10-Q 1 pcx-6302013x10q.htm 10-Q PCX-6.30.2013 - 10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013
or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-33466

PATRIOT COAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
20-5622045
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
12312 Olive Boulevard, Suite 400
St. Louis, Missouri
 
63141
 
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
(314) 275-3600
 
(Registrant’s 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 R 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 R No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R

There were 92,368,470 shares of common stock with a par value of $0.01 per share outstanding on August 2, 2013.




INDEX

 
 
 
 
Page
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 




PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in thousands, except per share data)
Revenues
 
 
 
 
 
 
 
Sales
$
414,848

 
$
518,273

 
$
754,973

 
$
1,002,611

Other revenues
3,779

 
15,792

 
6,951

 
34,032

Total revenues
418,627

 
534,065

 
761,924

 
1,036,643

Costs and expenses
 
 
 
 
 
 
 
Operating costs and expenses
402,348

 
477,223

 
772,376

 
932,559

Depreciation, depletion and amortization
47,614

 
45,138

 
92,607

 
86,524

Asset retirement obligation expense
17,231

 
325,474

 
34,541

 
358,241

Sales contract accretion

 

 

 
(11,628
)
Impairment and restructuring charge

 
9,597

 
(1,453
)
 
42,458

Selling and administrative expenses
9,202

 
16,575

 
18,589

 
30,130

Net gain on disposal or exchange of assets
(463
)
 
(1,157
)
 
(3,198
)
 
(2,668
)
Loss (income) from equity affiliates
5,056

 
(720
)
 
9,316

 
(1,700
)
Operating loss
(62,361
)
 
(338,065
)
 
(160,854
)
 
(397,273
)
Interest expense and other
14,107

 
16,309

 
28,056

 
32,507

Interest income
(3
)
 
(54
)
 
(13
)
 
(163
)
Loss before reorganization items and income taxes
(76,465
)
 
(354,320
)
 
(188,897
)
 
(429,617
)
Reorganization items, net
23,284

 

 
26,754

 

Loss before income taxes
(99,749
)
 
(354,320
)
 
(215,651
)
 
(429,617
)
Income tax provision

 

 

 

Net loss
$
(99,749
)
 
$
(354,320
)
 
$
(215,651
)
 
$
(429,617
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic and diluted
92,392,732

 
92,847,229

 
92,400,600

 
92,349,430

 
 
 
 
 
 
 
 
Loss per share, basic and diluted
$
(1.08
)
 
$
(3.82
)
 
$
(2.33
)
 
$
(4.65
)


See accompanying notes to unaudited condensed consolidated financial statements.

1


PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in thousands)
Net loss
$
(99,749
)
 
$
(354,320
)
 
$
(215,651
)
 
$
(429,617
)
Accumulated actuarial loss and prior service credit realized in net loss
19,031

 
13,714

 
39,021

 
27,432

Plan curtailment - prior service credit recognized
(6,876
)
 

 
(6,876
)
 

Reduction in postretirement benefit obligations due to terminations
76,218

 

 
76,218

 

Net change in fair value of diesel fuel hedge
(140
)
 
(5,643
)
 
(10
)
 
(251
)
Realized gains of diesel fuel hedge
(24
)
 
(138
)
 
(281
)
 
(1,126
)
Other comprehensive income
88,209

 
7,933

 
108,072

 
26,055

Comprehensive loss
$
(11,540
)
 
$
(346,387
)
 
$
(107,579
)
 
$
(403,562
)


See accompanying notes to unaudited condensed consolidated financial statements.

2


PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
June 30, 2013
 
December 31, 2012
 
(Unaudited)
 
 
 
(Dollars in thousands,
except per share data)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
193,815

 
$
333,929

Accounts receivable and other, net of allowance for doubtful accounts of $18 as of June 30, 2013 and December 31, 2012
119,637

 
105,135

Inventories
84,933

 
99,219

Deferred income taxes
50,102

 
65,036

Prepaid expenses and other current assets
26,407

 
37,406

Total current assets
474,894

 
640,725

Property, plant, equipment and mine development
 
 
 
Land and coal interests
2,896,105

 
2,892,799

Buildings and improvements
592,018

 
571,985

Machinery and equipment
780,558

 
767,749

Less accumulated depreciation, depletion and amortization
(1,207,031
)
 
(1,130,027
)
Property, plant, equipment and mine development, net
3,061,650

 
3,102,506

Cash collateralization deposits
64,990

 
64,990

Investments and other assets
34,463

 
30,586

Total assets
$
3,635,997

 
$
3,838,807

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Liabilities not subject to compromise
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
243,834

 
$
247,489

Current maturities of long-term debt
380,881

 
375,409

Total current liabilities
624,715

 
622,898

Long-term debt, less current maturities
8,695

 
1,766

Deferred income taxes
50,102

 
65,036

Asset retirement obligations
736,372

 
720,461

Workers’ compensation obligations
258,282

 
254,680

Coal Act postretirement benefit obligations
83,012

 
87,805

Obligation to industry fund
32,651

 
34,278

Other noncurrent liabilities
22,593

 
22,805

Total liabilities not subject to compromise
1,816,422

 
1,809,729

Liabilities subject to compromise
2,157,593

 
2,262,307

Total liabilities
3,974,015

 
4,072,036

Stockholders’ deficit
 
 
 
Common stock ($0.01 par value; 300,000,000 shares authorized; 92,378,514 and 92,531,916 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively)
924

 
925

Preferred stock ($0.01 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2013 and December 31, 2012)

 

Series A Junior Participating Preferred Stock ($0.01 par value; 1,000,000 shares authorized; no shares issued and outstanding at June 30, 2013 and December 31, 2012)

 

Additional paid-in capital
981,064

 
978,273

Retained deficit
(946,461
)
 
(730,810
)
Accumulated other comprehensive loss
(373,545
)
 
(481,617
)
Total stockholders’ deficit
(338,018
)
 
(233,229
)
Total liabilities and stockholders’ deficit
$
3,635,997

 
$
3,838,807


See accompanying notes to unaudited condensed consolidated financial statements.

3


PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Six Months Ended June 30,
 
2013
 
2012
 
(Dollars in thousands)
Cash Flows From Operating Activities
 
 
 
Net loss
$
(215,651
)
 
$
(429,617
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation, depletion and amortization
92,607

 
86,524

Amortization of deferred financing costs

 
3,986

Amortization of debt discount

 
5,076

Sales contract accretion

 
(11,628
)
Impairment and restructuring charge
(1,453
)
 
41,903

Net gain on disposal or exchange of assets
(3,198
)
 
(2,668
)
Loss (income) from equity affiliates
9,316

 
(1,700
)
Distributions from equity affiliates

 
2,842

Stock-based compensation expense
2,791

 
(1,825
)
Non-cash reorganization items, net
(8,866
)
 

Gain on benefit plan curtailments
(6,876
)
 

Changes in current assets and liabilities:
 
 
 
Accounts receivable
(14,502
)
 
53,485

Inventories
14,534

 
(39,275
)
Other current assets
7,577

 
(5,796
)
Accounts payable and accrued expenses
(14,140
)
 
(90,849
)
Asset retirement obligations
12,336

 
306,147

Workers’ compensation obligations
3,795

 
3,464

Postretirement benefit obligations
33,158

 
24,189

Obligation to industry fund
(1,229
)
 
(1,508
)
Other, net
(7,738
)
 
(1,347
)
Net cash used in operating activities
(97,539
)
 
(58,597
)
Cash Flows From Investing Activities
 
 
 
Additions to property, plant, equipment and mine development
(33,479
)
 
(96,761
)
Additions to advance mining royalties
(4,868
)
 
(11,268
)
Acquisition
(1,009
)
 
(2,530
)
Proceeds from disposal or exchange of assets
3,087

 
2,941

Other
(367
)
 
(369
)
Net cash used in investing activities
(36,636
)
 
(107,987
)
Cash Flows From Financing Activities
 
 
 
Short-term borrowing under Pre-Petition Credit Agreement

 
25,000

Long-term debt payments
(3,523
)
 
(1,182
)
Deferred financing costs

 
(6,317
)
Proceeds from employee stock programs

 
930

Coal reserve financing transaction
(2,416
)
 

Net cash (used in) provided by financing activities
(5,939
)
 
18,431

 
 
 
 
Net decrease in cash and cash equivalents
(140,114
)
 
(148,153
)
Cash and cash equivalents at beginning of year
333,929

 
194,162

Cash and cash equivalents at end of period
$
193,815

 
$
46,009


See accompanying notes to unaudited condensed consolidated financial statements.

4

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


(1) Basis of Presentation
Description of Business
Patriot Coal Corporation (Patriot, we, our or the Company) is engaged in the mining, preparation and sale of thermal coal 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Patriot and its subsidiaries. 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 16 for our segment disclosures.
The accompanying condensed consolidated financial statements as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012, 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, 2013 may not necessarily be indicative of the results for the year ending December 31, 2013.

(2) Bankruptcy Proceedings
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 Coal Corporation, 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. On December 19, 2012, the U.S. Bankruptcy Court for the Southern District of New York entered an order transferring the bankruptcy cases to the U.S. Bankruptcy Court for the Eastern District of Missouri (the U.S. Bankruptcy Court for the Eastern District of Missouri and/or the U.S. Bankruptcy Court for the Southern District of New York, as applicable, the Bankruptcy Court). The Debtors’ Chapter 11 cases are being jointly administered under the caption In re: Patriot Coal Corporation, et al. (Case No. 12-51502) (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.
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.
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.
Financial Reporting Considerations
For periods subsequent to filing the Chapter 11 Petitions, we have applied Financial Accounting Standards Board Accounting Standards Codification (ASC) 852, “Reorganizations” (ASC 852), in preparing the condensed 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 condensed consolidated statement of operations. In addition, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified in “Liabilities subject to compromise” on the condensed consolidated balance sheets. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts.
Bankruptcy Initiatives
In the year since the Petition Date, we have been working on multiple fronts to stabilize our business, address our unsustainable cost structure and preserve jobs and benefits for thousands of our workers. Over the past three months, we have achieved significant

5

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

progress in creating a competitive labor and benefit cost structure by restructuring wage and benefit programs for our current workforce and preparing to transition retiree healthcare benefits to a Voluntary Employee Beneficiary Association (VEBA) trust.
Sections 1113 and 1114
In relation to the bankruptcy process and pursuant to Sections 1113 and 1114 of the Bankruptcy Code, we are seeking to renegotiate the terms of collective bargaining agreements between certain Patriot subsidiaries and the United Mine Workers of America (UMWA), as well as certain postretirement healthcare benefits. In November 2012, the Debtors commenced the Sections 1113 and 1114 process with the UMWA and began negotiating in good faith for consensual agreements that achieve the necessary level of labor cost and postretirement healthcare benefit savings. In March 2013, the Debtors filed a motion with the Bankruptcy Court seeking to modify collective bargaining agreements with the UMWA and certain UMWA-related retiree healthcare benefits. On May 29, 2013, the Bankruptcy Court granted the motion in its entirety. On June 7, 2013, the UMWA appealed the Bankruptcy Court’s decision.
The Bankruptcy Court’s ruling authorized Patriot to implement modifications to the collective bargaining agreements, including (i) wage, benefit and work rules for union employees that reflect levels of wages and benefits more consistent with those of regional labor markets; and (ii) healthcare benefits for our union employees that are more consistent with healthcare benefits provided to our non-union employees. Despite receiving Bankruptcy Court approval, we continue to negotiate with the UMWA in an effort to reach a consensual agreement. Effective July 1, 2013, Patriot exercised the authority granted to us by the Bankruptcy Court to implement changes to UMWA-represented employee wages, benefits and healthcare, but chose to implement significantly improved terms reflecting our subsequent negotiations with the UMWA.
The Debtors and the UMWA continue to work toward a consensual agreement regarding collective bargaining agreements. Once a consensual agreement is reached, the collective bargaining agreements will be presented to the UMWA membership for ratification, and we anticipate the negotiations and ratification process to be completed in August 2013. We expect to submit a motion to the Bankruptcy Court seeking approval of the collective bargaining agreements in conjunction with the ratification process. Upon Bankruptcy Court approval, the UMWA will withdraw its June 7, 2013 appeal.
The Debtors also are seeking to avoid expected increases in the contribution rates under the United Mine Workers of America 1974 Pension Plan (the 1974 Pension Plan). Under the court-approved proposal, in the event the Debtors are unable to avoid the expected increases in the contribution rates, they may withdraw from the 1974 Pension Plan. Withdrawing from the 1974 Pension Plan would result in a liability under the Employee Retirement Income Securities Act of 1974, but we project the long-term impact of such liability would be significantly less than future contributions to the 1974 Pension Plan. The Debtors expect to continue to participate in the 1974 Pension Plan based on certain assurances provided by the UMWA.
The Bankruptcy Court’s ruling also authorized Patriot to implement modifications to UMWA-related retiree healthcare benefits that primarily include the establishment of a VEBA trust to fund healthcare for UMWA-represented retirees. Under the court-authorized proposal, funding for the VEBA will consist of (i) a 35% ownership stake in the reorganized company, (ii) profit sharing contributions up to a maximum of $300 million, (iii) a royalty contribution for every ton produced at all existing mining complexes, (iv) a portion of any future recoveries from certain litigation, and (v) an initial cash contribution of $15 million. The VEBA trust is being designed and administered by trustees appointed by the UMWA. The liability associated with these obligations totals approximately $1.02 billion as of June 30, 2013 and December 31, 2012 and is classified as “Liabilities subject to compromise” in the condensed consolidated balance sheets. The Bankruptcy Court approved changes to the UMWA-related retiree healthcare benefits effective July 1, 2013. We expect to reach a consensual agreement whereby we will continue to administer healthcare coverage through December 31, 2013, but only funding up to the $15 million contribution.
We continue to provide healthcare benefits for more than 2,300 individuals who receive healthcare benefits pursuant to the Coal Industry Retiree Health Benefit Act of 1992 (Coal Act). We spent approximately $14 million on Coal Act liabilities in 2012. The liabilities associated with these obligations are classified as liabilities not subject to compromise in the condensed consolidated balance sheets.
On March 14, 2013, Patriot filed a lawsuit against Peabody Energy Corporation (Peabody) and one of its subsidiaries. In connection with Patriot’s 2007 spinoff from Peabody, Peabody agreed to assume the obligations for healthcare costs associated with thousands of UMWA retirees and dependents who had been employed by Peabody entities that were transferred to Patriot in the spinoff. Patriot sought a declaration from the Bankruptcy Court that any relief Patriot is able to obtain through the bankruptcy proceedings with respect to the healthcare benefits of its subsidiaries’ retirees will not relieve Peabody of its own liabilities with respect to the healthcare benefits of the UMWA retirees and dependents. On May 29, 2013, the Bankruptcy Court ruled in favor of Peabody, which could significantly reduce Peabody’s retiree healthcare obligations with respect to certain UMWA retirees and

6

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

dependents. Patriot subsequently appealed the Bankruptcy Court’s decision and oral arguments related to the appeal were heard on August 2, 2013.
Other Wage and Benefit Programs
On April 26, 2013, the Bankruptcy Court entered an order authorizing the Debtors to discontinue substantially all of their non-union retiree healthcare programs, eliminate retiree life insurance benefits for current non-union employees, and cap life insurance benefits for current non-union retirees, effective July 31, 2013. Pursuant to this order, the Debtors will contribute $250,000 in cash to a VEBA trust for the benefit of current non-union retirees, and, upon emergence from bankruptcy, contribute $3.75 million in equity of the reorganized company or cash to the VEBA. The VEBA trust will be designed and administered by a Retiree Committee consisting of appointed non-union retirees. At December 31, 2012, the liability associated with these plans totaled approximately $63 million and was classified as “Liabilities subject to compromise” in the condensed consolidated balance sheet. In the second quarter of 2013, Patriot recognized a curtailment gain of $6.9 million related to the termination of these plans. Patriot also reduced its postretirement benefit obligation and the corresponding unrecognized loss in accumulated other comprehensive loss by $20.7 million in relation to the settlement of these plan obligations for current non-union employees. The settlement of the terminated benefits for retirees will not be recognized until the contribution is made in full to the VEBA. The remaining balances of both the terminated and surviving non-union retiree benefit obligations remain in “Liabilities subject to compromise” at June 30, 2013.
On March 15, 2013, the Bankruptcy Court authorized the Debtors to terminate the Patriot Coal Corporation Supplemental 401(k) Retirement Plan (the Supplemental 401(k) Plan) and on April 1, 2013, Patriot’s board of directors approved the termination of the Supplemental 401(k) Plan effective as of March 31, 2013. The Supplemental 401(k) Plan provided for certain salaried employees to defer a specified portion of their compensation until retirement and also provided an employer match and discretionary contribution based on Patriot’s performance. The Supplemental 401(k) Plan was unfunded and termination resulted in approximately $2.5 million of compensation deferrals being treated as pre-petition general unsecured claims rather than being paid in cash. As of June 30, 2013 and December 31, 2012, the liability associated with this plan is classified as “Liabilities subject to compromise” in the condensed consolidated balance sheets.
Bankruptcy 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.
Rejected Contracts
Since the Petition Date, the Debtors have received approval from the Bankruptcy Court to reject a number of equipment leases and other executory contracts of various types. On January 15, 2013, the Debtors filed a motion for authorization to assume or reject all of their unexpired leases of nonresidential real property, including their coal reserve leases. Substantially all of their assumptions and rejections were subsequently approved by the Bankruptcy Court. As of June 30, 2013, most of the lease cure payments have been made. We are working to resolve differences in cure amounts and certain other discreet issues with counterparties that objected to our motion. In conjunction with the assumption of these leases and payment of cure amounts, Patriot reclassified approximately $14 million of royalty and real estate tax accruals from “Liabilities subject to compromise” to liabilities not subject to compromise in the first quarter of 2013.
The Debtors continue to review executory contracts and unexpired leases to determine which contracts will be rejected, assumed or renegotiated. We expect 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. Due to the uncertain nature of many of the potential claims, we cannot project the magnitude of such claims with certainty. We also expect that the assumption of additional executory contracts and unexpired leases will convert certain of the liabilities subject to compromise to liabilities not subject to compromise.
Pre-Petition Claims
The Debtors have received approximately 4,250 proofs of claim, a portion of which assert, in part or in whole, unliquidated amounts. In the aggregate, total liquidated proofs of claim of approximately $305.7 billion have been filed against the Debtors. During the second quarter of 2013, the UMWA levied claims for postretirement benefit obligations against each of the Filing

7

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

Subsidiaries, significantly increasing the total liquidated proofs of claim. New and amended claims may be filed in the future, including claims amended to assign values to claims originally filed with no designated value. We are in the process of reconciling such claims to the amounts listed in the Debtors’ books and records. Differences between liability amounts estimated by the Debtors and claims filed by creditors are being investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claims.
Through the claims resolution process, we have identified a substantial number of claims that we believe should be disallowed by the Bankruptcy Court because they are duplicative, have already been satisfied, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. As of July 22, 2013, we estimate that the claims resolution process will reduce the total liquidated proof of claims by approximately $301.2 billion, primarily due to redundant claims. As of July 22, 2013, approximately 1,700 claims totaling $181.8 million have been expunged or withdrawn and the Debtors have filed an additional $17.3 million in claims objections with the Bankruptcy Court. We continue to evaluate the filed claims and expect to continue to file claim objections with the Bankruptcy Court.
In addition, as a result of this process, we may identify additional liabilities that need to be recorded or reclassified to liabilities subject to compromise and will adjust amounts as necessary. Such adjustments may be material. 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.
Plan of Reorganization
In order to successfully exit Chapter 11, the Debtors are required to propose and obtain confirmation by the Bankruptcy Court of a plan of reorganization that satisfies the requirements of the Bankruptcy Code. In addition, a plan of reorganization will be voted on by certain holders of impaired claims. A plan of reorganization, among other things, would resolve the Debtors’ pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to emerging from bankruptcy.
On April 26, 2013, the Bankruptcy Court entered an order extending our exclusivity period to file a plan of reorganization to September 2, 2013. Our goal is to develop and propose a plan of reorganization that will receive support from our various constituencies. Additional work is necessary to develop such a plan and its timing is largely dependent on the timing and outcome of numerous other ongoing matters in the Chapter 11 proceedings, including resolution of our labor contracts and legacy labor liabilities. On July 30, 2013, the Debtors filed a motion seeking to further extend our exclusivity period to file a plan of reorganization by 90 days, from September 2, 2013 to December 1, 2013.
Under the distribution priorities 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 will 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.
The Debtors are negotiating the potential terms of a Chapter 11 plan of reorganization with Knighthead Capital Management, LLC (Knighthead) and Aurelius Capital Management, LP (Aurelius) that would involve a significant investment into the Debtors’ estates through a rights offering backstopped by entities managed by Knighthead and Aurelius. On July 26, 2013, the Bankruptcy Court approved the payment of up to $2.0 million for fees and expenses of certain advisors to Knighthead and Aurelius. The Bankruptcy Court also authorized the Company to increase the $2.0 million fee and expense cap upon entering into a written agreement with the Credit Committee, so that the Company may pay the fees and expenses of the advisors of other potential investors. At this time, the Debtors have not committed to any terms of a rights offering or plan of reorganization.
Going Concern Matters
The accompanying unaudited condensed 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 condensed 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

8

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

continue as a going concern is dependent upon, among other things, market conditions and our ability to (i) improve profitability; (ii) realize savings under Sections 1113 and 1114 of the Bankruptcy Code; (iii) meet the financial covenants of the DIP Facilities (defined in Note 10) or obtain appropriate amendments or waivers; (iv) obtain financing to replace the DIP Facilities upon emergence; and (v) 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 continue to take 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 condensed 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.
Reorganization Items
Our reorganization items for the three and six months ended June 30, 2013 consist of the following:
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2013
 
(Dollars in thousands)
Professional fees
$
20,138

 
$
35,631

Accounts payable settlement losses (gains)
530

 
(11,062
)
Provision for rejected executory contracts and leases
2,620

 
2,196

Interest income
(4
)
 
(11
)
Reorganization items, net
$
23,284

 
$
26,754

Professional fees are directly related to the reorganization and include fees associated with our advisors, the Creditors’ Committee and certain secured creditors. Net cash paid for reorganization items for the three and six months ended June 30, 2013 totaled $19.1 million and $33.4 million, respectively, all of which related to professional fees. Interest income represents interest earned on investment of proceeds from DIP financing. Reorganization items exclude charges related to the restructuring of our operations, including mine closures and production cuts. See Note 4 for further details on restructuring charges.
Liabilities Subject to Compromise
Liabilities subject to compromise represent unsecured obligations that will be accounted for under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events. Liabilities subject to compromise also include certain items that may be assumed under the plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise.
Liabilities subject to compromise consist of the following:
 
June 30, 2013
 
December 31, 2012
 
(Dollars in thousands)
Postretirement benefit obligations, excluding Coal Act
$
1,440,639

 
$
1,517,284

Unsecured debt
458,500

 
458,500

Interest payable
4,838

 
4,838

Rejected executory contracts and leases
163,908

 
151,449

Trade payables
71,481

 
78,086

Other accruals
18,227

 
52,150

Liabilities subject to compromise
$
2,157,593

 
$
2,262,307


9

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

Other accruals primarily include liabilities subject to compromise related to accrued royalty payments, litigation reserves, employee claims and other operating accruals. Royalty and real estate tax cure payments on real property lease contract assumptions approved by the Bankruptcy Court were reclassified to liabilities not subject to compromise during the first quarter of 2013.
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 Debtor financial statements and, as such, their net loss is included in “Loss from non-debtor entities” in the condensed combined statement of operations and their net assets are included as “Investments in and advances to non-debtor entities” in the condensed combined balance sheets. The Debtors’ 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 condensed combined financial statements. Intercompany transactions between the Debtors and Non-Debtor Subsidiaries have not been eliminated in the Debtors’ condensed combined financial statements.

10

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS - DEBTORS
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2013
 
(Dollars in thousands)
Revenues
 
 
 
Sales
$
414,848

 
$
754,973

Other revenues
3,779

 
6,951

Total revenues
418,627

 
761,924

Costs and expenses
 
 
 
Operating costs and expenses
402,344

 
772,370

Depreciation, depletion and amortization
47,614

 
92,607

Asset retirement obligation expense
17,231

 
34,541

Impairment and restructuring charge

 
(1,453
)
Selling and administrative expenses
9,202

 
18,589

Net gain on disposal or exchange of assets
(463
)
 
(3,198
)
Income from equity affiliates
(234
)
 
(234
)
Loss from non-debtor entities
5,294

 
9,556

Operating loss
(62,361
)
 
(160,854
)
Interest expense and other
14,107

 
28,056

Interest income
(3
)
 
(13
)
Loss before reorganization items and income taxes
(76,465
)
 
(188,897
)
Reorganization items, net
23,284

 
26,754

Loss before income taxes
(99,749
)
 
(215,651
)
Income tax provision

 

Net loss
$
(99,749
)
 
$
(215,651
)



11

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) - DEBTORS
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2013
 
(Dollars in thousands)
 
 
 
 
Net loss
$
(99,749
)
 
$
(215,651
)
Accumulated actuarial loss and prior service credit realized in net loss
19,031

 
39,021

Plan curtailment - prior service credit recognized
(6,876
)
 
(6,876
)
Reduction in postretirement benefit obligations due to terminations
76,218

 
76,218

Net change in fair value of diesel fuel hedge
(140
)
 
(10
)
Realized gains of diesel fuel hedge
(24
)
 
(281
)
Other comprehensive income
88,209

 
108,072

Comprehensive loss
$
(11,540
)
 
$
(107,579
)




12

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


PATRIOT COAL CORPORATION
CONDENSED COMBINED BALANCE SHEETS - DEBTORS
 
 
 
 
 
June 30, 2013
 
December 31, 2012
 
(unaudited)
 
 
 
(Dollars in thousands)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
193,701

 
$
333,175

Accounts receivable and other, net
119,637

 
105,135

Inventories
84,933

 
99,219

Deferred income taxes
50,102

 
65,036

Prepaid expenses and other current assets
25,949

 
36,734

Total current assets
474,322

 
639,299

Property, plant, equipment and mine development
 
 
 
Land and coal interests
2,896,105

 
2,892,799

Buildings and improvements
592,018

 
571,985

Machinery and equipment
780,558

 
767,749

Less accumulated depreciation, depletion and amortization
(1,207,031
)
 
(1,130,027
)
Property, plant, equipment and mine development, net
3,061,650

 
3,102,506

Cash collateralization deposits
64,990

 
64,990

Investments and other assets
16,334

 
6,193

Investments in and advances to non-debtor entities
13,327

 
23,428

Total assets
$
3,630,623

 
$
3,836,416

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Liabilities not subject to compromise
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
241,523

 
$
245,098

Current maturities of long-term debt
380,881

 
375,409

Total current liabilities
622,404

 
620,507

Long-term debt, less current maturities
8,695

 
1,766

Deferred income taxes
50,102

 
65,036

Asset retirement obligations
736,372

 
720,461

Workers’ compensation obligations
258,282

 
254,680

Coal Act postretirement benefit obligations
83,012

 
87,805

Obligation to industry fund
32,651

 
34,278

Other noncurrent liabilities
19,530

 
22,805

Total liabilities not subject to compromise
1,811,048

 
1,807,338

Liabilities subject to compromise
2,157,593

 
2,262,307

Total liabilities
3,968,641

 
4,069,645

Total stockholders’ deficit
(338,018
)
 
(233,229
)
Total liabilities and stockholders’ deficit
$
3,630,623

 
$
3,836,416


13

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


PATRIOT COAL CORPORATION
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS - DEBTORS
 
 
 
Six Months Ended
 
June 30, 2013
 
(Dollars in thousands)
Cash Flows From Operating Activities
 
Net loss
$
(215,651
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
Depreciation, depletion and amortization
92,607

Impairment and restructuring charge
(1,453
)
Net gain on disposal or exchange of assets
(3,198
)
Income from equity affiliates
(234
)
Loss from non-debtor entities
9,556

Stock-based compensation expense
2,791

Non-cash reorganization items, net
(8,866
)
Gain on benefit plan curtailments
(6,876
)
Changes in current assets and liabilities:
 
Accounts receivable
(14,502
)
Inventories
14,534

Other current assets
7,363

Accounts payable and accrued expenses
(14,061
)
Advances to non-debtor entities
545

Asset retirement obligations
12,336

Workers’ compensation obligations
3,795

Postretirement benefit obligations
33,158

Obligation to industry fund
(1,229
)
Other, net
(7,881
)
Net cash used in operating activities
(97,266
)
Cash Flows From Investing Activities
 
Additions to property, plant, equipment and mine development
(33,479
)
Additions to advance mining royalties
(4,868
)
Acquisition
(1,009
)
Proceeds from disposal or exchange of assets
3,087

Net cash used in investing activities
(36,269
)
Cash Flows From Financing Activities
 
Long-term debt payments
(3,523
)
Coal reserve financing transaction
(2,416
)
Net cash used in financing activities
(5,939
)
 
 
Net decrease in cash and cash equivalents
(139,474
)
Cash and cash equivalents at beginning of year
333,175

Cash and cash equivalents at end of period
$
193,701



14

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

(3) Recent Accounting Pronouncements
Accumulated Comprehensive Loss
In February 2013, the Financial Accounting Standards Board (FASB) issued authoritative guidance that clarifies how to report the effect of significant reclassifications out of accumulated other comprehensive loss. We adopted this guidance effective January 1, 2013. See Note 11.
Offsetting Assets and Liabilities
In December 2011, the FASB ratified authoritative guidance which mandates that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to an agreement similar to a master netting arrangement. This guidance was effective January 1, 2013 and did not affect our results of operations or financial condition.
Indefinite-lived Intangible Assets
In July 2012, the FASB issued authoritative guidance which reduces the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and improving consistency in impairment testing guidance. The new guidance allows an entity the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should then perform a quantitative impairment test. This guidance was effective January 1, 2013 and did not affect our results of operations or financial condition.

(4) Impairment and Restructuring Charge
In 2010, we established a restructuring reserve for on-going contractual obligations related to the 2010 closure of the Harris No. 1 mine and the rationalization of the operations at the Rocklick mining complex in our Appalachia segment. In the first quarter of 2013, based on final resolution of these obligations, we recorded a $1.6 million reversal of certain estimated charges related to these events.
In the second quarter of 2012, as a result of weaker industry fundamentals and coal demand, and the significant decline in value of our equity securities and debt instruments, we performed an impairment review of all of our long-lived assets. As a result, we recorded a $1.4 million impairment charge during the second quarter of 2012 on certain coal reserves located in our Appalachia segment.
In June 2012, we idled our Freedom mine at the Bluegrass mining complex due to continued weakened demand for thermal coal. The Freedom mine produced approximately 1.2 million tons of thermal coal in 2011. We also closed one mine at our Kanawha Eagle mining complex due to certain adjustments to our mining plans. The Freedom mine is reported in our Illinois Basin segment and the Kanawha Eagle mining complex is reported in our Appalachia segment. As a result, we recorded an $8.2 million impairment and restructuring charge related to these two mines during the second quarter of 2012, which primarily consisted of the write-off of infrastructure, mine development and certain equipment. We also recorded a $4.1 million charge to asset retirement obligation expense to adjust the liability for the accelerated closure and to write-off the related asset.
In February 2012, we closed the Big Mountain mining complex, which is reported in our Appalachia segment, due to the weakened demand for thermal coal experienced in late 2011 and early 2012. Prior to the closure, the complex had two active mines and one preparation plant. The complex produced 1.8 million tons of thermal coal in 2011. In the first quarter of 2012, we recorded a $32.8 million impairment and restructuring charge related to the closure, which mainly consisted of the write-off of infrastructure, mine development and certain equipment. We also recorded a $17.5 million charge to asset retirement obligation expense to adjust the asset retirement obligation liability for the accelerated closure and write-off the related asset.

(5) Net Gain on Disposal or Exchange of Assets and Other Transactions
In the normal course of business, we enter into certain asset sales and exchange agreements.
In the first quarter of 2013, we sold certain non-strategic Appalachia coal mineral rights to a third party in exchange for cash resulting in a gain of $2.3 million.
In the first quarter of 2012, we sold certain non-strategic Appalachia gas and oil rights to a third party in exchange for cash resulting in a gain of $1.5 million.

15

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

Other Transactions
In the first quarter of 2012, we acquired Coventry Mining Services, LLC, and its subsidiaries, which employs the workforce for our Kanawha Eagle mining complex. The purchase price of $2.5 million was recorded as an intangible asset in accordance with asset acquisition authoritative guidance. The intangible asset is being amortized over the life of the mine where the workforce is located, which was estimated to be approximately 10 years.
“Other revenues” includes payments from customer settlements, royalties related to coal lease agreements and farm income. During the first half of 2012, certain customers requested to cancel or delay shipment of coal contracted for 2012 and 2013 deliveries. In certain situations, we agreed to release the customer from their commitment in exchange for a cash settlement. In the three and six months ended June 30, 2012, we recognized revenue of $13.5 million and $20.5 million, respectively, related to these cash settlements. During the first half of 2012, we also received $8.3 million related to the settlement of a customer contract dispute concerning coal deliveries in prior years.

(6) Postretirement Healthcare Benefits
We currently provide healthcare and life insurance benefits to qualifying salaried and hourly retirees and their dependents from defined benefit plans. Plan coverage for healthcare and life insurance benefits is provided to certain hourly retirees in accordance with the applicable labor agreements.
In relation to the bankruptcy process and pursuant to Sections 1113 and 1114 of the Bankruptcy Code, we are seeking to renegotiate the terms of collective bargaining agreements between certain Patriot subsidiaries and the UMWA, as well as certain postretirement healthcare benefits. Additionally, Patriot terminated certain non-union hourly and salaried retiree healthcare programs and postemployment benefits in the second quarter of 2013. In anticipation of these changes, we have classified the liabilities associated with these benefits as “Liabilities subject to compromise” on the consolidated balance sheet since filing for bankruptcy. The liability related to healthcare coverage under the Coal Act is not subject to compromise and is classified as such.
On April 26, 2013, the Bankruptcy Court entered an order authorizing the Debtors to discontinue substantially all of their non-union retiree healthcare programs, eliminate retiree life insurance benefits for current non-union employees, and cap life insurance benefits for current non-union retirees, effective July 31, 2013. Pursuant to this order, the Debtors will contribute $250,000 in cash to a VEBA trust for the benefit of current non-union retirees, and, upon emergence from bankruptcy, contribute $3.75 million in equity of the reorganized company or cash to the VEBA. The VEBA trust will be designed and administered by a Retiree Committee consisting of appointed non-union retirees.
At December 31, 2012, the liability associated with the non-union retiree benefit plans totaled approximately $63 million. In the second quarter of 2013, Patriot recognized a curtailment gain of $6.9 million related to the termination of these plans. Patriot also reduced its postretirement benefit obligation and the corresponding unrecognized loss in accumulated other comprehensive loss by $20.7 million in relation to the settlement of these plan obligations for current non-union employees. The settlement of the terminated benefits for retirees will not be recognized until the contribution is made in full to the VEBA. The remaining balances of both the terminated and surviving non-union retiree benefit obligations remain in “Liabilities subject to compromise” at June 30, 2013.
As part of the accounting for the plan terminations, the fair value of the benefit obligations was remeasured resulting in a reduction to the postretirement benefit obligation and the corresponding unrecognized loss of $53.8 million. The change in the discount rate is the primary factor contributing to the change in the actuarial loss (discount rate of 4.71% at June 30, 2013 compared to 4.33% at December 31, 2012). Based on these changes to our obligation and the remeasurement of the liability, the accumulated actuarial loss and prior service credit are $374.4 million and $4.5 million, respectively, as of June 30, 2013, and are included in “Accumulated other comprehensive loss” on the condensed consolidated balance sheet. For the year ending December 31, 2013, an estimated actuarial loss of $73.1 million and an estimated gain from prior service credits of $1.1 million will be amortized from accumulated other comprehensive loss into net periodic postretirement costs.
As discussed in Note 2, the UMWA appealed the May 29, 2013 Bankruptcy Court ruling granting Patriot the authority to make certain modifications to the collective bargaining agreements for our current employees and transfer certain retiree obligations to a VEBA. Although Patriot has taken steps to implement changes approved by the Bankruptcy Court and is working toward reaching a consensual agreement with the UMWA, as of June 30, 2013, there was uncertainty as to the final outcome of the negotiations and appeal. As such, Patriot did not record any adjustments to its liability in relation to benefit changes for represented beneficiaries.

16

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

Net periodic postretirement benefit costs included the following components:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in thousands)
Service cost for benefits earned
$
902

 
$
1,382

 
$
1,942

 
$
2,765

Interest cost on accumulated postretirement benefit obligation
17,166

 
18,207

 
34,153

 
36,415

Amortization of actuarial losses
19,046

 
14,006

 
39,114

 
28,015

Amortization of prior service credit
(335
)
 
(203
)
 
(736
)
 
(405
)
Gain on benefit plan curtailments
(6,876
)
 

 
(6,876
)
 

Net periodic postretirement benefit costs
$
29,903

 
$
33,392

 
$
67,597

 
$
66,790

The following table sets forth the plan’s funded status reconciled with the amounts shown in the condensed consolidated balance sheet:
 
 
June 30, 2013
 
 
(Dollars in thousands)
Change in benefit obligation:
 
 
Accumulated postretirement benefit obligation at beginning of year
 
$
1,612,689

Service cost
 
1,942

Interest cost
 
34,153

Plan amendment
 
(1,695
)
Plan terminations
 
(20,741
)
Net benefits paid
 
(41,315
)
Change in actuarial loss
 
(53,782
)
Accumulated postretirement benefit obligation at end of period
 
1,531,251

Change in plan assets:
 
 
Fair value of plan assets at beginning of year
 

Contributions
 
41,315

Benefits paid and administrative fees (net of Medicare Part D reimbursements)
 
(41,315
)
Fair value of plan assets at end of period
 

Postretirement benefit obligation
 
1,531,251

Less current portion (included in Accrued expenses)
 
(7,600
)
Less liabilities subject to compromise portion
 
(1,440,639
)
Noncurrent obligation (included in Postretirement benefit obligations)
 
$
83,012


(7) Income Tax Provision
For the three and six months ended June 30, 2013 and 2012, we recorded no income tax provision. We anticipate a tax net operating loss for the year ending December 31, 2013 for which no benefit will be recognized.

(8) 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.
The effect of dilutive securities excludes certain stock options, restricted stock units and convertible debt-related shares because the inclusion of these securities was antidilutive to earnings per share. For the three and six months ended June 30, 2013 and 2012,

17

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

no common stock equivalents were included in the computation of the diluted loss per share because we reported a net loss. Accordingly, 2.1 million shares for the three and six months ended June 30, 2013 and 1.8 million shares for the three and six months ended June 30, 2012 related to stock-based compensation awards were excluded from the diluted loss per share calculation. In addition, 3.0 million common shares related to the convertible notes were excluded from the diluted loss per share calculation for all periods.

(9) Inventories
Inventories consisted of the following:
 
June 30, 2013
 
December 31, 2012
 
(Dollars in thousands)
Materials and supplies
$
52,844

 
$
52,970

Saleable coal
17,128

 
27,197

Raw coal
14,961

 
19,052

Total
$
84,933

 
$
99,219


(10) Debt and Credit Facilities
Our total indebtedness consisted of the following:
 
 
June 30, 2013
 
December 31, 2012
 
 
(Dollars in thousands)
Secured Debt
 
 
 
 
DIP First Out Term Loan, due 2013
 
$
375,000

 
$
375,000

Capital lease obligations
 
12,279

 
2,175

Promissory notes
 
2,297

 

Total secured debt, not subject to compromise
 
389,576

 
377,175

Unsecured Debt
 
 
 
 
8.25% Senior Notes, due 2018
 
250,000

 
250,000

3.25% Convertible Senior Notes, due 2013
 
200,000

 
200,000

Promissory notes
 
8,500

 
8,500

Total unsecured debt, subject to compromise
 
458,500

 
458,500

Total long-term debt
 
848,076

 
835,675

Less liabilities subject to compromise
 
(458,500
)
 
(458,500
)
Less current maturities of long-term debt
 
(380,881
)
 
(375,409
)
Long-term debt, less current maturities
 
$
8,695

 
$
1,766

DIP Financing
In connection with filing the Chapter 11 Petitions, the Debtors obtained and the Bankruptcy Court authorized 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 (i) a revolving credit loan in an amount not to exceed $125.0 million (First Out Revolving Credit Loan), (ii) 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 (iii) a $302.0 million roll up of obligations under our 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). The maturity date of the DIP Facilities is October 4, 2013, but may be extended to December 31, 2013 provided certain conditions are met, including, among others, the filing with the Bankruptcy Court of a plan of reorganization that would result in the payment

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PATRIOT COAL CORPORATION
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

of the DIP Facilities in full and that is reasonably acceptable to the agents and the requisite lenders under the DIP Facilities 10 business days before the current maturity date. Since the Petition Date, any new wholly-owned subsidiaries of the Company have also been added as DIP Guarantors.
The DIP Facilities include financial covenants applicable to Patriot and its subsidiaries, including compliance with requirements relating to minimum cumulative consolidated EBITDA, as defined by the DIP Facilities, maximum capital expenditures and minimum liquidity. At June 30, 2013, we were in compliance with each of these financial covenants. On August 7, 2013, Patriot obtained an amendment to the DIP Facilities that (i) lowers the minimum cumulative consolidated EBITDA financial covenant threshold beginning with the July 2013 compliance reporting period, (ii) adds a negative covenant requiring committed financing related to a plan of reorganization no later than October 31, 2013, and (iii) includes a provision allowing for the financing of Patriot's corporate insurance program. Patriot has also filed a motion with the Bankruptcy Court seeking approval of Patriot's entry into this amendment. If we do not obtain Bankruptcy Court approval of the amendment to the DIP Facilities, we will not comply with the minimum cumulative consolidated EBITDA financial covenant for the month of July 2013. We anticipate the Bankruptcy Court will approve the amendment to the DIP Facilities; the motion is scheduled to be heard on August 20, 2013. Our compliance with the minimum cumulative consolidated EBITDA financial covenant remains subject to market conditions and our ability to improve financial performance, including implementing our restructuring initiatives. Failure to comply with any of the financial covenants would be an event of default under the terms of the DIP Facilities. If an event of default occurs, we would need to negotiate an amendment or waiver from the lenders and obtain Bankruptcy Court approval of such amendment or waiver; however, there can be no assurances that we would be able to obtain such an amendment or waiver in the future.
At June 30, 2013, letters of credit totaling $58.2 million and $279.4 million were outstanding under the First Out Facility and the Second Out Facility, respectively.
Pre-Petition Credit Facilities
The filing of the Chapter 11 Petitions constituted an event of default under our pre-petition debt agreements and those 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. Thus, the Debtors’ pre-petition unsecured long-term debt of $458.5 million is included in “Liabilities subject to compromise” at June 30, 2013 and December 31, 2012. Since July 9, 2012, we have not recorded interest expense on unsecured debt that is subject to compromise. Contractual interest expense on pre-petition unsecured long-term debt from July 10, 2012 through June 30, 2013 was $44.6 million.
Capital Lease Obligations
Our capital lease obligations pertain to the financing of mining equipment used in operations. In the first half of 2013, Patriot amended certain existing operating leases allowing for transfer of ownership of the equipment at the end of each respective lease. As such, a carrying amount of approximately $13.0 million of additional capital lease obligations, net of imputed interest of $1.9 million, was recorded during the six months ended June 30, 2013. Future minimum lease payments required under these capital leases are $2.1 million remaining in 2013, $3.3 million in 2014, $6.0 million in 2015 and $0.3 million in 2016.


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

(11) Accumulated Other Comprehensive Loss
The following table sets forth the components of accumulated other comprehensive loss:
 
Net
Actuarial Loss
Associated with
Postretirement
Plans and
Workers’
Compensation
Obligations
 
Prior Service Credit
Associated with
Postretirement
Plans
 
Gains and Losses on Cash Flow
Hedges
 
Total
Accumulated
Other
Comprehensive
Loss
 
(Dollars in thousands)
December 31, 2012
$
(492,467
)
 
$
10,423

 
$
427

 
$
(481,617
)
Unrealized gains (losses)
74,523

 
1,695

 
(10
)
 
76,208

Reclassification from other comprehensive income to earnings (1)
39,757

 
(7,612
)
 
(281
)
 
31,864

Net other comprehensive income (loss)
114,280

 
(5,917
)
 
(291
)
 
108,072

June 30, 2013
$
(378,187
)
 
$
4,506

 
$
136

 
$
(373,545
)
(1) 
Amounts were recorded to “Operating costs and expenses” in the unaudited condensed consolidated statement of operations and increased (decreased) net loss for the six months ended June 30, 2013.
Comprehensive loss during the periods differs from net loss by the amount of (i) unrealized gain or loss resulting from valuation changes of our diesel fuel hedges; (ii) adjustments related to the change in funded status of various benefit plans; and (iii) realized gains resulting from curtailments of certain benefit plans.

(12) Fair Value of Financial Instruments
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. Authoritative guidance establishes a three-level fair value hierarchy for fair value to be measured based on the observability of the inputs utilized in the valuation. The levels are: Level 1 - inputs from quoted prices in an active market, Level 2 - inputs other than quoted prices that are directly or indirectly observable through market corroborated inputs and Level 3 - inputs that are unobservable and require assumptions about pricing by market participants.
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 following table summarizes the fair value of our remaining financial instruments:
 
June 30, 2013
 
December 31, 2012
 
(Dollars in thousands)
Assets:
 
 
 
Fuel contracts, cash flow hedges
$
136

 
$
427

Liabilities:
 
 
 
First Out Term Loan
372,188

 
378,750

$200 million of 3.25% Convertible Senior Notes due 2013 (Convertible Notes)
22,250

 
24,250

$250 million of 8.25% Senior Notes due 2018 (Senior Notes)
125,625

 
118,750

All of the instruments above were valued using Level 2 inputs. For additional disclosures regarding our fuel contracts, see Note 13. We utilized New York Mercantile Exchange (NYMEX) quoted market prices for the fair value measurement of these contracts, which reflects a Level 2 input. The fair value of the First Out Term Loan, Convertible Notes and the Senior Notes was estimated using the last traded value on the last day of each period, as provided by a third party.


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

(13) Derivatives
In connection with the Chapter 11 Petitions, we have been authorized by the Bankruptcy Court to continue performance under our pre-petition derivative contracts and to enter into and perform under post-petition derivative contracts consistent with the ordinary course of business and past practices. We utilize derivative financial instruments to manage exposure to certain commodity prices. We recognize derivative financial instruments at fair value on the condensed consolidated balance sheets. For derivative instruments that are eligible and designated as cash flow hedges, the periodic change in fair value is recorded in “Accumulated other comprehensive loss” until the hedged transaction occurs or the relationship ceases to qualify for hedge accounting. For derivatives that are not designated as hedges, the periodic change in fair value is recorded directly to earnings in “Operating costs and expenses” in the condensed consolidated statements of operations. In addition, if a portion of the change in fair value of a cash flow hedge is deemed ineffective during a reporting period, the ineffective portion of the change in fair value is recorded directly to earnings.
We have commodity price risk related to our diesel fuel purchases. To manage a portion of this risk, we have entered into ultra low sulfur diesel swap contracts with financial institutions. The changes in diesel fuel prices and the prices of these financial instruments have historically been highly correlated, thus allowing the swap contracts to be designated as cash flow hedges of anticipated diesel fuel purchases. We expect to purchase approximately 21 million gallons of diesel fuel across all operations in 2013. As of June 30, 2013, the notional amounts outstanding for our ultra low sulfur diesel swap contracts was 1.0 million gallons, all of which expire in 2013. During the fourth quarter of 2012, our outstanding contracts ceased to be highly effective due to impacts on diesel fuel prices from Hurricane Sandy. As such, we have recorded the change in fair value directly to earnings on a prospective basis and will continue to do so until the contract expires or effectiveness resumes. For the three and six months ended June 30, 2013, the prospective change in the fair value for the cash flow hedges deemed ineffective was immaterial. For the three and six months ended June 30, 2012, the portion of the fair value for the cash flow hedges deemed ineffective was immaterial.
For the three and six months ended June 30, 2013, we recognized a net gain of $24 thousand and $0.3 million in earnings on settled contracts, respectively. For the three and six months ended June 30, 2012, we recognized a net gain of $0.1 million and $1.1 million in earnings on settled contracts, respectively. Excluding the impact of our hedging activities, a $0.10 per gallon change in the price of diesel fuel would impact our annual operating costs by approximately $2.1 million.
The fair value of our fuel contracts at June 30, 2013 and December 31, 2012 resulted in a current asset (Prepaid expenses and other current assets) of $0.1 million and $0.4 million, respectively. We utilized NYMEX quoted market prices for the fair value measurement of these contracts, which reflect a Level 2 fair value input.

(14) Guarantees
In 2010, we agreed to provide a limited guaranty of the payment and performance under certain loans entered into by one of our joint ventures. The loans were obtained to purchase equipment, which is pledged as collateral for the loans. The maximum term of the loans is through January 2016. The guaranteed portion of the loan balances at June 30, 2013 totaled $4.1 million, $3.1 million of which is recorded as a liability on our condensed consolidated balance sheet. At December 31, 2012, there was no carrying amount of the liability on the condensed consolidated balance sheet related to these guarantees. The financial performance of our joint ventures is subject to market risks similar to our coal mining operations.
As of June 30, 2013, we have a receivable of approximately $1.1 million due from one of our joint ventures for royalties and utility usage.
During 2012, subsequent to filing Chapter 11 Petitions, we posted cash collateral for letters of credit under the DIP Facilities, resulting in $50.0 million in interest-bearing deposits. During 2011, Patriot posted a $15.0 million interest-bearing deposit with the U.S. Department of Labor (DOL) as collateral for occupational disease (black lung) workers’ compensation obligations related to certain of our subsidiaries. These deposits are recorded to “Cash collateralization deposits” on the accompanying condensed consolidated balance sheets.
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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

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 and/or, in certain leases, liquidated damages, assuming no amounts could be recovered from third parties.

(15) Commitments and Contingencies
The Bankruptcy Case
On July 9, 2012, the Debtors filed voluntary petitions for reorganization under the Bankruptcy Code in the Bankruptcy Court. The Debtors continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As a result of the Chapter 11 Petitions, much of the pending litigation against the Debtors is stayed. Subject to certain exceptions and approval by the Bankruptcy Court, during the Chapter 11 process, no party can take further actions to recover pre-petition claims against the Debtors.
Commitments
As of June 30, 2013, purchase commitments for equipment totaled $46.1 million primarily related to longwall equipment replacements, capital rebuilds at our Highland mining complex and safety equipment upgrades throughout our operations.
Other
On occasion, we become a party to claims, lawsuits, arbitration proceedings and administrative procedures in the ordinary course of business. Our material legal proceedings are discussed below.
Clean Water Act Permit Issues
The federal Clean Water Act (CWA) 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 U.S. In particular, the CWA requires effluent limitations and treatment standards for wastewater discharge through the National Pollutant 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, require regular monitoring and reporting and set forth performance standards. States are empowered to develop and enforce water quality standards, which are subject to change and must be approved by the U.S. Environmental Protection Agency (EPA). Water quality standards vary from state to state.
Patriot has obligations related to the discharge of selenium in excess of allowable limits at certain mining operations. Although existing technology continues to evolve and new technologies are being considered for the treatment of selenium discharges in excess of allowable limits, there has been no proven technology to effectively treat selenium in coal mining discharges to the levels required in all the applications present at our operations. Additionally, we are currently involved in various legal proceedings related to compliance with the effluent selenium limits in our mining permits. As a result of these legal proceedings, we are subject to various consent decrees and court orders that require us to, among other things, meet certain compliance deadlines. As of June 30, 2013 and December 31, 2012, the liability related to selenium water treatment at outfalls with known exceedances was $456.9 million and $443.0 million, respectively, and reflects the estimated costs of the planned technology selections to be implemented and maintained at these operations. Further discussed below are the lawsuits in which we are involved and the various rulings and settlements related to these lawsuits, as well as the continued uncertainties related to these obligations, including the identification, implementation and cost of effective treatment technologies.
At June 30, 2013, environmental claims and litigation in connection with our various NPDES permits and related CWA requirements included the following:
West Virginia Department of Environmental Protection (WVDEP) Actions
In 2007, Hobet Mining, LLC (Hobet), one of our subsidiaries, was sued for exceedances of effluent limits contained in four of its NPDES permits in state court in Boone County, West Virginia by the WVDEP. We refer to this case as the Hobet WVDEP

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

Action. This action addressed all effluent limits, including selenium, established by the permits. We entered into a settlement and consent order with the WVDEP, as subsequently modified, to extend coverage to two additional permits, achieve full compliance with the WVDEP permits by July 2012 and to study potential treatment alternatives for selenium. In May 2012, WVDEP and Hobet jointly requested an extension of the July 2012 compliance date while further refinements to the consent decree were discussed. The Boone County Circuit Court extended the compliance date while those discussions were ongoing.
On April 23, 2010, WVDEP filed a lawsuit against Catenary Coal Company, LLC (Catenary), one of our subsidiaries, in the Boone County Circuit Court in West Virginia. We refer to this case as the Catenary WVDEP Action. This lawsuit alleged that Catenary had discharged selenium from its surface mining operations in violation of certain of its NPDES and surface mining permits. WVDEP sought fines and penalties as well as injunctions prohibiting Catenary from discharging pollutants, including selenium, in violation of laws and NPDES permits. The permits contained in the Catenary WVDEP Action are also included in the February 2011 Litigation discussed below under “Federal Cases.” The Catenary WVDEP Action was consolidated with the Hobet WVDEP Action. In the first quarter of 2013, Patriot filed a modified consent decree with the WVDEP in Boone County seeking to align the compliance dates for the permits in the consolidated Hobet WVDEP Action and Catenary WVDEP Action with the compliance dates in the January 2012 comprehensive consent decree and subsequent modification discussed below. On April 9, 2013, the Boone County Circuit Court approved and signed this modified consent decree.
On June 11, 2010, WVDEP filed a lawsuit against Apogee Coal Company, LLC (Apogee), one of our subsidiaries, in the Logan County Circuit Court in West Virginia, alleging discharge of pollutants, including selenium, in violation of certain of its NPDES and Surface Mining Control and Reclamation Act (SMCRA) permits. We refer to this case as the Apogee WVDEP Action. The permits contained in the Apogee WVDEP Action are also included in the February 2011 Litigation discussed below. The compliance deadlines for outfalls covered by this lawsuit were addressed in the January 2012 comprehensive consent decree and subsequent modification. WVDEP is seeking fines and penalties as well as injunctions prohibiting Apogee from discharging pollutants, including selenium, in violation of laws and NPDES permits. In the second quarter of 2013, Patriot filed a draft consent decree with the WVDEP seeking to align the compliance dates for the permits in the Apogee WVDEP Action with the compliance dates in the January 2012 comprehensive consent decree and subsequent modification discussed below.
Federal Cases
In 2007, Apogee 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 CWA). We refer to this lawsuit as the Federal Apogee Case. This lawsuit alleged that Apogee had violated water effluent limits for selenium set forth in one of its NPDES permits.
In March 2010, the U.S. District Court permitted a lawsuit to proceed that was filed in October 2009 by OVEC and other environmental groups against Hobet, alleging that Hobet had in the past violated, and continued to violate, effluent limitations for selenium in a NPDES permit and the requirements of a SMCRA permit for Hobet Surface Mine No. 22 and seeking injunctive relief. We refer to this as the Federal Hobet Surface Mine No. 22 Case.
The U.S. District Court entered a ruling on September 1, 2010 (the September 2010 Ruling) in both the Federal Apogee Case and the Federal Hobet Surface Mine No. 22 Case mandating the installation of selenium treatment systems at these sites.
In relation to the Federal Apogee Case and based on the September 2010 Ruling, Apogee completed the construction of a Fluidized Bed Reactor (FBR) water treatment facility and began operating the facility in the first quarter of 2013. This is a first-of-its-kind application of this treatment technology to coal mining discharges at full scale water flows. Accordingly, the facility has been subjected to an extended startup and commissioning phase. Because of the uncertainties surrounding the use of FBR technology to remove selenium or any other chemical elements at coal mining operations and due to the variable conditions encountered during startup, the system will require significant monitoring and, as applicable, adjusting over the first several months of operations. Apogee met its March 1, 2013 deadline to comply with the terms of the court order and will continue monitoring and testing the facility. As of June 30, 2013, we have spent approximately $45.9 million on the installation of the Apogee FBR facility.
In relation to the Federal Hobet Surface Mine No. 22 Case and as part of the September 2010 Ruling, Patriot had identified the Advanced Biological Metals Removal System (ABMet) as the selenium treatment technology to be utilized at the Hobet Surface Mine No. 22 outfall. This ruling initially required compliance with applicable discharge limits under the permit by May 1, 2013. The Modified Comprehensive Consent Decree, as defined and discussed below, extended the compliance deadline for this outfall to August 1, 2014. In the second quarter of 2013, Patriot received conditional approval to implement a bio-chemical reactor (BCR) treatment technology at this outfall. We began construction on the BCR treatment system in July 2013 and expect to complete

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

construction prior to the August 1, 2014 compliance deadline. If the BCR technology is not successful in eliminating selenium from this outfall below allowable limits, we may be required to utilize ABMet or an alternative technology.
In February 2011, OVEC and two other environmental groups filed a lawsuit against us, Apogee, Catenary and Hobet, in the U.S. District Court alleging violations of ten NPDES permits and certain SMCRA permits. We refer to this case as the February 2011 Litigation. The February 2011 Litigation involves the same four NPDES permits that are the subject of the Catenary WVDEP Action, the same Apogee permit that is the subject of the Apogee WVDEP Action, four NPDES permits that are the subject of the Hobet WVDEP Action and one additional NPDES permit held by Hobet that is not the subject of any action by WVDEP.
On January 18, 2012, we finalized a comprehensive consent decree with OVEC and the other environmental groups to resolve the February 2011 Litigation. The comprehensive consent decree was approved by the U.S. District Court and became effective on March 15, 2012. The comprehensive consent decree set technology selection and compliance dates for the outfalls in the ten permits included in the February 2011 Litigation on a staggered basis, allowing us to continue testing certain technologies as well as to take advantage of technology that is still in the development stage.
In December 2012 and January 2013, the Bankruptcy Court and the U.S. District Court approved an agreement between Patriot and OVEC and other environmental groups to extend the Hobet Surface Mine No. 22 outfall compliance date to August 1, 2014. In addition, a 12-month extension of each of the technology selection and specified compliance dates in the January 2012 comprehensive consent decree was approved (as modified, the Modified Comprehensive Consent Decree); such technology selection and compliance dates, as extended, are set forth below. Extension of the deadlines allows us to defer spending and help to maintain liquidity during the bankruptcy proceedings and provides additional time for alternative treatment technologies and solutions to develop.
The Modified Comprehensive Consent Decree, which was entered by the U.S. District Court in January 2013, separates the specified outfalls into categories based on the average gallons per minute water flow at each outfall and requires that we select water treatment technology alternatives by category. Additionally, we agreed to, among other things, come into compliance with applicable selenium discharge limits at each outfall in the category beginning with the first category by March 15, 2015 and ending with the last category by March 15, 2018. The Modified Comprehensive Consent Decree established the following framework under which we will interface with the plaintiffs with respect to the identified permits and outfalls:
Category/Gallons Per Minute
Technology Selection Date
Specified Compliance Date
I / 0-200
September 1, 2013
March 15, 2015
II / 201-400
December 31, 2013
March 15, 2016
III / 401-600
March 31, 2014
December 15, 2016
IV / 601-1000
September 1, 2014
May 15, 2017
V / 1000 +
September 1, 2015
March 15, 2018
Continued Uncertainties Related to Selenium Water Treatment Obligations
Prior to our pilot project performed in 2010, FBR technology required under the September 2010 Ruling had not been used to remove selenium or any other minerals discharged at coal mining operations, but had been successful in other industrial applications. The FBR water treatment facility is the first facility of its kind constructed for selenium removal on a commercial scale. Neither the FBR technology nor ABMet technology has been proven effective on a sustained full-scale commercial basis at coal mining operations, and there can be no assurance that either of these technologies will be successful under all variable conditions experienced at our mining operations.
The liability to treat selenium discharges at outfalls not addressed in the September 2010 Ruling, including the outfalls specified in the Modified Comprehensive Consent Decree, is based on the installation and operating costs of an Iron Facilitated Selenium Reduction (IFSeR) water treatment system. There is significant uncertainty as to whether IFSeR or any other technology could be utilized to achieve compliance at these outfalls, particularly those with higher average water flows. However, IFSeR technology is currently the treatment technology that is best adapted for installation and operation under the various site-specific conditions at our outfalls. We are also assessing selenium treatment technologies being installed by other coal mining companies, including BCR technology, to determine their applicability and effectiveness at removing selenium from coal mining discharges. Additionally, we continue to refine the IFSeR treatment systems to obtain efficiencies in both selenium removal and cost. Improvements to the efficiencies of the IFSeR system or any other treatment approaches that are selected for implementation at our outfalls may affect the amount of the liability in the future and we will adjust it as necessary.

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(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

If IFSeR or BCR systems are not ultimately successful in treating the effluent selenium exceedances at our outfalls, we may be required to install alternative treatment solutions. Alternative technology solutions that we may ultimately select are still in the early phases of development and their related costs cannot be reasonably estimated at this time. The cost of other water treatment solutions could be materially different than the costs reflected in our liability. Furthermore, costs associated with potential modifications to IFSeR or the scale of our current IFSeR systems could also cause the costs to be materially different than the costs reflected in our liability. We cannot provide an estimate of the possible additional range of costs associated with alternate treatment solutions at this time. Potential installations of selenium treatment alternatives are further complicated by the variable geological, topographical and water flow considerations of each individual outfall.
While we are actively continuing to explore treatment options, there can be no assurance as to if or when a definitive solution will be identified and implemented for outfalls covered by the WVDEP actions and the Modified Comprehensive Consent Decree. As a result, actual costs may differ from our current estimates. Due to the uncertainties discussed herein, we continuously assess the need to adjust our liability, taking into consideration, among other things, the probability of the utilization of a different technology or modification to the current technology, whether due to developments in our ongoing research, technology changes, further modifications pursuant to the Modified Comprehensive Consent Decree or other legal obligations to do so. Additionally, there are no assurances we will meet the timetable stipulated in the various court orders, consent decrees and permits to which we are subject.
With respect to all outfalls with known exceedances for selenium or any other parameter, including the specific sites discussed above, any failure to meet the deadlines set forth in our consent decrees or established by the federal government, the U.S. District Court or the State of West Virginia or to otherwise comply with our permits could result in (i) further litigation against us; (ii) an inability to obtain new permits or to maintain existing permits, which could impact our ability to mine our coal reserves; and (iii) the imposition of significant and material fines and penalties or other costs; all of which could materially adversely affect our financial condition, results of operations and cash flows.
In addition to the uncertainties related to technology discussed above, future changes to legislation, compliance with judicial rulings, consent decrees and regulatory requirements, findings from current research initiatives and the pace of future technological progress could result in costs that differ from our current estimates, which could have a material adverse effect on our financial condition, results of operations and cash flows.
We may incur additional costs relating to the lawsuits discussed above, including potential fines and penalties relating to selenium matters. Additionally, as a result of these ongoing litigation matters 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, permits may not be issued.
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 laws and related regulations could require us to do some or all of the following: (i) remove or mitigate the effects of the disposal or release of certain substances on the environment at various sites; (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 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.
Flood Litigation
In 2006, Hobet and Catenary were named as defendants along with various other property owners, coal companies, timbering companies and oil and natural gas companies in lawsuits arising from flooding that occurred on May 30 and 31, 2004 and June 4, 2004 in the Island Creek watershed of southern West Virginia. This litigation is pending before two different judges in the Circuit Court of Logan County, West Virginia. In one action, the plaintiffs assert that (i) Hobet failed to maintain an approved

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

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 filed motions to dismiss, which were granted with respect to general factual allegations, generic claims, claims of strict liability and fraud and claims asserted by plaintiffs from certain localities. In the second action, in which plaintiffs allege that Hobet and Catenary engaged in extensive land altering activities that disturbed hydraulic balance, increased peak flow and surface runoff, and blocked natural drains, Hobet and Catenary filed motions to dismiss, asserting that the plaintiffs’ allegations are conclusory in nature and likely deficient as a matter of law. Most of the other defendants also filed motions to dismiss. The litigation of both actions are stayed due to the bankruptcy of one or more defendants. The outcome of the 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.
Other Litigation and Investigations
In connection with our bankruptcy proceedings, on March 14, 2013, Patriot filed a lawsuit against Peabody Energy Corporation (Peabody) and one of its subsidiaries. In connection with Patriot’s 2007 spinoff from Peabody, Peabody agreed to assume the obligations for healthcare costs associated with thousands of UMWA retirees and dependents who had been employed by Peabody entities that were transferred to Patriot in the spinoff. Patriot sought a declaration from the Bankruptcy Court that any relief Patriot is able to obtain through the bankruptcy proceedings with respect to the healthcare benefits of its subsidiaries’ retirees will not relieve Peabody of its own liabilities with respect to the healthcare benefits of the UMWA retirees and dependents. On May 29, 2013, the Bankruptcy Court ruled in favor of Peabody, which could significantly reduce Peabody’s retiree healthcare obligations with respect to UMWA retirees and dependents. Patriot subsequently appealed the Bankruptcy Court’s decision and oral arguments related to the appeal were heard on August 2, 2013.
During the second half of 2012 and subsequent to the filing of the Chapter 11 Petitions, three class action complaints were filed against a former Chief Executive Officer, Richard M. Whiting, and former Chief Financial Officer, Mark N. Schroeder (the Class Action Complaints). The Class Action Complaints contain nearly identical allegations including that the defendants made or allowed false and misleading statements related to Patriot’s selenium water treatment liability and Patriot’s financial condition. The Class Action Complaints were consolidated and a lead plaintiff was appointed during January 2013. The Class Action Complaints can proceed during the pendency of the Bankruptcy Case as Patriot was not named as a defendant. Messrs. Whiting and Schroeder filed a motion to dismiss the Class Action Complaints on May 20, 2013. Additional briefing regarding this motion will occur during the third quarter of 2013, but a date for a hearing regarding the motion to dismiss has not yet been set.
Apogee has been sued, along with eight other defendants, including Monsanto Company (Monsanto), Pharmacia Corporation and Akzo Nobel Chemicals, Inc., by certain plaintiffs in state court in Putnam County, West Virginia. In total, 243 similar lawsuits have been served on Apogee, which are identical except for the named plaintiff. Each lawsuit alleges 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 compensatory and punitive damages for personal injury. As of June 30, 2013, 51 of the lawsuits have been dismissed. 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 our subsidiaries operated the Eagle No. 2 mine located near Shawneetown, Illinois, from 1969 until closure of the mine in July 1993. In March 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 before the Illinois Pollution Control Board with the Illinois Attorney General’s office with respect to its claim for a civil penalty of $1.3 million.
In late January 2010, the U.S. Attorney’s office and the State of West Virginia began investigations relating to one or more of our employees making inaccurate entries in official mine records at our Federal No. 2 mine. We terminated one employee and two other employees resigned after being placed on administrative leave. The terminated employee subsequently admitted to falsifying inspection records and has been cooperating with the U.S. Attorney’s office. In April 2010, we received a federal subpoena requesting methane detection systems equipment used at our Federal No. 2 mine since July 2008 and the results of tests performed on the equipment since that date. We provided the equipment and information as required by the subpoena. We have not received any additional requests for information. In January 2012, the terminated employee filed a civil lawsuit against us

26

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

alleging retaliatory discharge and intentional infliction of emotional distress. Additionally, in January 2012, five employees filed a purported class action lawsuit against us and the terminated employee seeking compensation for lost wages, emotional distress, and punitive damages for the alleged intentional violation of employee safety at the mine. In late March 2013, the court dismissed the purported class action lawsuit. The remaining civil lawsuit is currently stayed due to the bankruptcy of one or more defendants.
The outcome of other litigation and investigations 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.

(16) 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 and preparation of thermal coal, sold primarily to electricity generators, and metallurgical coal, sold to steel and coke producers. The principal business of the Illinois Basin segment is the mining and preparation of thermal coal, sold primarily to electricity generators.
 
Six Months Ended June 30,
 
2013
 
2012
(% of total sales volume - tons)
 
 
 
Sales to electricity generators
72
%
 
78
%
Sales to steel & coke producers
28
%
 
22
%
Export sales
51
%
 
47
%
 
 
 
 
(Dollars in thousands)
 
 
 
Revenues attributable to foreign countries, based on where product shipped
$
374,170

 
$
491,200

For the six months ended June 30, 2013 and 2012, there were no material revenues attributable to any individual foreign country for which we can determine the final destination of the shipment. For certain sales made through third-party arrangements, it is impracticable to determine the ultimate destination and customer.
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.
Our chief operating decision makers use Adjusted EBITDA as the primary measure of segment profit and loss. We believe that in our industry such information is a relevant measurement of a company’s operating financial performance. Adjusted EBITDA is defined as net income (loss) before deducting interest income and expense; income taxes; depreciation, depletion and amortization; asset retirement obligation expense; sales contract accretion; impairment and restructuring charge; and reorganization items. Segment Adjusted EBITDA is calculated the same as Adjusted EBITDA but excludes “Corporate and Other” as defined below. Because Adjusted EBITDA and Segment Adjusted EBITDA are not calculated identically by all companies, our calculation may not be comparable to similarly titled measures of other companies.
“Corporate and Other” in the tables below includes selling and administrative expenses, net gain on disposal or exchange of assets and costs associated with past mining obligations.

27

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013

Operating segment results for the three and six months ended June 30, 2013 and 2012 were as follows:
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Appalachia
 
Illinois Basin
 
Corporate and Other
 
Total
 
Appalachia
 
Illinois Basin
 
Corporate and Other
 
Total
 
(Dollars in thousands)
Revenues
$
367,497

 
$
51,130

 
$

 
$
418,627

 
$
660,619

 
$
101,305

 
$

 
$
761,924

Adjusted EBITDA
53,189

 
690

 
(51,395
)
 
2,484

 
69,722

 
3,277

 
(108,158
)
 
(35,159
)
Additions to property, plant, equipment and mine development
13,465

 
4,022

 

 
17,487

 
23,319

 
10,160

 

 
33,479

Loss from equity affiliates
(5,056
)
 

 

 
(5,056
)
 
(9,316
)
 

 

 
(9,316
)
 
Three Months Ended June 30, 2012
 
Six Months Ended June 30, 2012
 
Appalachia
 
Illinois Basin
 
Corporate and Other
 
Total
 
Appalachia
 
Illinois Basin
 
Corporate and Other
 
Total
 
(Dollars in thousands)
Revenues
$
452,091

 
$
81,974

 
$

 
$
534,065

 
$
859,508

 
$
177,135

 
$

 
$
1,036,643

Adjusted EBITDA
94,236

 
8,838

 
(60,930
)
 
42,144

 
178,034

 
21,737

 
(121,449
)
 
78,322

Additions to property, plant, equipment and mine development
49,113

 
10,459

 

 
59,572

 
83,029

 
13,719

 
13

 
96,761

Income from equity affiliates
720

 

 

 
720

 
1,700

 

 

 
1,700

A reconciliation of Adjusted EBITDA to net loss follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(Dollars in thousands)
Adjusted EBITDA
$
2,484

 
$
42,144

 
$
(35,159
)
 
$
78,322

Depreciation, depletion and amortization
(47,614
)
 
(45,138
)
 
(92,607
)
 
(86,524
)
Asset retirement obligation expense
(17,231
)
 
(325,474
)
 
(34,541
)
 
(358,241
)
Sales contract accretion

 

 

 
11,628

Impairment and restructuring charge

 
(9,597
)
 
1,453

 
(42,458
)
Interest expense and other
(14,107
)
 
(16,309
)
 
(28,056
)
 
(32,507
)
Interest income
3

 
54

 
13

 
163

Reorganization items, net
(23,284
)
 

 
(26,754
)
 

Income tax provision

 

 

 

Net loss
$
(99,749
)
 
$
(354,320
)
 
$
(215,651
)
 
$
(429,617
)

(17) Supplemental Guarantor/Non-Guarantor Financial Information
The following tables present condensed consolidating financial information for: (i) Patriot Coal Corporation (the Parent Company) on a stand-alone basis; (ii) the subsidiary guarantors of the 8.25% Senior Notes (the Guarantor Subsidiaries) on a combined basis and; (iii) the Non-Guarantor Subsidiary, Patriot Coal Receivables (SPV) Ltd. (the facilitating entity for the pre-petition accounts receivable securitization program), on a stand-alone basis. Each Guarantor Subsidiary is wholly-owned by Patriot Coal Corporation. The guarantees from each of the Guarantor Subsidiaries are full, unconditional, joint and several. Accordingly, separate financial statements of the wholly-owned Guarantor Subsidiaries are not presented because the Guarantor Subsidiaries will be jointly, severally and unconditionally liable under the guarantees, and we believe that separate financial statements and other disclosures regarding the Guarantor Subsidiaries are not material to potential investors.

28

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


UNAUDITED SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
 
Three Months Ended June 30, 2013
 
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Entity
 
Eliminations
 
Consolidated
 
(Dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
Sales
$

 
$
414,848

 
$

 
$

 
$
414,848

Other revenues

 
3,779

 

 

 
3,779

Total revenues

 
418,627

 

 

 
418,627

Costs and expenses
 
 
 
 
 
 
 
 
 
Operating costs and expenses

 
402,348

 

 

 
402,348

Depreciation, depletion and amortization

 
47,614

 

 

 
47,614

Asset retirement obligation expense

 
17,231

 

 

 
17,231

Sales contract accretion

 

 

 

 

Impairment and restructuring charge

 

 

 

 

Selling and administrative expenses
2,719

 
6,483

 

 

 
9,202

Net gain on disposal or exchange of assets

 
(463
)
 

 

 
(463
)
Loss from equity affiliates
87,563

 
5,056

 

 
(87,563
)
 
5,056

Operating loss
(90,282
)
 
(59,642
)
 

 
87,563

 
(62,361
)
Interest expense and other
9,472

 
4,635

 

 

 
14,107

Interest income

 
(3
)
 

 

 
(3
)
Loss before reorganization items and income taxes
(99,754
)
 
(64,274
)
 

 
87,563

 
(76,465
)
Reorganization items, net
(5
)
 
23,289

 

 

 
23,284

Loss before income taxes
(99,749
)
 
(87,563
)
 

 
87,563

 
(99,749
)
Income tax provision

 

 

 

 

Net loss
$
(99,749
)
 
$
(87,563
)
 
$

 
$
87,563

 
$
(99,749
)



29

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


UNAUDITED SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
 
Three Months Ended June 30, 2012
 
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Entity
 
Eliminations
 
Consolidated
 
(Dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
Sales
$

 
$
518,273

 
$

 
$

 
$
518,273

Other revenues

 
15,792

 

 

 
15,792

Total revenues

 
534,065

 

 

 
534,065

Costs and expenses
 
 
 
 
 
 
 
 
 
Operating costs and expenses

 
477,223

 

 

 
477,223

Depreciation, depletion and amortization

 
45,138

 

 

 
45,138

Asset retirement obligation expense

 
325,474

 

 

 
325,474

Sales contract accretion

 

 

 

 

Impairment and restructuring charge

 
9,597

 

 

 
9,597

Selling and administrative expenses
2,675

 
13,900

 

 

 
16,575

Net gain on disposal or exchange of assets

 
(1,157
)
 

 

 
(1,157
)
Loss (income) from equity affiliates
339,653

 
(720
)
 

 
(339,653
)
 
(720
)
Operating loss
(342,328
)
 
(335,390
)
 

 
339,653

 
(338,065
)
Interest expense and other
12,020

 
4,289

 
392

 
(392
)
 
16,309

Interest income
(28
)
 
(26
)
 
(392
)
 
392

 
(54
)
Loss before reorganization items and income taxes
(354,320
)
 
(339,653
)
 

 
339,653

 
(354,320
)
Reorganization items, net

 

 

 

 

Loss before income taxes
(354,320
)
 
(339,653
)
 

 
339,653

 
(354,320
)
Income tax provision

 

 

 

 

Net loss
$
(354,320
)
 
$
(339,653
)
 
$

 
$
339,653

 
$
(354,320
)




30

PATRIOT COAL CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013


UNAUDITED SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
 
Six Months Ended June 30, 2013
 
Parent Company
 
Guarantor Subsidiaries
 
Non-Guarantor Entity
 
Eliminations
 
Consolidated
 
(Dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
Sales
$

 
$
754,973

 
$

 
$

 
$
754,973

Other revenues

 
6,951

 

 

 
6,951

Total revenues

 
761,924

 

 

 
761,924

Costs and expenses
 
 
 
 
 
 
 
 
 
Operating costs and expenses

 
772,376

 

 

 
772,376

Depreciation, depletion and amortization

 
92,607

 

 

 
92,607

Asset retirement obligation expense

 
34,541

 

 

 
34,541

Sales contract accretion

 

 

 

 

Impairment and restructuring charge

 
(1,453
)
 

 

 
(1,453
)
Selling and administrative expenses
5,601

 
12,988

 

 

 
18,589

Net gain on disposal or exchange of assets

 
(3,198
)
 

 

 
(3,198
)
Loss from equity affiliates
191,243

 
9,316

 

 
(191,243
)
 
9,316

Operating loss
(196,844
)
 
(155,253
)
 

 
191,243

 
(160,854
)
Interest expense and other
18,829

 
9,227

 

 

 
28,056

Interest income
(10
)
 
(3
)
 

 

 
(13
)
Loss before reorganization items and income taxes
(215,663
)
 
(164,477
)