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, 2009
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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
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 definition 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
þ
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Accelerated filer
o
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Non-accelerated filer
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(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 90,316,743 shares of common stock with a par value of $0.01 per share outstanding on
July 31, 2009.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PATRIOT COAL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended June 30,
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Six Months Ended June 30,
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2009
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2008
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2009
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2008
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(Dollars in thousands, except share and per share data)
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Revenues
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Sales
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$
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485,049
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$
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328,469
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$
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1,007,887
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$
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607,570
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Other revenues
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21,947
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11,211
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28,045
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16,444
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Total revenues
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506,996
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339,680
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1,035,932
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624,014
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Costs and expenses
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Operating costs and expenses
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407,008
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295,447
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824,409
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554,565
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Depreciation, depletion and amortization
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50,357
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20,905
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105,336
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39,515
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Asset retirement obligation expense
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7,611
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3,259
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14,062
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6,675
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Selling and administrative expenses
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11,360
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9,488
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24,246
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17,777
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Net gain on disposal or exchange of assets
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(4,031
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(6,336
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(4,061
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(6,530
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Operating profit
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34,691
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16,917
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71,940
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12,012
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Interest expense
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9,137
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5,796
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17,730
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8,118
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Interest income
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(5,836
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(3,621
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(9,323
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(6,870
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Income before income taxes
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31,390
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14,742
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63,533
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10,764
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Income tax provision
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3,507
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2,595
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Net income
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$
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31,390
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$
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11,235
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$
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63,533
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$
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8,169
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Weighted average shares outstanding:
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Basic
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79,940,308
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53,512,286
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78,928,849
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53,515,514
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Effect of dilutive securities
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138,299
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270,956
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150,417
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273,665
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Diluted
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80,078,607
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53,783,242
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79,079,266
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53,789,179
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Earnings per share, basic and diluted
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$
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0.39
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$
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0.21
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$
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0.80
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$
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0.15
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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, 2009
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December 31, 2008
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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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49,204
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$
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2,872
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Accounts receivable and other, net of allowance for doubtful accounts of
$193 and $540 as of June 30, 2009 and December 31, 2008,
respectively
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177,877
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163,556
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Inventories
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91,653
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80,953
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Below market purchase contracts acquired
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3,645
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8,543
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Prepaid expenses and other current assets
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24,798
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12,529
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Total current assets
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347,177
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268,453
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Property, plant, equipment and mine development
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Land and coal interests
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2,847,801
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2,652,224
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Buildings and improvements
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360,451
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390,119
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Machinery and equipment
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645,160
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658,699
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Less accumulated depreciation, depletion and amortization
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(644,623
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(540,366
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Property, plant, equipment and mine development, net
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3,208,789
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3,160,676
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Notes receivable
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114,084
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131,066
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Investments and other assets
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60,055
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62,125
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Total assets
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$
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3,730,105
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$
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3,622,320
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Current portion of debt
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$
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7,981
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$
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28,170
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Trade accounts payable and accrued expenses
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434,103
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413,790
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Below market sales contracts acquired
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221,990
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324,407
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Total current liabilities
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664,074
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766,367
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Long-term debt, less current maturities
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196,799
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176,123
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Asset retirement obligations
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235,112
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224,180
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Workers compensation obligations
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190,254
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188,180
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Accrued postretirement benefit costs
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1,008,469
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1,003,254
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Obligation to industry fund
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41,055
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42,571
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Below market sales contracts acquired, noncurrent
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262,138
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316,707
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Other noncurrent liabilities
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117,943
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64,757
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Total liabilities
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2,715,844
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2,782,139
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Stockholders equity
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Common stock ($0.01 par value; 100,000,000 shares authorized; 90,069,284
and 77,383,199 shares issued and outstanding at June 30, 2009 and
December 31, 2008, respectively)
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901
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774
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Preferred stock ($0.01 par value; 10,000,000 shares authorized; no shares
outstanding at June 30, 2009 and December 31, 2008)
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Series A Junior Participating Preferred Stock ($0.01 par value;
1,000,000 shares
authorized; no shares issued and outstanding at June 30, 2009 and
December 31, 2008)
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Additional paid-in capital
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937,342
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842,323
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Retained earnings
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172,898
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109,365
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Accumulated other comprehensive loss
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(96,880
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(112,281
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)
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Total stockholders equity
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1,014,261
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840,181
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Total liabilities and stockholders equity
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$
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3,730,105
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$
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3,622,320
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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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2009
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2008
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(Dollars in thousands)
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Cash Flows From Operating Activities
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Net income
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$
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63,533
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$
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8,169
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation, depletion and amortization
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105,336
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39,515
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Accretion of below market contracts
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(138,528
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Net gain on disposal or exchange of assets
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(4,061
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(6,530
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)
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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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5,347
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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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8,937
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(37,194
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Inventories
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(16,995
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(3,481
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Other current assets
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(11,509
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(5,577
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Accounts payable and accrued expenses
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193
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24,921
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Interest on notes receivable
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(6,941
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(6,426
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Asset retirement obligations
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5,538
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3,934
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Workers compensation obligations
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890
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(4,574
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Accrued postretirement benefit costs
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14,121
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10,380
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Obligation to industry fund
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(1,606
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(1,716
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Other, net
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(4,618
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2,989
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Net cash provided by operating activities
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19,637
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31,212
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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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(34,819
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(33,422
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Additions to advance mining royalties
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(7,081
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(3,130
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Investment in joint ventures
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(14,650
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Proceeds from disposal or exchange of assets
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4,768
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1,259
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Other
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131
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Net cash used in investing activities
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(37,001
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)
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(49,943
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)
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Cash Flows From Financing Activities
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Proceeds from equity offering, net of costs
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89,132
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Short-term debt (payments) borrowings
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(23,000
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)
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20,000
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Long-term debt payments
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(3,103
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(927
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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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Deferred financing costs
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(10,232
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)
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Proceeds from employee stock purchases
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667
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Net cash provided by financing activities
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63,696
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15,741
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Net increase (decrease) in cash and cash equivalents
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46,332
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(2,990
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)
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Cash and cash equivalents at beginning of period
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2,872
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5,983
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Cash and cash equivalents at end of period
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$
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49,204
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$
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2,993
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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, 2009
(1) Basis of Presentation
Description of Business
Patriot Coal Corporation (we, our, Patriot or the Company) is engaged in the mining,
preparation and sale 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. Our
mining complexes and coal reserves are located in the eastern and midwestern United States,
primarily in West Virginia and Kentucky.
We acquired Magnum Coal Company (Magnum) effective July 23, 2008. Magnum was one of the
largest coal producers in Appalachia, operating eight mining complexes with production from
surface and underground mines and controlling more than 600 million tons of proven and probable
coal reserves. See Note 5 for additional information on the acquisition.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of
Patriot and its wholly-owned affiliates. 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 12).
On June 16, 2009, we filed a Current Report on Form 8-K which included revisions to Items
6, 7, 7A and 8 of our Annual Report on Form 10-K for the year ended December 31, 2008. The
revisions reflect our adoption of Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB 51 (SFAS
No. 160), Financial Accounting Standards Board (FASB) Staff Position (FSP) APB 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) (FSP APB 14-1) and FSP EITF 03-6-1 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). As required,
we adopted these standards effective January 1, 2009, and retrospectively applied the impact to
our financial statements as further described in Notes 1, 3, 4, 7, 13, 21 and 24 to the Notes to
Consolidated Financial Statements included within the Form 8-K. These revisions included
adjustments to our 2008 consolidated statements of operations, balance sheets and statements of
cash flows.
The accompanying condensed consolidated financial statements as of June 30, 2009 and for
the three and six months ended June 30, 2009 and 2008, 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 for the periods presented.
Operating results for the three and six months ended June 30, 2009 may not necessarily be
indicative of the results for the year ending December 31, 2009. The balance sheet information
as of December 31, 2008 was derived from our audited consolidated balance sheet, as revised in
the Form 8-K.
(2) Newly Adopted Accounting Pronouncements
FASB Staff Position APB 14-1
In May 2008, the FASB issued FSP APB 14-1. FSP APB 14-1 changes the accounting for our
convertible notes, specifying that issuers of convertible debt instruments that may settle in
cash upon conversion must bifurcate the proceeds from the debt issuance between debt and equity
components in a manner that reflects the entitys nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. The equity component reflects the value of
the conversion feature of the notes. We adopted FSP APB 14-1 effective January 1, 2009, with
retrospective application to the inception of our convertible notes. See Note 13 for additional
disclosures regarding the impact of adoption.
FASB Staff Position EITF 03-6-1
In June 2008, the FASB issued FSP EITF 03-6-1. FSP EITF 03-6-1 states that instruments
granted in share-based payment awards that entitle their holders to receive nonforfeitable
dividends or dividend equivalents before vesting should be considered participating securities
and need to be included in the earnings allocation in computing earnings per share under the
two-class method. The two-class method of computing earnings per share is an earnings
allocation
formula that determines earnings per share for each class of common stock and participating
security according to dividends declared (or accumulated) and participation rights in
undistributed earnings. We adopted FSP EITF 03-6-1 effective January 1, 2009 with all prior
period earnings per share data adjusted retrospectively. The calculations of earnings per share
amounts presented in this report include all participating securities as required by FSP EITF
03-6-1.
4
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
FASB Statement No. 141(R)
In December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS) No.
141(R), Business Combinations, which replaces SFAS No. 141 and retains the fundamental
requirements in SFAS No. 141, including that the purchase method be used for all business
combinations and for an acquirer to be identified for each business combination. This standard
defines the acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the acquirer achieves
control instead of the date that the consideration is transferred. SFAS No. 141(R) requires an
acquirer in a business combination to recognize the assets acquired, liabilities assumed, and
any noncontrolling interest in the acquiree at the acquisition date, measured at their fair
values as of that date, with limited exceptions. It also requires the recognition of assets
acquired and liabilities assumed arising from certain contractual contingencies as of the
acquisition date, measured at their acquisition-date fair values. SFAS No. 141(R) is effective
for any business combination with an acquisition date on or after January 1, 2009.
FASB Statement No. 160
In December 2007, the FASB issued SFAS No. 160. SFAS No. 160 establishes accounting and
reporting standards for noncontrolling interests in partially-owned consolidated subsidiaries
and the loss of control of subsidiaries. SFAS No. 160 requires that a noncontrolling interest
(previously referred to as minority interest) in a consolidated subsidiary be displayed in the
consolidated balance sheet as a separate component of equity and the amount of net income
attributable to the noncontrolling interest be included in consolidated net income on the face
of the consolidated statement of operations. In addition, this statement requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated. We adopted the
provisions of SFAS No. 160 effective January 1, 2009, with no affect to any of the periods
presented in this report.
FASB Statement No. 161
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. SFAS No. 161 expands the
disclosure requirements for derivative instruments and hedging activities. This statement
specifically requires an entity to provide enhanced disclosures about its use of derivative
instruments, the accounting for derivatives and related hedged items, and the related effect on
an entitys financial condition, results of operations and cash flows. We adopted SFAS No. 161
on January 1, 2009. See Note 14 for the required disclosures.
FASB Staff Position FAS No. 157-2
In September 2006, the FASB issued 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 was effective
for fiscal years beginning after November 15, 2007. We elected to implement SFAS No. 157 with
the one-year deferral permitted by FSP FAS 157-2. The deferral applied to nonfinancial assets
and liabilities measured at fair value in a business combination. As of January 1, 2009, we
fully adopted SFAS No. 157, including applying its provisions to nonfinancial assets and
liabilities measured at fair value in a business combination. The full adoption of SFAS No. 157
did not change the valuation approach or materially change the purchase accounting for the
Magnum acquisition, which was finalized in the second quarter of 2009.
FASB Statement No. 165
In June 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes
general standards of accounting for and the disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. Entities
are required to disclose the date through which subsequent events have been evaluated. SFAS No.
165 is effective for interim or annual periods ending after June 15, 2009. We adopted SFAS No.
165 effective June 30, 2009.
FASB Staff Position FAS No. 107-1 and APB 28-1
In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures About
Fair Value of Financial Instruments (FSP FAS No. 107-1). FSP FAS No. 107-1 extends the
disclosure requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments
to interim financial statements of publicly traded companies. We adopted FSP FAS No. 107-1
effective June 30, 2009. See Note 8 for the required disclosures.
5
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Pending Adoption of Recent Accounting Pronouncements
FASB Statement No. 167
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R).
SFAS No. 167 amends Interpretation
46(R)
to require a company to perform a qualitative analysis
to determine whether it has a controlling financial interest in a variable interest entity. In
addition, a company is required to assess whether it has the power to direct the activities of
the variable interest entity that most significantly impact the entitys economic performance.
SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. We are currently
evaluating the potential impact of SFAS No. 167 on our operating results, cash flows and
financial condition.
FASB Statement No. 168
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162. The FASB Accounting Standards Codification
TM
(Codification) will become the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective
date of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature not included in
the Codification will become nonauthoritative. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. We are
currently evaluating the impact of SFAS No. 168 on our financial reporting disclosures.
(3) Gain on Disposal or Exchange of Assets and Other Commercial Transactions
In June 2009, we entered into an agreement to swap certain surface land for certain coal
mineral rights and cash with another coal producer. We recognized a gain totaling $4.2 million
on this transaction. The swap transaction was recorded at fair value in accordance with SFAS No.
153 Exchanges of Nonmonetary Assets and SFAS No. 157. We 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 the surface land provided and the coal
seam received.
Other revenues include royalties related to coal lease agreements, payments from customer
settlements and farm income. During the second quarter of 2009, certain metallurgical and
thermal customers requested shipment deferrals on currently committed tons. In certain
situations, we have agreed to release the customers from receipt of the tons in exchange for a
cash settlement. In the second quarter of 2009, these cash settlements represent a significant portion of other revenue and operating profit.
In June 2008, we entered into an agreement to swap certain leasehold coal mineral rights
with another coal producer. Additionally, we sold approximately 2.7 million tons of adjacent
leasehold coal mineral rights in Appalachia for $1.0 million. We recognized gains totaling $6.3
million on these transactions. The swap transaction was recorded at fair value in accordance
with SFAS No. 153 and SFAS No. 157. We 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, we 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.
Additionally, in the second quarter of 2008, we entered into two joint ventures for
which we contributed cash totaling $14.7 million and committed certain coal reserve rights.
We hold a 49% interest in each joint venture and account for the interests under the equity
method of accounting. Subsequent to June 2008, we have contributed additional cash of $1.7
million to these joint ventures. As of June 30, 2009, our maximum exposure to loss is the value
contributed plus additional future committed capital contributions, which for one of the joint
ventures is capped at $4.1 million. The investments in these joint ventures were recorded in
Investments and other assets in the condensed consolidated balance sheets.
6
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(4) Common Stock Offering
On June 16, 2009, we completed a public offering of 12 million shares of our common stock
in a registered public offering under our shelf registration at $7.90 per share. The net
proceeds from the sale of shares, after deducting fees and commissions, were $89.1 million. The
proceeds were used to repay the outstanding balance on our revolving credit facility, with the
remainder to be used for general corporate purposes. We granted the managing underwriters a
30-day option to purchase up to an additional 1.8 million shares, which was not exercised.
(5) Business Combination
On July 23, 2008, Patriot consummated the acquisition of Magnum. Magnum stockholders
received 23,803,312 shares of newly-issued Patriot common stock and cash in lieu of fractional
shares. The fair value of $25.29 per share of Patriot common stock issued to the Magnum
shareholders was based on the average Patriot stock price for the five business days surrounding
and including the merger announcement date, April 2, 2008. The
total consideration for the acquisition was $739.0
million, including the assumption of $148.6 million of long-term debt, of which $11.8 million
related to capital lease obligations. In conjunction with the acquisition, we issued debt in
order to repay Magnums existing senior secured indebtedness as discussed in Note 13.
The results of operations of Magnum are included in the Appalachia Mining Operations
segment from the date of acquisition. This acquisition was accounted
for based on SFAS No. 141, Business Combinations since
the transaction was completed prior to the effective date of SFAS No.
141(R). The acquisition was accounted for using the purchase
method of accounting. Under this method of accounting, the purchase price is allocated to the
fair value of the net assets acquired.
The following table summarizes the fair values of the assets acquired and the liabilities
assumed at the date of acquisition:
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Cash
|
|
$
|
21,015
|
|
Accounts receivable, net
|
|
|
88,471
|
|
Inventories
|
|
|
49,294
|
|
Other current assets
|
|
|
39,073
|
|
Property, plant, equipment and mine development, net
|
|
|
2,360,072
|
|
Other noncurrent assets
|
|
|
5,193
|
|
|
|
|
|
Total assets acquired
|
|
|
2,563,118
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
235,505
|
|
Below market sales contracts acquired, current
|
|
|
497,882
|
|
Long-term debt
|
|
|
144,606
|
|
Below market sales contracts acquired, noncurrent
|
|
|
447,804
|
|
Accrued postretirement benefit costs
|
|
|
430,837
|
|
Other noncurrent liabilities
|
|
|
195,051
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1,951,685
|
|
|
|
|
|
Total
purchase price
|
|
$
|
611,433
|
|
|
|
|
|
As of June 30, 2009, we finalized the valuation of all assets acquired and liabilities
assumed. Changes from preliminary purchase accounting to the final opening balance sheet
presented above primarily related to the valuation of the selenium liability discussed below and
final adjustments to certain assumptions utilized in the valuation of the coal reserves and
acquired coal purchase and sales contracts. Based on a purchase price
determined at the announcement date of the acquisition, the fair value of the net assets acquired exceeded
the purchase price by $360.3 million. This excess value over the purchase price was allocated as a pro-rata
reduction to noncurrent assets, which included property, plant, equipment and mine development
and other noncurrent assets.
Included in Property, plant, equipment and mine development, net is over 600 million tons
of coal reserves valued at $2.1 billion. To value these coal reserves, we utilized a discounted
cash flow model based on assumptions that market participants would use in the pricing of these
assets as well as projections of revenues and expenditures that would be incurred to mine or
maintain these coal reserves. A sustained or long-term decline in coal prices from those used to estimate the fair value of the acquired assets could result in impairment to the carrying amounts of the coal reserves and related coal mining equipment.
7
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
In connection with the valuation of the Magnum acquisition, we recorded liabilities and
assets related to below market coal sales and purchase contracts. The below market supply
contracts were recorded at their fair value when allocating the purchase price, resulting in a
liability of $945.7 million, which is being accreted into earnings as the coal is shipped over a
weighted average period of approximately three years. The below market purchase contracts were
recorded at their fair value, resulting in an asset of $37.8 million, which is being amortized
into earnings as the coal is ultimately sold, within a year from the acquisition date. Net sales
contract accretion related to the acquired below market coal supply and purchase contracts is
included as a reduction of Operating costs and expenses in the consolidated statements of
operations.
In connection with the Magnum acquisition, we assumed liabilities related to water
treatment. At the acquisition date, Magnum was in the process of testing various water
treatment alternatives related to selenium effluent limits in order to comply with certain
mining permits. Subsequent to the acquisition of Magnum, we have implemented selenium control
plans to adjust our mining processes in a manner intended to prevent future violations of the
applicable water quality standard for selenium. Uncertainty has existed since the time of the
acquisition related to the exact amount of our assumed liability due to the fact that currently
there is no proven technology to remediate our existing selenium discharge exceedances to meet
current permit standards.
The cost to treat the selenium exceedances was estimated at a net present value of $85.2
million at acquisition date. This liability reflects the estimated costs of the treatment
systems to be installed and maintained with the goal of meeting the requirements of current
court orders, consent decrees and mining permits. This estimate was prepared considering the
dynamics of current legislation, capabilities of currently available technology and our planned
remediation strategy. (See Clean Water Act Permit Issues in Note 15 for additional discussion of
selenium treatment issues.)
We used a 13% discount rate in determining the net present value of the selenium liability.
The estimated aggregate undiscounted amount is $390.7 million. Our estimated future payments for
selenium remediation average $12 million each year over the next five years, with the remainder
to be paid in the 25 years thereafter. Our estimated selenium liability is included in Other
noncurrent liabilities and Trade accounts payable and accrued expenses on our condensed
consolidated balance sheets.
Based on the fair values set forth above as compared to the carryover tax basis in assets
and liabilities, $69.2 million of net deferred tax liability would be recorded on Magnums
opening balance sheet. As part of the business combination, these Magnum deferred tax
liabilities have impacted managements view as to the realization of our deferred tax assets,
against which a full valuation allowance had previously been recorded. In such situations, SFAS
No. 109 requires that any reduction in the acquiring companys valuation allowance be accounted
for as part of the business combination. As such, deferred tax liabilities have been offset
against a release of $69.2 million of valuation allowance within purchase accounting.
Upon the acquisition of Magnum, we performed a comprehensive strategic review of all mining
complexes and their relative cost structure in order to optimize performance. As a result of
this review, we announced plans to idle operations of both the acquired Jupiter and Remington
mining complexes. The Jupiter mining complex ceased operations in December 2008 and the
Remington mining complex ceased operations in March 2009. The fair value of the assets and
liabilities acquired for these two mining complexes reflects their status as idled in purchase
accounting.
8
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
The following unaudited pro forma financial information presents the combined results
of operations of Patriot and Magnum, on a pro forma basis, as though the companies had been
combined as of January 1, 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2008
|
|
June 30, 2008
|
|
|
(Dollars in thousands, except per share data)
|
Revenues:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
339,680
|
|
|
$
|
624,014
|
|
Pro forma
|
|
|
549,255
|
|
|
|
1,112,322
|
|
Net income:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
11,235
|
|
|
$
|
8,169
|
|
Pro forma
|
|
|
50,440
|
|
|
|
189,672
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.21
|
|
|
$
|
0.15
|
|
Pro forma
|
|
$
|
0.94
|
|
|
$
|
3.54
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.21
|
|
|
$
|
0.15
|
|
Pro forma
|
|
$
|
0.94
|
|
|
$
|
3.53
|
|
The combined pro forma financial information has been adjusted to exclude non-recurring
transaction-related expenses and includes purchase accounting adjustments for fair values
impacting coal inventories, net sales contract accretion, depletion of coal reserves and
depreciation of property, plant and equipment. This unaudited pro forma financial information
does not necessarily reflect the results of operations that would have occurred had Patriot and
Magnum constituted a single entity during this period.
(6) Income Tax Benefit
For the three and six months ended June 30, 2009, no income tax provision was recorded due
to our anticipated tax net operating loss for the year ending December 31, 2009 and the full
valuation allowance recorded against our net deferred tax assets. The primary difference
between book and taxable income for 2009 is the treatment of the net sales contract accretion on
the below market purchase and sales contracts acquired with Magnum, with such amounts being
included in the computation of book income but excluded from the computation of taxable income.
For the three and six months ended June 30, 2008, we reported an income tax provision of $3.5
million and $2.6 million based on the forecasted effective tax rate for 2008.
(7) Earnings per Share
Basic earnings per share is computed by dividing net income by the 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.
For the three and six months ended June 30, 2009 and 2008, the effect of dilutive
securities includes the impact of stock options and restricted stock units. For the three and
six months ended June 30, 2009, 1,652,343 shares and 2,104,798 shares, respectively, related to
share-based compensation awards were excluded from the diluted earnings per
share calculation because they were anti-dilutive for those periods. For the three and six
months ended June 30, 2008, 1,336 shares related to share-based compensation awards were
excluded from the diluted earnings per share calculation because they were anti-dilutive for
those periods.
The weighted average shares outstanding and earnings per share for the three and six months
ended June 30, 2008, were revised to include 370,406 and 373,634 restricted shares,
respectively, as unvested participating securities due to the adoption of FSP EITF 03-6-1 as
discussed in Note 2. The inclusion of these shares in earnings per share resulted in a decrease
to basic and diluted earnings per share of $0.01 for the three and six months ended June 30,
2008.
9
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(8) Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses have
carrying values which approximate fair value due to the short maturity or the financial nature
of these instruments. The fair value of notes receivable approximates the carrying value as of
June 30, 2009.
The following table summarizes the fair value of our remaining financial instruments at
June 30, 2009.
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
Fuel contracts
|
|
$
|
1,596
|
|
Liabilities:
|
|
|
|
|
Fuel contracts
|
|
|
3,554
|
|
$200 million of 3.25% Convertible Senior Notes due 2013
|
|
|
122,920
|
|
All of the instruments above were valued using a Level 2 input as defined by SFAS No. 157.
For additional disclosures regarding our fuel contracts, see Note 14.
(9) Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(Dollars in thousands)
|
|
Materials and supplies
|
|
$
|
42,082
|
|
|
$
|
52,023
|
|
Saleable coal
|
|
|
35,119
|
|
|
|
15,107
|
|
Raw coal
|
|
|
14,452
|
|
|
|
13,823
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,653
|
|
|
$
|
80,953
|
|
|
|
|
|
|
|
|
Materials, supplies and coal inventory are valued at the lower of average cost or market.
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. The increase in saleable coal inventory from
December 31, 2008 to June 30, 2009 primarily resulted from customer shipment deferrals driven by
the global economic recession.
(10) Comprehensive Income and Accumulated Other Comprehensive Loss
The following table sets forth the after-tax components of comprehensive income for the
three and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Net income
|
|
$
|
31,390
|
|
|
$
|
11,235
|
|
|
$
|
63,533
|
|
|
$
|
8,169
|
|
Accumulated actuarial loss and prior service cost realized in net income
|
|
|
3,816
|
|
|
|
2,418
|
|
|
|
7,632
|
|
|
|
4,897
|
|
Net change in fair value of diesel fuel hedge
|
|
|
7,629
|
|
|
|
|
|
|
|
7,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
42,835
|
|
|
$
|
13,653
|
|
|
$
|
78,934
|
|
|
$
|
13,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income differs from net income by the net amount of unrealized gains and
losses resulting from valuation changes of our diesel fuel hedges and the amortization of net
actuarial losses and prior service cost related to our workers compensation and other
postretirement benefit obligations.
10
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
A rollforward of Accumulated other comprehensive loss, net of taxes, is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
Diesel
|
|
|
Actuarial Loss
|
|
|
Other
|
|
|
|
Fuel
|
|
|
and Prior
|
|
|
Comprehensive
|
|
|
|
Hedge
|
|
|
Service Cost
|
|
|
Loss
|
|
|
|
(Dollars in thousands)
|
|
Balance at December 31, 2008
|
|
$
|
(9,695
|
)
|
|
$
|
(102,586
|
)
|
|
$
|
(112,281
|
)
|
Unrealized gains
|
|
|
4,224
|
|
|
|
|
|
|
|
4,224
|
|
Reclassifications to earnings
|
|
|
3,545
|
|
|
|
7,632
|
|
|
|
11,177
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
(1,926
|
)
|
|
$
|
(94,954
|
)
|
|
$
|
(96,880
|
)
|
|
|
|
|
|
|
|
|
|
|
(11) Postretirement Benefit Costs
Net periodic postretirement benefit costs included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Service cost for benefits earned
|
|
$
|
1,024
|
|
|
$
|
202
|
|
|
$
|
2,046
|
|
|
$
|
405
|
|
Interest cost on accumulated
postretirement benefit obligation
|
|
|
17,580
|
|
|
|
9,391
|
|
|
|
35,210
|
|
|
|
18,589
|
|
Amortization of actuarial loss
|
|
|
4,591
|
|
|
|
3,244
|
|
|
|
9,181
|
|
|
|
6,489
|
|
Amortization of prior service cost
|
|
|
(138
|
)
|
|
|
(170
|
)
|
|
|
(276
|
)
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit costs
|
|
$
|
23,057
|
|
|
$
|
12,667
|
|
|
$
|
46,161
|
|
|
$
|
25,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12) Segment Information
We report our operations through two reportable operating segments, Appalachia and Illinois
Basin. The Appalachia and Illinois Basin segments primarily consist of our 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, 2009, 86% of our sales were to electricity generators and industrial
customers and 14% to steel and coke producers. For the six months ended June 30, 2009 and 2008,
our revenues attributable to foreign countries, based on where the product was shipped, were
$145.0 million and $116.6 million, respectively. We utilize underground and surface mining
methods and produce coal with high and medium Btu content. Our operations have relatively short
shipping distances from the mine to most of our 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.
Our chief operating decision makers use Adjusted EBITDA as the primary measure of segment
profit and loss. Adjusted EBITDA is defined as net income before deducting interest income and
expense; income taxes; asset retirement obligation expense; depreciation, depletion and
amortization; and net sales contract accretion. Because Segment Adjusted EBITDA is not
calculated identically by all companies, our calculation may not be comparable to similarly
titled measures of other companies.
11
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Operating segment results for the three and six months ended June 30, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
Appalachia
|
|
Basin
|
|
and Other
|
|
Total
|
|
Appalachia
|
|
Basin
|
|
and Other
|
|
Total
|
|
|
(Dollars in thousands)
|
Revenues
|
|
$
|
437,036
|
|
|
$
|
69,960
|
|
|
$
|
|
|
|
$
|
506,996
|
|
|
$
|
896,590
|
|
|
$
|
139,342
|
|
|
$
|
|
|
|
$
|
1,035,932
|
|
Adjusted EBITDA
|
|
|
68,605
|
|
|
|
3,873
|
|
|
|
(41,540
|
)
|
|
|
30,938
|
|
|
|
138,092
|
|
|
|
6,914
|
|
|
|
(92,196
|
)
|
|
|
52,810
|
|
Additions to property,
plant, equipment and
mine development
|
|
|
13,566
|
|
|
|
1,809
|
|
|
|
402
|
|
|
|
15,777
|
|
|
|
30,856
|
|
|
|
3,352
|
|
|
|
611
|
|
|
|
34,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
Corporate
|
|
|
|
|
Appalachia
|
|
Basin
|
|
and Other
|
|
Total
|
|
Appalachia
|
|
Basin
|
|
and Other
|
|
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
|
|
A reconciliation of Adjusted EBITDA to net income follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Total Adjusted EBITDA
|
|
$
|
30,938
|
|
|
$
|
41,081
|
|
|
$
|
52,810
|
|
|
$
|
58,202
|
|
Depreciation, depletion and amortization
|
|
|
(50,357
|
)
|
|
|
(20,905
|
)
|
|
|
(105,336
|
)
|
|
|
(39,515
|
)
|
Asset retirement obligation expense
|
|
|
(7,611
|
)
|
|
|
(3,259
|
)
|
|
|
(14,062
|
)
|
|
|
(6,675
|
)
|
Sales contract accretion
|
|
|
61,721
|
|
|
|
|
|
|
|
138,528
|
|
|
|
|
|
Interest expense
|
|
|
(9,137
|
)
|
|
|
(5,796
|
)
|
|
|
(17,730
|
)
|
|
|
(8,118
|
)
|
Interest income
|
|
|
5,836
|
|
|
|
3,621
|
|
|
|
9,323
|
|
|
|
6,870
|
|
Income tax provision
|
|
|
|
|
|
|
(3,507
|
)
|
|
|
|
|
|
|
(2,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,390
|
|
|
$
|
11,235
|
|
|
$
|
63,533
|
|
|
$
|
8,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(13) Long-Term Debt
Our total indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(Dollars in thousands)
|
|
3.25% Convertible Senior Notes due 2013
|
|
$
|
163,486
|
|
|
$
|
159,637
|
|
Capital leases
|
|
|
30,841
|
|
|
|
10,218
|
|
Promissory notes
|
|
|
10,453
|
|
|
|
11,438
|
|
Short-term borrowings
|
|
|
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
$
|
204,780
|
|
|
$
|
204,293
|
|
|
|
|
|
|
|
|
Credit Facility
Effective October 31, 2007, 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, subsequently amended for the Magnum acquisition and the issuance of the
convertible notes. This facility is available for our working capital requirements, capital
expenditures and other corporate purposes. As of June 30, 2009 and December 31, 2008, the
balance of outstanding letters of credit issued against the credit facility totaled $331.9
million and $350.8 million, respectively. There were no outstanding short-term borrowings
against this facility at June 30, 2009. Outstanding short-term borrowings were $23.0 million as
of December 31, 2008. Availability under the credit facility was $168.1 million and $126.2
million as of June 30, 2009 and December 31, 2008, respectively. At June 30, 2009, we were in
compliance with the covenants of our amended credit facility.
Private Convertible Notes Issuance
On May 28, 2008, Patriot completed a private offering of $200 million in aggregate
principal amount of 3.25% Convertible Senior Notes due 2013. As discussed in Note 2, we adopted
FSP APB 14-1 effective January 1, 2009, with retrospective application to the inception of these
convertible notes. We utilized an interest rate of 8.85% to reflect the nonconvertible market
rate of our offering upon issuance, which resulted in a $44.7 million discount to the
convertible note balance and an increase to Additional paid-in capital to reflect the value of
the conversion feature. In addition, we allocated the financing costs related to the issuance of
the convertible instruments between the debt and equity components. The debt discount is
amortized over the contractual life of the convertible notes, resulting in additional interest
expense above the contractual coupon amount.
At December 31, 2008, based on the required retrospective application of FSP APB 14-1, the
principal amount of the convertible notes of $200.0 million was adjusted for the debt discount
of $40.4 million, resulting in a long-term convertible note balance of $159.6 million. At June
30, 2009, the debt discount was $36.5 million, resulting in a long-term convertible note balance
of $163.5 million. For the three and six months ended June 30, 2009, interest expense for the
convertible notes was $3.6 million and $7.1 million, which included debt discount amortization
of $1.9 million and $3.8 million, respectively. For both the three and six months ended June 30,
2008, interest expense for the convertible notes was $1.1 million, which included debt discount
amortization of $0.6 million.
Capital Lease Obligations and Other
During the second quarter of 2009, the construction of the Blue Creek preparation plant was
completed resulting in reclassification of the construction-phase liability from Other
noncurrent liabilities to current and long-term debt, as applicable.
13
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(14) Derivatives
We utilize derivative financial instruments to manage exposure to certain commodity prices.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and
related interpretive guidance require the recognition of derivative financial instruments at
fair value in the condensed consolidated balance sheets. For derivatives that are not designated
as hedges, the periodic change in fair value is recorded directly to earnings. For derivative
instruments that are eligible and designated as cash flow hedges, the periodic change in fair
value is recorded to Accumulated other comprehensive loss until the contract settles or the
relationship ceases to qualify for hedge accounting. In addition, if a portion of the change in
fair value for a cash flow hedge is deemed ineffective during a reporting period, as defined in
SFAS No. 133, the ineffective portion of the change in fair value is recorded directly to
earnings.
With the acquisition of Magnum in 2008, our commodity risk related to diesel fuel increased
significantly. To manage a portion of this risk, we entered into heating oil swap contracts
with financial institutions. The changes in diesel fuel and heating oil prices are highly
correlated, thus allowing the swap contracts to be designated as cash flow hedges of anticipated
diesel fuel purchases. As of June 30, 2009, the notional amounts outstanding for these swaps
included 4.8 million gallons of heating oil expiring through the remainder of 2009 and 12.0
million gallons of heating oil expiring throughout 2010. We expect to purchase approximately 30
million gallons of diesel fuel annually across all operations. Aside from the hedging
activities, a $0.10 per gallon change in the price of diesel fuel would impact our annual
operating costs by approximately $3.0 million. For the three and six months ended June 30, 2009,
we recognized a loss of $1.4 million and $3.5 million in earnings on the settled contracts.
Based on the required analysis under SFAS No. 133, a portion of the fair value for the cash flow
hedges was deemed ineffective for the three and six months ended June 30, 2009, resulting in
less than $0.1 million recorded directly to earnings. We did not have any similar hedges as of
or during the three and six months ended June 30, 2008.
The following table presents the fair values of our derivatives and the amounts of
unrealized losses, net of tax, included in Accumulated other comprehensive loss related to
fuel hedges in the condensed consolidated balance sheets. See Note 10 for a rollforward of
Accumulated other comprehensive loss for our fuel hedges.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
(Dollars in thousands)
|
Fair value of current fuel contracts (Prepaid expenses and
other current assets)
|
|
$
|
735
|
|
|
$
|
|
|
Fair value of noncurrent fuel contracts (Investments and other assets)
|
|
|
861
|
|
|
|
|
|
Fair value of current fuel contracts (Trade accounts payable and
accrued expenses)
|
|
|
2,812
|
|
|
|
5,915
|
|
Fair value of noncurrent fuel contracts (Other noncurrent liabilities)
|
|
|
742
|
|
|
|
3,780
|
|
Net unrealized losses from fuel hedges, net of tax (Accumulated
other comprehensive loss)
|
|
|
(1,926
|
)
|
|
|
(9,695
|
)
|
We utilized New York Mercantile Exchange (NYMEX) quoted market prices for the fair value
measurement of these contracts, which reflects a Level 2 input as defined in SFAS No. 157.
(15) Commitments and Contingencies
Commitments
As of June 30, 2009, purchase commitments for capital expenditures were $35.8 million.
Other
On occasion, we become 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 our financial position, results of operations or cash flows. Our significant
legal proceedings are discussed below.
14
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Flood Litigation
2001 Flood Litigation
One of our subsidiaries, Catenary Coal Company, LLC (Catenary), has been named as a
defendant, along with various other property owners, coal companies, timbering companies and oil
and natural gas companies, in connection with alleged damages arising from flooding that
occurred on July 8, 2001 in various watersheds, primarily located in southern West Virginia
(referred to as the 2001 flood litigation). Pursuant to orders from the West Virginia Supreme
Court of Appeals, the cases are being handled as mass litigation, and a panel of three judges
was appointed to handle the matters that have been divided between the judges pursuant to the
various watersheds.
One of the cases, in the Upper Guyandotte River watershed, went to trial against two
defendants, both of which were land holding companies, to determine whether the plaintiffs could
establish liability. The jury found in favor of the plaintiffs, but the judge in this matter set
aside the verdict stating he committed reversible error by allowing certain testimony of the
plaintiffs experts. The judge addressed in his order the core foundation necessary to prevail
in the 2001 flood litigation, which is whether the plaintiffs can scientifically establish that
a certain flood event caused and/or contributed to injury and, if so, who caused the injury and
what persons were injured by such conduct. An appeal of this order was filed with the West
Virginia Supreme Court of Appeals. The West Virginia Supreme Court issued its decision
reversing the trial judges order and remanded the matter to the Mass Litigation Panel for
further disposition.
In another case regarding flooding in the Coal River watershed, another judge on the panel
provided an opportunity for the plaintiffs to amend their complaints to more specifically
identify, among other things, the defendants specific injury-causing conduct and the amount of
damages sustained by each plaintiff. The plaintiffs were unable to meet the pleading standard
announced by the judge and in January 2007, the judge entered an order that granted defendants
motions to dismiss with prejudice. An appeal of this order was filed with the West Virginia
Supreme Court of Appeals. The West Virginia Supreme Court issued its decision reversing the
trial judges order and remanded the matter to the Mass Litigation Panel for further
disposition.
Pursuant to the purchase and sale agreement related to Magnum, Arch Coal, Inc. (Arch)
indemnifies us against claims arising from certain pending litigation proceedings, including the
2001 flood litigation, which will continue indefinitely. The failure of Arch to satisfy its
indemnification obligations under the purchase agreement could have a material adverse effect on
us.
2004 Flood Litigation
In 2006, Hobet Mining, LLC (Hobet) and Catenary, two of our subsidiaries, were named as
defendants along with various other property owners, coal companies, timbering companies and oil
and natural gas companies, arising from flooding that occurred on May 30, 2004 in various
watersheds, primarily located in southern West Virginia. This litigation is pending before two
different judges in the Circuit Court of Logan County, West Virginia. In the first action, the
plaintiffs have asserted that (i) Hobet failed to maintain an approved drainage control system
for a pond on land near, on, and/or contiguous to the sites of flooding; and (ii) Hobet
participated in the development of plans to grade, blast, and alter the land near, on, and/or
contiguous to the sites of the flooding. Hobet has filed a motion to dismiss both claims based
upon the assertion that insufficient facts have been stated to support the claims of the
plaintiffs.
In the second action, motions to dismiss have been filed, asserting that the allegations
asserted by the plaintiffs are conclusory in nature and likely deficient as a matter of law.
Most of the other defendants also filed motions to dismiss. Both actions were stayed during the
pendency of the appeals to the West Virginia Supreme Court of Appeals in the 2001 flood
litigation.
The outcome of the West Virginia flood litigation is subject to numerous uncertainties.
Based on our evaluation of the issues and their potential impact, the amount of any future loss
cannot be reasonably estimated. However, based on current information, we believe this matter is
likely to be resolved without a material adverse effect on our financial condition, results of
operations and cash flows.
15
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Clean Water Act Permit Issues
The federal Clean Water Act and corresponding state and local laws and regulations affect
coal mining operations by restricting the discharge of pollutants, including dredged or fill
materials, into waters of the United States. In particular, the Clean Water Act requires
effluent limitations and treatment standards for wastewater discharge through the National
Pollution Discharge Elimination System (NPDES) program. NPDES permits, which we must obtain for
both active and historical mining operations, govern the discharge of pollutants into water and
require regular monitoring and reporting and set forth performance standards. States are
empowered to develop and enforce in-stream water quality standards, which are subject to
change and must be approved by the Environmental Protection Agency (EPA). In-stream standards
vary from state to state.
Environmental claims and litigation in connection with our various NPDES permits, and
related Clean Water Act issues, include the following:
EPA Consent Decree
In February 2009, we entered into a consent decree with the EPA and the West Virginia
Department of Environmental Protection (WVDEP) to resolve certain claims under the Clean Water
Act and the West Virginia Water Pollution Control Act relating to NPDES permits at several
Magnum mining operations in West Virginia that existed prior to our acquisition of these
operations. The consent decree was entered by the federal district court on April 30, 2009.
Under the terms of the consent decree, we paid a civil penalty of $6.5 million in June 2009. We
also could be subject to stipulated penalties in the future for failure to comply with certain
permit requirements as well as certain other terms of the consent decree. Because our operations
are complex and periodically experience exceedances of our permit limitations, it is possible
that we will have to pay stipulated penalties in the future, but we do not expect the amounts of
any such penalties would be material. The civil penalty of $6.5 million was accrued as part of
the Magnum acquisition purchase accounting described in Note 5. The consent decree also requires
us to implement an enhanced company-wide environmental management system, which will include
regular compliance audits, electronic tracking and reporting, and annual training for all
employees and contractors with environmental responsibilities. In addition, we will complete
several stream restoration projects in consultation with the EPA and WVDEP. These latter
requirements could result in incremental operating costs in addition to the $6.5 million civil
penalty. The initial estimate ranged from $3 million to $6 million of incremental costs.
In a separate administrative proceeding with the WVDEP, we paid a civil penalty of $315,000
for past violations of other NPDES permits held by certain subsidiaries.
Apogee Coal Company, LLC (Apogee)
In 2007, Apogee, one of our subsidiaries, was sued in the U.S. District Court for the
Southern District of West Virginia (U.S. District Court) by the Ohio Valley Environmental
Coalition, Inc. (OVEC) and another environmental group (pursuant to the citizen suit provisions
of the Clean Water Act). We refer to this lawsuit as the Federal Apogee Case. This lawsuit
alleged that Apogee had violated water discharge limits for selenium set forth in one of its
NPDES permits. The lawsuit sought fines and penalties as well as injunctions prohibiting Apogee
from further violating laws and its permit.
On March 19, 2009, the U.S. District Court approved a consent decree between Apogee, Hobet
and the plaintiffs. The consent decree extended the compliance deadline to April 5, 2010 and
added interim reporting requirements up to that date. Under the terms of the March 2009 consent
decree, we paid a $50,000 penalty to the U.S. Treasury and $325,000 in attorneys fees. We also
agreed to spend approximately $350,000 to implement a pilot project using certain reverse
osmosis technology to determine whether the technology can effectively treat selenium discharges
from mining outfalls, and to undertake interim reporting obligations. Finally, we agreed to
comply with our NPDES permits water discharge limits for selenium by April 5, 2010. In addition
to implementing the pilot project required by the March 2009 consent decree, we are actively
engaged in studying potential solutions to controlling selenium discharges and are installing
treatment systems at various permitted outfalls in an effort to comply with the deadline
established in the March 2009 consent decree.
Currently,
available technology has not been fully tested or proven effective at
addressing selenium exceedances in mining outfalls similar to ours
and alternative technology is still in the research stage of
development. The potential solutions
identified to date, including the technology we are currently
utilizing, have not been proven to be effective at all scales of
operation, and otherwise may not be feasible, particularly at larger
scale operations, due
to a range of problems concerning technological issues, prohibitive implementation costs and
other issues. While we are actively continuing to explore options, there can be no assurance as
to when a definitive solution will be identified and implemented.
16
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Legislative developments in West Virginia have created the potential for selenium
compliance deadlines to be extended from 2010 to 2012. On May 13, 2009, the Governor of West
Virginia signed a bill that allowed the WVDEP to extend selenium compliance deadlines to 2012
and appropriated state funds for selenium research. The bill cites concerns within West
Virginia regarding the applicability of the research underlying the federal selenium criteria to
a state such as West Virginia which has high precipitation rates and free-flowing streams and
that the alleged environmental impacts that were documented in the applicable federal research
have not been observed in West Virginia. As a result of this bill, the WVDEP is required to
perform research that will assist in better defining and developing state laws and regulations
addressing selenium discharges.
We have estimated the costs to treat our selenium exceedances at a net present value of
$85.2 million at the Magnum acquisition date. This liability reflects the estimated costs of
the treatment systems necessary to be installed and maintained with the goal of meeting the
requirements of current court orders, consent decrees and mining permits. This estimate was
prepared considering the dynamics of current legislation, capabilities of currently available
technology and our planned remediation strategy. Future changes to legislation, findings from
current research initiatives and the pace of future technological progress could result in costs
that exceed our current estimates, which could have a material adverse affect on our results of
operations, cash flows and financial condition. Additionally, any failure to meet the deadlines
set forth in the March 2009 consent decree or established by the federal government or the State
of West Virginia or to otherwise comply with selenium limits in our permits could result in
further litigation against us, an inability to obtain new permits or to maintain existing
permits, and the imposition of significant and material fines and penalties or other costs and
could otherwise materially adversely affect our results of operations, cash flows and financial
condition.
Hobet Mining, LLC
In 2007, Hobet was sued for exceedances of effluent limits contained in its NPDES permits
in state court in Boone County by the WVDEP. We refer to this case as the WVDEP Action. In
2008, OVEC and another environmental group filed a lawsuit against Hobet and WVDEP in the U.S.
District Court (pursuant to the citizen suit provisions of the Clean Water Act). We refer to
this case as the Federal Hobet Case. The Federal Hobet Case involved the same four NPDES
permits that were the subject of the WVDEP Action in state court. However, the Federal Hobet
Case focused exclusively on selenium exceedances in permitted water discharges, while the WVDEP
Action addressed all effluent limits, including selenium, established by the permits. The
Federal Hobet Case was included in the same March 19, 2009 consent decree that addressed the
Federal Apogee Case discussed above, and the terms of that consent decree, including the April
5, 2010 deadline to comply with the selenium effluent limits established by our permits, also
apply to Hobet.
The WVDEP Action was resolved by a settlement and consent order entered in the Boone County
circuit court on September 5, 2008. As part of the settlement, we paid approximately $1.5
million in civil penalties, with $500,000 due immediately, and the remaining approximately $1
million payable in ten monthly installments, with the last payment in July 2009. The settlement
also requires us to complete five supplemental environmental projects estimated to cost
approximately $2.6 million, many of which focus on identifying methods for treatment of selenium
discharges and studying the effects of selenium on aquatic wildlife. Finally, we agreed to make
gradual reductions in the selenium discharges from our Hobet Job 21 Surface Mine, achieving full
compliance with our NPDES permits by April 2010, and to study potential treatments for
wastewater runoff.
As a result of ongoing litigation and federal regulatory initiatives related to water
quality standards that affect valley fills, impoundments and other mining practices, including
the selenium discharge matters described above, the process of applying for new permits has
become more time-consuming and complex, the review and approval process is taking longer, and in
certain cases, new permits may not be issued.
17
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
CERCLA and similar state laws create liability for investigation and remediation in
response to releases of hazardous substances in the environment and for damages to natural
resources. Under CERCLA and many similar state statutes, joint and several liability may be
imposed on waste generators, site owners and operators and others regardless of fault. These
regulations could require us to do some or all of the following: (i) remove or mitigate the
effects on the environment at various sites from the disposal or release of certain substances;
(ii) perform remediation work at such sites; and (iii) pay damages for loss of use and non-use
values.
Although waste substances generated by coal mining and processing are generally not
regarded as hazardous substances for the purposes of CERCLA and similar legislation, and are
generally covered by the Surface Mining Control and Reclamation Act (SMCRA), some products used
by coal companies in operations, such as chemicals, and the disposal of these products are
governed by CERCLA. Thus, coal mines currently or previously owned or operated by us, and sites
to which we have sent waste materials, may be subject to liability under CERCLA and similar
state laws. A predecessor of one of our subsidiaries has been named as a potentially responsible
party at a third-party site, but given the large number of entities involved at the site and our
anticipated share of expected cleanup costs, we believe that its ultimate liability, if any,
will not be material to our financial condition and results of operations.
Other Environmental Litigation
Apogee has been sued, along with eight other defendants, including Monsanto Company,
Pharmacia Corporation and Akzo Nobel Chemicals, Inc., by certain plaintiffs in state court in
Putnam County, West Virginia. The lawsuits were filed in October 2007, but not served on Apogee
until February 2008, and each are identical except for the named plaintiff. They each allege
personal injury occasioned by exposure to dioxin generated by a plant owned and operated by
certain of the other defendants during production of a chemical, 2,4,5-T, from 1949-1969. Apogee
is alleged to be liable as the successor to the liabilities of a company that owned and/or
controlled a dump site known as the Manila Creek landfill, which allegedly received and
incinerated dioxin-contaminated waste from the plant. The lawsuits seek class action
certification as well as compensatory and punitive damages for personal injury. Under the terms
of the governing lease, Monsanto has assumed the defense of these lawsuits and has agreed to
indemnify Apogee for any related damages. The failure of Monsanto to satisfy its indemnification
obligations under the lease could have a material adverse effect on us.
A predecessor of one of the our subsidiaries operated the Eagle No. 2 mine located near
Shawneetown, Illinois from 1969 until closure of the mine in July of 1993. In 1999, the State of
Illinois brought a proceeding before the Illinois Pollution Control Board against the subsidiary
alleging that groundwater contamination due to leaching from a coal waste pile at the mine site
violated state standards. The subsidiary has developed a remediation plan with the State of
Illinois and is in litigation with the Illinois Attorney Generals office with respect to its
claim for a civil penalty of $1.3 million.
As of June 30, 2009, 57 related lawsuits had been filed by approximately 140 plaintiffs
against several coal companies, including one of our subsidiaries, in the Circuit Court of Boone
County, West Virginia. The plaintiffs in each case allege contamination of their drinking water
wells from slurry impoundments in Boone County. The lawsuits seek property damages, personal
injury damages and medical monitoring costs. Because of the early stage of the lawsuits, we are
unable to predict the likelihood of success of the plaintiffs claims, though we intend to
vigorously defend against all claims.
The outcome of this other environmental litigation is subject to numerous uncertainties.
Based on our evaluation of the issues and their potential impact, the amount of any future loss
cannot be reasonably estimated. However, based on current information, we believe these matters
are likely to be resolved without a material adverse effect on our financial condition, results
of operations and cash flows.
18
PATRIOT COAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(16) Guarantees
In the normal course of business, we are 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. We do not expect any material losses to
result from these guarantees or off-balance-sheet instruments.
Other Guarantees
We are the lessee or 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 our operations. We expect that losses with respect to leased property would
be covered by insurance (subject to deductibles). Patriot and certain of our subsidiaries have
guaranteed other subsidiaries performance under their various lease obligations. Aside from
indemnification of the lessor for the value of the property leased, our maximum potential
obligations under these leases are equal to the respective future minimum lease payments,
assuming no amounts could be recovered from third parties.
(17) Related Party Transactions
ArcLight Energy Partners Fund I L.P. (ArcLight) is a significant stockholder of Patriot due
to its former ownership of Magnum. In January 2007, ArcLight purchased from a third party
rights to a royalty stream based on coal mined on certain properties and then leased the rights
to one of Magnums operations. Royalty payments to ArcLight for the three and six months ended
June 30, 2009 were approximately $345,000 and $450,000, respectively.
(18) Subsequent Event
On July 24, 2009, we increased our revolving credit facility by $22.5 million, with two new
financial institutions entering the syndication. The facility, which matures in October 2011,
now totals $522.5 million.
On August
3, 2009, we announced the closing of our Samples surface mine in southern West Virginia as a
result of continuing soft coal markets and Samples higher cost structure relative to our
other operations.
Subsequent events have been evaluated through August 7, 2009.
19
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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changes in general economic conditions, including coal and power market conditions;
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reductions of purchases or deferral of deliveries by major customers;
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customer performance and credit risks;
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the outcome of commercial negotiations involving sales contracts or other transactions;
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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 or market-based mechanisms, such as a
cap-and-trade system, for regulating greenhouse gas emissions;
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coal mining laws and regulations;
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availability and costs of credit, surety bonds and letters of credit;
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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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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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worldwide economic and political conditions;
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labor availability and relations;
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our ability to replace proven and probable coal reserves;
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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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our dependence on Peabody Energy for a significant portion of our revenues;
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price volatility and demand, particularly in higher margin products;
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failure to comply with debt covenants;
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the outcome of pending or future litigation;
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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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20
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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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interest rate fluctuation;
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inflationary trends, including those impacting materials used in our business;
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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 Part
I, Item 3 of our 2008 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 2008 Annual Report on Form 10-K and in
this report. 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
(and expressly disclaim any such obligation) to update or revise the forward-looking statements,
except as required by federal securities laws.
Overview
We are a leading producer of thermal coal in the eastern United States, with operations and
coal reserves in Appalachia and the Illinois Basin, our operating segments. We are also a
leading U.S. producer of metallurgical quality coal. Our principal business is the mining,
preparation and sale 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. In the
first six months of 2009, we sold 16.7 million tons of coal, of which 86% was sold to domestic
electric utilities and industrial customers and 14% was sold to domestic and global steel and
coke producers. In 2008, we sold 28.5 million tons of coal, of which 79% was sold to electric
utilities and 21% was sold to domestic and global steel producers. We control approximately 1.8
billion tons of proven and probable coal reserves. Our proven and probable coal reserves
include metallurgical coal and medium and high Btu thermal coal, with low, medium and high
sulfur content.
Our operations consist of fourteen current mining complexes, which include company-operated
mines, contractor-operated mines and coal preparation facilities. The Appalachia and Illinois
Basin segments consist of our operations in West Virginia and Kentucky, respectively. We ship
coal to electric utilities, industrial users and metallurgical coal customers via various
company-owned and third-party loading facilities and multiple rail and river transportation
routes.
Effective July 23, 2008, we acquired Magnum Coal Company (Magnum). Magnum was one of the
largest coal producers in Appalachia, operating eight mining complexes with production from
surface and underground mines and controlling more than 600 million tons of proven and probable
coal reserves. Upon the completion of the acquisition, we performed a strategic review of all
our operations, resulting in the decision to cease operations at two Magnum mining complexes.
The Jupiter complex ceased operations in December 2008 and the Remington complex ceased
operations in March 2009.
Our mining operations and coal reserves are as follows:
Appalachia.
In southern West Virginia, we have ten mining complexes located in Boone,
Clay, Lincoln, Logan and Kanawha counties, and in northern West Virginia, we have one complex
located in Monongalia County. In Appalachia, we sold 13.1 million and 20.6 million tons of coal
in the six months ended June 30, 2009 and the year ended December 31, 2008, respectively. As of
December 31, 2008, we controlled 1.18 billion tons of proven and probable coal reserves in
Appalachia, of which 468 million tons were assigned to current operations.
Illinois Basin.
In the Illinois Basin, we have three mining complexes located in Union
and Henderson counties in western Kentucky. In the Illinois Basin, we sold 3.6 million and 7.9
million tons of coal in the six months ended June 30, 2009 and the year ended December 31, 2008,
respectively. As of December 31, 2008, we controlled 655 million tons of proven and probable
coal reserves in the Illinois Basin, of which 136 million tons were assigned to current
operations.
21
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 before deducting interest income and expense; income taxes; asset retirement
obligation expense; depreciation, depletion and amortization; and net sales contract accretion.
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 12 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.
Three and Six Months Ended June 30, 2009 Compared to June 30, 2008
Summary
Early in 2009, we implemented a Management Action Plan as a strategic response to the
weakened coal markets. This Action Plan included output and cost reductions, workforce
redeployment and sales contract renegotiations. As a result of this plan, during the first half
of 2009 we suspended certain company-owned and contract mines, deferred production start up at
one newly-developed mining complex and cancelled certain operating shifts at various mining
complexes. We have restructured certain below-market legacy coal supply agreements and are in
negotiations with other customers.
Our 2009 results were impacted by the inclusion of the acquired Magnum operations. Results
of the Magnum operations are included in our consolidated results of operations beginning July
23, 2008, the date of the acquisition. The increased revenue from Magnum was partially offset by
lower customer demand and increased customer deferrals during the three and six months ended
June 30, 2009.
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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2009
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2008
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Tons/$
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%
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2009
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2008
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Tons/$
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%
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(Dollars and tons in thousands, except per ton amounts)
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Tons Sold:
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Appalachia
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Mining Operations
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6,498
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3,723
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2,775
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74.5
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%
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13,137
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6,903
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6,234
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90.3
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%
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Illinois Basin
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Mining Operations
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1,771
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2,138
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(367
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)
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(17.2
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)%
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3,590
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4,043
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(453
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)
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(11.2
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)%
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Total Tons Sold
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8,269
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5,861
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2,408
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41.1
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%
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16,727
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10,946
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5,781
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52.8
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%
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Revenue:
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Appalachia
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Mining Operations
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$
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415,089
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$
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253,137
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$
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161,952
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64.0
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%
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$
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868,545
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$
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465,899
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$
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402,646
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86.4
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%
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Illinois Basin
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Mining Operations
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69,960
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75,332
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(5,372
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)
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(7.1
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)%
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139,342
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141,671
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(2,329
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)
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(1.6
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)%
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Appalachia Other
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21,947
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11,211
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10,736
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95.8
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%
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28,045
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16,444
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11,601
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70.5
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%
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Total Revenues
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$
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506,996
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$
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339,680
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$
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167,316
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49.3
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%
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$
|
1,035,932
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$
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624,014
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$
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411,918
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66.0
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%
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Average sales price
per ton sold:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachia
|
|
$
|
63.88
|
|
|
$
|
67.99
|
|
|
$
|
(4.11
|
)
|
|
|
(6.0
|
)%
|
|
$
|
66.11
|
|
|
$
|
67.49
|
|
|
$
|
(1.38
|
)
|
|
|
(2.0
|
)%
|
Illinois Basin
|
|
|
39.50
|
|
|
|
35.23
|
|
|
|
4.27
|
|
|
|
12.1
|
%
|
|
|
38.81
|
|
|
|
35.04
|
|
|
|
3.77
|
|
|
|
10.8
|
%
|
22
Revenues in the Appalachia segment were higher in the three and six months ended June
30, 2009 compared to the same periods in 2008 primarily related to $147.6 million and $340.2
million of revenue, respectively, from the Magnum acquisition.
Sales volumes in the Appalachia segment increased in the three months ended June 30, 2009,
primarily from the 3.2 million tons sold from the acquired Magnum operations. This increase was
partially offset by an overall decline in customer demand and lower metallurgical sales due to
customer shipment deferrals. As a result, we suspended certain mines and decreased operating
shifts at other mines as mentioned previously. To a lesser extent, hard cutting and other
difficult geologic conditions also negatively impacted sales volumes.
Sales volumes in the Appalachia segment increased in the six months ended June 30, 2009,
primarily from the 6.5 million tons sold from the acquired Magnum operations. Additionally,
sales volumes were slightly higher during the first half of 2009 due primarily to improved
volumes at our Federal mining complex, which experienced two roof falls during the first half of
2008. This increase was partially offset by the shipment deferrals and production cuts described
above and lower production at our Harris mine. The Harris mine discontinued longwall production
in the first quarter of 2008, converting to continuous miner operations beginning in the second
quarter of 2008 and into 2009.
Revenues in the Illinois Basin segment were lower for the three and six months ended June
30, 2009 compared to the prior year primarily due to lower sales volume caused by unfavorable
weather conditions and adverse roof conditions. Lower sales volumes were partially offset by
higher average sales prices.
Appalachia Other Revenue was higher for the three and six months ended June 30, 2009
primarily due to cash settlements received for reduced shipments in the first half of 2009,
primarily during the second quarter, as a result of renegotiated customer agreements.
Segment Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
Increase (Decrease)
|
|
June 30,
|
|
Increase (Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
Appalachia Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and Other
|
|
$
|
68,605
|
|
|
$
|
63,096
|
|
|
$
|
5,509
|
|
|
|
8.7
|
%
|
|
$
|
138,092
|
|
|
$
|
105,094
|
|
|
$
|
32,998
|
|
|
|
31.4
|
%
|
Illinois Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Operations
|
|
|
3,873
|
|
|
|
2,759
|
|
|
|
1,114
|
|
|
|
40.4
|
%
|
|
|
6,914
|
|
|
|
8,098
|
|
|
|
(1,184
|
)
|
|
|
(14.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted
EBITDA
|
|
$
|
72,478
|
|
|
$
|
65,855
|
|
|
$
|
6,623
|
|
|
|
10.1
|
%
|
|
$
|
145,006
|
|
|
$
|
113,192
|
|
|
$
|
31,814
|
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA for Appalachia was higher in the three and six months ended
June 30, 2009 as compared to 2008, primarily due to the contribution from the additional volume
associated with the Magnum operations. During the three months ended June 30, 2009, we received
cash settlements for reduced shipments. These cash settlements, which were a significant portion
of the second quarter 2009 Segment Adjusted EBITDA, approximated the financial impact associated
with deferred or cancelled customer commitments. These increases were partially offset by lower
customer demand for metallurgical and thermal coal, resulting in mine suspensions and fewer
production days overall. In addition, we encountered hard cutting conditions at certain
locations and higher costs related to contract mining, which were driven by contract increases
in mid- to late- 2008.
Segment Adjusted EBITDA for the Illinois Basin increased in the three months ended June 30,
2009 from the prior year primarily due to higher average sales prices. These increases were
partially offset by higher average costs due in part to lower production volumes.
Segment Adjusted EBITDA for the Illinois Basin decreased in the six months ended June 30,
2009 from the prior year primarily due to lower production volumes attributable to severe winter
storms and less production days, and to higher average costs due to lower production volumes.
These decreases were partially offset by higher average sales prices and lower diesel fuel
costs.
23
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
Increase (Decrease)
|
|
June 30,
|
|
Increase (Decrease)
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
(Dollars in thousands)
|
Segment Adjusted EBITDA
|
|
$
|
72,478
|
|
|
$
|
65,855
|
|
|
$
|
6,623
|
|
|
|
10.1
|
%
|
|
$
|
145,006
|
|
|
$
|
113,192
|
|
|
$
|
31,814
|
|
|
|
28.1
|
%
|
Corporate and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past mining
obligation expense
|
|
|
(34,211
|
)
|
|
|
(21,622
|
)
|
|
|
(12,589
|
)
|
|
|
(58.2
|
)%
|
|
|
(72,011
|
)
|
|
|
(43,743
|
)
|
|
|
(28,268
|
)
|
|
|
(64.6
|
)%
|
Net gain on disposal
or exchange of assets
|
|
|
4,031
|
|
|
|
6,336
|
|
|
|
(2,305
|
)
|
|
|
(36.4
|
)%
|
|
|
4,061
|
|
|
|
6,530
|
|
|
|
(2,469
|
)
|
|
|
(37.8
|
)%
|
Selling and
administrative expenses
|
|
|
(11,360
|
)
|
|
|
(9,488
|
)
|
|
|
(1,872
|
)
|
|
|
(19.7
|
)%
|
|
|
(24,246
|
)
|
|
|
(17,777
|
)
|
|
|
(6,469
|
)
|
|
|
(36.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate and Other
|
|
|
(41,540
|
)
|
|
|
(24,774
|
)
|
|
|
(16,766
|
)
|
|
|
(67.7
|
)%
|
|
|
(92,196
|
)
|
|
|
(54,990
|
)
|
|
|
(37,206
|
)
|
|
|
(67.7
|
)%
|
Depreciation, depletion
and amortization
|
|
|
(50,357
|
)
|
|
|
(20,905
|
)
|
|
|
(29,452
|
)
|
|
|
(140.9
|
)%
|
|
|
(105,336
|
)
|
|
|
(39,515
|
)
|
|
|
(65,821
|
)
|
|
|
(166.6
|
)%
|
Sales contract accretion
|
|
|
61,721
|
|
|
|
-
|
|
|
|
61,721
|
|
|
|
n/a
|
|
|
|
138,528
|
|
|
|
-
|
|
|
|
138,528
|
|
|
|
n/a
|
|
Asset retirement
obligation expense
|
|
|
(7,611
|
)
|
|
|
(3,259
|
)
|
|
|
(4,352
|
)
|
|
|
(133.5
|
)%
|
|
|
(14,062
|
)
|
|
|
(6,675
|
)
|
|
|
(7,387
|
)
|
|
|
(110.7
|
)%
|
Interest expense
|
|
|
(9,137
|
)
|
|
|
(5,796
|
)
|
|
|
(3,341
|
)
|
|
|
(57.6
|
)%
|
|
|
(17,730
|
)
|
|
|
(8,118
|
)
|
|
|
(9,612
|
)
|
|
|
(118.4
|
)%
|
Interest income
|
|
|
5,836
|
|
|
|
3,621
|
|
|
|
2,215
|
|
|
|
61.2
|
%
|
|
|
9,323
|
|
|
|
6,870
|
|
|
|
2,453
|
|
|
|
35.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
31,390
|
|
|
|
14,742
|
|
|
|
16,648
|
|
|
|
112.9
|
%
|
|
|
63,533
|
|
|
|
10,764
|
|
|
|
52,769
|
|
|
|
490.2
|
%
|
Income tax provision
|
|
|
-
|
|
|
|
(3,507
|
)
|
|
|
3,507
|
|
|
|
n/a
|
|
|
|
-
|
|
|
|
(2,595
|
)
|
|
|
2,595
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,390
|
|
|
$
|
11,235
|
|
|
$
|
20,155
|
|
|
|
179.4
|
%
|
|
$
|
63,533
|
|
|
$
|
8,169
|
|
|
$
|
55,364
|
|
|
|
677.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past mining obligations were higher in the three and six months ended June 30, 2009
than the corresponding period in the prior year primarily due to the addition of retiree
healthcare liabilities from the Magnum operations and due to higher subsidence expense incurred
at a closed mine.
Net gain on disposal or exchange of assets was lower in the three and six months ended June
30, 2009 compared to the prior year. In 2009, net gain on disposal or exchange of assets
included a $4.2 million gain on the exchange of surface land for certain mineral interests. In
2008, net gain on disposal or exchange of assets included a $6.3 million gain on the exchange of
certain leasehold mineral interests.
Selling and administrative expenses increased for the three and six months ended June 30,
2009 as compared to the corresponding period in the prior year primarily due to the addition of
Magnum operations.
Depreciation, depletion and amortization increased in the three and six months ended June
30, 2009 compared to the prior year, primarily due to the addition of the Magnum assets.
Net sales contract accretion resulted from the below market coal sale and purchase
contracts acquired in the Magnum transaction and recorded at fair value in purchase accounting.
The net liability generated from applying fair value to these contracts is being accreted over
the life of the contracts as the coal is shipped.
Asset retirement obligation expense increased in the three and six months ended June 30,
2009 primarily due to the acquisition of Magnum.
Interest expense increased in the three and six months ended June 30, 2009 primarily due to
expenses related to our convertible notes that were issued in May 2008 and higher letter of
credit fees related to the Magnum acquisition, partially offset by the commitment fee expensed
due to the termination of a bridge loan facility related to our assumption of Magnums debt
during the three months ended June 30, 2008.
As
further explained in Liquidity and Capital Resources Private Convertible Notes
Issuance, we adopted a new accounting standard, effective January 1, 2009, and retrospectively
applied the impact of the adoption to the inception of the notes. Based on this new guidance, we
recorded a discount to the face value of the notes, reflecting the fair value of the notes
without a conversion feature. The debt discount is amortized over the contractual life of the
notes, resulting in interest expense higher than the coupon interest rate. For the three and
six months ended June 30, 2009, interest expense for the convertible notes was $3.6 million and $7.1 million, which included debt discount
24
amortization of $1.9 million and $3.8 million,
respectively. For both the three and six months ended June 30, 2008, interest expense for the
convertible notes was $1.1 million, which included debt discount amortization of $0.6 million.
Interest income increased in the three and six months ended June 30, 2009 compared to the
prior year due to the collection of certain Black Lung excise tax refunds, and related interest,
allowed by the Economic Stimulus Act of 2008.
For the three and six months ended June 30, 2009, no income tax provision was recorded due
to our anticipated tax net operating loss for the year ending December 31, 2009 and the full
valuation allowance recorded against our net deferred tax assets. The primary difference
between book and taxable income for 2009 is the treatment of the net sales contract accretion on
the below market purchase and sales contracts acquired with Magnum, with such amounts being
included in the computation of book income but excluded from the computation of taxable income.
For the three and six months ended June 30, 2008, we reported income tax expense of $3.5 million
and $2.6 million, respectively, based on the forecasted effective tax rate for 2008.
Outlook
Market
Thermal markets remained challenging in the second quarter of 2009, as soft demand for
electricity, low natural gas prices and high coal inventory levels set the tone. In the U.S.,
electricity generation for the quarter was down 4.8%, primarily due to reduced industrial
demand. These factors contributed to a 7.0% reduction of thermal coal consumption at U.S.
electric generation facilities during the quarter. Inventories at eastern facilities at the end
of second quarter were approximately 31 million tons higher than a year ago. U.S. thermal coal
spot pricing has remained relatively flat in the second quarter, at levels in some cases below
the industrys cost of production.
Steel production in the U.S. increased 4.7% from the prior quarter, due to restocking and
increased demand. Utilization of U.S. steel mills improved from 40% early in the second quarter
to 49% by quarter-end. Global blast furnace iron production increased 7.0% from the prior
quarter, driven by China, Russia, South Korea and India. As a result, domestic and global demand
for metallurgical coal has stabilized, and steel producers are accepting more consistent
deliveries of coal, with fewer deferrals.
Coal production has continued to decrease in response to reduced demand and low spot
prices. We now estimate 2009 U.S. production will be reduced by more than 100 million tons from
2008 levels. As the global economy improves, we expect metallurgical coal demand to rebound and
thermal coal inventory levels to decline in the first half of 2010. As demand for electricity
and steel returns to more normal volumes, we expect the global energy shortage, and specifically
the coal shortage, to once again be very apparent.
Patriot Operations
As discussed more fully under Item 1A. Risk Factors in this report and in our 2008 Annual
Report on Form 10-K, our results of operations in the near-term could be negatively impacted by
unforeseen adverse geologic conditions or equipment problems at mining locations; customer
performance and credit risks; the economic recession; reductions of purchases or deferral of
deliveries by major customers; 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; environmental and coal mining laws and regulations; the
availability and costs of credit, surety bonds and letters of credit; the inability of contract
miners to fulfill delivery terms of their contracts; delays in obtaining or the inability to
obtain required permits for new mining operations; and the unavailability of transportation for
coal shipments. On a long-term basis, our results of operations could also 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 rising prices of key supplies, mining
equipment and commodities. 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.
Management has continued to focus on controlling costs, optimizing performance and
responding quickly to market changes.
Early in 2009, we implemented a Management Action Plan in response to the weakened coal
markets. In January 2009, we announced the idling of our Black Oak mine. On April 2, 2009, we
announced additional contract mine suspensions, the deferral of the opening of the Blue Creek
complex and the cancellation of certain operating shifts at various mining complexes.
Previously, we had performed a comprehensive strategic review of our mining complexes and their
relative cost structures in conjunction with the Magnum acquisition. As a result,
25
we idled our
Jupiter mining complex effective December 31, 2008 and the Remington complex effective March 31,
2009.
Both our Federal and Panther longwall operations experienced improved performance in the
first half of 2009. Our Federal longwall operation improved significantly during the first
quarter as compared to 2008, when it experienced two roof falls. The Panther longwall operation
has improved throughout 2009, with production improving 10% in the second quarter as compared to
the first quarter of 2009, but still short of normalized levels. In July, we began moving to the next Panther longwall panel and
upgrading significant components of the longwall mining equipment. We expect productivity and
reliability to improve at Panther in future quarters with the new and refurbished equipment,
coupled with changes in the mine plan to bypass difficult geologic areas.
As of June 30, 2009, substantially all of our expected 2009 production was committed. Our
2009 volumes reflect recent contract restructuring and shipment deferral arrangements. Unpriced
volumes for 2010 will depend on the finalization of production plans, taking into account
demand, pricing, cost structures and the availability of mining permits.
Against the backdrop of soft demand and high inventory levels for thermal coal, as well as
ongoing surface mining permit delays, we continue to evaluate various operating scenarios in
order to quickly respond to challenges and opportunities as they arise. Most recently, on August 3, 2009, we announced the closing of our
Samples surface mine due to its higher cost structure relative to our
other operations. Our operating team has
responded to the challenges of an extremely depressed coal market in the first half of 2009 by
improving productivity and reducing costs. We continue to refine our operating plans to match
the demand for our products.
Actual events and results may vary significantly from those included in, or contemplated,
or implied by the forward-looking statements under Outlook. The guidance provided under the
caption Outlook should be read in conjunction with the section entitled Cautionary Notice
Regarding Forward Looking Statements and Item 1A. Risk Factors included in this report. For
additional information regarding the risks and uncertainties that affect our business, see Item
1A. Risk Factors in our 2008 Annual Report on Form 10-K.
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. 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 $19.6 million for the six months ended June
30, 2009, compared to $31.2 million in the same period of 2008. The decrease in cash provided by
operating activities primarily relates to the lower cash operating results.
Net cash used in investing activities was $37.0 million for the six months ended June 30,
2009, compared to $49.9 million in the same period of 2008. The decrease in cash used reflected
a $14.7 million decrease in investment in joint ventures and additional proceeds from the sale
of assets of $3.5 million, partially offset by additional advance mining royalties of $4.0
million.
Net cash provided by financing activities was $63.7 million for the six months ended June
30, 2009, compared to $15.7 million in the same period of 2008. The increase in cash provided
was primarily due to our common stock offering in June 2009, partially offset by the repayment
of the outstanding balance of our revolving credit facility.
Shelf Registration
On March 3, 2009, we filed a shelf registration statement with the Securities and Exchange
Commission on Form S-3, which allows us to sell up to $300 million in various types of
securities from time to time. The specific terms of
any offering would be established at the time of the offering and provided in a prospectus
supplement. On May 6, 2009, the shelf registration statement was declared effective.
26
Common Stock Offering
On June 16, 2009 we completed a public offering of 12 million shares of our common stock in
a registered public offering under our shelf registration at $7.90 per share. The net proceeds
from the sale of shares, after deducting fees and commissions, were $89.1 million. The proceeds
were used to repay the outstanding balance on our revolving credit facility, with the remainder
to be used for general corporate purposes. We granted the managing underwriters a 30-day option
to purchase up to an additional 1.8 million shares, which was not exercised.
Credit Facility
On October 31, 2007, 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,
subsequently amended for the Magnum acquisition and the issuance of the convertible notes. This
facility is available for our working capital requirements, capital expenditures and other
corporate purposes. As of June 30, 2009 and December 31, 2008, the balance of outstanding
letters of credit issued against the credit facility totaled $331.9 million and $350.8 million,
respectively. There were no outstanding short-term borrowings on this facility at June 30, 2009.
Outstanding short-term borrowings were $23.0 million as of December 31, 2008. Availability under
the credit facility was $168.1 million and $126.2 million as of June 30, 2009 and December 31,
2008, respectively. At June 30, 2009, we were in compliance with the covenants of our amended
credit facility. Subsequent to June 30, 2009, we increased our credit facility by $22.5 million,
bringing the total credit facility to $522.5 million.
Private Convertible Notes Issuance
On May 28, 2008, Patriot completed a private offering of $200 million in aggregate
principal amount of 3.25% Convertible Senior Notes due 2013. Also in May 2008, the Financial
Accounting Standards Board (FASB) issued Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1). FSP APB 14-1 specifies that issuers of convertible debt
instruments that may settle in cash upon conversion must bifurcate the proceeds from the debt
issuance between debt and equity components in a manner that reflects the entitys
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The
equity component reflects the value of the conversion feature of the notes.
We adopted FSP APB 14-1 effective January 1, 2009, with retrospective application to the
inception of these convertible notes. We utilized an interest rate of 8.85% to reflect the
nonconvertible market rate of our offering upon issuance, which resulted in a $44.7 million
discount to the convertible note balance and an increase to Additional paid-in capital to
reflect the value of the conversion feature. In addition, we allocated the financing costs
related to the issuance of the convertible instruments between the debt and equity components.
The debt discount is amortized over the contractual life of the convertible notes, resulting in
additional interest expense above the contractual coupon amount.
At December 31, 2008, based on the required retrospective application of FSP APB 14-1, the
principal amount of the convertible notes of $200.0 million was adjusted for the debt discount
of $40.4 million, resulting in a long-term convertible note balance of $159.6 million. At June
30, 2009, the debt discount was $36.5 million, resulting in a long-term convertible note balance
of $163.5 million. See discussion in Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations Net Income for the impact of interest expense for the
three and six months ended June 30, 2009 and 2008.
Capital Lease Obligations and Other
During the second quarter of 2009, the construction of the Blue Creek preparation plant was
completed resulting in reclassification of the construction-phase liability from Other
noncurrent liabilities to current and long-term debt, as applicable.
27
Newly Adopted Accounting Pronouncements
FASB Staff Position APB 14-1
As disclosed in Private Convertible Notes Issuance, we adopted FSP APB 14-1 effective
January 1, 2009.
FASB Staff Position EITF 03-6-1
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF
03-6-1 states that instruments granted in share-based payment awards that entitle their holders
to receive nonforfeitable dividends or dividend equivalents before vesting should be considered
participating securities and need to be included in the earnings allocation in computing
earnings per share under the two-class method. The two-class method of computing earnings per
share is an earnings allocation formula that determines earnings per share for each class of
common stock and participating security according to dividends declared (or accumulated) and
participation rights in undistributed earnings. We adopted FSP EITF 03-6-1 effective January 1,
2009 with all prior period earnings per share data adjusted retrospectively. The calculations of
earnings per share amounts presented in this report include all participating securities as
required by FSP EITF 03-6-1.
FASB Statement No. 141(R)
In December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS) No.
141(R), Business Combinations, which replaces SFAS No. 141 and retains the fundamental
requirements in SFAS No. 141, including that the purchase method be used for all business
combinations and for an acquirer to be identified for each business combination. This standard
defines the acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the acquirer achieves
control instead of the date that the consideration is transferred. SFAS No. 141(R) requires an
acquirer in a business combination to recognize the assets acquired, liabilities assumed, and
any noncontrolling interest in the acquiree at the acquisition date, measured at their fair
values as of that date, with limited exceptions. It also requires the recognition of assets
acquired and liabilities assumed arising from certain contractual contingencies as of the
acquisition date, measured at their acquisition-date fair values. SFAS No. 141(R) is effective
for any business combination with an acquisition date on or after January 1, 2009.
FASB Statement No. 160
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51. SFAS No. 160 establishes accounting and
reporting standards for noncontrolling interests in partially-owned consolidated subsidiaries
and the loss of control of subsidiaries. SFAS No. 160 requires that a noncontrolling interest
(previously referred to as minority interest) in a consolidated subsidiary be displayed in the
consolidated balance sheet as a separate component of equity and the amount of net income
attributable to the noncontrolling interest be included in consolidated net income on the face
of the consolidated statement of operations. In addition, this statement requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated. We adopted the
provisions of SFAS No. 160 effective January 1, 2009, with no affect to any of the periods
presented in this report.
FASB Statement No. 161
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. SFAS No. 161 expands the
disclosure requirements for derivative instruments and hedging activities. This statement
specifically requires an entity to provide enhanced disclosures about its use of derivative
instruments, the accounting for derivatives and related hedged items, and the related effect on
an entitys financial condition, results of operations and cash flows. We adopted SFAS No. 161
on January 1, 2009. See Note 14 for the required disclosures.
FASB Staff Position FAS No. 157-2
In September 2006, the FASB issued 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 was effective
for fiscal years beginning after November 15, 2007. We elected to implement SFAS No. 157 with
the one-year deferral permitted by FSP FAS 157-2. The deferral applied to nonfinancial assets and
28
liabilities measured at fair value in a business combination. As of January 1, 2009, we
fully adopted SFAS No. 157, including applying its provisions to nonfinancial assets and
liabilities measured at fair value in a business combination. The full adoption of SFAS No. 157
did not change the valuation approach or materially change the purchase accounting for the
Magnum acquisition, which was finalized in the second quarter of 2009.
FASB Statement No. 165
In June 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes
general standards of accounting for and the disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. Entities
are required to disclose the date through which subsequent events have been evaluated. SFAS No.
165 is effective for interim or annual periods ending after June 15, 2009. We adopted SFAS No.
165 effective June 30, 2009.
FASB Staff Position FAS No. 107-1 and APB 28-1
In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures About
Fair Value of Financial Instruments (FSP FAS No. 107-1). FSP FAS No. 107-1 extends the
disclosure requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments
to interim financial statements of publicly traded companies. We adopted FSP FAS No. 107-1
effective June 30, 2009.
Pending Adoption of Recent Accounting Pronouncements
FASB Statement No. 167
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R).
SFAS No. 167 amends Interpretation
46(R)
to require a company to perform a qualitative analysis
to determine whether it has a controlling financial interest in a variable interest entity. In
addition, a company is required to assess whether it has the power to direct the activities of
the variable interest entity that most significantly impact the entitys economic performance.
SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. We are currently
evaluating the potential impact of SFAS No. 167 on our operating results, cash flows and
financial condition.
FASB Statement No. 168
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards
Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162. The
FASB Accounting Standards Codification
TM
(Codification) will become the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective
date of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature not included in
the Codification will become nonauthoritative. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. We are
currently evaluating the impact of SFAS No. 168 on our financial reporting disclosures.
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
78% of our sales volume under coal supply agreements with terms of one year or more during 2008.
As of June 30, 2009 our total unpriced planned production for 2009 was minimal. We continue to
evaluate production levels for 2010 and future
years based on demand and pricing. Unpriced volumes for 2010 will depend on the
finalization of these production plans.
In connection with our October 31, 2007 spin-off from Peabody Energy Corporation (Peabody),
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.
29
With the addition of Magnum, our commodity risk profile changed as our annual usage of
diesel fuel has increased significantly. To manage a portion of this risk, we have entered into
heating oil swap contracts with financial institutions. These derivative contracts have been
designated as cash flow hedges of anticipated diesel fuel purchases. As of June 30, 2009, the
notional amounts outstanding for these swaps included 4.8 million gallons of heating oil
expiring through the remainder of 2009 and 12.0 million gallons of heating oil expiring
throughout 2010. We expect to purchase approximately 30 million gallons of diesel fuel annually
across all operations. Aside from these hedging activities, a $0.10 per gallon change in the
price of diesel fuel would impact our annual operating costs by approximately $3.0 million.
Credit Risk
For the six months ended June 30, 2009, approximately 22% of our revenue was generated
through sales to a marketing affiliate of Peabody. 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 last pre-existing customer arrangement
between Patriot and Peabody will expire on December 31, 2012. Our remaining sales are primarily
made directly to electric utilities, industrial companies and steelmakers. Therefore, our
concentration of credit risk is 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 mitigate
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 may
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. While the current economic recession may affect our customers, we do not
anticipate that it will significantly affect our overall credit risk profile due to our credit
policies.
Additionally, as of June 30, 2009, we had $148.8 million in notes receivable outstanding,
arising out of the sale of coal reserves and surface land discussed in Note 6 of our 2008 Annual
Report on Form 10-K at December 31, 2008. Of this amount, $34.7 million is included in Accounts
receivable and other and the remaining $114.1 million is recorded in Notes receivable on the
condensed consolidated balance sheet. Of the total notes receivable outstanding, 98% 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, 2009, 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.
30
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 15 to the unaudited condensed 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.
Except as set forth below, there have been no material changes to the risk factors
disclosed under Item 1A. Risk Factors in our 2008 Annual Report on Form 10-K for the year ended
December 31, 2008. The information below updates, and should be read in conjunction with, the
risk factors and information disclosed under Item 1A. Risk Factors in the Form 10-K.
Certain of our customers have deferred contracted shipments of coal, which could affect our
results of operations and liquidity.
As the ongoing global economic recession has caused the price of, and demand for, coal to
decline, certain of our thermal and metallurgical coal customers have delayed shipments or
requested deferrals pursuant to our existing long-term coal supply agreements. In the current
economic environment, the spot market does not provide an acceptable alternative to sell our
inventory tons resulting from customer deferrals. Therefore, our inventory of saleable coal has
increased. While we have settled some such customer requests, we are currently evaluating other
customer deferrals and are in negotiations with certain customers. In one case, we have filed a
demand for arbitration to enforce the terms of the contract because we have not been able to
reach an agreement. Until the arbitration has been settled, we have obtained an injunction
requiring the customer to accept coal shipments under the contract terms.
Customer deferrals, if agreed to, could affect the amount of revenue we recognize in 2009.
Customer deferrals could adversely affect our results of operations and liquidity if we do not
receive equivalent value from such customers and we are unable to sell committed coal at the
contracted prices under our existing coal supply agreements.
In an effort to curtail further excess coal production and limit costs, we have cancelled
certain operating shifts, idled certain existing mining complexes and delayed the opening of an
additional mining complex. See Part I, Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations Outlook Patriot Operations for more
information.
Certain of our contracts establish prices and terms that allow us to expect relatively
higher levels of profitability than other contracts, assuming both we and our customer perform
under the terms of these agreements. From time to time, our profitability may be impacted by
negotiated customer settlements, rather than the delivery of the volume of coal. To the extent
we, or a customer, do not fully perform under one of these relatively more profitable contracts,
our results of operations and operating profit in the reporting period during which such nonperformance occurs would be materially and adversely affected.
Recent increased focus on permitting may result in changes to laws and regulations which
may make it more difficult to obtain, renew and comply with permits.
Section 404 of the Clean Water Act requires mining companies to obtain U.S. Army Corps of
Engineers (ACOE) permits to place material in streams for the purpose of creating slurry ponds,
water impoundments, refuse areas, valley fills or other mining activities. As is the case with
other coal mining companies operating in Appalachia, our construction and mining activities,
including our surface mining operations, frequently require Section 404 permits. ACOE issues two
types of permits pursuant to Section 404 of the Clean Water Act: nationwide (or general) and individual
permits. Nationwide permits are issued to streamline the permitting process for dredging and
filling activities that have minimal adverse environmental impacts. An individual permit
typically requires a more comprehensive application process, including public notice and
comment.
The issuance of permits to construct valley fills and refuse impoundments under Section 404
of the Clean Water Act, whether general permits commonly described as the Nationwide Permit 21
(NWP 21), or individual permits, has been the subject of many recent court cases and increased
regulatory oversight, the results of which may increase our permitting and operating costs,
result in permitting delays, suspend current operations or prevent the opening of new mines.
31
For instance, on June 11, 2009, the White House Council on Environmental Quality announced
that the Environmental Protection Agency (EPA), the Department of the Interior (DOI) and the
ACOE had entered into a Memorandum of Understanding and Interagency Action Plan on Appalachian
Surface Coal Mining (IAP) which is designed to coordinate actions between the agencies and to
increase federal scrutiny and oversight of state permitting, enforcement and other activities
affecting Appalachian surface mining, all with the stated goal of reducing the environmental
impacts of mountaintop removal coal mining in West Virginia and other Appalachian states. Among
other things, the IAP sets forth a proposal to prohibit use of the general NWP 21 for surface
coal mining operations and a commitment by the DOI to issue guidance clarifying the rules on the use
of valley fills within a set distance of a stream. The IAP also states that there will be a
general review of how surface mining is evaluated, authorized and regulated under the Clean
Water Act, which may lead to further changes to relevant laws or enforcement thereof.
On July 15, 2009, the ACOE announced it is soliciting public comments on proposals related
to the use of NWP 21 pursuant to the IAP. The proposals are to modify NWP 21 to prohibit its use
in the Appalachian region for surface coal mining operations and to suspend the use of NWP 21 in
West Virginia and other Appalachian states while the ACOE completes the process of modifying it.
In the absence of NWP 21, individual permits will be required for surface coal mining projects.
We have converted any pending permits that were submitted under NWP 21 to individual permits and
believe a prohibition of NWP 21 permits would have a minimal effect on our future production. We
have a number of individual permit applications pending, including in particular a permit
application relating to the Hobet mine that was originally submitted in December 2007. We expect
to complete mining with the dragline equipment under our current Hobet permit in mid-2010 and
after that we cannot continue mining with the dragline equipment without receipt of this pending
permit. Dragline mining is the most efficient method for the Hobet reserves and if we are unable
to continue dragline mining, our cost structure would be adversely affected.
Future permit applications are expected to be subject to additional review. In July 2009,
the EPA requested that the West Virginia Department of Environmental Protection (WVDEP) provide
copies of draft National Pollution Discharge Elimination System (NPDES) permits for discharges associated with surface coal mining operations and
announced its plans to conduct Permit Quality Reviews of mining permits in West Virginia. It is
unknown precisely what other future changes will be implemented, but the announced changes and
any additional future changes could result in an inability to obtain new permits or to maintain
existing permits and in the incurrence of fines, penalties and other costs. As is the case with
other coal mining companies operating in Appalachia, changes to the permit application or
compliance process or potential permitting delays could adversely affect our business.
New developments in the regulation of greenhouse gas emissions could materially adversely
affect our customers demand for coal and our results of operations, cash flows and financial
condition.
One by-product of burning coal is carbon dioxide, which has been linked in certain studies
as a contributor to climate change. Recently, legislators have been considering the passage of
significant new laws, regulators have been considering using existing laws to limit carbon
dioxide emissions, and other measures are being imposed or offered, with the ultimate goal of
reducing carbon dioxide and other greenhouse gas emissions.
On April 17, 2009, the EPA issued a proposed finding that emissions of carbon dioxide and
other greenhouse gases contribute to air pollution and endanger human health and welfare (the
Endangerment Finding). If this finding is ultimately adopted, it would permit the EPA to begin
regulating greenhouse gas emissions under the Clean Air Act. The public comment period on the
proposed Endangerment Finding expired in June 2009, but whether and to what extent the EPA will
regulate carbon dioxide emissions or other greenhouse gas emissions under the Clean Air Act is
still unclear, particularly given the ongoing efforts to regulate these emissions through the
passage of new federal laws. Any regulation of greenhouse gas emissions under
the Clean Air Act would likely affect coal-fueled power plants, in particular, and the amount of
coal our customers purchase from us could decrease. In addition to the potential for the EPA to
impose regulations on carbon dioxide emissions, the U.S. House of Representatives recently
passed, and the U.S. Senate is currently considering, carbon dioxide legislation that would,
among other things, impose a nationwide cap on carbon dioxide emissions and require major
sources, including coal-fueled power plants, to obtain allowances to meet that cap. The
current administration has also expressed support for such legislation.
Demand for and use of coal also may be limited by any global treaties which place
restrictions on carbon dioxide emissions. As part of the United Nations Framework Convention on
Climate Change, representatives from 187 nations met in Bali, Indonesia in December 2007 to
discuss a program to limit greenhouse gas emissions after 2012. The United States participated
in the conference. The convention adopted what is called the Bali Action Plan. The Bali Action
Plan contains no binding commitments, but concludes that deep cuts in global emissions will be
required and provides a timetable for two years of talks to shape the first formal addendum to
the 1992 United Nations Framework Convention on Climate Change treaty since the Kyoto Protocol. The next meeting of the parties to the Bali Action Plan will be in
32
Copenhagen, Denmark in December 2009 where participating nations are
expected to consider whether to commit to binding greenhouse gas emissions reductions.
These and other international, federal, state, regional or local regulation of greenhouse
gas emissions will likely require additional controls on coal-fueled power plants and industrial
boilers and may cause some users of coal to switch from coal to alternative fuels and may have a
material adverse impact on the global supply and demand for coal, any of which could adversely
affect our results of operations, cash flows and financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
Patriot Coal Corporations annual meeting of stockholders was held on May 12, 2009. The
shares of common stock eligible to vote were based on a record date of March 20, 2009. Three
Class I directors were elected to serve for three-year terms expiring in 2012. A tabulation of
votes for each director is set forth below:
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Withheld
|
B. R. Brown
|
|
|
53,721,827
|
|
|
|
14,391,186
|
|
John F. Erhard
|
|
|
66,926,706
|
|
|
|
1,186,307
|
|
John E. Lushefski
|
|
|
53,777,456
|
|
|
|
14,335,557
|
|
Other directors whose term of office continued after the meeting were Irl F. Engelhardt, J.
Joe Adorjan, Michael P. Johnson, Michael M. Scharf, Robb E. Turner, Robert O. Viets and Richard
M. Whiting.
Stockholders also voted to ratify Ernst & Young LLP as our independent registered public
accounting firm for 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
For
|
|
Against
|
|
Abstentions
|
|
Non-votes
|
Ratification of independent registered
public accounting firm
|
|
|
67,713,520
|
|
|
|
229,487
|
|
|
|
170,002
|
|
|
|
|
|
Our 2007 Long-Term Equity Incentive Plan and our Management Annual Incentive Compensation
Plan were also approved for purposes of Section 162(m) of the Internal Revenue Code.
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
For
|
|
Against
|
|
Abstentions
|
|
Non-votes
|
2007 Long-Term Equity Incentive Plan
|
|
|
46,175,442
|
|
|
|
6,347,317
|
|
|
|
85,894
|
|
|
|
15,504,360
|
|
Management Annual Incentive
Compensation Plan
|
|
|
51,029,328
|
|
|
|
834,395
|
|
|
|
744,930
|
|
|
|
15,504,359
|
|
Item 5.
Other Information.
On August 7, 2009, a letter agreement with Paul Vining, the President and Chief Operating Officer
of Patriot, was amended and restated. The letter agreement was originally entered into when Mr.
Vining was the Chief Executive Officer of Magnum Coal Company, pursuant to which certain
stockholders of Magnum agreed to deliver to Mr. Vining specified portions of Patriot common stock
that they received as a result of Patriots acquisition of Magnum. The amended and restated letter
agreement provides for the relevant stockholders to deliver to Mr. Vining, within 10 days of
January 22, 2010, shares of Patriot common stock with a value, determined at that time, of
$3,000,000. The foregoing description of the amended and restated letter agreement does not
purport to be complete and is qualified in its entirety by reference to the amended and restated
letter agreement attached hereto as Exhibit 10.1, which is incorporated herein by reference.
Item 6. Exhibits.
See Exhibit Index on page 35 of this report.
33
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.
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|
|
PATRIOT COAL CORPORATION
|
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Date: August 7, 2009
|
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)
|
|
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34
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).
|
|
|
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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).
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3.1
|
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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).
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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).
|
|
|
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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).
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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).
|
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4.3
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|
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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|
|
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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*
|
|
Letter Agreement between ArcLight
Energy Partners Fund I, L.P., ArcLight Energy Partners Fund II, L.P. and Paul
Vining dated August 7, 2009.
|
|
|
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31.1*
|
|
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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|
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31.2*
|
|
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*
|
|
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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|
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32.2*
|
|
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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|
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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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35
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