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Chapter 11 Reorganization Filings
9 Months Ended
Sep. 30, 2012
Chapter 11 Reorganization Filings [Abstract]  
Reorganization under Chapter 11 of US Bankruptcy Code Disclosure [Text Block]
Chapter 11 Reorganization
Description of Business
Patriot Coal Corporation (Patriot, we, our or the Company) is engaged in the mining and preparation of thermal coal, also known as steam coal, for sale primarily to electricity generators, and metallurgical coal, for sale to steel and coke producers. Our mining complexes and coal reserves are located in the eastern and midwestern United States (U.S.), primarily in West Virginia and Kentucky.
Chapter 11 Reorganization Filings
On July 9, 2012 (the Petition Date), Patriot Coal Corporation, as a stand-alone entity, and substantially all of its wholly-owned subsidiaries (the Filing Subsidiaries and, together with Patriot, the Debtors) filed voluntary petitions for reorganization (the Chapter 11 Petitions) under Chapter 11 of Title 11 of the U.S. Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). The Debtors' Chapter 11 cases are being jointly administered under the caption In re: Patriot Coal Corporation, et al. (Case No. 12-12900) (the Bankruptcy Case). Our joint ventures and certain of our other subsidiaries (collectively, the Non-Debtor Subsidiaries) were not included in the Chapter 11 filing.
Effective July 10, 2012, the New York Stock Exchange (NYSE) suspended trading of our common stock and commenced proceedings to delist our common stock. On August 6, 2012, our common stock was delisted from the NYSE. Our stock is now traded under the ticker symbol “PCXCQ” on the OTCQB marketplace, operated by OTC Markets Group Inc. (the OTC Markets).
The filing of the Chapter 11 Petitions constituted an event of default under the Company's pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable, although any actions to enforce such payment obligations are stayed as a result of the filing of the Chapter 11 Petitions. Due to the filing of the Chapter 11 Petitions, the Company's pre-petition unsecured long-term debt of $458.5 million is included in "Liabilities subject to compromise" in the accompanying unaudited consolidated balance sheet at September 30, 2012.
The Debtors are currently operating as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In general, the Debtors are authorized to, and continue to, operate as an ongoing business, but may not engage in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court.
Debtor-In-Possession (DIP) Financing
In connection with filing the Chapter 11 Petitions, the Debtors filed a motion seeking, among other things, Bankruptcy Court authorization to obtain post-petition financing, and for each Filing Subsidiary (other than EACC Camps, Inc.) and for Patriot Ventures LLC (collectively, the DIP Guarantors) to guaranty our obligations in connection with the DIP financing, up to an aggregate principal amount of $802.0 million, consisting of (a) a revolving credit loan in an amount not to exceed $125.0 million (First Out Revolving Credit Loan), (b) a term loan in the amount of $375.0 million (First Out Term Loan, and together with the First Out Revolving Credit Loan, the First Out Facility), and (c) a $302.0 million roll up (the L/C Roll Up) of obligations under the Amended and Restated Credit Agreement, dated May 5, 2010 (the Pre-Petition Credit Agreement) in respect to outstanding letters of credit, inclusive of any obligations as to reimbursement, renewal and extension of the same issued in the aggregate amount of $300.8 million as of the Petition Date (the Second Out Facility and, together with the First Out Facility, the DIP Facilities).
On July 11, 2012, the Bankruptcy Court entered an interim order (the Interim DIP Order) that, among other things, authorized us to borrow money and obtain letters of credit pursuant to the DIP Facilities and to guaranty such borrowings and our obligations with respect to such letters of credit, up to an aggregate principal or face amount of $677.0 million (plus interest, fees and other expenses and amounts), consisting of borrowings of up to an aggregate principal or face amount of $125.0 million under the First Out Revolving Credit Loan, $250.0 million under the First Out Term Loan, and up to $302.0 million under the Second Out Facility, in accordance with the terms of the Interim DIP Order. On August 3, 2012, the Bankruptcy Court entered a final order (the Final DIP Order) that, among other things, authorized us to borrow the full amount under the DIP Facilities in accordance with the terms of the Final DIP Order. The maturity date of the DIP Facilities is October 4, 2013, but may be extended to December 31, 2013 provided certain conditions are met.
For additional information on the DIP Facilities, see Note 13 - Debt and Credit Facilities.
Reorganization Process
The Bankruptcy Court has authorized us to pay certain of our pre-petition obligations, including payments for employee wages, salaries and certain benefits and payments to certain shippers and critical vendors, subject to certain limitations. The Debtors are required to pay vendors and other providers in the ordinary course for goods and services received after the filing of the Chapter 11 Petitions and to pay certain other business-related payments necessary to maintain the operation of our business. We have retained legal and financial professionals to advise us on the bankruptcy proceedings. From time to time, we may seek the Bankruptcy Court's approval for the retention of additional professionals.
Immediately after filing the Chapter 11 Petitions, we began notifying all known current or potential creditors of the Debtors of the bankruptcy filings. Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Petitions automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the filing of the Chapter 11 Petitions. Thus, for example, most creditor actions to obtain possession of property from us, or to create, perfect or enforce any lien against our property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a pre-petition claim are enjoined unless and until the Bankruptcy Court lifts the automatic stay.
As required by the Bankruptcy Code, the U.S. Trustee for the Southern District of New York appointed an official committee of unsecured creditors (the Creditors' Committee). The Creditors' Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court.
On July 18, 2012 and August 7, 2012, respectively, the United Mine Workers of America (UMWA) and several surety companies filed motions requesting that the venue for our Chapter 11 filing be transferred to the U.S. Bankruptcy Court for the Southern District of West Virginia. The U.S. Trustee also filed a motion arguing that the venue should be transferred from the Southern District of New York to another district. A hearing was held in September 2012, at which time the Company, the Creditors' Committee and certain other creditors contested these motions. Post-hearing submissions were filed on October 5, 2012.
Under Section 365 and other relevant sections of the Bankruptcy Code, we may assume, assume and assign, or reject certain executory contracts and unexpired leases, including leases of real property and equipment, subject to the approval of the Bankruptcy Court and certain other conditions. In this context, "assumption" means that the Company agrees to perform its obligations and cure all existing defaults under the contract or lease, and "rejection" means that it is relieved from its obligations to perform further under the contract or lease, but is subject to a pre-petition claim for damages for the breach thereof subject to certain limitations. Any damages resulting from rejection of executory contracts that are permitted to be recovered under the Bankruptcy Code will be treated as liabilities subject to compromise unless such claims were secured prior to the Petition Date.
Since the Petition Date, the Company received approval from the Bankruptcy Court to reject a number of equipment leases and other executory contracts of various types. The Company is continuing to review all of its executory contracts and unexpired leases to determine which additional contracts and leases it will reject. The Company expects that additional liabilities subject to compromise will arise due to rejection of executory contracts, including leases, and from the determination of the Bankruptcy Court (or agreement by parties in interest) of allowed claims for contingencies and other disputed amounts. The Company also expects that the assumption of additional executory contracts and unexpired leases will convert certain of the liabilities shown on the accompanying consolidated balance sheet as liabilities subject to compromise to liabilities not subject to compromise. Due to the uncertain nature of many of the potential claims, the Company cannot project the magnitude of such claims with certainty.
On October 18, 2012, the Bankruptcy Court entered an order establishing December 14, 2012 (the General Bar Date) as the bar date for potential creditors, other than governmental units, to file claims. For governmental units to file claims, the bar date was established as January 21, 2013 (the Governmental Bar Date). The bar date is the date by which certain claims against the Company must be filed if the claimants wish to receive any distribution in the bankruptcy cases. Proof of claim forms received after the bar date are typically not eligible for consideration of recovery as part of the Company's bankruptcy cases. All known potential creditors will be notified of the bar date and the requirement to file a claim with the Bankruptcy Court. Patriot will also publish notices in various publications available to the public. Differences between liability amounts estimated by the Company and claims filed by creditors will be investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claim. The determination of how liabilities will ultimately be treated cannot be made until the Bankruptcy Court approves a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.
In order to successfully exit Chapter 11, we will need to propose and obtain confirmation by the Bankruptcy Court of a plan of reorganization that satisfies the requirements of the Bankruptcy Code. A plan of reorganization, among other things, would resolve our pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to emerging from bankruptcy.
We have the exclusive right for 120 days after the filing of the Chapter 11 Petitions to file a plan of reorganization. We will likely file one or more motions to request extensions of this exclusivity period, which are routinely granted up to 18 months in bankruptcy cases of this size and complexity. On October 18, 2012, we filed a motion to extend this exclusivity period to May 5, 2013. If our exclusivity period lapses, any party-in-interest would be able to file a plan of reorganization. In addition to being voted on by requisite holders of impaired claims and equity interests, a plan of reorganization must satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in order to become effective.
Our timing for filing a plan of reorganization will depend on the timing and outcome of numerous other ongoing matters in the Chapter 11 proceedings. There can be no assurance at this time that a plan of reorganization will be confirmed by the Bankruptcy Court or that any such plan will be implemented successfully.
Under the priority rankings established by the Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation of a plan of reorganization. No assurance can be given as to what values, if any, will be ascribed to each of these constituencies or what types or amounts of distributions, if any, they would receive. A plan of reorganization could result in holders of certain liabilities and/or securities, including common stock, receiving no distribution on account of their interests and cancellation of their holdings. Because of such possibilities, there is significant uncertainty regarding the value of our liabilities and securities, including our common stock. At this time, there is no assurance we will be able to restructure as a going concern or successfully propose or implement a plan of reorganization.
For periods subsequent to filing the Chapter 11 Petitions, we have applied the Financial Accounting Standards Board Accounting Standards Codification 852, "Reorganizations" (ASC 852), in preparing the unaudited consolidated financial statements. ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings have been recorded in "Reorganization items, net" on the unaudited consolidated statements of operations. In addition, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified on the unaudited consolidated balance sheet at September 30, 2012 in "Liabilities subject to compromise." These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts.
Going Concern Matters
The accompanying unaudited consolidated financial statements and related notes have been prepared assuming we will continue as a going concern, although the Bankruptcy Case and weak industry conditions raise substantial doubt about our ability to continue as a going concern. The accompanying unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or to the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern is dependent upon, among other things, market conditions and our ability to improve profitability, to meet the financial covenants of the DIP Facilities or obtain appropriate waivers, to obtain financing to replace the DIP Facilities upon emergence and to restructure our obligations in a manner that allows us to obtain confirmation of a plan of reorganization by the Bankruptcy Court. In order to improve profitability, we are taking actions to further reduce operating expenses and align our production to meet market demand. As a result of the Bankruptcy Case, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession pursuant to the Bankruptcy Code, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Facilities), for amounts other than those reflected in the accompanying unaudited consolidated financial statements. Further, any plan of reorganization could materially change the amounts and classifications of assets and liabilities reported in the historical consolidated financial statements.
Debtor Financial Statements
The following unaudited condensed combined financial statements represent the financial statements for the Debtors only. The Company's Non-Debtor Subsidiaries are accounted for as non-consolidated subsidiaries in these financial statements and, as such, their net income is included in “Income from non-debtor entities” in the unaudited condensed combined statements of operations, and their net assets are included as “Investments in and advances to non-debtor entities” in the unaudited condensed combined balance sheet. The Debtors' unaudited condensed combined financial statements have been prepared in accordance with the guidance in ASC 852.
Intercompany transactions between the Debtors have been eliminated in the unaudited condensed combined financial statements. Intercompany transactions between the Debtors and Non-Debtor Subsidiaries have not been eliminated in the Debtors' unaudited condensed combined financial statements.
PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS - DEBTORS
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2012
 
September 30, 2012
 
(Dollars in thousands)
 
 
 
 
Revenues
 
 
 
Sales
$
442,935

 
$
1,445,546

Other revenues
5,261

 
39,293

Total revenues
448,196

 
1,484,839

Costs and expenses
 
 
 
Operating costs and expenses
434,598

 
1,367,150

Depreciation, depletion and amortization
48,906

 
135,430

Asset retirement obligation expense
19,496

 
377,737

Sales contract accretion

 
(11,628
)
Impairment and restructuring charge
18,434

 
60,892

Selling and administrative expenses
12,611

 
42,741

Net gain on disposal or exchange of assets
(457
)
 
(3,125
)
Income from equity affiliates

 
(130
)
Income from non-debtor entities
(1,863
)
 
(3,491
)
Operating loss
(83,529
)
 
(480,737
)
Interest expense and other
13,661

 
46,168

DIP financing fees
42,552

 
42,552

Interest income
(15
)
 
(113
)
Loss before reorganization items, net and income taxes
(139,727
)
 
(569,344
)
Reorganization items, net
76,214

 
76,214

Loss before income taxes
(215,941
)
 
(645,558
)
Income tax benefit
(8
)
 
(8
)
Net loss
$
(215,933
)
 
$
(645,550
)



PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - DEBTORS
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2012
 
September 30, 2012
 
 
(Dollars in thousands)
 
 
 
Net loss
 
$
(215,933
)
 
$
(645,550
)
Accumulated actuarial loss and prior service credit realized in net loss
 
13,715

 
41,147

Net change in fair value of diesel fuel hedge
 
2,476

 
1,099

Other comprehensive income
 
16,191

 
42,246

Comprehensive loss
 
$
(199,742
)
 
$
(603,304
)

PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED BALANCE SHEET - DEBTORS
 
 
 
 
 
September 30, 2012
 
(Dollars in thousands)
ASSETS
 
Current assets
 
Cash and cash equivalents
$
382,784

Accounts receivable and other, net
98,558

Inventories
128,535

Prepaid expenses and other current assets
30,350

Total current assets
640,227

Property, plant, equipment and mine development
 
Land and coal interests
2,901,082

Buildings and improvements
554,874

Machinery and equipment
771,300

Less accumulated depreciation, depletion and amortization
(1,087,449
)
Property, plant, equipment and mine development, net
3,139,807

Cash collateralization deposits
60,990

Investments and other assets
4,516

Investments in and advances to non-debtor entities
28,103

Total assets
$
3,873,643

LIABILITIES AND STOCKHOLDERS' DEFICIT
 
Liabilities not subject to compromise
 
Current liabilities
 
Accounts payable and accrued expenses
$
283,641

Current maturities of long-term debt
398

Total current liabilities
284,039

Long-term debt, less current maturities
376,872

Asset retirement obligations
743,095

Workers' compensation obligations
239,284

Postretirement benefit obligations
91,344

Obligation to industry fund
32,897

Other noncurrent liabilities
24,125

Total liabilities not subject to compromise
1,791,656

Liabilities subject to compromise
2,090,743

Total liabilities
3,882,399

Total stockholders' deficit
(8,756
)
Total liabilities and stockholders' deficit
$
3,873,643





PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS - DEBTORS
 
 
 
 
 
Nine Months Ended
 
September 30, 2012
 
(Dollars in thousands)
Cash Flows From Operating Activities
 
Net loss
$
(645,550
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
Depreciation, depletion and amortization
135,430

Debtor-in-possession debt issuance costs
42,552

Amortization of deferred financing costs
3,986

Amortization of debt discount
5,076

Sales contract accretion
(11,628
)
Impairment and restructuring charge
60,892

Net gain on disposal or exchange of assets
(3,125
)
Income from equity affiliates
(130
)
Income from non-debtor entities
(3,491
)
Stock-based compensation expense
776

Non-cash reorganization items
56,428

Changes in current assets and liabilities:
 
Accounts receivable
79,137

Inventories
(30,170
)
Other current assets
(1,135
)
Accounts payable and accrued expenses
1,701

 Advances to non-debtor entities
2,530

Asset retirement obligations
305,375

Workers' compensation obligations
7,157

Postretirement benefit obligations
39,310

Obligation to industry fund
(2,257
)
Cash collateralization deposit
(46,000
)
Other, net
518

Net cash used in operating activities
(2,618
)
Cash Flows From Investing Activities
 
Additions to property, plant, equipment and mine development
(123,174
)
Additions to advance mining royalties
(17,024
)
Acquisition of Coventry Mining Services, LLC
(2,530
)
Proceeds from disposal or exchange of assets
3,490

Net cash used in investing activities
(139,238
)
Cash Flows From Financing Activities
 
Proceeds from debtor-in-possession debt
375,000

Long-term debt payments
(1,305
)
Deferred financing costs
(1,595
)
Debtor-in-possession debt issuance costs
(42,552
)
Proceeds from employee stock programs
930

Net cash provided by financing activities
330,478

Net increase in cash and cash equivalents
188,622

Cash and cash equivalents at beginning of year
194,162

Cash and cash equivalents at end of period
$
382,784