuer, and U.S.
Bank National Association, as trustee (including form of 3.25% Convertible Senior Notes due 2013)
(Incorporated by reference to the Registrants Current Report on Form 8-K, dated May 29, 2008).
|
|
|
|
10.1
|
|
Amendment I to Coal Supply Agreement between Patriot Coal LLC and COALSALES II LLC,
dated March 28, 2008. (Incorporated by reference to Exhibit 10.1 of the Registrants Current Report
on Form 10-Q, filed on May 14, 2008).
|
|
|
|
10.2
|
|
Form of Registration Rights Agreement among Patriot Coal Corporation, ArcLight Energy Partners
Fund I, L.P. and ArcLight Energy Partners Fund II, L.P. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K, filed on April 8, 2008).
|
|
|
|
10.3
|
|
Bridge Facility Commitment Letter dated April 2, 2008, among Patriot Coal Corporation, ArcLight
Energy Partners Fund I, L.P. and ArcLight Energy Partners Fund II, L.P. (Incorporated by reference
to Exhibit 10.2 of the Registrants Current Report on Form 8-K, filed on April 8, 2008).
|
|
|
|
10.4
|
|
Form of Support Agreement, dated as of April 2, 2008, between Patriot Coal Corporation and certain
stockholders of Magnum Coal Company (Incorporated by reference to the Registrants Current
Report on Form 8-K, filed on April 8, 2008).
|
|
|
|
10.5
|
|
Voting and Standstill Agreement, dated as of April 2, 2008, among Patriot Coal Corporation, the
stockholders whose names appear on the signature page thereto, ArcLight Energy Partners Fund I,
L.P. and ArcLight Energy Partners Fund II, L.P., acting jointly, as stockholder representative
(Incorporated by reference to the Registrants Current Report on Form 8-K, dated April 8, 2008).
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10.6
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Amendment No. 1, dated as of April 2, 2008, to the Credit Agreement dated as of October 31, 2007, among
Patriot Coal Corporation, Bank of America, N.A., as administrative agent, L/C Issuer and Swing Line
Lender, and the lenders party thereto (Incorporated by reference to the Registrants Current Report
on Form 8-K, filed on April 8, 2008).
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28
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Exhibit No.
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Description of Exhibit
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10.7
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Employment Agreement, made and entered into as of May 8, 2008, by and between Paul H. Vining
and Patriot Coal Corporation (Incorporated by reference to the Registrants Current Report on Form
8-K, filed on May 13, 2008).
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10.8
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Purchase Agreement, dated May 21, 2008 by and among Patriot Coal Corporation and Citigroup
Global Markets Inc. and Lehman Brothers Inc. (Incorporated by reference to the Registrants
Current
Report on Form 8-K, filed on May 23, 2008).
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10.9
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Amendment No. 2, dated as of May 19, 2008, to the Credit Agreement dated as of October 31, 2007,
among Patriot Coal Corporation, Bank of America, N.A., as administrative agent, L/C Issuer and
Swing Line Lender, and the lenders party thereto. (Incorporated by reference to the Registrants
Current Report on Form 8-K, filed on May 23, 2008).
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10.10
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Indemnification Agreement, dated July 24, 2008, between Patriot Coal Corporation and Robb E.
Turner (Incorporated by reference to the Registrants Current Report on Form 8-K, filed on
July 28, 2008).
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10.11
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Indemnification Agreement, dated July 24, 2008, between Patriot Coal Corporation and John E.
Erhard (Incorporated by reference to the Registrants Current Report on Form 8-K, filed on
July 28, 2008).
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10.12
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Indemnification Agreement, dated July 24, 2008, between Patriot Coal Corporation and Michael
P. Johnson (Incorporated by reference to the Registrants Current Report on Form 8-K, filed on
July 28, 2008).
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31.1*
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Certification of periodic financial report by Patriot Coal Corporations Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certification of periodic financial report by Patriot Coal Corporations Chief Financial Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1*
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Certification of periodic financial report pursuant to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, by Patriot Coal Corporations Chief Executive
Officer.
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32.2*
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Certification of periodic financial report pursuant to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, by Patriot Coal Corporations Chief Financial
Officer.
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99.1
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Patriot Coal Corporation Rights Adjustment Certificate dated July 28, 2008 (Incorporated by
reference to Exhibit 99.4 of the Registrants Current Report on Form 8-K, filed on July 28, 2008).
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29
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