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SECURITIES AND EXCHANGE COMMISSION
Schedule 14A Information
Exchange Act of 1934 (Amendment No. )
Filed by a Party other than the Registrant o
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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St. Louis, Missouri 63141
and is first being mailed to Patriot stockholders on or about June 20, 2008.
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12312 Olive Boulevard, Suite 400
St. Louis, Missouri 63141
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 2008
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Conditions to the Completion of the Merger | 78 | |||
Magnum Material Adverse Effect and Patriot Material Adverse Effect | 80 | |||
Change in Patriot Board Recommendation | 82 | |||
Termination of the Merger Agreement | 82 | |||
Magnum Expense Reimbursement | 83 | |||
Conduct of Business Pending the Merger | 84 | |||
Representations and Warranties | 85 | |||
Magnum Employee Matters | 86 | |||
Financing | 86 | |||
Survival of Representation and Warranties; Indemnification | 87 | |||
Articles of Incorporation and By-laws of the Surviving Corporation | 88 | |||
Amendment; Waiver | 88 | |||
Specific Performance | 88 | |||
Stockholder Representative | 89 | |||
Patriot Rights Agreement Amendment | 89 | |||
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Voting Agreement | 90 | |||
Support Agreements | 92 | |||
Registration Rights Agreement | 93 | |||
Escrow Agreement | 93 | |||
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Annexes | ||||
Annex A — Agreement and Plan of Merger | ||||
Annex B — Voting and Standstill Agreement | ||||
Annex C — Opinion of Lehman Brothers | ||||
Annex D — Opinion of Duff & Phelps, LLC | ||||
Annex E — Patriot Financial Statements for the year ended December 31, 2007 | ||||
Annex F — Magnum Financial Statements for the year ended December 31, 2007 | ||||
Annex G — Patriot Unaudited Financial Statements for the three months ended March 31, 2008 | ||||
Annex H — Magnum Unaudited Financial Statements for the three months ended March 31, 2008 |
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Q: | What is the transaction? | |
A: | Patriot has entered into an Agreement and Plan of Merger dated as of April 2, 2008, among Patriot, Magnum Coal Company, Colt Merger Corporation, a wholly owned subsidiary of Patriot, and ArcLight Energy Partners Fund I, L.P. and ArcLight Energy Partners Fund II, L.P., acting jointly, as stockholder representative. In the merger, Colt Merger Corporation will merge with and into Magnum, with Magnum surviving the merger and becoming a wholly owned subsidiary of Patriot. In the merger, up to 11,901,729 shares of Patriot common stock will be issued to Magnum stockholders. | |
Q: | What is this document? | |
A: | This document constitutes a proxy statement and a notice of meeting with respect to the Patriot special meeting of stockholders at which Patriot stockholders will consider and vote on the proposal to approve the issuance of Patriot common stock issuable to the holders of Magnum common stock in the merger. This document also constitutes a prospectus of Patriot with respect to the shares of Patriot common stock to be issued to Magnum stockholders pursuant to the merger agreement. | |
Q: | What am I being asked to vote on? | |
A: | You are being asked to vote on the proposed issuance of up to 11,901,729 shares of Patriot common stock to the holders of common stock of Magnum Coal Company pursuant to the merger agreement. The merger cannot be completed without the approval of the issuance of Patriot common stock issuable to the holders of Magnum common stock pursuant to the merger agreement. | |
Q: | Why is approval by Patriot stockholders required for this transaction? | |
A: | The Patriot common stock issuable in the merger represents approximately 31% of the sum of the number of outstanding shares of Patriot common stock as of the date of the merger agreement plus the number of shares of Patriot common stock to be issued in the merger. The rules of the New York Stock Exchange, the principal securities exchange on which Patriot common stock is listed, require Patriot stockholder approval of the issuance because the issuance exceeds 20% of the number of shares of Patriot common stock outstanding prior to such issuance. | |
Q: | How does the board of directors of Patriot recommend that I vote? | |
A: | The board of directors of Patriot recommends that you vote“FOR”approving the issuance of Patriot common stock issuable to the holders of Magnum common stock pursuant to the merger agreement. | |
Q: | Who can vote at the special meeting? | |
A: | You can vote at the special meeting if you owned shares of Patriot common stock at the close of business on June 16, 2008, the record date for the special meeting. At the close of business on the record date, approximately 26,755,877 shares of Patriot common stock were outstanding. | |
Q: | What vote of Patriot stockholders is required to approve the issuance of Patriot common stock? | |
A: | The approval of the issuance of Patriot common stock issuable to the holders of Magnum common stock pursuant to the merger agreement requires the affirmative vote of a majority of the votes cast by all Patriot stockholders at the special meeting where the total vote cast represents over fifty percent in interest of the |
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Patriot common stock entitled to vote on the issuance. Because the required vote of Patriot stockholders is based upon the number of votes cast, rather than upon the number of shares of Patriot common stock outstanding, any shares for which a holder does not submit a proxy or vote in person at the special meeting, including abstentions and broker non-votes, will not be counted in connection with the proposal to approve the issuance of the Patriot common stock issuable pursuant to the merger agreement and will not be treated as a vote cast at the special meeting for purposes of determining whether the vote cast represents over fifty percent in interest of the Patriot common stock entitled to vote on the issuance. Also, failure to submit a proxy or to attend the special meeting could result in the failure to obtain a quorum for the special meeting, which is necessary to hold the meeting. The presence of stockholders at the meeting, in person or by proxy, representing a majority of Patriot’s issued and outstanding common stock constitutes a quorum. | ||
Q: | Where and when is the special meeting of Patriot stockholders? | |
A: | The special meeting will be held at the Donald Danforth Plant Science Center at 975 North Warson Road, St. Louis, MO 63132 on July 22, 2008 at 10:00 a.m., local time. | |
Q: | What do I need to do now? | |
A: | If you are a stockholder of record, after carefully reading and considering the information contained in this proxy statement/prospectus, please complete, sign and date your proxy and return it in the enclosed return envelope as soon as possible, so that your shares may be represented at the special meeting. If you sign and send in your proxy and do not indicate how you wish to vote, Patriot will count your proxy as a vote in favor of the issuance of Patriot common stock pursuant to the merger agreement. You can also authorize the voting of your shares via the Internet by visiting the websitewww.voteproxy.com and following the instructions provided or by telephone from the United States, Canada or Puerto Rico, by dialing1-800-PROXIES and following the recorded instructions. The telephone and Internet voting facilities for the stockholders of record of all shares, other than those held in the Patriot Coal Corporation 401(k) Retirement Plan, close at 10:59 p.m. Central Time on July 21, 2008. The Internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm your instructions have been properly recorded. | |
If you hold Patriot shares through the Patriot Coal Corporation 401(k) Retirement Plan or in “street name” through a broker, see the discussion below. | ||
Q: | If I hold Patriot shares through the Patriot Coal Corporation 401(k) Retirement Plan, how will my shares be voted? | |
A: | If you hold shares of Patriot common stock in the Patriot Coal Corporation 401(k) Retirement Plan, you will receive a single proxy/voting instruction card with respect to all shares registered in your name, whether inside or outside of the plan. If your accounts inside and outside of the plan are not registered in the same name, you will receive a separate proxy/voting instruction card with respect to the shares credited in your plan account.Voting instructions regarding plan shares must be received by 10:59 p.m. Central Time on July 21, 2008, and all telephone and Internet voting facilities with respect to plan shares will close at that time. Your proxy will serve as voting instructions to Vanguard Fiduciary Trust Company, trustee of the plan. Plan participants should indicate their voting instructions to the trustee by completing and returning the proxy/voting instruction card, by using the toll-free telephone number or by indicating their instructions over the Internet. All voting instructions from plan participants will be kept confidential. | |
If you submit a valid proxy by mail, telephone or the Internet, your shares held through the Patriot Coal Corporation 401(k) Retirement Plan will be voted as instructed by you in accordance with that proxy. If you submit a proxy and do not indicate how you wish to vote, the trustee of the plan will vote your shares in favor of the issuance of Patriot common stock pursuant to the merger agreement. If you do not submit a valid proxy by 10:59 p.m. Central Time on July 21, 2008, your shares held through the Patriot Coal Corporation 401(k) Retirement Plan will be voted in the same proportion as those shares in the Patriot Coal Corporation 401(k) Retirement Plan for which voting instructions have been received. |
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Q: | If my Patriot shares are held in “street name” by my broker, will my broker vote my shares for me? | |
A: | Your broker will vote your Patriot shares only if you provide instructions to your broker on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Without instructions, your shares will not be voted and will have no effect on the vote for the proposal to approve the issuance of Patriot common stock pursuant to the merger agreement and will not be treated as a vote cast at the special meeting for purposes of determining whether the vote cast represents over fifty percent in interest of the Patriot common stock entitled to vote on the issuance. | |
Q: | Can I change my vote? | |
A: | Yes. You can change your vote at any time before your proxy is voted at the special meeting. If you are a stockholder of record, you can do this in one of three ways. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new valid proxy bearing a later date by the Internet, telephone or mail. If you choose to send a written notice or to mail your new proxy, you must submit your notice of revocation or your new proxy to Patriot Coal Corporation at 12312 Olive Boulevard, Suite 400, St. Louis, Missouri 63141, Attention: Corporate Secretary. Third, you can attend the special meeting and vote in person the shares you own of record. Attendance at the special meeting will not in and of itself constitute revocation of a proxy. | |
If you hold shares of Patriot common stock through the Patriot Coal Corporation 401(k) Retirement Plan you may change your voting instructions to the plan trustee by submitting a new valid proxy bearing a later date by the Internet, telephone or mail.To allow sufficient time for voting by the plan trustee, any changes in your voting instructions must be received by 10:59 p.m., Central Time, July 21, 2008. | ||
If your shares are held in “street name”, you may change your vote by submitting new voting instructions to your broker in accordance with the procedures established by it. Please contact your broker and follow its directions in order to change your vote. | ||
Q: | What do I need to do to attend the Special Meeting? | |
A: | If you are a stockholder of record or a participant in the Patriot Coal Corporation 401(k) Retirement Plan, your admission card is attached to your proxy card or voting instruction form. You will need to bring this admission card with you to the special meeting. If you own shares in “street name” and you wish to vote at the special meeting in person, you will need to ask your bank or broker for an admission card in the form of a confirmation of beneficial ownership. You will need to bring a confirmation of beneficial ownership with you to vote at the special meeting. If you do not receive your confirmation of beneficial ownership in time, bring your most recent brokerage statement with you to the special meeting. We can use that to verify your ownership of Patriot common stock and admit you to the meeting; however, you will not be able to vote your shares at the meeting without a confirmation of beneficial ownership. | |
Q: | Should I send in my stock certificates? | |
A: | No. You will not receive any cash or securities in this transaction. You will continue to hold your existing shares of Patriot common stock. | |
Q: | When do you expect the merger to be completed? | |
A: | We are working to complete the merger as quickly as possible. If the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement is approved by Patriot stockholders, it is anticipated that the merger will be completed promptly thereafter. However, it is possible that factors outside our control could require us to complete the merger at a later time or not complete it at all. | |
Q: | Are dissenters’ rights available to Patriot stockholders? | |
A: | No. Patriot stockholders have no dissenters’ rights under Delaware law in connection with this transaction. See“The Merger — Dissenters’ Rights”on page 76. |
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Q: | Who can help answer my questions? | |
A: | If you have any questions about the transaction or the special meeting, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy, you should contact: | |
Patriot Coal Corporation 12312 Olive Boulevard, Suite 400 St. Louis, Missouri 63141 e-mail: stockholders.questions@patriotcoal.com | ||
or | ||
Georgeson Inc. Tel.(800) 219-8343 |
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• | the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement has been approved by the affirmative vote of a majority of the votes cast by Patriot stockholders at the special meeting where the total vote cast represents over fifty percent in interest of the Patriot common stock entitled to vote on the issuance; |
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• | no court order or injunction prohibits consummation of the merger and no applicable federal, state or local law, regulation, or other similar requirement has been enacted that prohibits consummation of the merger; | |
• | the waiting period under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, applicable to the merger, including any such waiting period relating to the issuance of Patriot common stock in respect of any filing by the ArcLight Funds and the parent of Cascade Investment, L.L.C., has expired or has been terminated; | |
• | the registration statement relating to the issuance of Patriot common stock in the merger, of which this proxy statement/prospectus forms a part, has been declared effective and no stop order suspending the effectiveness of the registration statement is in effect, and no proceeding for that purpose is pending before or threatened by the Securities and Exchange Commission, which we refer to as the SEC; | |
• | the shares of Patriot common stock to be issued in the merger have been approved for listing on the New York Stock Exchange, subject to official notice of issuance; | |
• | the representations and warranties of the other party being true and correct at the effective time, except in most cases as would not reasonably be expected to have a material adverse effect (as defined in the merger agreement); | |
• | performance by the other party of its obligations under the merger agreement; | |
• | absence of a mining catastrophe suffered by the other party that has involved, or would be reasonably likely to involve, a loss of lives; and | |
• | other contractual conditions set forth in the merger agreement. |
• | Patriot shall have consummated up to a $150 million subordinated bridge financing provided by the ArcLight Funds, which we refer to as the ArcLight financing, or an alternate financing of not less than the amount of the ArcLight financing (which condition was satisfied upon consummation of the offering of Patriot convertible notes, described below); | |
• | there is no pending suit, action or proceeding by any governmental authority (and no applicable law, injunction or order shall have been proposed or enacted by a governmental authority that could, directly or indirectly, reasonably be expected to result in any of the following consequences): |
• | seeking to restrain, prohibit or otherwise interfere with the ownership or operation by Patriot of all or a material portion of the business or assets of Magnum or Patriot or to compel Patriot to dispose of all or any material portion of the business or assets of Magnum or Patriot; | |
• | seeking to impose or confirm limitations on the ability of Patriot to exercise full rights of ownership of Magnum; or | |
• | seeking to require divestiture by Patriot of Magnum or any material portion of Magnum’s or Patriot’s businesses or assets; and |
• | certain third party consents to the merger shall have been obtained. |
• | by mutual written agreement of Patriot and Magnum; |
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• | by either Patriot or Magnum, if: |
• | the merger has not been consummated by September 30, 2008, which we refer to as the end date, provided that this right to terminate will not be available to a party if its breach of the merger agreement has caused the merger to fail to have been consummated by such time; | |
• | any applicable law or a final nonappealable injunction prohibits consummation of the merger; or | |
• | Patriot stockholders do not approve the issuance of Patriot common stock to the holders of Magnum common stock at the Patriot stockholders meeting; or |
• | by Patriot, if: |
• | a breach of Magnum’s representations and warranties or covenants would result in a failure of the closing conditions to be satisfied and Magnum is not using commercially reasonably efforts to cure such breach or failure or such condition would not reasonably be expected to be satisfied by the end date; or | |
• | Magnum has notified Patriot that the closing condition relating to the accuracy of Magnum’s representations and warranties except for such exceptions that would not have a Magnum material adverse effect is not capable of being satisfied, and Patriot elects to terminate the merger agreement; or |
• | by Magnum, if: |
• | Patriot’s board of directors fails to make, withdraws, or modifies in a manner adverse to Magnum, its recommendation that Patriot’s stockholders approve the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement, with this termination right no longer permitted after Patriot stockholder approval of the issuance of Patriot common stock to the holders of Magnum common stock; | |
• | a breach of Patriot’s representations and warranties or covenants would result in a failure of the closing conditions to be satisfied and Patriot is not using commercially reasonably efforts to cure such breach or failure or such condition would not reasonably be expected to be satisfied by the end date; | |
• | Patriot enters into any agreement with respect to (1) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, sale of all or substantially all of its assets or other similar transaction that, in any such case, requires the approval of Patriot stockholders under Delaware law or (2) a transaction involving the issuance of 20% or more of its stock, and, in either such case, the record date for the stockholder vote to approve such transaction occurs prior to the closing date of the merger; or | |
• | Patriot has notified Magnum that the closing condition relating to the accuracy of Patriot’s representations and warranties except for such exceptions that would not have a Patriot material adverse effect is not capable of being satisfied, and Magnum elects to terminate the merger agreement. |
• | Patriot stockholders do not approve the issuance of Patriot common stock to the holders of Magnum common stock at the Patriot stockholders meeting, or | |
• | Patriot’s board of directors fails to make, withdraws, or modifies in a manner adverse to Magnum, its recommendation that Patriot’s stockholders approve the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement, |
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• | the merger has not been consummated by the end date and at the time of termination, the closing condition relating to the ArcLight financing is not satisfied solely as a result of a potential claim of default under the Credit Agreement, dated as of October 31, 2007, as amended, among Patriot, as borrower, each lender from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, which we refer to as the Patriot Credit Agreement, relating to the terms of the ArcLight financing, and all other closing conditions have been satisfied or are immediately capable of being satisfied, |
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• | no transfers will be permitted for 180 days following the effective time of the merger; | |
• | between 180 days after the effective time and 270 days after the effective time, up to fifty percent of the shares may be transferred; | |
• | between 270 days after the effective time and 360 days after the effective time, up to seventy-five percent of the shares may be transferred; and | |
• | no restrictions will apply after 360 days after the effective time. |
12312 Olive Boulevard, Suite 400
St. Louis, Missouri 63141
Telephone:(314) 275-3600
500 Lee Street East
Suite 900
Charleston, WV 25301
Telephone:(304) 380-0200
12312 Olive Boulevard, Suite 400
St. Louis, Missouri 63141
Telephone:(314) 275-3600
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Patriot | Magnum | Pro Forma | ||||||||||
Historical | Historical | Combined | ||||||||||
Basic earnings (loss) from continuing operations per common share: | ||||||||||||
Quarter ended March 31, 2008 | $ | (0.12 | ) | $ | (0.29 | ) | $ | 0.59 | ||||
Year ended December 31, 2007 | $ | (4.02 | ) | $ | (2.38 | ) | $ | 2.95 | ||||
Diluted earnings (loss) from continuing operations per common share: | ||||||||||||
Quarter ended March 31, 2008 | $ | (0.12 | ) | $ | (0.29 | ) | $ | 0.59 | ||||
Year ended December 31, 2007 | $ | (4.02 | ) | $ | (2.38 | ) | $ | 2.94 | ||||
Book value per common share: | ||||||||||||
At March 31, 2008 | $ | 3.15 | $ | 3.13 | $ | 17.60 |
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Three Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | 2008 | 2007 | ||||||||||||||||||||||
(In thousands, except for share, per ton and per share data) | ||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||
Results of Operations Data: | ||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Sales | $ | 1,069,316 | $ | 1,142,521 | $ | 960,901 | $ | 812,055 | $ | 586,556 | $ | 279,101 | $ | 269,041 | ||||||||||||||
Other revenues | 4,046 | 5,398 | 17,376 | 4,369 | 3,190 | 5,233 | 622 | |||||||||||||||||||||
Total revenues | 1,073,362 | 1,147,919 | 978,277 | 816,424 | 589,746 | 284,334 | 269,663 | |||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||
Operating costs and expenses | 1,109,315 | 1,051,932 | 869,163 | 740,816 | 640,713 | 259,118 | 277,665 | |||||||||||||||||||||
Depreciation, depletion and amortization | 85,640 | 86,458 | 65,972 | 62,580 | 57,720 | 18,610 | 21,358 | |||||||||||||||||||||
Asset retirement obligation expense | 20,144 | 24,282 | 15,572 | 27,262 | 17,930 | 3,416 | 5,655 | |||||||||||||||||||||
Selling and administrative expenses | 45,137 | 47,909 | 57,123 | 58,491 | 41,118 | 8,289 | 10,909 | |||||||||||||||||||||
Other operating income: | ||||||||||||||||||||||||||||
Net gain on disposal or exchange of assets | (81,458 | )(1) | (78,631 | )(1) | (57,042 | )(1) | (5,764 | ) | (23,390 | ) | (194 | ) | (35,226 | )(1) | ||||||||||||||
Income from equity affiliates(2) | (63 | ) | (60 | ) | (15,578 | ) | (12,335 | ) | (3,410 | ) | — | — | ||||||||||||||||
Operating profit (loss) | (105,353 | ) | 16,029 | 43,067 | (54,626 | ) | (140,935 | ) | (4,905 | ) | (10,698 | ) | ||||||||||||||||
Interest expense | 8,337 | 11,419 | 9,833 | 12,701 | 12,746 | 2,322 | 2,825 | |||||||||||||||||||||
Interest income | (11,543 | ) | (1,417 | ) | (1,553 | ) | (918 | ) | (1,960 | ) | (3,249 | ) | (2,646 | ) | ||||||||||||||
Income (loss) before income taxes and minority interest | (102,147 | ) | 6,027 | 34,787 | (66,409 | ) | (151,721 | ) | (3,978 | ) | (10,877 | ) | ||||||||||||||||
Income tax provision (benefit) | — | 8,350 | — | — | — | (912 | ) | — | ||||||||||||||||||||
Minority interest(2) | 4,721 | 11,169 | — | 275 | — | — | 1,074 | |||||||||||||||||||||
Income (loss) before accounting changes | (106,868 | ) | (13,492 | ) | 34,787 | (66,684 | ) | (151,721 | ) | (3,066 | ) | (11,951 | ) | |||||||||||||||
Cumulative effect of accounting changes | — | — | — | — | (4,833 | )(3) | — | — | ||||||||||||||||||||
Net income (loss) | (106,868 | ) | (13,492 | ) | 34,787 | (66,684 | ) | (156,554 | ) | (3,066 | ) | (11,951 | ) | |||||||||||||||
Effect of minority purchase arrangement | (15,667 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | (122,535 | ) | $ | (13,492 | ) | $ | 34,787 | $ | (66,684 | ) | $ | (156,554 | ) | $ | (3,066 | ) | $ | (11,951 | ) | ||||||||
Loss per share, basic and diluted | $ | (4.61 | ) | N/A | N/A | N/A | N/A | $ | (0.12 | ) | N/A | |||||||||||||||||
Weighted average shares outstanding — basic and diluted | 26,570,940 | N/A | N/A | N/A | N/A | 26,570,940 | N/A | |||||||||||||||||||||
Balance Sheet Data (at period end) | ||||||||||||||||||||||||||||
(2003-2004 unaudited): | ||||||||||||||||||||||||||||
Total assets | $ | 1,199,837 | $ | 1,178,181 | $ | 1,113,058 | $ | 836,608 | $ | 848,640 | $ | 1,227,534 | $ | 1,178,268 | ||||||||||||||
Total liabilities | 1,117,521 | 1,851,855 | (4) | 1,511,810 | 2,036,892 | 1,989,225 | 1,143,846 | 1,853,302 | ||||||||||||||||||||
Total long-term debt | 11,438 | 20,722 | 11,459 | — | — | 10,453 | 19,795 | |||||||||||||||||||||
Minority interests | — | 16,153 | — | — | — | — | 17,227 | |||||||||||||||||||||
Total stockholders’ equity (deficit) | 82,316 | (689,827 | )(4) | (398,752 | ) | (1,200,284 | ) | (1,140,585 | ) | 83,688 | (692,261 | ) | ||||||||||||||||
Other Data: | ||||||||||||||||||||||||||||
Tons sold (in millions and unaudited) | 22.1 | 24.3 | 23.8 | 24.6 | 21.0 | 5.1 | 5.7 | |||||||||||||||||||||
Average sales price per ton (unaudited) | $ | 48.29 | $ | 47.04 | $ | 40.40 | $ | 32.99 | $ | 27.92 | $ | 54.89 | $ | 46.80 | ||||||||||||||
Net cash provided by (used in): | ||||||||||||||||||||||||||||
Operating activities | $ | (79,699 | ) | $ | (20,741 | ) | $ | 17,823 | $ | (62,205 | ) | $ | (176,544 | ) | $ | (4,832 | ) | $ | (24,053 | ) | ||||||||
Investing activities | 54,721 | 1,993 | (29,529 | ) | 55,850 | 116,512 | (13,316 | ) | 37,660 | |||||||||||||||||||
Financing activities | 30,563 | 18,627 | 11,459 | 6,985 | 60,000 | 21,573 | — | |||||||||||||||||||||
Adjusted EBITDA(5) (unaudited) | 431 | 126,769 | 124,611 | 35,216 | (65,285 | ) | 17,121 | 16,315 | ||||||||||||||||||||
Past mining obligation payments (unaudited) | 144,811 | 150,672 | 154,479 | 179,299 | 175,597 | 23,368 | 36,924 | |||||||||||||||||||||
Additions to property, plant, equipment and mine development | 55,594 | 80,224 | 75,151 | 36,780 | 74,500 | 12,030 | 16,370 | |||||||||||||||||||||
Acquisitions, net | 47,733 | 44,538 | — | 2,490 | — | — | — |
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(1) | Net gain on disposal or exchange of assets included a $37.4 million gain from an exchange of coal reserves as part of a dispute settlement with a third-party supplier in 2005, gains of $66.6 million from sales of coal reserves and surface lands in 2006 and gains of $78.5 million from the sales of coal reserves and surface land in 2007. Net gain on disposal or exchange of assets for the three months ended March 31, 2007 included gains of $35.0 million from sales of coal reserves and surface land. | |
(2) | In March 2006, Patriot increased its 49% interest in KE Ventures, LLC to an effective 73.9% interest and began combining KE Ventures, LLC’s results with its own effective January 1, 2006. In 2007, Patriot purchased the remaining interest. Prior to 2006, KE Ventures, LLC was accounted for on an equity basis and included in income from equity affiliates in Patriot’s statement of operations. | |
(3) | The charge to cumulative effect of accounting changes related to the January 1, 2003 adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations” and the change in method of amortizing actuarial gain and losses related to net periodic postretirement benefit costs. | |
(4) | Patriot adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS No. 158) on December 31, 2006, and as a result, increased noncurrent liabilities and decreased total invested capital (accumulated other comprehensive loss) by $322.1 million. | |
(5) | Adjusted EBITDA, when used in this proxy statement/prospectus when referring to Patriot’s financial information, is defined as net income (loss) before deducting net interest expense, income taxes, minority interests, asset retirement obligation expense, depreciation, depletion and amortization and cumulative effect of accounting changes. Adjusted EBITDA is used by management to measure operating performance, and management also believes it is a useful indicator of Patriot’s ability to meet debt service and capital expenditure requirements. The term Adjusted EBITDA does not purport to be an alternative to operating income, net income or cash flows from operating activities as determined in accordance with GAAP as a measure of profitability or liquidity. Because Adjusted EBITDA is not calculated identically by all companies, Patriot’s calculation may not be comparable to similarly titled measures of other companies. |
Three Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | 2008 | 2007 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Net income (loss) | $ | (106,868 | ) | $ | (13,492 | ) | $ | 34,787 | $ | (66,684 | ) | $ | (156,554 | ) | $ | (3,066 | ) | $ | (11,951 | ) | ||||||||
Cumulative effect of accounting changes | — | — | — | — | 4,833 | — | — | |||||||||||||||||||||
Income tax provision (benefit) | — | 8,350 | — | — | — | (912 | ) | — | ||||||||||||||||||||
Depreciation, depletion and amortization | 85,640 | 86,458 | 65,972 | 62,580 | 57,720 | 18,610 | 21,358 | |||||||||||||||||||||
Asset retirement obligation expense | 20,144 | 24,282 | 15,572 | 27,262 | 17,930 | 3,416 | 5,655 | |||||||||||||||||||||
Interest expense | 8,337 | 11,419 | 9,833 | 12,701 | 12,746 | 2,322 | 2,825 | |||||||||||||||||||||
Interest income | (11,543 | ) | (1,417 | ) | (1,553 | ) | (918 | ) | (1,960 | ) | (3,249 | ) | (2,646 | ) | ||||||||||||||
Minority interests | 4,721 | 11,169 | — | 275 | — | — | 1,074 | |||||||||||||||||||||
Adjusted EBITDA | $ | 431 | $ | 126,769 | $ | 124,611 | $ | 35,216 | $ | (65,285 | ) | $ | 17,121 | $ | 16,315 | |||||||||||||
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Three Months Ended | |||||||||||||||||||||||||||||||||
Year Ended December 31, | March 31, | ||||||||||||||||||||||||||||||||
Magnum Coal Company | Magnum Acquired Properties (Predecessor) | Magnum Coal Company | |||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2005 | 2004 | 2003 | 2008 | 2007 | ||||||||||||||||||||||||||
(Dollars in Thousands, except tons sold and per ton data) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
Results of Operations Data: | |||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||
Sales | $ | 813,974 | $ | 767,788 | $ | — | $ | 488,774 | $ | 450,854 | $ | 394,961 | $ | 220,566 | $ | 200,431 | |||||||||||||||||
Gain on exchange of mining reserves(1) | 15,262 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Other revenues | 68,018 | 42,994 | — | 24,273 | 27,100 | 32,284 | 10,102 | 16,112 | |||||||||||||||||||||||||
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Three Months Ended | |||||||||||||||||||||||||||||||||
Year Ended December 31, | March 31, | ||||||||||||||||||||||||||||||||
Magnum Coal Company | Magnum Acquired Properties (Predecessor) | Magnum Coal Company | |||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2005 | 2004 | 2003 | 2008 | 2007 | ||||||||||||||||||||||||||
(Dollars in Thousands, except tons sold and per ton data) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
Total revenues | 897,254 | 810,782 | — | 513,047 | 477,954 | 427,245 | 230,668 | 216,543 | |||||||||||||||||||||||||
Costs and expenses | |||||||||||||||||||||||||||||||||
Operating costs and expenses | 820,572 | 714,452 | — | 480,973 | 444,629 | 440,064 | 209,556 | 203,442 | |||||||||||||||||||||||||
(Gain) loss on coal sales supply contract restructuring(2) | (375 | ) | 25,513 | — | — | — | — | (183 | ) | — | |||||||||||||||||||||||
Sales contract amortization (accretion)(3) | 19,808 | (31,951 | ) | — | — | 1,469 | 14,170 | (15,029 | ) | 409 | |||||||||||||||||||||||
Depreciation, depletion and amortization | 112,210 | 113,978 | — | 34,070 | 32,165 | 33,173 | 27,846 | 27,370 | |||||||||||||||||||||||||
Asset retirement obligation expenses | 7,430 | 4,637 | — | 6,275 | 3,493 | 5,406 | 1,741 | 1,246 | |||||||||||||||||||||||||
Selling and administrative expenses | 32,713 | 23,658 | 3,690 | 17,721 | 12,267 | 11,787 | 8,881 | 7,956 | |||||||||||||||||||||||||
Operating loss | (95,104 | ) | (39,505 | ) | (3,690 | ) | (25,992 | ) | (16,069 | ) | (77,355 | ) | (2,144 | ) | (23,880 | ) | |||||||||||||||||
Interest expense | 22,855 | 15,248 | — | 7,313 | 7,447 | 7,764 | 5,314 | 5,132 | |||||||||||||||||||||||||
Interest income | (1,740 | ) | (1,434 | ) | — | (278 | ) | (138 | ) | (113 | ) | (194 | ) | (424 | ) | ||||||||||||||||||
Loss on debt extinguishment | — | 9,677 | — | — | — | — | — | — | |||||||||||||||||||||||||
Cost associated with credit facility amendment | — | — | — | — | — | — | 3,572 | — | |||||||||||||||||||||||||
Change in interest rate swap | 1,551 | (748 | ) | — | — | — | — | 2,285 | 257 | ||||||||||||||||||||||||
Loss before accounting changes | (117,770 | ) | (62,248 | ) | (3,690 | ) | (33,027 | ) | (23,378 | ) | (85,006 | ) | (13,121 | ) | (28,845 | ) | |||||||||||||||||
Cumulative effect of accounting changes | — | — | — | — | — | 5,240 | — | — | |||||||||||||||||||||||||
Loss from discontinued operations(4) | (3,787 | ) | (15,643 | ) | — | — | — | — | — | (2,272 | ) | ||||||||||||||||||||||
Loss before income taxes | (121,557 | ) | (77,891 | ) | (3,690 | ) | (33,027 | ) | (23,378 | ) | (79,766 | ) | (13,121 | ) | (31,117 | ) | |||||||||||||||||
Income tax provision | — | — | — | — | — | — | (1,384 | ) | — | ||||||||||||||||||||||||
Net loss | $ | (121,557 | ) | $ | (77,891 | ) | $ | (3,690 | ) | $ | (33,027 | ) | $ | (23,378 | ) | $ | (79,766 | ) | $ | (14,505 | ) | $ | (31,117 | ) | |||||||||
Balance Sheet Data (at period end): | |||||||||||||||||||||||||||||||||
Total assets | $ | 1,379,239 | $ | 1,523,153 | $ | 1,133,820 | $ | 1,071,936 | $ | 1,075,956 | $ | 1,081,662 | $ | 1,391,831 | $ | 1,530,055 | |||||||||||||||||
Total liabilities | 1,207,292 | 1,314,393 | 1,137,510 | 540,843 | 511,836 | 495,898 | 1,236,405 | 1,352,412 | |||||||||||||||||||||||||
Total long-term debt | 204,646 | 203,355 | — | — | — | — | 223,288 | 202,470 | |||||||||||||||||||||||||
Total stockholders’ equity (deficit)(5) | 171,947 | 208,760 | (3,690 | ) | 531,093 | 564,120 | 585,764 | 155,426 | 177,643 | ||||||||||||||||||||||||
Other Data: | |||||||||||||||||||||||||||||||||
Tons sold (in millions and unaudited) | 18.3 | 16.1 | — | 12.7 | 14.0 | 14.4 | 4.5 | 4.6 | |||||||||||||||||||||||||
Average sales price per ton (unaudited) | $ | 44.48 | $ | 47.69 | — | $ | 38.49 | $ | 32.20 | $ | 27.43 | $ | 49.44 | $ | 43.80 | ||||||||||||||||||
Net cash provided by (used in): | |||||||||||||||||||||||||||||||||
Operating activities | $ | 17,052 | $ | (91,318 | ) | $ | 15,000 | $ | 51,433 | $ | 30,462 | $ | 20,361 | $ | 25,399 | $ | (11,777 | ) | |||||||||||||||
Investing activities | (62,136 | ) | (64,544 | ) | (14,973 | ) | (51,443 | ) | (30,457 | ) | (20,356 | ) | (18,976 | ) | (9,013 | ) | |||||||||||||||||
Financing activities | 35,836 | 193,433 | — | — | — | — | (1,416 | ) | 19,145 | ||||||||||||||||||||||||
Adjusted EBITDA(6) (unaudited) | 43,969 | 72,672 | (3,690 | ) | 14,353 | 21,058 | (24,606 | ) | 12,231 | 5,145 | |||||||||||||||||||||||
Past mining obligation payments (unaudited) | 41,201 | 41,906 | — | (16,673 | ) | 33,395 | 57,836 | 4,214 | 9,237 | ||||||||||||||||||||||||
Additions to property, plant, equipment and mine development | 94,001 | 95,053 | — | 51,623 | 31,221 | 20,478 | 18,976 | 9,091 |
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(1) | Gain on exchange of mining reserves is an exchange of coal reserves with a third party accounted for in accordance with Statement of Financial Standards No. 153:Exchanges of Nonmonetary Assets, an Amendment of APB No. 29, Accounting for Nonmonetary Transactions. | |
(2) | During 2007, Magnum restructured a below market sales contract to reduce future shipments in exchange for a discounted price on tons remaining to be shipped. Magnum has reported a $3.7 million deferred liability which is included on the balance sheet as a part of the below market coal sales supply contracts acquired liability. Magnum recognized $0.4 million of revenue from the restructure of the contract in 2007. During 2006, Magnum agreed to terms with two large customers to restructure below market coal supply agreements for $183.8 million. The portion of the payment to buyout tons that would not be shipped of $25.5 million was charged to expense. The balance of the payment was recorded as prepaid coal sales contract restructuring and was amortized to expense during 2006 and 2007 in sales contract amortization (accretion). | |
(3) | Coal sales contracts acquired were recorded based upon the estimated fair value of coal contracts at the date of acquisition. Fair value was determined by an independent third party based upon the difference between the stated contract price and the price of contracts of similar duration and coal quality net of royalties and taxes as of December 31, 2005. Sales contract amortization (accretion) reflects expense or income based on the difference between the fair value of the contracts and the contract price and is based upon the shipments under the affected contracts. | |
(4) | In 2006, it was determined that Dakota was no longer economically viable to operate and the operations were discontinued. | |
(5) | Accumulated other comprehensive income increased stockholders’ equity by $79.7 million in 2007 due to the adoption of SFAS No. 158. | |
(6) | Adjusted EBITDA, a supplemental measure used by Magnum to measure operating performance, as used in this proxy statement/prospectus when referring to Magnum’s financial information, is defined as net income (loss), before giving effect to losses or gains from discontinued operations, net interest expense, income tax expense/(benefit), sales contract amortization, (accretion), depreciation, depletion and amortization, asset retirement obligation expense, change in interest rate swap, loss on debt extinguishment and the cumulative effect of changes in accounting principles. Magnum believes that Adjusted EBITDA and the related ratios are useful to investors because they are frequently used as a supplemental measure of ongoing operations by securities analysts, investors and other interested parties in the evaluation of companies in the coal industry. Adjusted EBITDA is also widely used by Magnum and others in the industry to evaluate and price potential acquisition candidates. Among other things, Adjusted EBITDA eliminates the impact of a number of items Magnum considers non-recurring and not indicative of Magnum’s ongoing operating performance. The term Adjusted EBITDA does not purport to be an alternative to operating income, net income or cash flows from operating activities as determined in accordance with GAAP as a measure of profitability or liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the Adjusted EBITDA presented above for Magnum may not be comparable to similarly titled measures of other companies. | |
Each adjustment should be evaluated along with the reasons Magnum considers them appropriate for supplemental analysis. In the future Magnum may incur expenses similar to the ones excluded from Adjusted EBITDA and readers are cautioned that Magnum’s future results may be affected by unusual or non-recurring items. |
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Three Months Ended | |||||||||||||||||||||||||||||||||
Year Ended December 31, | March 31, | ||||||||||||||||||||||||||||||||
Magnum Coal Company | Magnum Acquired Properties (Predecessor) | Magnum Coal Company | |||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2005 | 2004 | 2003 | 2008 | 2007 | ||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||
Net loss | $ | (121,557 | ) | $ | (77,891 | ) | $ | (3,690 | ) | $ | (33,027 | ) | $ | (23,378 | ) | $ | (79,766 | ) | $ | (14,505 | ) | $ | (31,117 | ) | |||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | — | (5,240 | ) | — | — | ||||||||||||||||||||||||
Loss from discontinued operations | 3,787 | 15,643 | — | — | — | — | — | 2,272 | |||||||||||||||||||||||||
Income tax provision | — | — | — | — | — | — | 1,384 | — | |||||||||||||||||||||||||
(Gain) loss on coal sales supply contract restructuring | (375 | ) | 25,513 | — | — | — | — | (183 | ) | — | |||||||||||||||||||||||
Sales contract amortization | 19,808 | (31,951 | ) | — | — | 1,469 | 14,170 | (15,029 | ) | 409 | |||||||||||||||||||||||
Depreciation, depletion and amortization | 112,210 | 113,978 | — | 34,070 | 32,165 | 33,173 | 27,846 | 27,370 | |||||||||||||||||||||||||
Asset retirement obligation expenses | 7,430 | 4,637 | — | 6,275 | 3,493 | 5,406 | 1,741 | 1,246 | |||||||||||||||||||||||||
Interest expense | 22,855 | 15,248 | — | 7,313 | 7,447 | 7,764 | 5,314 | 5,132 | |||||||||||||||||||||||||
Interest income | (1,740 | ) | (1,434 | ) | — | (278 | ) | (138 | ) | (113 | ) | (194 | ) | (424 | ) | ||||||||||||||||||
Loss on debt extinguishment | — | 9,677 | — | — | — | — | — | — | |||||||||||||||||||||||||
Costs associated with credit facility amendment | — | — | — | — | — | — | 3,572 | — | |||||||||||||||||||||||||
Change in interest rate swap | 1,551 | (748 | ) | — | — | — | — | 2,285 | 257 | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 43,969 | $ | 72,672 | $ | (3,690 | ) | $ | 14,353 | $ | 21,058 | $ | (24,606 | ) | $ | 12,231 | $ | 5,145 | |||||||||||||||
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(In thousands, except share and per share amounts)
Twelve Months Ended | Three Months Ended | |||||||
December 31, 2007 | March 31, 2008 | |||||||
Statements of Operations Data: | ||||||||
Total revenues | $ | 1,972,346 | $ | 510,502 | ||||
Operating profit | 126,179 | 28,631 | ||||||
Income from continuing operations | 113,518 | 22,850 | ||||||
Income from continuing operations per common share: | ||||||||
Basic | $ | 2.95 | $ | 0.59 | ||||
Diluted | 2.94 | 0.59 | ||||||
Shares used in computation of income from continuing operations per common share: | ||||||||
Basic | 38,480,669 | 38,523,339 | ||||||
Diluted | 38,546,911 | 38,642,199 |
As of | ||||
March 31, 2008 | ||||
Balance Sheet Data: | ||||
Total assets | $ | 3,291,919 | ||
Total current liabilities | 643,226 | |||
Notes and non-current obligations | 1,970,735 | |||
Total stockholders’ equity | 677,958 |
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• | current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect Patriot’s and Magnum’s ability to retain or attract key managers and other employees; | |
• | subject to the terms of their contracts, current and prospective customers of Patriot or Magnum may choose to discontinue purchasing from either company or choose another supplier; and | |
• | the attention of management of each of Patriot and Magnum may be diverted from the operation of the businesses toward the completion of the merger. |
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• | reduction of SO2 emissions imposed by Title IV of the Clean Air Act; | |
• | reduction of SO2, NOx and ozone emissions under Federal National Ambient Air Quality Standards; | |
• | reduction of NOx emissions under the NOx SIP Call program; | |
• | reduction of SO2 and NOx emissions under the Clean Air Interstate Rule; | |
• | reduction of and permanent cap on mercury emissions from coal-fired power plants under the Clean Air Mercury Rule; | |
• | potential reduction of carbon dioxide emissions; and | |
• | reduction requirements for regional haze around national parks and national wilderness areas under EPA limitations. |
• | reduction in demand for Patriot’s coal by electric utilities, Patriot’s largest customers, due to increased compliance requirements, which could impose significant capital expenditure burdens and costs on coal-fired electricity generation; | |
• | reduction in demand for Patriot’s coal due to decisions by Patriot’s customers to replace outdated coal plants with, or to construct new plants using, alternative fuel technologies, due to increased capital expenditure, cost, permitting restrictions or public opposition; and | |
• | increased costs to Patriot of coal miningand/or processing due to permitting requirementsand/or emission control requirements relating to particulate matter. |
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• | the familiarity of the board of directors with, and presentations by Patriot’s senior management regarding, the business, operations, financial condition, competitive position, business strategy, growth opportunities and prospects of Patriot and Magnum (as well as the risks involved in achieving those opportunities and prospects); | |
• | Patriot’s previously stated objectives of seeking value-enhancing growth opportunities through synergistic, accretive acquisitions in the Central Appalachian region; | |
• | the fact that Magnum’s assets and operations will increase Patriot’s metallurgical coal position, will expand Patriot’s thermal coal presence in the Central Appalachian region and provide both current production and reserves for future expansion; | |
• | the fact that an acquisition of Magnum is expected to be accretive within the first year after consummation of the merger; | |
• | the expected synergies of the acquisition, including an expanded resource base and infrastructure; | |
• | the fact that Magnum’s significant surface mining operations will allow Patriot to have a more balanced production mix between underground and surface mining; | |
• | the ability to optimize mining operations and coal sales portfolios as a result of the acquisition; | |
• | the fact that Magnum maintains a strong emphasis on the safety of its miners; | |
• | the risks relating to the merger described under“Risk Factors — Risks Relating to the Merger”. | |
• | the risks relating to Magnum’s business, including legacy liabilities, indebtedness, capital expenditure requirements, environmental liabilities and the other risks described under“Risk Factors — Risk Factors Relating to Magnum”; | |
• | the financial presentation of Lehman Brothers, including the oral and written opinion of Lehman Brothers that, as of the date of the merger agreement and based on and subject to various assumptions made, matters considered and limitations set forth in the opinion, the consideration to be paid by Patriot pursuant to the merger agreement is fair, from a financial point of view, to Patriot; | |
• | the financial presentation of Duff & Phelps, including the oral and written opinion of Duff & Phelps that, as of the date of the merger agreement and based on and subject to various assumptions made, matters considered and limitations set forth in the opinion, the consideration to be paid by Patriot pursuant to the merger agreement is fair, from a financial point of view, to Patriot; | |
• | the results of financial, legal and operational due diligence on Magnum performed by Patriot’s senior management and its financial advisors and legal counsel; | |
• | the terms of the merger agreement, including the conditions to closing and the indemnification rights available to Patriot for breaches of representations, warranties and covenants by Magnum; | |
• | the terms of the merger agreement regarding the circumstances under which Patriot may be obligated to reimburse Magnum for its fees and expenses incurred in connection with the transaction, up to a maximum reimbursement of $5 million; | |
• | the likelihood and anticipated timing of the receipt of required regulatory approvals for the merger and the completion of the merger; | |
• | the terms and conditions of the $150 million ArcLight financing, and the potential opportunity for Patriot to obtain alternative financing in lieu of the ArcLight financing; | |
• | the fact that the ArcLight Funds will hold approximately 16.9% of Patriot common stock outstanding as of the date of the merger agreement on a pro forma basis for the issuance in the merger and will be Patriot’s largest stockholder; and |
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• | the terms and conditions of the voting agreement, which provides for, among other things: |
• | the Patriot board of directors to be expanded from seven to nine and for Magnum stockholders party to the voting agreement, acting through the stockholder representative, to receive the right to appoint up to two members to the board of directors; | |
• | the agreement by certain Magnum stockholders party to the voting agreement to vote their shares of Patriot common stock as directed by Patriot’s board of directors in certain matters; | |
• | the agreement by certain Magnum stockholders party to the voting agreement to be subject to certain “standstill” limitations with respect to their shares of Patriot common stock; and | |
• | the agreement by the Magnum stockholders party to the voting agreement to be subject to certain transfer restrictions for up to one year after the effective time of the merger. |
• | the fact that the merger was supported by Magnum stockholders owning more than 98.5% of the issued and outstanding shares of Magnum common stock, by virtue of such stockholders entering into support agreements concurrently with the execution and delivery of the merger agreement; | |
• | the aggregate amount of Patriot common stock to be received by Magnum stockholders in the merger; | |
• | Magnum’s ongoing capital needs and its potential need for additional financing in the current credit environment; | |
• | the fact that the merger consideration is payable in Patriot common stock, providing Magnum stockholders the opportunity to participate in the long-term appreciation of the combined Patriot-Magnum entity; | |
• | the fact that the Patriot common stock to be issued to the Magnum stockholders in the merger will be registered onForm S-4 and will be (subject to the contractuallock-up agreements discussed under“Ancillary Transaction Agreements — Voting Agreement — Transfer Restrictions”) able to be sold without restriction on the New York Stock Exchange by Magnum stockholders who are non-affiliates of Patriot, and the fact that Patriot’s market capitalization and the trading volume would provide Magnum stockholders with the liquidity necessary to sell their Patriot common stock to be received in the merger, if desired; |
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• | the strategic fit between Patriot and Magnum, including the expected commercial and operational synergies, enhancements to the combined company’s product line, a more diverse mining operation and a broader customer base; | |
• | the terms and conditions of the merger agreement and related transaction documents that Magnum is a party to, including the limited circumstances in which the board of directors of Patriot is permitted to modify or withdraw its recommendation of the transaction, and the merger agreement expense reimbursement obligations upon certain termination events; | |
• | the likelihood that the merger will be consummated on a timely basis, including the likelihood that the merger will receive all necessary regulatory approvals; | |
• | the anticipated tax-free nature of the transaction to Magnum’s stockholders with respect to the receipt of Patriot common stock; | |
• | the results of financial, legal and operational due diligence on Patriot; | |
• | the possible alternatives to the merger (including potential business combinations and strategic alliances with other companies or remaining an independent company) and the likely value to Magnum stockholders in such alternatives; | |
• | the lack of a “collar” related to Patriot common stock to be issued in the merger, thereby not providing any guarantee of the value of Patriot common stock to be received by Magnum stockholders in the merger; | |
• | the fact that, subject to certain limitations, consummation of the merger would be subject to the consummation of the ArcLight financing or the receipt by Patriot of financing from an alternate source in an amount not less than the amount of the ArcLight financing; | |
• | the risk that the benefits sought to be achieved in the merger will not be realized; | |
• | the fact that Patriot was recently spun-off from Peabody and has operated as an independent company only for a short period of time; | |
• | the lack of a long-term trading history of the Patriot common stock, and the volatility of the price of Patriot common stock since it commenced trading in the fourth quarter of 2007, and the likelihood that the Patriot stock price would continue, both before and after the completion of the merger, to be volatile; | |
• | the risk that the merger might not be consummated and the potential adverse effect of the public announcement of the merger on Magnum’s business reputation and ability to obtain financing in the future; | |
• | the inherent challenges in combining the business of Magnum and Patriot and the attendant risk that management resources may be diverted from other strategic opportunities and operational matters for the period of time required to consummate the merger; and | |
• | the other risks connected with the merger and with the business of Patriot described in the sections captioned“Risk Factors” in this proxy statement/prospectus. |
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• | the draft merger agreement dated March 25, 2008 and the specific terms of the proposed transaction; | |
• | publicly available information concerning Patriot and Magnum that Lehman Brothers believed to be relevant to its analysis, including, without limitation, the Annual Report onForm 10-K for the year ended December 31, 2007 for Patriot; | |
• | financial and operating information with respect to the business, operations and prospects of Magnum furnished to Lehman Brothers by Magnum and Patriot, including (i) financial projections of Magnum prepared by management of Magnum and (ii) financial projections of Magnum prepared by management of Patriot; | |
• | financial and operating information with respect to the business, operations and prospects of Patriot furnished to Lehman Brothers by Patriot, including (i) financial projections of Patriot prepared by management of Patriot and (ii) the amount and timing of the cost savings and operating synergies expected by the management of Patriot to result from the proposed transaction (the“Expected Synergies”); | |
• | a comparison of the historical financial results and present financial condition of Patriot and Magnum with each other and with those of other companies that Lehman Brothers deemed relevant; | |
• | a comparison of the financial terms of the proposed transaction with the financial terms of certain other transactions that Lehman Brothers deemed relevant; | |
• | the potential pro forma impact of the proposed transaction on the current financial condition and future financial performance of Patriot, including the Expected Synergies; and | |
• | estimates of certain proved and probable reserves of Magnum conducted by third party reserve engineers dated February 29, 2008 (the“Reserve Report”). |
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• | Alpha Natural Resources | |
• | International Coal Group | |
• | James River Coal Company | |
• | Massey Energy |
• | Arch Coal |
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• | CONSOL | |
• | Foundation Coal | |
• | Peabody Energy |
Combined Tier I | ||||||||
& II Range | Tier I Range | |||||||
Ratio of Enterprise Value to: | ||||||||
2008 Estimated EBITDA | 7.3x - 13.1 | x | 7.3x - 9.9 | x | ||||
2009 Estimated EBITDA | 4.6x - 9.0 | x | 4.6x - 6.6 | x |
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Patriot Equity | Magnum Equity | |||||||
Relative Equity Contribution Based on: | Contribution | Contribution | ||||||
Proven and Probable Coal Reserves | 72 | % | 28 | % | ||||
Tons of Coal Sold | 57 | % | 43 | % | ||||
2007 EBITDA | 76 | % | 24 | % | ||||
2006-2007 Average EBITDA(1) | 72 | % | 28 | % | ||||
2005-2007 Average EBITDA(1) | 71 | % | 29 | % | ||||
2008 Estimated EBITDA | 59 | % | 41 | % |
(1) | Historical EBITDA is pro forma for the acquisition of the Magnum acquired properties and adjusted for any unusual items. |
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• | A review of the following documents: |
• | Certain publicly available financial statements and other business and financial information of Patriot and the industries in which it operates; | |
• | Certain internal financial statements and other financial and operating data concerning Patriot and Magnum, respectively, including, without limitation, that which Patriot and Magnum have respectively identified as being the most current financial statements available; | |
• | Certain financial forecasts, as well as information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the management of Patriot; |
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• | Certain financial forecasts prepared by the management of Magnum, as adjusted by the management of Patriot; and | |
• | A draft of the merger agreement dated March 25, 2008; |
• | A discussion of the operations, financial conditions, future prospects and projected operations and performance of Patriot and Magnum with the management of Patriot, and a discussion of the merger with the management of Patriot; | |
• | A review of the historical trading price and trading volume of Patriot’s common stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant; | |
• | A comparison of the financial performance of Patriot and Magnum with that of certain other publicly traded companies that Duff & Phelps deemed relevant; | |
• | A comparison of certain financial terms of the merger to financial terms, to the extent publicly available, of certain business combination transactions that Duff & Phelps deemed relevant; and | |
• | An undertaking of such other analyses and consideration of such other factors as Duff & Phelps deemed appropriate. |
• | Relied upon the accuracy, completeness, and fair presentation of all information, data and representations obtained from public sources or provided to it from private sources, including Patriot’s management, and did not independently verify such information; | |
• | Assumed that any estimates, evaluations, forecasts and projections (financial or otherwise) (including, without limitation, as to the strategic, financial and operational benefits anticipated from the merger, which we refer to as the strategic benefits, and including, without limitation, as to projections by Patriot’s management and industry sources as to future coal prices) furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps has further assumed that the strategic benefits will be realized at the times and in the amounts projected by Patriot; | |
• | Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed; | |
• | Assumed that information supplied to Duff & Phelps and representations and warranties made in the merger agreement are accurate in all material respects and that each party will perform in all material respects all covenants and agreements required to be performed by such party; | |
• | Assumed that all of the conditions required to implement the merger will be satisfied and that the merger will be completed in accordance with the merger agreement without any material amendments thereto or any waivers of any terms or conditions thereof; | |
• | Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Patriot or the contemplated benefits expected to be derived in the merger; | |
• | Assumed and relied upon, without verification, the accuracy and adequacy of the legal advice given by counsel to Patriot on all legal maters with respect to the merger; | |
• | Assumed all procedures required by law to be taken in connection with the merger have been or will be taken duly, validly and timely taken and that the merger will be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act of 1933, as amended, the Securities Act of 1934, as amended, and all other applicable statutes, rules and regulations; | |
• | Assumed that the merger will be treated as a tax-free transaction for United States federal income tax purposes; |
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• | Relied upon, without independent verification, representations by Patriot’s management and third-party estimates as to the expenses and annual cash costs of certain liabilities of Patriot and Magnum associated with (i) reclamation of mines, (ii) health care benefits for past and present work force, (iii) workers’ compensation claims for compensable work-related injuries and occupational disease, and (iv) federally mandated benefits for occupational disease (collectively, the“Legacy Liabilities”); and | |
• | Assumed that there would be no material change in regulations governing the production of coal, regulations that would restrict key users of coal (i.e., coal-fired power plants, etc.) from utilizing coal as an input, or regulations that would materially increase the expected cash obligations related to Legacy Liabilities. |
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Adj. EV / | Adj. EV / | Adj. EV / | ||||||||||||||||||||||
EV / 2008 | EV / 2009 | 2008 Adj. | 2009 Adj. | Coal Reserves | Price / 2008 | |||||||||||||||||||
EBITDA | EBITDA | EBITDA | EBITDA | (mm tons) | EPS | |||||||||||||||||||
East Region — Tier I | ||||||||||||||||||||||||
Low | 7.1 | x | 4.8 | x | 7.3 | x | 5.3 | x | 1.47 | x | 18.5 | x | ||||||||||||
High | 9.9 | x | 6.6 | x | 9.9 | x | 6.5 | x | 5.54 | x | 31.3 | x | ||||||||||||
Mean | 8.7 | x | 5.9 | x | 8.8 | x | 6.0 | x | 2.84 | x | 24.9 | x | ||||||||||||
Median | 8.9 | x | 6.0 | x | 9.0 | x | 6.1 | x | 2.17 | x | 24.9 | x | ||||||||||||
Tier II | ||||||||||||||||||||||||
Low | 8.2 | x | 6.3 | x | 9.0 | x | 7.1 | x | 1.97 | x | 18.3 | x | ||||||||||||
High | 12.9 | x | 9.3 | x | 13.0 | x | 9.5 | x | 3.82 | x | 36.2 | x | ||||||||||||
Mean | 10.7 | x | 7.8 | x | 11.2 | x | 8.3 | x | 2.71 | x | 26.3 | x | ||||||||||||
Median | 10.9 | x | 7.7 | x | 11.4 | x | 8.3 | x | 2.52 | x | 25.5 | x | ||||||||||||
Aggregate Group | ||||||||||||||||||||||||
Low | 7.1 | x | 4.8 | x | 7.3 | x | 5.3 | x | 1.47 | x | 18.3 | x | ||||||||||||
High | 12.9 | x | 9.3 | x | 13.0 | x | 9.5 | x | 5.54 | x | 36.2 | x | ||||||||||||
Mean | 9.7 | x | 6.8 | x | 10.0 | x | 7.2 | x | 2.77 | x | 25.9 | x | ||||||||||||
Median | 9.4 | x | 6.5 | x | 9.6 | x | 6.8 | x | 2.43 | x | 25.5 | x |
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Acquirer Name | Target Name | |
Helios Australia Pty, Ltd. | Cumnock Coal, Ltd. | |
Constellation Energy Partners LLC | Amvest Osage, Inc. | |
CONSOL Energy, Inc. | AMVEST Corporation | |
National Coal Corp. | Mann Steel Products, Inc. | |
Cleveland-Cliffs Inc. | PinnOak Resources, LLC | |
Companhia Vale do Rio Doce | AMCI Holdings Australia Pty | |
Natural Resource Partners, LP | 70 million tons of coal reserves from Quadrant Corp. | |
Natural Resource Partners, LP | 20 million tons of coal reserves from National Resources, Inc. | |
Natural Resource Partners, LP | 49 million tons of coal reserves currently leased to Cline mining | |
Mechel Open Joint Stock Company | Moscow Coke and Gas Plant OAO (Moskoks) | |
Peabody Energy Corp. | Excel Coal Ltd. | |
Evergreen Energy, Inc., f/k/a KFx, Inc. | Buckeye Industrial Mining Company, Inc. | |
CEZ AS | Severoceske Doly AS | |
Alpha Natural Resources, Inc. | Nicewonder Contracting, Inc. | |
Penn Virginia Resource Partners, LP | Kentucky Emerald Land Co. — Certain coal reserves and assets | |
Penn Virginia Resource Partners, LP | Coal Property in West Virginia | |
International Coal Group, Inc. | Anker Coal Group, Inc. | |
James River Coal Co. | Triad Mining, Inc. | |
Centennial Coal Co., Ltd. | Austral Coal Ltd. | |
Kiewit Mining Group, Inc. | Triton Coal Company, Buckskin Mine | |
Peabody Energy Corp. | RAG Australia Coal Pty Limited (from RAG Coal International AG) | |
Peabody Energy Corp. | RAG “Colorado properties” (from RAG Coal International AG) | |
First Reserve Corporation, Blackstone Group, etc. | Foundation Coal Holdings, Inc. |
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Total Amount of | ||||||||||||||||||||
Conversion of the Magnum Convertible Notes(1) | Common Stock of | Amount of | ||||||||||||||||||
Principal | Magnum Post | Patriot Common | ||||||||||||||||||
Amount of | Conversion of | Stock to Be | ||||||||||||||||||
Magnum | Conversion | the Magnum | Received upon | |||||||||||||||||
Amount of Magnum | Convertible | Shares | Convertible | the Effective | ||||||||||||||||
Name | Common Stock Owned | Notes Owned | in Magnum | Notes | Time(2) | |||||||||||||||
Board of Directors | ||||||||||||||||||||
Dan Revers(3) | 27,144,002 (52.79 | %) | $ | 63,214,596 | 8,690,427 | 35,834,429 | 6,544,345 | |||||||||||||
Robb Turner(4) | 27,144,002 (52.79 | %) | $ | 63,214,596 | 8,690,427 | 35,834,429 | 6,544,345 | |||||||||||||
Phil Messina(5) | 27,144,002 (52.79 | %) | $ | 63,214,596 | 8,690,427 | 35,834,429 | 6,544,345 | |||||||||||||
Allyson Tucker(6) | 0 | $ | 0 | 0 | 0 | 0 | ||||||||||||||
Paul Vining | 463,887 (0.90 | %) | $ | 154,000 | 21,171 | 485,058 | 88,585 | |||||||||||||
Larry Altenbaumer | 12,000 (0.02 | %) | $ | 0 | 0 | 12,000 | 2,192 | |||||||||||||
All Directors (aggregate) | 27,619,889 (53.71 | %) | $ | 63,368,596 | 8,711,598 | 36,331,487 | 6,635,121 | |||||||||||||
Officers | ||||||||||||||||||||
David Turnbull | 111,112 | 20,000 | 2,750 | 113,862 | 20,794 | |||||||||||||||
Richard Verheij | 191,750 | 25,000 | 3,437 | 195,187 | 35,646 | |||||||||||||||
Robert Bennett | 209,975 | 0 | 0 | 209,975 | 38,347 | |||||||||||||||
Dwayne Francisco | 335,629 | 0 | 0 | 335,629 | 61,295 | |||||||||||||||
Keith St. Clair | 241,335 | 0 | 0 | 241,335 | 44,074 | |||||||||||||||
All Officers (aggregate)(6) | 1,089,801 (2.12 | %) | $ | 45,000 | 6,186 | 1,095,987 | 200,156 | |||||||||||||
(1) | The conversion of the Magnum convertible notes assumes: (i) that the volume-weighted average price of Patriot common stock during the ten trading days immediately preceding the effective time of the merger will not be below approximately $41 per share, which would result in a conversion price of $7.50 per share of Magnum common stock, and (ii) the closing of the merger on July 15, 2008, which would result in the conversion of 111 days of accrued and unpaid interest on the Magnum convertible notes, in addition to principal. | |
(2) | Assuming 11,901,729 shares of Patriot common stock are issued to Magnum stockholders in the merger. | |
(3) | Mr. Revers is a managing director and member of ArcLight Capital Holdings, LLC. 27,144,002 shares indicated as owned by Mr. Revers are included because of Mr. Rever’s affiliation with the ArcLight Funds. Mr. Revers disclaims beneficial ownership of all shares owned by the ArcLight Funds and neither the filing of this document nor any of its contents shall be deemed to constitute an admission by Mr. Revers that he is the beneficial owner of any of the securities referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or for any other purpose. Mr. Revers’ address is c/o ArcLight Capital Partners, LLC, 200 Clarendon Street, 55th Floor, Boston, MA 02117. | |
(4) | Mr. Turner is senior partner and member of ArcLight Capital Holdings, LLC. 27,144,002 shares indicated as owned by Mr. Turner are included because of Mr. Turner’s affiliation with the ArcLight Funds. Mr. Turner disclaims beneficial ownership of all shares owned by the ArcLight Funds and neither the filing of this document nor any of its contents shall be deemed to constitute an admission by Mr. Turner that he is the beneficial owner of any of the securities referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or for any other purpose. Mr. Turner’s address isc/o ArcLight Capital Partners, LLC, 200 Clarendon Street, 55th Floor, Boston, MA 02117. | |
(5) | Mr. Messina is a principal of ArcLight Capital Holdings, LLC. 27,144,002 shares indicated as owned by Mr. Messina are included because of Mr. Messina’s affiliation with the ArcLight Funds. Mr. Messina disclaims beneficial ownership of all shares owned by the ArcLight Funds and neither the filing of this document nor any of its contents shall be deemed to constitute an admission by Mr. Messina that he is the beneficial owner of any of the securities referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or for any other purpose. Mr. Messina’s address isc/o ArcLight Capital Partners, LLC, 200 Clarendon Street, 55th Floor, Boston, MA 02117. | |
(6) | Includes unvested restricted stock. |
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• | a financial institution or insurance company; | |
• | a tax-exempt organization; | |
• | a dealer or broker in securities; |
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• | a stockholder who holds Magnum common stock as part of a hedge, appreciated financial position, straddle, or conversion or integrated transaction; or | |
• | a stockholder who acquired Magnum common stock pursuant to the exercise of compensatory options or otherwise as compensation. |
• | a citizen or resident of the United States; | |
• | a corporation, or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof; or | |
• | an estate or trust the income of which is subject to United States federal income taxation regardless of its source. |
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• | the merger does not occur by September 30, 2008; | |
• | the merger agreement is amended or modified in any manner that is materially adverse to the interests of the lenders under the Patriot Credit Agreement; | |
• | any representation, warranty or covenant in the merger agreement is breached, unless Patriot certifies that such breach does not give Patriot a right not to consummate the merger, whether or not Patriot exercises or waives such right; | |
• | cash paid by Patriot to repay existing indebtedness of Magnum in connection with the consummation of the merger is obtained from sources other than the ArcLight financing or an alternate financing as permitted by the amendment, subject to certain exceptions relating to payment of fees and expenses and letters of credit; | |
• | the intercreditor agreement is not executed and delivered on or prior to the effective time of the merger, unless an alternate financing will be consummated in lieu of the ArcLight financing; | |
• | Patriot has not delivered a certificate to the effect that as of the effective time of the merger, no default exists or will exist after giving effect to the merger; or | |
• | immediately prior to and after giving effect to the merger, the aggregate of unused and available commitments under the Patriot Credit Agreement and other free and unencumbered cash and cash equivalents available to Patriot is less than a specified amount. |
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• | the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement has been approved by the affirmative vote of a majority of the votes cast by Patriot stockholders at the special meeting where the total vote cast represents over fifty percent in interest of the Patriot common stock entitled to vote on the issuance; | |
• | no court order or injunction prohibits consummation of the merger and no federal, state, local or foreign law, regulation or other similar requirement has been enacted or applied by a governmental authority that prohibits the consummation of the merger; | |
• | the waiting period under the HSR Act applicable to the merger, including any such waiting period relating to the issuance of Patriot common stock in respect of any filing by the ArcLight Funds and the parent of Cascade Investment, L.L.C., has expired or has been terminated; | |
• | the registration statement relating to the issuance of Patriot common stock in the merger, of which this proxy statement/prospectus forms a part, has been declared effective and no stop order suspending the effectiveness of the registration statement is in effect, and no proceeding for that purpose is pending before or threatened by the SEC; and | |
• | the shares of the Patriot common stock to be issued in the merger have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. |
• | Magnum has performed in all material respects all of its obligations under the merger agreement required to be performed by Magnum at or prior to the effective time of the merger; | |
• | Magnum’s representations and warranties relating to: |
• | corporate authorization; | |
• | capitalization, ownership of Magnum common stock and the Magnum convertible notes; | |
• | investment banker and finders’ fees; | |
• | the receipt of an opinion from its financial advisor; | |
• | the inapplicability of antitakeover statutes to the merger agreement and compliance with the Magnum stockholders agreement; and | |
• | affiliate transactions of Magnum, |
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• | the representations and warranties of Magnum’s stockholders in the voting agreement and the support agreements are true at and as of the effective time of the merger as if made at and as of such time, or if any such representation and warranty expressly speaks as of an earlier date, then as of such earlier date, with such exceptions as would not, in the aggregate, adversely affect in any material respect any material right of, benefit to or obligation of Patriot contained in those other transaction documents; | |
• | the other representations and warranties of Magnum in the merger agreement and in any certificate or other writing delivered by Magnum pursuant to the merger agreement, disregarding any qualifications in such representations and warranties as to materiality or material adverse effect, shall be true at and as of the effective time as if made at and as of such time, or if any such representation and warranty expressly speaks as of an earlier date, then as of such earlier date, except where the failure of such representations and warranties to be true and correct, in the aggregate, has not had and would not reasonably be expected to have a Magnum material adverse effect; | |
• | there is no pending suit, action or proceeding by any governmental authority (and no applicable law, injunction or order shall have been proposed or enacted by a governmental authority that could, directly or indirectly, reasonably be expected to result in any of the following consequences): |
• | seeking to restrain, prohibit or otherwise interfere with the ownership or operation by Patriot of all or any material portion of the business or assets of Magnum or of Patriot or to compel Patriot to dispose of all or any material portion of the business or assets of Magnum or of Patriot; | |
• | seeking to impose or confirm limitations on the ability of Patriot to exercise full ownership rights of Magnum; or | |
• | seeking to require divestiture by Patriot of Magnum or any material portion of Magnum’s or Patriot’s businesses or assets, |
• | each of the escrow agreement and registration rights agreement has been executed and delivered and is in full force and effect; | |
• | each of the support agreements and the voting agreement is in full force and effect, with no challenges to effectiveness by any Magnum stockholders party thereto; | |
• | the consents to the merger of certain third parties have been obtained and are in full force and effect; | |
• | Magnum has delivered to Patriot a certificate that sets forth all transaction expenses of Magnum and certifies that all of Magnum’s consultants and advisors have agreed to the amounts set forth in such certificate; | |
• | the absence of a mining catastrophe suffered by Magnum that has involved, or would be reasonably likely to involve, a loss of lives; | |
• | Magnum has delivered to Patriot a certificate setting forth: |
• | the number of shares of Magnum common stock outstanding immediately prior to the effective time of the merger, including the shares of Magnum common stock to be issued upon conversion of the Magnum convertible notes; | |
• | the number of shares of Magnum common stock held by each designated stockholder of Magnum immediately prior to the effective time of the merger; and | |
• | the merger conversion price applicable to the Magnum convertible notes pursuant to the note purchase agreement relating to the Magnum convertible notes; |
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• | Patriot has either consummated the ArcLight financing or consummated a financing of not less than $150 million from an alternate source (which condition was satisfied upon consummation of the offering of Patriot convertible notes); and | |
• | Patriot has received customary documents relating to the existence of Magnum and its subsidiaries and the authority of Magnum with respect to the merger agreement. |
• | Patriot has performed in all material respects all of its obligations under the merger agreement required to be performed by Patriot at or prior to the effective time of the merger; | |
• | Patriot’s representations and warranties relating to: |
• | corporate authorization; | |
• | capitalization; | |
• | investment banker and finders’ fees; |
• | the receipt of opinions from each of Lehman Brothers and Duff & Phelps; and | |
• | the inapplicability antitakeover statutes to the merger agreement and amendment to Patriot’s rights agreement; |
• | the other representations and warranties of Patriot in the merger agreement and in any certificate or other writing delivered by Patriot pursuant to the merger agreement, disregarding any qualifications in such representations and warranties as to materiality or material adverse effect, are true at and as of the effective time of the merger as if made at and as of such time, or if such representation and warranty expressly speaks as of an earlier date, then such representation and warranty will be true as of such earlier date, except where the failure of such representations and warranties to be true and correct, in the aggregate, has not had and would not reasonably be expected to have a Patriot material adverse effect; | |
• | each of the escrow agreement and the registration rights agreement has been executed and delivered, and the Rights Agreement has been amended, and each of the foregoing is in full force and effect; | |
• | the absence of a mining catastrophe suffered by Patriot that has involved, or would be reasonably likely to involve, a loss of lives; and | |
• | Magnum has received customary documents relating to Patriot’s existence and its authority with respect to the merger agreement. |
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• | any adverse changes or developments affecting the industry in which Magnum operates, the U.S. economy as a whole, financial markets or the markets in which Magnum operates, except to the extent, in any such case, disproportionately impacting Magnum as compared to the other entities operating in such industries or markets (and in such case, only the disproportionate impact shall be taken into account in determining if a Magnum material adverse effect has occurred); | |
• | any adverse changes or developments relating to changes in accounting requirements or applicable law, except to the extent, in either case, disproportionately impacting Magnum as compared to the other entities operating in the industries in which Magnum operates (and in such case, only the disproportionate impact shall be taken into account in determining if a Magnum material adverse effect has occurred); | |
• | any adverse changes or developments arising from Magnum’s compliance with its obligations under the merger agreement or other transaction documents; or | |
• | the breach of the merger agreement or any other transaction document by Patriot or its affiliates. |
• | any adverse changes or developments affecting the industry in which Patriot operates, the U.S. economy as a whole, financial markets or the markets in which Patriot operates, except to the extent, in any such case, disproportionately impacting Patriot as compared to the other entities operating in such industries or markets (and in such case, only the disproportionate impact shall be taken into account in determining if a Patriot material adverse effect has occurred); | |
• | any adverse changes or developments relating to changes in accounting requirements or applicable law, except to the extent, in either case, disproportionately impacting Patriot as compared to the other entities operating in the industries in which Patriot operates (and in such case, only the disproportionate impact shall be taken into account in determining if a Patriot material adverse effect has occurred); | |
• | any adverse changes or developments arising from Patriot’s compliance with its obligations under the merger agreement or other transaction documents; | |
• | a decline in the price or trading volume of Patriot’s common stock on the New York Stock Exchange (but any underlying cause for any such change may be considered); or | |
• | the breach of the merger agreement or any other transaction document by Magnum or its affiliates or stockholders. |
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• | by mutual written agreement of Patriot and Magnum; | |
• | by either Patriot or Magnum, if: |
• | the merger is not consummated by September 30, 2008, provided that this right to terminate will not be available to a party if its breach of the merger agreement caused the failure of the merger to be consummated by such time; | |
• | any applicable law or a final nonappealable injunction prohibits consummation of the merger; or | |
• | Patriot stockholders do not approve the issuance of Patriot common stock to the holders of Magnum common stock at the Patriot stockholders meeting; or |
• | by Patriot, if: |
• | a breach of Magnum’s representations and warranties or covenants would result in a failure to satisfy the closing conditions and Magnum is not using commercially reasonably efforts to cure such breach or failure or such condition would not reasonably be expected to be satisfied by September 30, 2008; or | |
• | Magnum has notified Patriot that the closing condition relating to the accuracy of Magnum’s representations and warranties except for such exceptions that would not have a Magnum material adverse effect is not capable of being satisfied (see“The Merger Agreement — Termination of the Merger Agreement — Notice of Material Adverse Effect”below); or |
• | by Magnum, if: |
• | Patriot’s board of directors fails to make, withdraws, or modifies in a manner adverse to Magnum, its recommendation that Patriot’s stockholders approve the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement and Patriot stockholder approval of the issuance of Patriot common stock to the holders of Magnum common stock has not occurred prior to termination; |
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• | a breach of Patriot’s representations and warranties or covenants would result in a failure of the closing conditions to be satisfied and Patriot is not using commercially reasonably efforts to cure such breach or failure or such condition would not reasonably be expected to be satisfied by September 30, 2008; | |
• | Patriot enters into any agreement with respect to (1) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, sale of all or substantially all of its assets or other similar transaction that, in any such case, requires the approval of Patriot stockholders under Delaware law or (2) a transaction involving the issuance of 20% or more of Patriot common stock, and, in either such case, the record date for the stockholder vote to approve such transaction occurs prior to the merger’s closing date; or | |
• | Patriot has notified Magnum that the closing condition relating to the accuracy of Patriot’s representations and warranties except for such exceptions that would not have a Patriot material adverse effect is not capable of being satisfied (see“The Merger Agreement — Termination of the Merger Agreement — Notice of Material Adverse Effect”below). |
• | Patriot stockholders do not approve the issuance of Patriot common stock to the holders of Magnum common stock at the Patriot stockholders meeting; or | |
• | Patriot’s board of directors fails to make, withdraws, or modifies in a manner adverse to Magnum, its recommendation that Patriot’s stockholders approve the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement; |
• | the merger has not been consummated by September 30, 2008 and at the time of termination, the closing condition related to the ArcLight financing is not satisfied solely as a result of a potential claim of default under the Patriot Credit Agreement relating to the terms of the ArcLight financing, and all other closing conditions have been satisfied or are immediately capable of being satisfied or waived; |
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• | amend its articles of incorporation, bylaws or other similar organizational documents; | |
• | split, combine or reclassify any shares of its capital stock or declare, set aside or pay any dividend or other distribution in respect of its capital stock; | |
• | redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of its securities, other than repurchases required by Magnum’s stock incentive plan; | |
• | amend the terms of any securities or issue any securities, other than the issuance of Magnum common stock upon conversion of the Magnum convertible notes; | |
• | incur any capital expenditures or any obligations or liabilities in respect of capital expenditures; | |
• | acquire any assets or properties, other than supplies in the ordinary course of business, certain coal reserves, certain permitted capital expenditures, and certain securities related to reclamation obligations; | |
• | sell, lease or otherwise transfer, or incur any lien on, assets or properties, other than certain permitted liens, sales of inventory in the ordinary course of business and sales of certain assets or properties; | |
• | make any loans, advances or capital contributions, other than certain loans and advances made in the ordinary course of business; | |
• | create, incur, assume or otherwise be indebted for borrowed money, if after such action the aggregate principal amount of indebtedness for borrowed money (excluding capital leases and certain loans relating to letters of credit) of Magnum and its subsidiaries would exceed $250,000,000 (after deducting up to $25,000,000 in unrestricted cash or cash equivalents); | |
• | enter into any agreement or arrangement that would restrict Magnum, Patriot or any of their respective affiliates from engaging or competing in any line of business after the effective time; | |
• | enter into certain contracts or amend, modify or terminate certain contracts; | |
• | amend, grant or increase any compensation, severance or termination benefits of any director, officer or employee or enter into or amend any benefit plan or any employment or similar agreement; | |
• | change accounting methods; | |
• | settle, or offer or propose to settle, certain types of litigation, investigations, arbitrations, proceedings or other claims; | |
• | take any action that would intentionally make any representation or warranty of Magnum under the merger agreement inaccurate in any material respect at, or as of any time before, the effective time of the merger as if made as of the effective time; |
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• | permit its existing lessees or licensees to conduct exploration or similar operations for natural resources in a manner that will adversely affect any active coal mining operations on its property in any material respect; or | |
• | agree, resolve or commit to do any of the foregoing. |
• | adopt or propose any change in its certificate of incorporation or bylaws; | |
• | declare, set aside or pay any dividend or other distribution in respect of its capital stock; and | |
• | take any action, or permit its subsidiaries to take any action, that would intentionally make any representation or warranty of Patriot under the merger agreement inaccurate in any material respect at, or as of any time prior to, the effective time of the merger as if made as of the effective time. |
• | corporate existence, power and good standing; | |
• | corporate power and authorization to execute, deliver and perform the merger agreement, the other transaction documents, and the transactions contemplated by the merger agreement and the other transaction documents; | |
• | required consents, approvals and authorizations of governmental authorities and third parties relating to the merger agreement and the other transaction documents; | |
• | board approval of the merger agreement, the merger and the related transactions; | |
• | capitalization; | |
• | subsidiaries; | |
• | financial statements; | |
• | the absence of certain changes, events or developments concerning the party and its subsidiaries; | |
• | absence of undisclosed material liabilities; | |
• | compliance with laws, including mining laws and related matters; | |
• | litigation; | |
• | investment banker and finders’ fees; | |
• | receipt of an opinion from its financial advisor; | |
• | tax matters; | |
• | employee benefits and labor matters; | |
• | environmental matters; | |
• | antitakeover statutes; | |
• | material contracts; | |
• | real and personal property matters; |
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• | intellectual property matters; | |
• | licenses and permits; | |
• | affiliate transactions; | |
• | absence of certain business practices; and | |
• | accuracy of its representations and warranties. |
• | insurance coverage; | |
• | employees; | |
• | absence of undisclosed material facts; and | |
• | customers and suppliers. |
• | receipt of the bridge facility commitment letter from the ArcLight Funds; | |
• | Patriot’s SEC filings; and | |
• | the amendment to the Patriot rights agreement. |
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• | misrepresentation or breach of warranty or alleged misrepresentation or breach of warranty made by Magnum pursuant to the merger agreement or any other transaction document; | |
• | breach of covenant or agreement made by Magnum pursuant to the merger agreement or any other transaction document; | |
• | demand for appraisal by a holder of Magnum common stock in connection with the merger; | |
• | claim, suit, action or proceeding by any holder of: |
• | Magnum capital stock, in connection with the merger or the other transactions contemplated by the merger agreement, or relating to its ownership of shares of Magnum common stock or the issuance of the Magnum convertible notes; or | |
• | Magnum convertible notes, except for certain claims relating to the conversion of the notes into Magnum common stock prior to the effective time; or |
• | transaction expenses (other than those resulting in an adjustment to the number of shares of Patriot common stock issued in the merger) in excess of the sum of $4 million and the amounts paid to Magnum’s financial advisor with respect to the merger. |
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• | misrepresentation or breach of warranty or alleged misrepresentation or breach of warranty made by Patriot pursuant to the merger agreement or any other transaction document; or | |
• | breach of covenant or agreement made by Patriot pursuant to the merger agreement or any other transaction document; |
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• | acquire, offer, or propose or seek to acquire, any Patriot securities or options to acquire Patriot securities; | |
• | enter into, agree, offer, propose or seek to enter into, or be involved in, any acquisition transaction, merger or other business combination relating to Patriot or all or substantially all of Patriot’s assets or businesses; | |
• | make, or in any way participate in a solicitation of proxies to vote, or seek to advise or influence any person with respect to the voting of, any Patriot voting securities; | |
• | form, join or participate in a “group” with respect to any Patriot voting securities; | |
• | seek, propose or otherwise act alone or in concert with others, to influence or control Patriot’s management, policies, or board of directors; | |
• | enter into any discussions or arrangements with any other person with respect to any of the foregoing activities; | |
• | advise, assist, knowingly encourage, act as a financing source for or invest in any other person in connection with any of the foregoing activities; or | |
• | disclose any intention or plan inconsistent with any of the foregoing. |
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• | no transfers will be permitted for 180 days following the effective time of the merger; | |
• | between 180 days after the effective time and 270 days after the effective time, up to fifty percent of their shares may be transferred; | |
• | between 270 days after the effective time and 360 days after the effective time, up to seventy-five percent of their shares may be transferred; and | |
• | no restrictions will apply after 360 days after the effective time. |
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AS OF MARCH 31, 2008
Patriot | Magnum | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical(m) | Adjustments | Combined | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 9,408 | $ | 33,357 | 53,986 | (a) | $ | 96,751 | ||||||||
Accounts receivable and other, net | 138,806 | 78,307 | (13,000 | )(f) | 204,113 | |||||||||||
Inventories | 36,612 | 52,267 | 2,040 | (b) | 90,919 | |||||||||||
Prepaid expenses and other current assets | 14,033 | 11,851 | (4,746 | )(b,g) | 21,138 | |||||||||||
Total current assets | 198,859 | 175,782 | 38,280 | 412,921 | ||||||||||||
Property, plant, equipment and mine development, net | 871,820 | 1,134,190 | 701,181 | (b) | 2,707,191 | |||||||||||
Goodwill | — | 68,744 | (68,744 | )(b) | — | |||||||||||
Notes receivable | 129,495 | — | — | 129,495 | ||||||||||||
Investments and other assets | 27,360 | 13,115 | (3,637 | )(b) | 42,312 | |||||||||||
9,875 | (a) | |||||||||||||||
(4,401 | )(b,g) | |||||||||||||||
Total assets | $ | 1,227,534 | $ | 1,391,831 | $ | 672,554 | $ | 3,291,919 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Current maturities of long-term debt | $ | 927 | $ | 25,861 | $ | (22,000 | )(a,b) | $ | 4,788 | |||||||
Short-term borrowings | 22,500 | — | — | 22,500 | ||||||||||||
Trade accounts payable | 76,690 | 83,685 | — | 160,375 | ||||||||||||
Below market coal sales supply contracts acquired, net | — | 63,461 | 155,626 | (b) | 219,087 | |||||||||||
Accrued expenses | 112,558 | 105,827 | 26,280 | (b,c) | 236,476 | |||||||||||
311 | (b,d) | |||||||||||||||
(8,500 | )(f) | |||||||||||||||
Total current liabilities | 212,675 | 278,834 | 151,717 | 643,226 | ||||||||||||
Long-term debt | 10,453 | 223,288 | (100,000 | )(b,e) | 219,602 | |||||||||||
(114,139 | )(a,b) | |||||||||||||||
200,000 | (a) | |||||||||||||||
Below market coal sales supply contracts acquired, net | — | 179,815 | 96,132 | (b) | 275,947 | |||||||||||
Asset retirement obligations | 136,409 | 67,547 | — | 203,956 | ||||||||||||
Workers’ compensation obligations | 192,636 | 3,689 | — | 196,325 | ||||||||||||
Accrued postretirement benefit costs | 529,269 | 454,107 | — | 983,376 | ||||||||||||
Obligation to industry fund | 30,255 | 12,852 | — | 43,107 | ||||||||||||
Other noncurrent liabilities | 32,149 | 16,273 | — | 48,422 | ||||||||||||
Total liabilities | 1,143,846 | 1,236,405 | 233,710 | 2,613,961 | ||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||
Common stock | 268 | 497 | (378 | )(b) | 387 | |||||||||||
Additional paid-in capital | 191,410 | 294,927 | 100,000 | (b,e) | 791,561 | |||||||||||
197,597 | (b) | |||||||||||||||
(1,600 | )(c) | |||||||||||||||
9,227 | (b,d) | |||||||||||||||
Retained deficit | (36,429 | ) | (217,643 | ) | 240,761 | (b) | (42,429 | ) | ||||||||
(9,538 | )(b,d) | |||||||||||||||
(13,580 | )(b,c) | |||||||||||||||
(1,500 | )(c) | |||||||||||||||
(4,500 | )(f) | |||||||||||||||
Accumulated other comprehensive loss | (71,561 | ) | 77,645 | (77,645 | )(b) | (71,561 | ) | |||||||||
Total stockholders’ equity | 83,688 | 155,426 | 438,844 | 677,958 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 1,227,534 | $ | 1,391,831 | $ | 672,554 | $ | 3,291,919 | ||||||||
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FOR THE QUARTER ENDED MARCH 31, 2008
Patriot | Magnum | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical(m) | Adjustments | Combined | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Revenues | ||||||||||||||||
Sales | $ | 279,101 | $ | 220,566 | $ | — | $ | 499,667 | ||||||||
Other revenues | 5,233 | 10,102 | (4,500 | )(f) | 10,835 | |||||||||||
Total revenues | 284,334 | 230,668 | (4,500 | ) | 510,502 | |||||||||||
Costs and expenses | ||||||||||||||||
Operating costs and expenses | 259,118 | 209,556 | (255 | )(g) | 468,419 | |||||||||||
Sales contract amortization (accretion) | — | (15,029 | ) | (44,123 | )(h) | (59,152 | ) | |||||||||
Depreciation, depletion and amortization | 18,610 | 27,846 | 4,015 | (i) | 50,471 | |||||||||||
Asset retirement obligation expense | 3,416 | 1,741 | — | 5,157 | ||||||||||||
Selling and administrative expenses | 8,289 | 8,881 | — | 17,170 | ||||||||||||
Other operating income: | ||||||||||||||||
Net gain on disposal or exchange of assets | (194 | ) | — | — | (194 | ) | ||||||||||
Gain on coal sales supply contract restructuring | — | (183 | ) | 183 | (h) | — | ||||||||||
Operating profit (loss) | (4,905 | ) | (2,144 | ) | 35,680 | 28,631 | ||||||||||
Interest expense | 2,322 | 5,314 | (7,095 | )(j) | 2,660 | |||||||||||
2,119 | (k) | |||||||||||||||
Interest income | (3,249 | ) | (194 | ) | — | (3,443 | ) | |||||||||
Cost associated with credit facility amendment | — | 3,572 | — | 3,572 | ||||||||||||
Change in market value of interest rate swap | — | 2,285 | — | 2,285 | ||||||||||||
Income (loss) before income taxes and minority interests | (3,978 | ) | (13,121 | ) | 40,656 | 23,557 | ||||||||||
Income tax provision (benefit) | (912 | ) | 1,384 | 235 | (l) | 707 | ||||||||||
Income (loss) from continuing operations | $ | (3,066 | ) | $ | (14,505 | ) | $ | 40,421 | $ | 22,850 | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 26,570,940 | 49,718,206 | 11,901,729 | (n) | 38,523,339 | |||||||||||
Diluted | 26,570,940 | 49,718,206 | 11,967,971 | (o) | 38,642,199 | |||||||||||
Earnings per share from continuing operations: | ||||||||||||||||
Basic | $ | (0.12 | ) | $ | (0.29 | ) | N/A | $ | 0.59 | |||||||
Diluted | $ | (0.12 | ) | $ | (0.29 | ) | N/A | $ | 0.59 |
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FOR THE YEAR ENDED DECEMBER 31, 2007
Patriot | ||||||||||||||||||||||||
Patriot | Pro Forma | Patriot | Magnum | Pro Forma | Pro Forma | |||||||||||||||||||
Historical | Adjustments | Pro Forma | Historical(m) | Adjustments | Combined | |||||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Sales | $ | 1,069,316 | $ | 22,850 | (1) | $ | 1,092,166 | $ | 813,974 | $ | (2,798 | )(f) | $ | 1,903,342 | ||||||||||
Other revenues | 4,046 | — | 4,046 | 66,196 | (1,238 | )(f) | 69,004 | |||||||||||||||||
Total revenues | 1,073,362 | 22,850 | 1,096,212 | 880,170 | (4,036 | ) | 1,972,346 | |||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||
Operating costs and expenses | 1,109,315 | (51,875 | )(2) | 1,058,600 | 820,572 | 2,797 | (g) | 1,877,933 | ||||||||||||||||
(1,125 | )(3) | (4,036 | )(f) | |||||||||||||||||||||
2,285 | (1) | |||||||||||||||||||||||
Sales contract amortization (accretion) | — | — | — | 19,808 | (256,415 | )(h) | (236,607 | ) | ||||||||||||||||
Depreciation, depletion and amortization | 85,640 | (1,717 | )(4) | 83,923 | 112,210 | 14,566 | (i) | 210,699 | ||||||||||||||||
Asset retirement obligation expense | 20,144 | — | 20,144 | 7,430 | — | 27,574 | ||||||||||||||||||
Selling and administrative expenses | 45,137 | (13,237 | )(5) | 31,900 | 32,713 | — | 64,613 | |||||||||||||||||
Other operating income: | ||||||||||||||||||||||||
Net gain on disposal or exchange of assets | (81,458 | ) | — | (81,458 | ) | (17,084 | ) | 560 | (f) | (97,982 | ) | |||||||||||||
Gain on coal sales supply contract restructuring | — | — | — | (375 | ) | 375 | (h) | — | ||||||||||||||||
Income from equity affiliates | (63 | ) | — | (63 | ) | — | — | (63 | ) | |||||||||||||||
Operating profit (loss) | (105,353 | ) | 88,519 | (16,834 | ) | (95,104 | ) | 238,117 | 126,179 | |||||||||||||||
Interest expense | 8,337 | 5,267 | (6) | 8,635 | 22,855 | (20,293 | )(j) | 19,672 | ||||||||||||||||
(4,969 | )(7) | 8,475 | (k) | |||||||||||||||||||||
Interest income | (11,543 | ) | — | (11,543 | ) | (1,740 | ) | — | (13,283 | ) | ||||||||||||||
Change in market value of interest rate swap | — | — | — | 1,551 | — | 1,551 | ||||||||||||||||||
Income (loss) before income taxes and minority interests | (102,147 | ) | 88,221 | (13,926 | ) | (117,770 | ) | 249,935 | 118,239 | |||||||||||||||
Income tax provision | — | 5,967 | (8) | 5,967 | — | (5,967 | )(l) | — | ||||||||||||||||
Minority interests | 4,721 | — | 4,721 | — | — | 4,721 | ||||||||||||||||||
Income (loss) from continuing operations | $ | (106,868 | ) | $ | 82,254 | $ | (24,614 | ) | $ | (117,770 | ) | $ | 255,902 | $ | 113,518 | |||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 26,570,940 | 8,000 | 26,578,940 | (9) | 49,559,493 | 11,901,729 | (n) | 38,480,669 | ||||||||||||||||
Diluted | 26,570,940 | 8,000 | 26,578,940 | (9) | 49,559,493 | 11,967,971 | (o) | 38,546,911 | ||||||||||||||||
Earnings per share from continuing operations: | ||||||||||||||||||||||||
Basic | $ | (4.02 | ) | N/A | $ | (0.93 | )(9) | $ | (2.38 | ) | N/A | $ | 2.95 | |||||||||||
Diluted | $ | (4.02 | ) | N/A | $ | (0.93 | )(9) | $ | (2.38 | ) | N/A | $ | 2.94 |
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1. | Basis of Presentation |
2. | Purchase Price |
Fair value of Patriot common stock | $ | 601,870 | ||
Assumption of Magnum debt | 136,139 | |||
Estimated Patriot transaction costs | 9,600 | |||
Magnum cash | (33,357 | ) | ||
Total preliminary estimated purchase price | $ | 714,252 | ||
3. | Patriot Pro Forma Adjustments |
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Expected tax statutory | $ | 30,877 | ||
State income tax | 2,719 | |||
Percentage depletion | (11,845 | ) | ||
Valuation allowance | (15,784 | ) | ||
Pro forma tax impact | $ | 5,967 | ||
4. | Patriot and Magnum Combined Pro Forma Adjustments |
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Estimated purchase price: | $ | 714,252 | ||
Current assets | 139,719 | |||
Property, plant, equipment and mine development | 1,835,371 | |||
Other assets | 5,077 | |||
Current below market coal sales supply contracts acquired | 219,087 | |||
Other current liabilities | 207,264 | |||
Noncurrent below market coal sales supply contracts acquired | 275,947 | |||
Other noncurrent liabilities | 563,617 |
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Patriot Common Stock Calendar Period | High | Low | ||||||
2008 | ||||||||
First Quarter | $ | 57.77 | $ | 32.28 | ||||
Second Quarter (through June 16, 2008) | $ | 156.79 | $ | 46.25 | ||||
2007 | ||||||||
Fourth Quarter(1) | $ | 43.00 | $ | 27.07 |
(1) | Patriot commenced trading on the New York Stock Exchange on November 1, 2007. Prior to such date, no public trading market existed for Patriot common stock. |
Patriot Common Stock | ||||||||||||
High | Low | Close | ||||||||||
April 1, 2008 | $ | 48.50 | $ | 46.27 | $ | 47.71 | ||||||
June 16, 2008 | $ | 156.79 | $ | 150.03 | $ | 154.36 |
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MANAGEMENT OF PATRIOT
Amount and | ||||||||
Nature | ||||||||
of Beneficial | Percent of | |||||||
Name and Address of Beneficial Owners | Ownership(1) | Class(2) | ||||||
Chilton Investment Company, LLC(3) | 3,966,032 | 14.823 | % | |||||
FMR LLC | 1,525,981 | (4) | 5.703 | % | ||||
Neuberger Berman, LLC | 1,441,974 | (5) | 5.389 | % | ||||
Capital World Investors | 1,398,360 | (6) | 5.226 | % | ||||
J. Joe Adorjan | 1,500 | * | ||||||
Joseph W. Bean | 8,711 | * | ||||||
B.R. Brown | 719 | * | ||||||
Charles A. Ebetino, Jr. | 16,852 | * | ||||||
Irl F. Engelhardt | 157,715 | (7) | * | |||||
John E. Lushefski | — | |||||||
Jiri Nemec | 21,284 | * | ||||||
Michael M. Scharf | — | |||||||
Mark N. Schroeder | 18,506 | * | ||||||
Robert O. Viets | 3,100 | * | ||||||
Richard M. Whiting | 90,712 | * | ||||||
All directors and executive officers as a group (12 people) | 325,073 | 1.215 | % |
(1) | Amounts shown are based on the latest available filings on Form 13G or other relevant filings made with the SEC. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned; includes shares of restricted stock that remain unvested as of June 11, 2008 as follows: Mr. Joseph W. Bean, 5,500 shares; Mr. Charles A. Ebetino, Jr., 12,000 shares; Mr. Irl F. Engelhardt, 17,996 shares; Mr. Jiri Nemec, 17,500 shares; Mr. Mark N. Schroeder, 12,000 shares; Mr. Richard M. Whiting, 46,667 shares. | |
(2) | An asterisk (*) indicates that the applicable person beneficially owns less than one percent of the outstanding shares. | |
(3) | Chilton Investment Company, LLC is located at 1266 East Main St., 7 Floor, Stamford, CT 06902. | |
(4) | FMR LLC, with an address at 82 Devonshire St., Boston, MA 02109, has the sole power to vote 474 shares and the sole power to dispose 1,525,981 shares. | |
(5) | Neuberger Berman Inc. and affiliated entities, with an address at 605 Third Avenue, New York, NY 10158, reported sole and shared voting and dispositive power as follows: Neuberger Berman Inc., sole voting power with respect to 1,176,447 shares, shared power to dispose with respect to 1,441,974 shares; and Neuberger Berman LLC, sole voting power with respect to 1,176,447 shares, shared power to dispose with respect to 1,441,974 shares. | |
(6) | Capital World Investors, with an address at 333 South Hope St., Los Angeles, CA 90071, has the sole power to vote 265,300 shares and the sole power to dispose 1,398,360 shares. | |
(7) | Includes 1,952 shares of Common Stock held in Mr. Irl F. Engelhardt’s 401(k) plan and 440 shares of Common Stock held by Mr. Irl F. Engelhardt’s spouse. |
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Amount and | ||||||||
Nature | ||||||||
of Beneficial | Percent of | |||||||
Name and Address of Beneficial Owners | Ownership(1) | Class(2)(8) | ||||||
Chilton Investment Company, LLC(3) | 3,966,032 | 10.258 | % | |||||
FMR LLC | 1,525,981 | (4) | 3.947 | % | ||||
Neuberger Berman, LLC | 1,441,974 | (5) | 3.730 | % | ||||
Capital World Investors | 1,398,360 | (6) | 3.617 | % | ||||
J. Joe Adorjan | 1,500 | * | ||||||
Joseph W. Bean | 8,711 | * | ||||||
B.R. Brown | 719 | * | ||||||
Charles A. Ebetino, Jr. | 16,852 | * | ||||||
Irl F. Engelhardt | 157,715 | (7) | * | |||||
John E. Lushefski | — | |||||||
Jiri Nemec | 21,284 | * | ||||||
Michael M. Scharf | — | |||||||
Mark N. Schroeder | 18,506 | * | ||||||
Robert O. Viets | 3,100 | * | ||||||
Richard M. Whiting | 90,712 | * | ||||||
All directors and executive officers as a group (12 people) | 325,073 | 0.841 | % |
(1) | Amounts shown are based on the latest available filings on Form 13G or other relevant filings made with the SEC. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned; includes shares of restricted stock that remain unvested as of June 11, 2008 as follows: Mr. Joseph W. Bean, 5,500 shares; Mr. Charles A. Ebetino, Jr., 12,000 shares; Mr. Irl F. Engelhardt, 17,996 shares; Mr. Jiri Nemec, 17,500 shares; Mr. Mark N. Schroeder, 12,000 shares; Mr. Richard M. Whiting, 46,667 shares. | |
(2) | An asterisk (*) indicates that the applicable person beneficially owns less than one percent of the outstanding shares. | |
(3) | Chilton Investment Company, LLC is located at 1266 East Main St., 7 Floor, Stamford, CT 06902. | |
(4) | FMR LLC, with an address at 82 Devonshire St., Boston, MA 02109, has the sole power to vote 474 shares and the sole power to dispose 1,525,981 shares. | |
(5) | Neuberger Berman Inc. and affiliated entities, with an address at 605 Third Avenue, New York, NY 10158, reported sole and shared voting and dispositive power as follows: Neuberger Berman Inc., sole voting power with respect to 1,176,447 shares, shared power to dispose with respect to 1,441,974 shares; and Neuberger Berman LLC, sole voting power with respect to 1,176,447 shares, shared power to dispose with respect to 1,441,974 shares. | |
(6) | Capital World Investors, with an address at 333 South Hope St., Los Angeles, CA 90071, has the sole power to vote 265,300 shares and the sole power to dispose 1,398,360 shares. | |
(7) | Includes 1,952 shares of Common Stock held in Mr. Irl F. Engelhardt’s 401(k) plan and 440 shares of Common Stock held by Mr. Irl F. Engelhardt’s spouse. |
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(8) | Percentage of class based on an aggregate of 38,662,106 shares of Patriot common stock outstanding as of immediately after consummation of the merger (representing the sum of 26,760,377 shares of Patriot common stock outstanding as of the date of the merger agreement and 11,901,729 shares of Patriot common stock issued pursuant to the merger agreement). |
Name | Age | Positions | ||||
Executive Officers | ||||||
Richard M. Whiting | 53 | President, Chief Executive Officer & Director | ||||
Irl F. Engelhardt | 61 | Chairman of the Board of Directors, Executive Advisor and Director | ||||
Mark N. Schroeder | 51 | Senior Vice President & Chief Financial Officer | ||||
Jiri Nemec | 53 | Senior Vice President & Chief Operating Officer | ||||
Charles A. Ebetino, Jr. | 55 | Senior Vice President — Corporate Development | ||||
Joseph W. Bean | 46 | Senior Vice President, General Counsel & Corporate Secretary | ||||
Michael V. Altrudo | 60 | Senior Vice President & Chief Marketing Officer | ||||
Other Directors | ||||||
J. Joe Adorjan | 69 | Director | ||||
Michael M. Scharf | 62 | Director | ||||
B.R. Brown | 75 | Director | ||||
John E. Lushefski | 52 | Director | ||||
Robert O. Viets | 64 | Director |
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• | Appalachia. In southern West Virginia, Patriot has five company-operated mines and numerous contractor-operated mines, serviced by four coal preparation plants. These operations and related infrastructure are located in Boone and Kanawha counties. In northern West Virginia, Patriot has one company-operated mine, serviced by a preparation plant and related infrastructure. These operations are located in Monongalia County. Patriot sold 14.4 million and 3.2 million tons of coal in the year ended December 31, 2007 and the three months ended March 31, 2008, respectively. As of December 31, 2007, it controlled 586 million tons of proven and probable coal reserves in Appalachia, of which 283 million tons were assigned to current operations. | |
• | Illinois Basin. In the Illinois Basin, Patriot has four company-operated mines, serviced by three preparation plants. These operations and related infrastructure are located in Union and Henderson counties in western Kentucky. Patriot sold 7.7 million and 1.9 million tons of coal in the year ended December 31, 2007 and the three months ended March 31, 2008, respectively. As of December 31, 2007, it controlled 676 million tons of proven and probable coal reserves in the Illinois Basin, of which 131 million tons were assigned to current operations. |
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2007 | Prep Plant Statistics | |||||||||||||||||||
Mining | Tons | Plant | Coal | |||||||||||||||||
Location | Operation | Mine(s) | Method(1) | Met/Steam | Sold(2) | Employees | Capacity(3) | Recovery(4) | ||||||||||||
(Tons in thousands) | ||||||||||||||||||||
Appalachia | Big Mountain | Big Mountain No. 16, Contract | CM | Steam | 1,650 | 223 | 900 | 47 | % | |||||||||||
Rocklick | Harris No. 1, | LW, CM | Met/Steam | 3,298 | 435 | 2,000 | 30 | % met | ||||||||||||
Contract | 65 | % steam | ||||||||||||||||||
Wells | Rivers Edge, Contract | CM | Met | 3,109 | 145 | 1,350 | 50 | % | ||||||||||||
Kanawha Eagle | Eagle, Coalburg | CM | Met/Steam | 2,109 | N/A | 700 | 45 | % | ||||||||||||
Federal | Federal No. 2 | LW, CM | Steam | 4,100 | 466 | 1,300 | 79 | % | ||||||||||||
Purchased coal | N/A | N/A | N/A | 165 | N/A | |||||||||||||||
Subtotal | 14,431 | 1,269 | ||||||||||||||||||
Illinois Basin | Highland | Highland No. 9 | CM | Steam | 4,071 | 432 | 2,000 | 60 | % | |||||||||||
Bluegrass | Patriot, Freedom | TS, CM | Steam | 2,554 | 258 | 400 | 79 | % | ||||||||||||
Dodge Hill | Dodge Hill | CM | Steam | 1,072 | 154 | 300 | 48 | % | ||||||||||||
Big Run(5) | Big Run | CM | Steam | 15 | N/A | N/A | N/A | |||||||||||||
Subtotal | 7,712 | 844 | ||||||||||||||||||
Other | N/A | N/A | N/A | N/A | 181 | N/A | N/A | |||||||||||||
Total | 22,143 | 2,294 | ||||||||||||||||||
(1) | LW = Longwall, CM = Continuous Miner, TS =Truck-and-Shovel. | |
(2) | Tons sold for each plant were the same as actual annual plant production in 2007, subject to stockpile variations. | |
(3) | Tons per hour; plant capacity is raw, or run of mine, feed rate into the plant. | |
(4) | Coal recovery is the saleable product coming out of the plant divided by the raw product coming into the plant. | |
(5) | Big Run was sold in the first half of 2007. |
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Proven and Probable Reserves as of | ||||||||||||
December 31, 2007(1) | ||||||||||||
Geographic Region | Owned Tons | Leased Tons | Total Tons | |||||||||
(Tons in millions) | ||||||||||||
Appalachia | 228 | 358 | 586 | |||||||||
Illinois Basin | 410 | 266 | 676 | |||||||||
Total proven and probable coal reserves | 638 | 624 | 1,262 | |||||||||
(1) | Reserves have been adjusted to take into account recoverability factors in producing a saleable product. |
• | Proven (Measured) Reserves are reserves for which (a) quantity is computed from dimensions defined by outcrops, trenches, workings or drill holes; gradeand/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so close and the geographic character is so well defined that size, shape, depth and mineral content of coal reserves are well-established. |
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• | Probable (Indicated) Reserves are reserves for which quantity and gradeand/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. |
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Production | Sulfur Content(2) | As of December 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
>1.2 to | ||||||||||||||||||||||||||||||||||||||||||||||||||
£1.2 lbs. | 2.5 lbs. | |||||||||||||||||||||||||||||||||||||||||||||||||
Sulfur | Sulfur | >2.5 lbs. | Assigned | |||||||||||||||||||||||||||||||||||||||||||||||
Year | Year | Year | Dioxide | Dioxide | Sulfur | As | Proven | |||||||||||||||||||||||||||||||||||||||||||
Ended | Ended | Ended | per | per | Dioxide | Received | and | �� | ||||||||||||||||||||||||||||||||||||||||||
Geographic Region/ | Dec 31, | Dec 31, | Dec 31, | Type | Million | Million | per | Btu per | Probable | Under- | ||||||||||||||||||||||||||||||||||||||||
Mining Complex | 2007 | 2006 | 2005 | of Coal | Btu | Btu | Million Btu | Pound(3) | Reserves | Owned | Leased | Surface | Ground | |||||||||||||||||||||||||||||||||||||
(Tons in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Appalachia: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Federal | 4.0 | 4.6 | 4.1 | Steam | — | — | 59 | 13,400 | 59 | 39 | 20 | — | 59 | |||||||||||||||||||||||||||||||||||||
Big Mountain | 1.6 | 2.0 | 1.9 | Steam/Met | 4 | 33 | — | 12,300 | 37 | — | 37 | — | 37 | |||||||||||||||||||||||||||||||||||||
Kanawha Eagle | 2.1 | 1.9 | — | Steam/Met | 43 | 27 | 27 | 13,100 | 98 | — | 98 | — | 98 | |||||||||||||||||||||||||||||||||||||
Rocklick | 3.1 | 3.8 | 4.6 | Steam/Met | 5 | 32 | 3 | 12,900 | 39 | — | 39 | 9 | 30 | |||||||||||||||||||||||||||||||||||||
Wells | 3.2 | 2.3 | 2.6 | Steam | 16 | 34 | — | 13,500 | 50 | — | 50 | — | 50 | |||||||||||||||||||||||||||||||||||||
Total | 14.0 | 14.6 | 13.2 | 68 | 126 | 89 | 283 | 39 | 244 | 9 | 274 | |||||||||||||||||||||||||||||||||||||||
Illinois Basin: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Highland | 3.9 | 3.7 | 3.8 | Steam | — | — | 80 | 11,400 | 80 | 29 | 51 | — | 80 | |||||||||||||||||||||||||||||||||||||
Dodge Hill | 1.1 | 1.1 | 1.2 | Steam | — | — | 15 | 12,600 | 15 | 1 | 14 | — | 15 | |||||||||||||||||||||||||||||||||||||
Bluegrass(4) | 2.5 | 3.9 | 4.2 | Steam | — | — | 36 | 10,900 | 36 | — | 36 | 2 | 34 | |||||||||||||||||||||||||||||||||||||
Total | 7.5 | 8.7 | 9.2 | — | — | 131 | 131 | 30 | 101 | 2 | 129 | |||||||||||||||||||||||||||||||||||||||
Total | 21.5 | 23.3 | 22.4 | 68 | 126 | 220 | 414 | 69 | 345 | 11 | 403 | |||||||||||||||||||||||||||||||||||||||
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AS OF DECEMBER 31, 2007
Total Tons | Sulfur Content(2) | Reserve Control | Mining Method | |||||||||||||||||||||||||||||||||||||||||||||||||||
£1.2 lbs. | >1.2 to | >2.5 lbs. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Sulfur | 2.5 lbs. | Sulfur | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Proven | Dioxide | Sulfur Dioxide | Dioxide | As | ||||||||||||||||||||||||||||||||||||||||||||||||||
and | Type | per | per | per | Received | |||||||||||||||||||||||||||||||||||||||||||||||||
Un- | Probable | of | Million | Million | Million | BTU per | Under- | |||||||||||||||||||||||||||||||||||||||||||||||
Coal Seam Location | Assigned | Assigned | Reserves | Proven | Probable | Coal | Btu | Btu | Btu | Pound(3) | Owned | Leased | Surface | Ground | ||||||||||||||||||||||||||||||||||||||||
(Tons in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Appalachia: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ohio | — | 26 | 26 | 19 | 7 | Steam/Met | — | — | 26 | 11,300 | 26 | — | — | 26 | ||||||||||||||||||||||||||||||||||||||||
West Virginia | 283 | 277 | 560 | 346 | 214 | Steam | 107 | 234 | 219 | 13,000 | 202 | 358 | 13 | 547 | ||||||||||||||||||||||||||||||||||||||||
Total | 283 | 303 | 586 | 365 | 221 | 107 | 234 | 245 | 228 | 358 | 13 | 573 | ||||||||||||||||||||||||||||||||||||||||||
Illinois Basin: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Illinois | — | 265 | 265 | 112 | 153 | Steam | 3 | 14 | 248 | 11,100 | 263 | 2 | 1 | 264 | ||||||||||||||||||||||||||||||||||||||||
Kentucky | 131 | 280 | 411 | 214 | 197 | Steam | — | — | 411 | 11,200 | 147 | 264 | 32 | 379 | ||||||||||||||||||||||||||||||||||||||||
Total | 131 | 545 | 676 | 326 | 350 | 3 | 14 | 659 | 410 | 266 | 33 | 643 | ||||||||||||||||||||||||||||||||||||||||||
Total Proven and probable | 414 | 848 | 1,262 | 691 | 571 | 110 | 248 | 904 | 638 | 624 | 46 | 1,216 | ||||||||||||||||||||||||||||||||||||||||||
(1) | Assigned reserves represent recoverable coal reserves that Patriot has committed to mine at locations operating as of December 31, 2007. Unassigned reserves represent coal at suspended locations and coal that has not been committed. These reserves would require new mine development, mining equipment or plant facilities before operations could begin on the property. | |
(2) | Compliance coal is defined by Phase II of the Clean Air Act as coal having sulfur dioxide content of 1.2 pounds or less per million Btu. Non-compliance coal is defined as coal having sulfur dioxide content in excess of this standard. Electricity generators are able to use coal that exceeds these specifications by using emissions reduction technology, using emissions allowance credits or blending higher sulfur coal with lower sulfur coal. | |
(3) | As-received Btu per pound includes the weight of moisture in the coal on an as sold basis. The average moisture content used in the determination of as received Btu in Appalachia was 7%. The moisture content used in the determination of as received Btu in Illinois Basin ranged from 9% to 14%. | |
(4) | Includes Big Run, which was sold in the first half of 2007. |
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Commitments as of March 31, 2008 | ||||||||||||||||||||
2011 and | ||||||||||||||||||||
Fiscal Year: | 2008 | 2009 | 2010 | Later | Total | |||||||||||||||
Tons (millions) | 23.8 | 17.7 | 9.3 | 10.2 | 61.0 |
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1-Nov-07 | 30-Nov-07 | 31-Dec-07 | |||||||||||||
Patriot Coal Corp. | $ | 100 | $ | 90 | $ | 111 | |||||||||
S&P© 600 | $ | 100 | $ | 97 | $ | 96 | |||||||||
Custom Composite Index (9 Stocks) | $ | 100 | $ | 109 | $ | 125 | |||||||||
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Number of | ||||||||||||
Securities | ||||||||||||
(a) | Remaining Available | |||||||||||
Number of | for Future Issuance | |||||||||||
Securities to be | Under Equity | |||||||||||
Issued Upon | Weighted-Average | Compensation Plans | ||||||||||
Exercise of | Exercise Price of | (Excluding | ||||||||||
Outstanding | Outstanding | Securities | ||||||||||
Options, Warrants | Options, Warrants | Reflected in Column | ||||||||||
Plan Category | and Rights | and Rights | (a)) | |||||||||
Equity compensation plans approved by security holders | 1,351,302 | $ | 37.50 | 1,248,698 | ||||||||
Equity compensation plans not approved by security holders | N/A | N/A | N/A | |||||||||
Total | 1,351,302 | $ | 37.50 | 1,248,698 | ||||||||
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• | retention by Peabody of certain retiree healthcare liabilities of $615.8 million; | |
• | the forgiveness of the outstanding intercompany payables to Peabody on October 31, 2007 of $81.5 million; | |
• | the retention by Patriot of trade accounts receivable at October 31, 2007, previously recorded through intercompany receivables, of $68.6 million; | |
• | a $30.0 million cash contribution; | |
• | the retention by Peabody of assets and asset retirement obligations related to certain Midwest mining operations of a net $8.1 million; | |
• | less the transfer of intangible assets of $22.7 million related to purchased contract rights for a supply contract retained by Peabody. |
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Three Months Ended | ||||||||||||||||
March 31, | Increase (Decrease) | |||||||||||||||
2008 | 2007 | Tons/$ | % | |||||||||||||
(Dollars and tons in thousands, except per ton data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Tons Sold: | ||||||||||||||||
Appalachia Mining Operations | 3,180 | 3,650 | (470 | ) | (12.9 | )% | ||||||||||
Illinois Basin Mining Operations | 1,905 | 2,099 | (194 | ) | (9.2 | )% | ||||||||||
Total Tons Sold | 5,085 | 5,749 | (664 | ) | (11.5 | )% | ||||||||||
Revenue: | ||||||||||||||||
Appalachia Mining Operations | $ | 212,762 | $ | 201,453 | $ | 11,309 | 5.6 | % | ||||||||
Illinois Basin Mining Operations | 66,339 | 67,588 | (1,249 | ) | (1.8 | )% | ||||||||||
Appalachia — Other | 5,233 | 622 | 4,611 | n/a | ||||||||||||
Total Revenue | $ | 284,334 | $ | 269,663 | $ | 14,671 | 5.4 | % | ||||||||
Average sales price per ton sold: | ||||||||||||||||
Appalachia Mining Operations | $ | 66.91 | $ | 55.19 | $ | 11.72 | 21.2 | % | ||||||||
Illinois Basin Mining Operations | 34.82 | 32.20 | 2.62 | 8.1 | % |
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Three Months Ended | ||||||||||||||||
March 31, | Increase (Decrease) | |||||||||||||||
2008 | 2007 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Appalachia Mining Operations and Other | $ | 41,998 | $ | 23,626 | $ | 18,372 | 77.8 | % | ||||||||
Illinois Basin Mining Operations | 5,339 | 6,744 | (1,405 | ) | (20.8 | )% | ||||||||||
Segment Adjusted EBITDA | $ | 47,337 | $ | 30,370 | $ | 16,967 | 55.9 | % | ||||||||
Three Months Ended | Increase (Decrease) | |||||||||||||||
March 31, | to Net Income | |||||||||||||||
2008 | 2007 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Segment Adjusted EBITDA | $ | 47,337 | $ | 30,370 | $ | 16,967 | 55.9 | % | ||||||||
Corporate and Other: | ||||||||||||||||
Past mining obligations | (22,121 | ) | (38,372 | ) | 16,251 | 42.4 | % | |||||||||
Net gain on disposal of assets | 194 | 35,226 | (35,032 | ) | (99.4 | )% | ||||||||||
Selling and administrative expenses | (8,289 | ) | (10,909 | ) | 2,620 | 24.0 | % | |||||||||
Total Corporate and Other | (30,216 | ) | (14,055 | ) | (16,161 | ) | (115.0 | )% | ||||||||
Depreciation, depletion and amortization | (18,610 | ) | (21,358 | ) | 2,748 | 12.9 | % | |||||||||
Asset retirement obligation expense | (3,416 | ) | (5,655 | ) | 2,239 | 39.6 | % | |||||||||
Interest expense | (2,322 | ) | (2,825 | ) | 503 | 17.8 | % | |||||||||
Interest income | 3,249 | 2,646 | 603 | 22.8 | % | |||||||||||
Income (loss) before income taxes and minority interest | (3,978 | ) | (10,877 | ) | 6,899 | 63.4 | % | |||||||||
Income tax benefit | 912 | — | 912 | n/a | ||||||||||||
Minority interests | — | (1,074 | ) | 1,074 | n/a | |||||||||||
Net loss | $ | (3,066 | ) | $ | (11,951 | ) | $ | 8,885 | 74.3 | % | ||||||
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Three Months Ended March 31, 2007 | ||||||||||||
Historical | Adjustments | Pro forma | ||||||||||
(Dollars in thousands) | ||||||||||||
Sales | $ | 269,041 | $ | 6,161 | (a) | $ | 275,202 | |||||
Other revenue | 622 | — | 622 | |||||||||
Total revenues | 269,663 | 6,161 | 275,824 | |||||||||
Operating costs and expenses | 277,665 | (15,563 | )(b) | 262,381 | ||||||||
(337 | )(c) | |||||||||||
616 | (a) | |||||||||||
Depreciation, depletion and amortization | 21,358 | (310 | )(d) | 21,048 | ||||||||
Asset retirement obligation expense | 5,655 | — | 5,655 | |||||||||
Selling and administrative expenses | 10,909 | (2,934 | )(e) | 7,975 | ||||||||
Net gain on disposal of assets | (35,226 | ) | — | (35,226 | ) | |||||||
Operating profit (loss) | (10,698 | ) | 24,689 | 13,991 | ||||||||
Interest expense | 1,312 | 830 | (f) | 2,142 | ||||||||
Interest expense related to Peabody | 1,513 | (1,513 | )(g) | — | ||||||||
Interest income | (2,646 | ) | — | (2,646 | ) | |||||||
Income (loss) before income taxes and minority interest | (10,877 | ) | 25,372 | 14,495 | ||||||||
Income tax provision | — | 6,948 | (h) | 6,948 | ||||||||
Minority interest | 1,074 | — | 1,074 | |||||||||
Net income (loss) | $ | (11,951 | ) | $ | 18,424 | $ | 6,473 | |||||
(a) | Reflects an increase to revenues (and related royalties and taxes) related to the repricing of a coal supply agreement to increase the price paid to Patriot to be more reflective of the then current market pricing for similar quality coal at the time of the spin-off. |
(b) | Reflects a decrease to operating costs and expenses for the impact of Peabody’s agreement to assume certain of Patriot’s retiree healthcare liabilities, which totaled $603.4 million as of December 31, 2007. | |
(c) | Reflects reversal of historical expense related to pension benefit obligations that were not assumed by Patriot. | |
(d) | Reflects the non-cash transfer to Peabody of an intangible asset related to a purchased contract right recorded on Patriot’s historical financial statements in Investments and Other Assets and historically sourced from Patriot mining operations. As part of the spin-off, Peabody retained the coal supply contract with the ultimate customer. | |
(e) | Reflects adjustment for estimated selling and administrative costs for Patriot’s stand-alone management and administrative structure and functions. Prior to the spin-off, these services were provided by Peabody under various agreements between Peabody and its subsidiaries, and the historical amount was the result of an allocation of Peabody’s overall general and administrative costs. The allocation of these Peabody costs was not deemed reasonable for Patriot on a stand-alone basis and a pro forma amount was estimated based on a detailedbuild-up of expected support costs by function for the Patriot operations as a stand-alone business. The costs allocated to Patriot by Peabody are higher than Patriot’s pro forma estimate because the Peabody allocation reflected higher costs for areas such as government relations, information systems development, office space, executive incentive compensation, and support departments such as accounting, law, engineering and human resources. In addition, the Peabody allocation included costs for major strategy and growth initiatives, most of which did not directly impact the Patriot operations. |
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(f) | Reflects higher costs for surety bonds and letters of credit based on current rates for these instruments and on Patriot’s requirements to secure financial obligations for reclamation, workers’ compensation and postretirement benefits. The historical financial statements reflect an allocation of Peabody’s fees related to these guarantees. | |
(g) | Reflects the reversal of the interest expense related to the intercompany note payable to Peabody. | |
(h) | Reflects tax impact of pro forma adjustments based on the statutory rate adjusted for tax accounting as follows: |
Three Months Ended | ||||
March 31, 2007 | ||||
Expected tax statutory | $ | 8,880 | ||
State income tax | 1,060 | |||
Percentage depletion | (2,259 | ) | ||
Valuation allowance | (967 | ) | ||
Other | 234 | |||
Pro forma tax impact | $ | 6,948 | ||
Year Ended December 31, | Increase (Decrease) | |||||||||||||||
2007 | 2006 | Tons/$ | % | |||||||||||||
(Dollars and tons in thousands, except per ton amounts) | ||||||||||||||||
Appalachia | 14,432 | 15,292 | (860 | ) | (5.6 | )% | ||||||||||
Illinois Basin | 7,711 | 8,998 | (1,287 | ) | (14.3 | )% | ||||||||||
Total Tons Sold | 22,143 | 24,290 | (2,147 | ) | (8.8 | )% | ||||||||||
Appalachia | $ | 821,116 | $ | 890,198 | $ | (69,082 | ) | (7.8 | )% | |||||||
Illinois Basin | 252,246 | 257,721 | (5,475 | ) | (2.1 | )% | ||||||||||
Total Revenues | $ | 1,073,362 | $ | 1,147,919 | $ | (74,557 | ) | (6.5 | )% | |||||||
Average sales price per ton sold: | ||||||||||||||||
Appalachia | $ | 56.89 | $ | 58.21 | $ | (1.32 | ) | (2.3 | )% | |||||||
Illinois Basin | 32.71 | 28.64 | 4.07 | 14.2 | % |
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Year Ended December 31, | Increase (Decrease) | |||||||||||||||
2007 | 2006 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Appalachia | $ | 89,850 | $ | 204,827 | $ | (114,977 | ) | (56.1 | )% | |||||||
Illinois Basin | 11,862 | (1,900 | ) | 13,762 | n/a | |||||||||||
Segment Adjusted EBITDA | $ | 101,712 | $ | 202,927 | $ | (101,215 | ) | (49.9 | )% | |||||||
Year Ended December 31, | Increase (Decrease) to Income | |||||||||||||||
2007 | 2006 | $ | % | |||||||||||||
(Dollar in thousands) | ||||||||||||||||
Segment Adjusted EBITDA | $ | 101,712 | $ | 202,927 | $ | (101,215 | ) | (49.9 | )% | |||||||
Corporate and Other: | ||||||||||||||||
Past mining obligation expense | (137,602 | ) | (106,880 | ) | (30,722 | ) | (28.7 | )% | ||||||||
Net gain on disposal of assets | 81,458 | 78,631 | 2,827 | 3.6 | % | |||||||||||
Selling and administrative expenses | (45,137 | ) | (47,909 | ) | 2,772 | 5.8 | % | |||||||||
Total corporate and other | (101,281 | ) | (76,158 | ) | (25,123 | ) | (33.0 | )% | ||||||||
Depreciation, depletion and amortization | (85,640 | ) | (86,458 | ) | 818 | 0.9 | % | |||||||||
Asset retirement obligation expense | (20,144 | ) | (24,282 | ) | 4,138 | 17.0 | % | |||||||||
Interest expense: | ||||||||||||||||
Peabody | (4,969 | ) | (5,778 | ) | 809 | 14.0 | % | |||||||||
Third-Party | (3,368 | ) | (5,641 | ) | 2,273 | 40.3 | % | |||||||||
Interest income | 11,543 | 1,417 | 10,126 | n/a | ||||||||||||
Income (loss) before income taxes and minority interest | (102,147 | ) | 6,027 | (108,174 | ) | n/a | ||||||||||
Income tax provision | — | (8,350 | ) | 8,350 | n/a | |||||||||||
Minority interests | (4,721 | ) | (11,169 | ) | 6,448 | 57.7 | % | |||||||||
Net income (loss) | (106,868 | ) | (13,492 | ) | (93,376 | ) | n/a | |||||||||
Effect of minority purchase arrangement | (15,667 | ) | — | (15,667 | ) | n/a | ||||||||||
Net income (loss) attributable to common stockholders | $ | (122,535 | ) | $ | (13,492 | ) | $ | (109,043 | ) | n/a | ||||||
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Twelve Months Ended December 31, 2007 | ||||||||||||
Historical | Adjustments | Pro Forma | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenues | ||||||||||||
Sales | $ | 1,069,316 | $ | 22,850 | (a) | $ | 1,092,166 | |||||
Other revenues | 4,046 | — | 4,046 | |||||||||
Total revenues | 1,073,362 | 22,850 | 1,096,212 | |||||||||
Costs and expenses | ||||||||||||
Operating costs and expenses | 1,109,315 | (51,875 | )(b) | 1,058,600 | ||||||||
(1,125 | )(c) | |||||||||||
2,285 | (a) | |||||||||||
Depreciation, depletion and amortization | 85,640 | (1,717 | )(d) | 83,923 | ||||||||
Asset retirement obligation expense | 20,144 | — | 20,144 | |||||||||
Selling and administrative expenses | 45,137 | (13,237 | )(e) | 31,900 | ||||||||
Other operating income: | ||||||||||||
Net gain on disposal of assets | (81,458 | ) | — | (81,458 | ) | |||||||
Income from equity affiliates | (63 | ) | — | (63 | ) | |||||||
Operating profit (loss) | (105,353 | ) | 88,519 | (16,834 | ) | |||||||
Interest expense | 3,368 | 5,267 | (f) | 8,635 | ||||||||
Interest expense related to former Parent | 4,969 | (4,969 | )(g) | — | ||||||||
Interest income | (11,543 | ) | — | (11,543 | ) | |||||||
Income (loss) before income taxes and minority interests | (102,147 | ) | 88,221 | (13,926 | ) | |||||||
Income tax provision | — | 5,967 | (h) | 5,967 | ||||||||
Minority interests | 4,721 | — | 4,721 | |||||||||
Net income (loss) | (106,868 | ) | 82,254 | (24,614 | ) | |||||||
Effect of minority purchase arrangement | (15,667 | ) | — | (15,667 | ) | |||||||
Net income (loss) attributable to common stockholders | $ | (122,535 | ) | $ | 82,254 | $ | (40,281 | ) | ||||
(a) | Reflects an increase to revenues (and related royalties and taxes) related to the repricing of a coal supply agreement to increase the price paid to Patriot to be more reflective of the then current market pricing for similar quality coal at the time of the spin-off. |
(b) | Reflects a decrease to operating costs and expenses for the impact of Peabody’s agreement to assume certain of Patriot’s retiree healthcare liabilities in the aggregate amount of $603.4 million as of December 31, 2007. | |
(c) | Reflects reversal of historical expense related to pension benefit obligations that were not assumed by Patriot. | |
(d) | Reflects the non-cash transfer to Peabody of an intangible asset related to a purchased contract right recorded on Patriot’s historical financial statements in Investments and Other Assets and historically sourced from Patriot mining operations. As part of the spin-off, Peabody retained the coal supply contract with the ultimate customer. | |
(e) | Reflects adjustment for estimated selling and administrative costs for Patriot’s stand-alone management and administrative structure and functions. Prior to the spin-off, these services were provided by Peabody under various agreements between Peabody and its subsidiaries, and the historical amount was the result of an allocation of Peabody’s overall selling and administrative costs. The allocation of these Peabody |
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costs was not deemed reasonable for Patriot on a stand-alone basis and a pro forma amount was estimated based on a detailedbuild-up of expected support costs by function for the Patriot operations as a stand alone business. The costs allocated to Patriot by Peabody were higher than Patriot’s pro forma estimate because the Peabody allocation reflected higher costs compared to Patriot’s stand-alone estimate for areas such as government relations, information systems development, office space, executive incentive compensation and support departments such as accounting, law, engineering and human resources. In addition, the Peabody allocation included costs for major strategy and growth initiatives, most of which did not directly impact the Patriot operations. | ||
(f) | Reflects higher costs for surety bonds and letters of credit based on anticipated rates for these instruments and on Patriot’s requirements to secure financial obligations for reclamation, workers’ compensation and post retirement benefits. The historical financial statements reflect an allocation of Peabody’s fees related to these guarantees. | |
(g) | Reflects the reversal of the interest expense related to the intercompany note payable to Peabody. | |
(h) | Reflects tax impact of pro forma adjustments based on the statutory rate adjusted for tax accounting as follows: |
Expected tax statutory | $ | 30,877 | ||
State income tax | 2,719 | |||
Percentage depletion | (11,845 | ) | ||
Valuation allowance | (15,784 | ) | ||
Pro forma tax impact | $ | 5,967 | ||
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Increase (Decrease) | ||||||||||||||||
Year Ended December 31, | 2006 from 2005 | |||||||||||||||
2006 | 2005 | Tons/$ | % | |||||||||||||
(Dollars and tons in thousands, except per ton amounts) | ||||||||||||||||
Tons Sold | ||||||||||||||||
Appalachia | 15,292 | 14,066 | 1,226 | 8.7 | % | |||||||||||
Illinois Basin | 8,998 | 9,719 | (721 | ) | (7.4 | )% | ||||||||||
Total Tons Sold | 24,290 | 23,785 | 505 | 2.1 | % | |||||||||||
Revenues | ||||||||||||||||
Appalachia | $ | 890,198 | $ | 742,753 | $ | 147,445 | 19.9 | % | ||||||||
Illinois Basin | 257,721 | 235,524 | 22,197 | 9.4 | % | |||||||||||
Total Revenues | $ | 1,147,919 | $ | 978,277 | $ | 169,642 | 17.3 | % | ||||||||
Average sales price per ton sold: | ||||||||||||||||
Appalachia | $ | 58.21 | $ | 52.80 | $ | 5.41 | 10.2 | % | ||||||||
Illinois Basin | 28.64 | 24.23 | 4.41 | 18.2 | % |
Increase (Decrease) to | ||||||||||||||||
Segment Adjusted EBITDA | ||||||||||||||||
Year Ended December 31, | 2006 from 2005 | |||||||||||||||
2006 | 2005 | $ | % | |||||||||||||
Appalachia | $ | 204,827 | $ | 227,100 | $ | (22,273 | ) | (9.8 | )% | |||||||
Illinois Basin | (1,900 | ) | 1,645 | (3,545 | ) | (215.5 | )% | |||||||||
Segment Adjusted EBITDA | $ | 202,927 | $ | 228,745 | $ | (25,818 | ) | (11.3 | )% | |||||||
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Year Ended December 31, | Increase (Decrease) to Net Income (Loss) 2006 from 2005 | |||||||||||||||
2006 | 2005 | $ | % | |||||||||||||
Segment Adjusted EBITDA | $ | 202,927 | $ | 228,745 | $ | (25,818 | ) | (11.3 | )% | |||||||
Corporate and Other: | ||||||||||||||||
Past mining obligation expense | (106,880 | ) | (104,053 | ) | (2,827 | ) | (2.7 | )% | ||||||||
Net gain on disposal or exchange of assets | 78,631 | 57,042 | 21,589 | 37.8 | % | |||||||||||
Selling and administrative expenses | (47,909 | ) | (57,123 | ) | 9,214 | 16.1 | % | |||||||||
Total Corporate and Other | (76,158 | ) | (104,134 | ) | 27,976 | 26.9 | % | |||||||||
Depreciation, depletion and amortization | (86,458 | ) | (65,972 | ) | (20,486 | ) | (31.1 | )% | ||||||||
Asset retirement obligation expense | (24,282 | ) | (15,572 | ) | (8,710 | ) | (55.9 | )% | ||||||||
Interest expense: | ||||||||||||||||
Peabody | (5,778 | ) | (4,960 | ) | (818 | ) | (16.5 | )% | ||||||||
Third-Party | (5,641 | ) | (4,873 | ) | (768 | ) | (15.8 | )% | ||||||||
Interest income | 1,417 | 1,553 | (136 | ) | (8.8 | )% | ||||||||||
Income before income taxes and minority interests | 6,027 | 34,787 | (28,760 | ) | n/a | |||||||||||
Income tax provision | (8,350 | ) | — | (8,350 | ) | n/a | ||||||||||
Minority interests | (11,169 | ) | — | (11,169 | ) | n/a | ||||||||||
Net income (loss) | $ | (13,492 | ) | $ | 34,787 | $ | (48,279 | ) | n/a | |||||||
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+1.0% | −1.0% | |||||||
(Dollars in thousands) | ||||||||
Effect on total service and interest cost components | $ | 8,163 | $ | (7,494 | ) | |||
Effect on (gain)/loss amortization component | 15,102 | (13,860 | ) | |||||
Effect on total postretirement benefit obligation | 66,450 | (60,983 | ) |
+0.5% | −0.5% | |||||||
(Dollars in thousands) | ||||||||
Effect on total service and interest cost components | $ | 1,583 | $ | (1,990 | ) | |||
Effect on (gain)/loss amortization component | (6,656 | ) | 7,025 | |||||
Effect on total postretirement benefit obligation | (28,934 | ) | 31,758 |
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December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Promissory Notes | $ | 12,365 | $ | 12,365 | ||||
Notes Payable | — | 8,357 | ||||||
Total | $ | 12,365 | $ | 20,722 | ||||
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Payments Due by Year as of December 31, 2007 | ||||||||||||||||
Within 1 Year | 2-3 Years | 4-5 Years | After 5 Years | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Long-term debt obligations (principal and interest) | $ | 1,700 | $ | 3,400 | $ | 3,400 | $ | 8,500 | ||||||||
Operating lease obligations | 24,117 | 41,958 | 22,349 | 6,500 | ||||||||||||
Unconditional purchase obligations(1) | 6,306 | — | — | — | ||||||||||||
Coal reserve lease and royalty obligations | 12,059 | 17,513 | 9,380 | 6,676 | ||||||||||||
Other long-term liabilities(2) | 50,618 | 111,686 | 128,374 | 614,942 | ||||||||||||
Total contractual cash obligations | $ | 94,800 | $ | 174,557 | $ | 163,503 | $ | 636,618 | ||||||||
(1) | Patriot has purchase agreements with approved vendors for most types of operating expenses. However, its specific open purchase orders (which have not been recognized as a liability) under these purchase agreements, combined with any other open purchase orders, are not material. The commitments in the table above relate to significant capital purchases. | |
(2) | Represents long-term liabilities relating to Patriot’s postretirement benefit plans, work-related injuries and illnesses and mine reclamation and end-of-mine closure costs. |
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Workers’ | ||||||||||||||||||||
Reclamation | Lease | Compensation | ||||||||||||||||||
Obligations | Obligations | Obligations | Other(1) | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Surety bonds | $ | 84,109 | $ | — | $ | 12,961 | $ | 12,030 | $ | 109,100 | ||||||||||
Letters of credit | 61,883 | 16,949 | 170,844 | 3,871 | 253,547 | |||||||||||||||
$ | 145,992 | $ | 16,949 | $ | 183,805 | $ | 15,901 | $ | 362,647 | |||||||||||
(1) | Includes collateral for surety companies and bank guarantees, road maintenance and performance guarantees. |
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Year Ended December 31, 2007 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(Dollars in thousands except per share and stock price data) | ||||||||||||||||
Revenues | $ | 269,663 | $ | 256,221 | $ | 293,301 | $ | 254,177 | ||||||||
Operating profit | (10,698 | ) | (4,392 | ) | (39,823 | ) | (50,440 | ) | ||||||||
Net loss | (11,951 | ) | (5,814 | ) | (39,451 | ) | (49,652 | ) | ||||||||
Basic and diluted loss attributable to common stockholders per share | N/A | N/A | N/A | (2.17 | ) | |||||||||||
Weighted average shares used in calculating basic earnings per share | N/A | N/A | N/A | 26,570,940 | ||||||||||||
Stock price — high and low prices | N/A | N/A | N/A | $ | 43.00-$27.16 |
Year Ended December 31, 2006 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 289,107 | $ | 312,495 | $ | 285,038 | $ | 261,279 | ||||||||
Operating profit | 21,530 | 2,648 | 9,290 | (17,439 | ) | |||||||||||
Net income (loss) | 13,921 | (1,774 | ) | (2,954 | ) | (22,685 | ) |
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• | Prior to the spin-off, Patriot’s executive compensation plans and agreements were reviewed and approved by Peabody’s Compensation Committee and the independent members of Peabody’s Board of Directors. At that time Peabody was Patriot’s sole stockholder. | |
• | Following the spin-off, Patriot’s Compensation Committee assumed responsibility for Patriot’s executive compensation plans. |
• | Maximizing operational excellence in the areas of safety, productivity and cost management and environmental stewardship; | |
• | Capitalizing on organic growth opportunities as well as value-enhancing acquisitions and joint ventures; and | |
• | Maximizing profitability and customer satisfaction by taking advantage of Patriot’s diverse products and sourcing capabilities. |
• | Provide competitive compensation based on the position and responsibility by using market data to successfully attract and retain highly-qualified executives with the leadership skills and experience necessary for Patriot’s long-term success; | |
• | Provide incentive compensation that places a strong emphasis on financial performance, with the flexibility to assess operational and individual performance; and | |
• | Provide an appropriate link between compensation and the creation of stockholder value through awards tied to Patriot’s long-term performance and share price appreciation. |
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Threshold | Target | Maximum | ||||||||||
Payout | Payout | Payout | ||||||||||
as a % of | as a % of | as a % of | ||||||||||
Name | Salary | Salary | Salary | |||||||||
Richard M. Whiting | 50 | % | 100 | % | 175 | % | ||||||
Jiri Nemec | 40 | % | 80 | % | 140 | % | ||||||
Mark N. Schroeder | 40 | % | 80 | % | 140 | % | ||||||
Charles A. Ebetino, Jr. | 40 | % | 80 | % | 140 | % | ||||||
Joseph W. Bean | 30 | % | 60 | % | 105 | % |
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• | Build commitment to Patriot and promote retention during the transition period following the spin-off; | |
• | Align executive and stockholder interests; | |
• | Make a substantial portion of each named executive officer’s compensation directly contingent on future stock price appreciation; and | |
• | Complement the other components of Patriot’s compensation program and provide competitive total compensation opportunities. |
• | Fifth anniversary of the grant date: 50% of the initial award time vests with an opportunity to earn up to 1.5 x 50% of the initial award if the super-performance metrics are achieved; |
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• | Sixth anniversary of the grant date: 25% of the initial award time vests with an opportunity to earn up to 3.0 x 25% of the initial award if the super-performance metrics are achieved; and | |
• | Seventh anniversary of the grant date: 25% of the initial award time vests with an opportunity to earn up to 4.0 x 25% of the initial award if the super-performance metrics are achieved. |
• | The percentage of the Adjusted EBITDA goal achieved multiplied by 1/3, plus | |
• | The percentage of the ROIC goal achieved multiplied by 1/3, plus | |
• | The percentage of the Leverage goal achieved, multiplied by 1/3. |
Achievement | December 31, | December 31, | December 31, | |||||||||||||
% | 2012 | 2013 | 2014 | |||||||||||||
($ in millions) | ||||||||||||||||
Cumulative Adjusted EBITDA Goal(1/3 weight) | 25 | % | $ | 798.5 | $ | 1,028.5 | $ | 1,281.5 | ||||||||
62.5 | % | $ | 871.1 | $ | 1,122.0 | $ | 1,398.0 | |||||||||
100 | % | $ | 943.6 | $ | 1,215.5 | $ | 1,514.5 | |||||||||
ROIC Goal (1/3 weight) | 25 | % | 12 | % | 12 | % | 12 | % | ||||||||
62.5 | % | 14 | % | 14 | % | 14 | % | |||||||||
100 | % | 16 | % | 16 | % | 16 | % | |||||||||
Leverage Goal (1/3 weight) | 25 | % | < 2.50 | < 2.50 | < 2.50 | |||||||||||
62.5 | % | < 2.00 | < 2.00 | < 2.00 | ||||||||||||
100 | % | < 1.50 | < 1.50 | < 1.50 |
Restricted | ||||||||
Stock | Stock | |||||||
Name | Options (#) | Units (#) | ||||||
Richard M. Whiting | 186,425 | 79,335 | ||||||
Mark N. Schroeder | 55,810 | 23,751 | ||||||
Jiri Nemec | 55,810 | 23,751 | ||||||
Charles A. Ebetino, Jr. | 55,810 | 23,751 | ||||||
Joseph W. Bean | 31,450 | 13,384 |
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• | For the five-year measurement period ending December 31, 2012: Five-year cumulative Adjusted EBITDA divided by the five-year(2008-2012) Total Invested Capital amount. |
• | Total Invested Capital includes total debt, total stockholder’s equity and legacy liabilities. |
• | For the six-year measurement period ending December 31, 2013: Six-year cumulative Adjusted EBITDA divided by the six-year(2008-2013) Total Invested Capital amount. | |
• | For the seven-year measurement period ending December 31, 2014: Seven-year cumulative Adjusted EBITDA divided by the seven-year(2008-2014) Total Invested Capital amount. |
As a % | Restricted | |||||||
Name | of Salary | Stock (#) | ||||||
Richard M. Whiting | 250 | % | 46,667 | |||||
Mark N. Schroeder | 120 | % | 12,000 | |||||
Jiri Nemec | 175 | % | 17,500 | |||||
Charles A. Ebetino, Jr. | 120 | % | 12,000 | |||||
Joseph W. Bean | 75 | % | 5,500 |
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Ownership | ||||||||||||||||
Share | Share | Guidelines, | Ownership | |||||||||||||
Ownership | Ownership | Relative to | Relative to | |||||||||||||
Name | (#)(1) | ($)(2) | Base Salary | Base Salary | ||||||||||||
Richard M. Whiting(3) | 160,046 | 6,680,320 | 5 | x | 9.5 | x | ||||||||||
Mark N. Schroeder(4) | 42,256 | 1,763,765 | 3 | x | 4.7 | x | ||||||||||
Jiri Nemec(5) | 45,036 | 1,879,803 | 3 | x | 5.0 | x | ||||||||||
Charles A. Ebetino, Jr.(6) | 40,602 | 1,694,727 | 3 | x | 4.5 | x | ||||||||||
Joseph W. Bean(7) | 22,095 | 922,245 | 3 | x | 3.4 | x |
(1) | Includes shares acquired as a result of Peabody’s spin-off of Patriot through a stock dividend; through the open market, time-vested restricted stock granted on November 1, 2007, through the Annual Long-Term Incentive Award and time-vested restricted stock units through the Extended Long-Term Incentive Award. | |
(2) | Calculated based on Patriot’s closing market price per share on the last trading day of 2007, $41.74. | |
(3) | Includes 79,334 time-vested restricted stock units granted to Mr. Whiting on November 1, 2007 under the terms of his Extended Long-Term Incentive Award. | |
(4) | Includes 23,750 time-vested restricted stock units granted to Mr. Schroeder on November 1, 2007 under the terms of his Extended Long-Term Incentive Award. | |
(5) | Includes 23,750 time-vested restricted stock units granted to Mr. Nemec on November 1, 2007 under the terms of his Extended Long-Term Incentive Award. | |
(6) | Includes 23,750 time-vested restricted stock units granted to Mr. Ebetino, Jr. on November 1, 2007 under the terms of his Extended Long-Term Incentive Award. | |
(7) | Includes 13,384 time-vested restricted stock units granted to Mr. Bean on November 1, 2007 under the terms of his Extended Long-Term Incentive Award. |
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Change in | ||||||||||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||||||||||
and Non- | ||||||||||||||||||||||||||||||||||||
Qualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($)(2) | ($)(2) | ($)(3) | ($)(4) | ($)(5) | ($) | |||||||||||||||||||||||||||
Richard M. Whiting(1) | 2007 | 116,667 | — | 182,993 | 79,303 | 125,413 | — | 8,397 | 512,772 | |||||||||||||||||||||||||||
President & Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Mark N. Schroeder(1) | 2007 | 62,500 | — | 50,800 | 23,741 | 53,748 | — | 4,538 | 195,326 | |||||||||||||||||||||||||||
Senior Vice President & Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Jiri Nemec(1) | 2007 | 62,500 | — | 61,914 | 23,741 | 37,702 | — | 4,538 | 190,395 | |||||||||||||||||||||||||||
Senior Vice President & Chief Operating Officer | ||||||||||||||||||||||||||||||||||||
Charles A. Ebetino, Jr.(1) | 2007 | 62,500 | — | 50,800 | 23,741 | 51,708 | — | 4,668 | 193,416 | |||||||||||||||||||||||||||
Senior Vice President - Corporate Development | ||||||||||||||||||||||||||||||||||||
Joseph W. Bean(1) | 2007 | 45,833 | — | 26,076 | 13,378 | 29,562 | — | 3,286 | 118,135 | |||||||||||||||||||||||||||
Senior Vice President, General Counsel & Secretary |
(1) | Each of the above-named executives began employment with Patriot effective with the November 1, 2007 spin-off. Therefore, the amounts reflected in the Summary Compensation Table represent compensation for the period November 1, 2007 to December 31, 2007. | |
(2) | Long-term incentive awards to the named executive officers consist of restricted stock and restricted stock units (reflected in the “Stock Award” column above) and stock options (reflected in the “Option Awards” column above). The value of stock awards and option awards is the compensation charge dollar amount recognized for financial statement reporting purposes for 2007 in accordance with FAS 123R. The grant date fair value of stock awards and option awards for financial statement reporting purposes in accordance with FAS 123R is included in the Grants of Plan-Based Awards Table on page 169 of this proxy statement/prospectus. A discussion of the relevant fair value assumptions is set forth in Note 22 to Patriot’s consolidated financial statements onpages E-33 throughE-35 of this proxy statement/prospectus. Patriot cautions that the amount ultimately realized by the named executive officers from the stock and option awards will likely vary based on a number of factors, including Patriot’s actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales. | |
(3) | The material terms of these awards are described under the caption “Annual Incentive Plan” in the Compensation Discussion and Analysis section on page 161 of this proxy statement/prospectus. | |
(4) | Patriot does not have a pension plan or a deferred compensation plan. | |
(5) | Amounts included in this column are described in the All Other Compensation Table on page 169 of this proxy statement/prospectus. |
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Annual | ||||||||||||||||
401(K) | ||||||||||||||||
Matching and | ||||||||||||||||
Group Term | Performance | |||||||||||||||
Life Insurance | Contributions | Total | ||||||||||||||
Name | Year | ($) | ($) | ($) | ||||||||||||
Richard M. Whiting | 2007 | 207 | 8,190 | 8,397 | ||||||||||||
Mark N. Schroeder | 2007 | 150 | 4,388 | 4,538 | ||||||||||||
Jiri Nemec | 2007 | 150 | 4,388 | 4,538 | ||||||||||||
Charles A. Ebetino, Jr. | 2007 | 280 | 4,388 | 4,668 | ||||||||||||
Joseph W. Bean | 2007 | 68 | 3,218 | 3,286 |
Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive | All Other | All | All Other | |||||||||||||||||||||||||||||||||||||||||||||||||
Plan | Stock | Other | Option | Exercise | ||||||||||||||||||||||||||||||||||||||||||||||||
Awards: | Awards: | Stock | Awards: | or Base | Option | |||||||||||||||||||||||||||||||||||||||||||||||
Grant | Number of | Awards: | Number of | Price of | Awards: | |||||||||||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts | Estimated Future Payouts | Date | Shares of | Grant | Securities | Option | Grant | |||||||||||||||||||||||||||||||||||||||||||||
Under Non-Equity Incentive Plan Awards | Under Equity Incentive Plan Awards(1) | Fair | Stock or | Date Fair | Underlying | Awards | Date Fair | |||||||||||||||||||||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Threshold | Target | Maximum | Value | Units | Value | Options | ($/Sh) | Value | ||||||||||||||||||||||||||||||||||||||||
Name | Date | ($) | ($) | ($) | (#) | (#) | (#) | ($)(2) | (#)(3) | ($)(2) | (#)(2)(4) | (2)(5) | ($)(2) | |||||||||||||||||||||||||||||||||||||||
Richard M. Whiting | 11/1/2007 | 58,333 | 116,667 | 204,167 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 79,334 | 79,334 | 198,334 | 2,999,802 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 46,667 | 1,697,512 | ||||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 186,425 | 37.50 | 2,682,458 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mark N. Schroeder | 11/1/2007 | 25,000 | 50,000 | 87,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 23,750 | 23,750 | 59,375 | 898,047 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 12,000 | 436,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 55,810 | 37.50 | 803,047 | |||||||||||||||||||||||||||||||||||||||||||||||||
Jiri Nemec | 11/1/2007 | 25,000 | 50,000 | 87,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 23,750 | 23,750 | 59,375 | 898,047 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 17,500 | 636,563 | ||||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 55,810 | 37.50 | 803,047 | |||||||||||||||||||||||||||||||||||||||||||||||||
Charles A. Ebetino, Jr. | 11/1/2007 | 25,000 | 50,000 | 87,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 23,750 | 23,750 | 59,375 | 898,047 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 12,000 | 436,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 55,810 | 37.50 | 803,047 | |||||||||||||||||||||||||||||||||||||||||||||||||
Joseph W. Bean | 11/1/2007 | 13,750 | 27,500 | 48,125 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 13,384 | 13,384 | 33,460 | 506,083 | ||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 5,500 | 200,063 | ||||||||||||||||||||||||||||||||||||||||||||||||||
11/1/2007 | 31,450 | 37.50 | 452,532 |
(1) | The restricted stock unit awards are included in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column above. Performance unit awards granted in 2007 will be earned based on achievement of performance objectives for the period November 1, 2007 to December 31, 2012, November 1, 2007 to December 31, 2013 and November 1, 2007 to December 31, 2014. The material terms of these awards, including payout formulas, are described under the caption “Restricted Stock Units” in the Compensation Discussion and Analysis section on page 163 of this proxy statement/prospectus. |
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(2) | The value of stock awards, option awards and restricted stock unit awards is the grant date fair value determined under FAS 123R for financial statement reporting purposes. A discussion of the relevant fair value assumptions is set forth in Note 22 to Patriot’s consolidated financial statements onpages E-33 throughE-35 of this proxy statement/prospectus. Patriot cautions that the amount ultimately realized by the named executive officers from the stock, unit and option awards will likely vary based on a number of factors, including Patriot’s actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales. | |
(3) | Restricted stock awards are reflected in the “All Other Stock Awards” column above. Restricted stock cliff vests on the third anniversary of the date of grant. | |
(4) | The options vest fifty percent on the fifth anniversary of the date of grant, 25% on the sixth anniversary of the grant date and the remaining 25% on the seventh anniversary of the grant date. Other material terms of these awards are described under the caption “Stock Options” in the Compensation Discussion and Analysis section on page 163 of this proxy statement/prospectus. | |
(5) | The exercise price for all options is equal to the closing market price per share of Patriot’s Common Stock on the date of grant. |
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Stock Awards | ||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||||||||||
Equity | Plan Awards: | |||||||||||||||||||||||||||||||
Incentive Plan | Market or | |||||||||||||||||||||||||||||||
Awards: | Payout | |||||||||||||||||||||||||||||||
Option Awards | Market | Number of | Value of | |||||||||||||||||||||||||||||
Number of | Number of | Number | Value of | Unearned | Unearned | |||||||||||||||||||||||||||
Securities | Securities | of Shares | Shares or | Shares, Units | Shares, | |||||||||||||||||||||||||||
Underlying | Underlying | or Units | Units of | or Other | Units or Other | |||||||||||||||||||||||||||
Unexercised | Unexercised | Option | of Stock | Stock That | Rights That | Rights That | ||||||||||||||||||||||||||
Options | Options | Exercise | Option | That Have | Have Not | Have Not | Have Not | |||||||||||||||||||||||||
(#) | (#) | Price | Expiration | Not Vested | Vested | Vested | Vested | |||||||||||||||||||||||||
Name | Exercisable | Unexercisable | ($) | Date | (#) | ($)(1) | (#)(2) | ($)(3) | ||||||||||||||||||||||||
Richard M. Whiting | 198,334 | (6) | 8,278,461 | |||||||||||||||||||||||||||||
46,667 | (5) | 1,947,881 | ||||||||||||||||||||||||||||||
186,425 | (4) | 37.50 | 11/1/2017 | |||||||||||||||||||||||||||||
Total | 186,425 | 46,667 | 1,947,881 | 198,334 | 8,278,461 | |||||||||||||||||||||||||||
Mark N. Schroeder | 59,375 | (6) | 2,478,313 | |||||||||||||||||||||||||||||
12,000 | (5) | 500,880 | ||||||||||||||||||||||||||||||
55,810 | (4) | 37.50 | 11/1/2017 | |||||||||||||||||||||||||||||
Total | 55,810 | 12,000 | 500,880 | 59,375 | 2,478,313 | |||||||||||||||||||||||||||
Jiri Nemec | 59,375 | (6) | 2,478,313 | |||||||||||||||||||||||||||||
17,500 | (5) | 730,450 | ||||||||||||||||||||||||||||||
55,810 | (4) | 37.50 | 11/1/2017 | |||||||||||||||||||||||||||||
Total | 55,810 | 17,500 | 730,450 | 59,375 | 2,478,313 | |||||||||||||||||||||||||||
Charles A. Ebetino, Jr. | 59,375 | (6) | 2,478,313 | |||||||||||||||||||||||||||||
17,500 | (5) | 730,450 | ||||||||||||||||||||||||||||||
55,810 | (4) | 37.50 | 11/1/2017 | |||||||||||||||||||||||||||||
Total | 55,810 | 17,500 | 730,450 | 59,375 | 2,478,313 | |||||||||||||||||||||||||||
Joseph W. Bean | 33,460 | (6) | 1,396,620 | |||||||||||||||||||||||||||||
5,500 | (5) | 229,570 | ||||||||||||||||||||||||||||||
31,450 | (4) | 37.50 | 11/1/2017 | |||||||||||||||||||||||||||||
Total | 31,450 | 5,500 | 229,570 | 33,460 | 1,396,620 | |||||||||||||||||||||||||||
(1) | The market value was calculated based on the closing market price per share of Patriot’s Common Stock on the last trading day of 2007, $41.74 per share. | |
(2) | The number of restricted stock units disclosed includes both the time-vested and performance-based awards and is based on the assumption that all super-performance goals were achieved. | |
(3) | The payout value was calculated based on the closing market price per share of Patriot’s Common Stock on the last trading day of 2007, $41.74 per share, and the assumption that all time-based awards vest and all super performance goals were achieved. |
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(4) | The options were granted on November 1, 2007 and vest 50 percent on the fifth anniversary of the date of grant, 25 percent on the sixth anniversary of the grant date and the remaining 25 percent on the seventh anniversary of the grant date. | |
(5) | The restricted stock was granted on November 1, 2007 and cliff vests on November 1, 2010. | |
(6) | The restricted stock units were granted on November 1, 2007 and vest 50 percent on the fifth anniversary of the date of grant, 25 percent on the sixth anniversary of the grant date and the remaining 25 percent on the seventh anniversary of the grant date, with opportunities to earn additional units if super-performance targets are achieved by December 31, 2012, December 31, 2013 and December 31, 2014. The super-performance targets are described under “One-Time Long-Term Incentive Awards” in the Compensation Discussion and Analysis on page 163 of this proxy statement/prospectus. |
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Involuntary | ||||||||||||||||||||||||
Termination | Involuntary | |||||||||||||||||||||||
“Without Cause” | Termination as a | |||||||||||||||||||||||
“For Cause” | Death or | Voluntary | or ‘‘For Good | Result of Change | ||||||||||||||||||||
Retirement | Termination | Disability | Termination | Reason” | in Control | |||||||||||||||||||
Name | ($)(1) | ($)(2) | ($)(3) | ($)(4) | ($)(5) | ($)(6) | ||||||||||||||||||
Richard M. Whiting | — | 134,038 | 6,883,762 | 134,038 | 5,223,492 | 11,273,216 | ||||||||||||||||||
Mark N. Schroeder | — | 0 | 2,028,839 | 0 | 1,011,057 | 3,437,606 | ||||||||||||||||||
Jiri Nemec | — | 39,276 | 2,297,685 | 39,276 | 1,053,684 | 3,012,093 | ||||||||||||||||||
Charles A. Ebetino, Jr. | — | 0 | 2,028,839 | 0 | 1,608,161 | 4,401,583 | ||||||||||||||||||
Joseph W. Bean | — | 0 | 1,086,566 | 0 | 1,030,552 | 2,604,734 |
(1) | None of the named executive officers was eligible for retirement (age 55, with 5 years of service) as of December 31, 2007. | |
(2) | “For Cause” means (i) any material and uncorrected breach by the executive of the terms of their employment agreement, including but not limited to engaging in disclosure of secret or confidential information, (ii) any willful fraud or dishonesty of the executive involving the property or business of Patriot, (iii) a deliberate or willful refusal or failure to comply with any major corporate policies which are communicated in writing or (iv) the executive’s conviction of, or plea of no contest to any felony if such conviction shall result in imprisonment. Compensation payable to an executive would include only accrued but unused vacation. | |
(3) | For all named executive officers, compensation payable upon Death or Disability would include a) accrued but unused vacation, b) prorated annual incentive for year of termination, c) 100% payout of the time-vested portion of outstanding restricted stock units, and d) the value an executive could realize as a result of the accelerated vesting of any unvested stock option awards and restricted stock, per the terms of the executive’s respective grant agreements. For 2007, the prorated annual incentive was equal to 100% of the non-equity incentive plan compensation, as shown in the Summary Compensation Table on page 168 of this proxy statement/prospectus, and payout of restricted stock units reflects the values for the 2007 restricted stock units as shown in the Outstanding Equity Awards Table on page 171 of this proxy statement/prospectus. Amounts do not include life insurance payments in the case of death. | |
(4) | For all named executive officers, the compensation payable would include accrued but unused vacation. | |
(5) | For Mr. Whiting, the compensation payable would include a) severance payments of three times base salary, b) a payment equal to three times the higher of (1) the target annual incentive or (2) the average of the actual annual incentives paid in the three prior years, c) prorated annual incentive for year of termination, d) continuation of benefits for three years. |
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For Mr. Schroeder and Mr. Nemec, the compensation payable would include a) severance payments of one times base salary, b) a payment equal to one times the higher of (1) the target annual incentive or (2) the average of the actual annual incentives paid in the three prior years, c) prorated annual incentive for year of termination and d) continuation of benefits for one year. | ||
For Mr. Ebetino and Mr. Bean, the compensation payable would include a) severance payments of 1.83 times (22 months) base salary, b) a payment equal to 1.83 times the higher of (1) the target annual incentive or (2) the average of the actual annual incentives paid in the three prior years, c) prorated annual incentive for year of termination and d) continuation of benefits for 22 months. | ||
(6) | Reflects total estimate of compensation payable as a result of both a change of control and a termination of employment, as detailed in the Estimated Current Value of Change of Control Benefits Table on page 176 of this proxy statement/prospectus. This includes the value of stock options, restricted stock and the time-vested portion of restricted stock units granted on November 1, 2007. |
Accelerated Vesting of Unvested LTIP Awards | ||||||||||||||||||||||||
Severance | Estimated Tax | ($)(3) | ||||||||||||||||||||||
Amount | Gross Up | Restricted | Stock | Restricted Stock | Total | |||||||||||||||||||
Name | ($)(1) | ($)(2) | Stock | Options | Units | ($) | ||||||||||||||||||
Richard M. Whiting | 5,223,492 | — | 1,947,881 | 790,442 | 3,311,401 | 11,273,216 | ||||||||||||||||||
Mark N. Schroeder | 1,011,057 | 697,710 | 500,880 | 236,634 | 991,325 | 3,437,606 | ||||||||||||||||||
Jiri Nemec | 1,053,684 | — | 730,450 | 236,634 | 991,325 | 3,012,093 | ||||||||||||||||||
Charles A. Ebetino, Jr. | 1,608,161 | 1,064,583 | 500,880 | 236,634 | 991,325 | 4,401,583 | ||||||||||||||||||
Joseph W. Bean | 1,030,552 | 652,616 | 229,570 | 133,348 | 558,648 | 2,604,734 |
(1) | The severance amount is equal to the amount shown in the “Involuntary Termination ‘Without Cause’ or ‘For Good Reason’’’ column in the Estimated Incremental Value Upon Termination Table on page 175 of this proxy statement/prospectus. | |
(2) | Includes excise tax, plus the effect of 35% federal income taxes, 6% state income taxes, and 1.45%FICA-HI taxes on the excise tax. Excise tax is equal to 20% times the excess parachute payment subject to excise tax. An excess parachute payment is triggered when the change of control amount is greater than the safe harbor amount (equal to 3x the base amount less $1; base amount is the average of the previous 5 years’W-2 earnings); actual excess parachute payment is equal to the difference between the preliminary change of control amount and the base amount. The gross up calculation assumes no allocation of any amounts to the covenant not to compete provision in each executive’s employment agreement, notwithstanding that such allocation is permissible in certain circumstances under applicable tax rules. Such an allocation may have the effect of reducing or eliminating any gross up payment. | |
(3) | Reflects the value an executive could realize as a result of the accelerated vesting of any unvested stock option awards, based on the stock price on the last business day of 2007, $41.74. The value realized is not and would not be a liability of Patriot. |
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Change in | ||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||
and Non- | ||||||||||||||||||||||||||||
qualified | ||||||||||||||||||||||||||||
Fees Earned | Non-Equity | Deferred | ||||||||||||||||||||||||||
or Paid in | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
Cash | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||
Name | ($) | ($)(1)(2) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
Chairman | ||||||||||||||||||||||||||||
Irl F. Engelhardt(3) | — | — | — | — | — | — | — | |||||||||||||||||||||
Non-Employee Directors | ||||||||||||||||||||||||||||
J. Joe Adorjan | 35,000 | 23,338 | — | — | — | — | 58,338 | |||||||||||||||||||||
B.R. Brown | 35,000 | 23,338 | — | — | — | — | 58,338 | |||||||||||||||||||||
John E. Lushefski | 42,500 | 23,338 | — | — | — | — | 65,838 | |||||||||||||||||||||
Michael M. Scharf | 42,500 | 23,338 | — | — | — | — | 65,838 | |||||||||||||||||||||
Robert O. Viets | 42,500 | 23,338 | — | — | — | — | 65,838 |
(1) | The value of the deferred stock units was the 2007 compensation charge dollar amount recognized for financial statement reporting purposes in accordance with FAS 123R. For all non-employee directors, the grant date fair values for deferred stock units determined under FAS 123R for financial reporting purposes was $60,000 for annual equity compensation and $75,000 for the initial award given upon joining the Board of Directors. A discussion of the relevant fair value assumptions is set forth in Note 22 to Patriot’s consolidated financial statements onpages E-33 throughE-35 of this proxy statement/prospectus. Patriot cautions that the amount ultimately realized by the non-employee directors from the deferred stock unit awards will likely vary based on a number of factors, including Patriot’s actual operating performance, stock price fluctuations and the timing of sales. | |
(2) | As of December 31, 2007, the aggregate number of deferred stock units outstanding for each non-employee director was as follows: Mr. Adorjan, 3,734; Mr. Brown, 3,734; Mr. Lushefski, 3,734; Mr. Scharf, 3,734; and Mr. Viets, 3,734. |
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(3) | Mr. Engelhardt, Chairman of the Board and Executive Advisor of Patriot, continues to serve as an executive officer of Patriot and receives a salary and other compensation pursuant to the terms of an employment agreement with Patriot, which is discussed in detail on page 174 of this proxy statement/prospectus. He receives no additional compensation for serving as director. |
Ownership | ||||||||||||||||
Guidelines, | Ownership | |||||||||||||||
Share | Share | Relative to | Relative to | |||||||||||||
Ownership | Ownership | Annual Retainer | Annual Retainer | |||||||||||||
Name(1) | (#)(2) | ($)(3) | (4) | (5) | ||||||||||||
Chairman | ||||||||||||||||
Irl F. Engelhardt | 157,715 | 6,583,024 | — | — | ||||||||||||
Non-Employee Directors | ||||||||||||||||
J. Joe Adorjan | 3,734 | 155,857 | 3 | x | 2.6 | x | ||||||||||
B.R. Brown | 4,453 | 185,868 | 3 | x | 3.1 | x | ||||||||||
John E. Lushefski | 3,734 | 155,857 | 3 | x | 2.6 | x | ||||||||||
Michael M. Scharf | 3,734 | 155,857 | 3 | x | 2.6 | x | ||||||||||
Robert O. Viets | 5,334 | 222,641 | 3 | x | 3.7 | x |
(1) | Mr. Whiting’s stock ownership is shown on the Named Executive Officer Stock Ownership Table. | |
(2) | Includes shares acquired through open market purchases and deferred stock units granted on November 1, 2007 in accordance with the non-employee Board of Director compensation ownership guidelines. | |
(3) | Value is calculated based on the closing market price per share of Patriot’s Common Stock on the last trading day of 2007, $41.74. | |
(4) | Based on base annual retainer. For 2007, the base annual retainer was $60,000. | |
(5) | Represents current ownership, shown as a multiple of the base annual retainer of $60,000. |
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Amount and | ||||||||
Nature | ||||||||
of Beneficial | Percent of | |||||||
Name and Address of Beneficial Owners | Ownership(1) | Class(2) | ||||||
ArcLight Energy Partners Fund I, L.P. | 17,843,448 | (3) | 34.7 | % | ||||
ArcLight Energy Partners Fund II, L.P. | 9,300,554 | (4) | 18.1 | % | ||||
Cascade Investment, L.L.C. | 4,946,990 | (5) | 9.6 | % | ||||
Caisse de Dépôt et Placement du Québec | 4,946,990 | (6) | 9.6 | % | ||||
Howard Hughes Medical Institute | 3,321,580 | (7) | 6.5 | % | ||||
The Northwestern Mutual Life Insurance Company | 3,321,580 | (8) | 6.5 | % | ||||
Dan Revers | 27,144,002 | (9) | 52.8 | % | ||||
Robb Turner | 27,144,002 | (10) | 52.8 | % | ||||
Phil Messina | 27,144,002 | (11) | 52.8 | % | ||||
Allyson Tucker | 0 | 0 | ||||||
Paul Vining | 463,887 | * | ||||||
Larry Altenbaumer | 12,000 | * | ||||||
David Turnbull | 111,112 | * | ||||||
Richard Verheij | 191,750 | * | ||||||
Robert Bennett | 209,975 | * | ||||||
Dwayne Francisco | 335,629 | * | ||||||
Keith St. Clair | 241,335 | * | ||||||
All directors and executive officers as a group (11 people) | 28,708,690 | 55.8 | % |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned; includes shares of restricted stock that were unvested as of June 7, 2008 (all of which will vest upon consummation of the merger) as follows: Mr. Paul Vining, 200,000 shares; Mr. Larry Altenbaumer, 8,000 shares; Mr. David Turnbull, 59,687 shares; Mr. Richard Verheij, 135,687 shares; Mr. Robert Bennett, 165,687 shares; Mr. Dwayne Francisco, 283,333 shares; and Mr. Keith St. Clair, 110,000 shares. Does not include shares of Magnum common stock issuable upon conversion of the Magnum convertible notes. | |
(2) | An asterisk (*) indicates that the applicable person beneficially owns less than one percent of the outstanding shares. | |
(3) | ArcLight Energy Partners Fund I, L.P. has the sole power to vote, direct the voting of, dispose of and direct the disposition of such shares. Such shares may be deemed to be own beneficially (solely for purposes ofRule 13d-3 under the Exchange Act) by Messrs. Revers, Turner and Messina. However, as noted herein each of such individuals expressly disclaims such ownership. ArcLight Energy Partners Fund I, L.P. is located at 200 Clarendon Street, 55th Floor, Boston, MA 02117. | |
(4) | ArcLight Energy Partners Fund II, L.P. has the sole power to vote, direct the voting of, dispose of and direct the disposition of such shares. Such shares may be deemed to be own beneficially (solely for purposes ofRule 13d-3 under the Exchange Act) by Messrs. Revers, Turner and Messina. However, as noted herein each of such individuals expressly disclaims such ownership. ArcLight Energy Partners Fund II, L.P. is located at 200 Clarendon Street, 55th Floor, Boston, MA 02117. | |
(5) | Cascade Investment, L.L.C. is located at 2365 Carillon Point, Kirkland, WA 98033. All common stock held by Cascade Investment, L.L.C. (“Cascade”) may be deemed to be beneficially owned by William H. Gates III as the sole member of Cascade. Michael Larson, the Business Manager of Cascade, has voting |
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and investment power with respect to the common stock held by Cascade. Mr. Larson disclaims any beneficial ownership of the common stock beneficially owned by Cascade and Mr. Gates. | ||
(6) | Caisse de Dépôt et Placement du Québec is located at Centre CDP Capital, 1000, place Jean-Paul Riopelle, Montréal (Québec), H2Z 2B3, Canada. | |
(7) | Howard Hughes Medical Institute is located at 4000 Jones Bridge Road, Chevy Chase, MD, 20815. | |
(8) | The Northwestern Mutual Life Insurance Company is located at 720 East Wisconsin Avenue, Milwaukee, WI 53202. | |
(9) | Mr. Revers is a managing director and member of ArcLight Capital Holdings, LLC. 27,144,002 shares indicated as owned by Mr. Revers are included because of Mr. Rever’s affiliation with the ArcLight Funds. Mr. Revers disclaims beneficial ownership of all shares owned by the ArcLight Funds and neither the filing of this document nor any of its contents shall be deemed to constitute an admission by Mr. Revers that he is the beneficial owner of any of the securities referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or for any other purpose. Mr. Revers’ address isc/o ArcLight Capital Partners, LLC, 200 Clarendon Street, 55th Floor, Boston, MA 02117. See footnotes (3) and (4) above. | |
(10) | Mr. Turner is senior partner and member of ArcLight Capital Holdings, LLC. 27,144,002 shares indicated as owned by Mr. Turner are included because of Mr. Turner’s affiliation with the ArcLight Funds. Mr. Turner disclaims beneficial ownership of all shares owned by the ArcLight Funds and neither the filing of this document nor any of its contents shall be deemed to constitute an admission by Mr. Turner that he is the beneficial owner of any of the securities referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or for any other purpose. Mr. Turner’s address isc/o ArcLight Capital Partners, LLC, 200 Clarendon Street, 55th Floor, Boston, MA 02117. See footnotes (3) and (4) above. | |
(11) | Mr. Messina is a principal of ArcLight Capital Holdings, LLC. 27,144,002 shares indicated as owned by Mr. Messina are included because of Mr. Messina’s affiliation with the ArcLight Funds. Mr. Messina disclaims beneficial ownership of all shares owned by the ArcLight Funds and neither the filing of this document nor any of its contents shall be deemed to constitute an admission by Mr. Messina that he is the beneficial owner of any of the securities referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or for any other purpose. Mr. Messina’s address isc/o ArcLight Capital Partners, LLC, 200 Clarendon Street, 55th Floor, Boston, MA 02117. See footnotes (3) and (4) above. |
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Preparation Plant | Mining Complex | Year First Operated | Year of Last Upgrade | Owned/Leased | ||||||||||
Coal Clean | Panther | 1996 | 2005 | Owned | ||||||||||
Pond Fork | Jupiter | 1970 | 2008 | Owned | ||||||||||
Weatherby | Remington | 1998 | 2004 | Owned | ||||||||||
Fanco | Apogee | 1994 | 2005 | Owned | ||||||||||
Rensford | Campbell’s Creek | 1982 | 2007 | Owned | ||||||||||
Tom’s Fork | Samples | 1994 | 2007 | Owned | ||||||||||
Beth Station | Hobet | 1979 | 2006 | Owned |
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Annual Production as of January 1, 2008 | ||||||||||||
Mining Complex(1) | 2005 | 2006 | 2007 | |||||||||
(mm tons) | (mm tons) | (mm tons) | ||||||||||
Panther | 3.4 | 2.8 | 1.8 | |||||||||
Jupiter | 1.2 | 1.4 | 1.5 | |||||||||
Remington | 0.9 | 1.3 | 1.4 | |||||||||
Apogee | 3.0 | 3.1 | 3.0 | |||||||||
Campbell’s Creek | 1.2 | 1.0 | 0.9 | |||||||||
Samples | 4.2 | 3.7 | 3.3 | |||||||||
Hobet | 4.1 | 3.9 | 4.1 | |||||||||
Total | 18.0 | 17.2 | 16.1 | |||||||||
(1) | This table excludes Dakota tonnages as the Dakota mine was closed in August 2006. |
Coal Reserves as of January 1, 2008 | ||||||||||||||||||||||||||||||||||||||||
Reservable Tons (’000) | Average Coal Quality | |||||||||||||||||||||||||||||||||||||||
Heat Value | Sulfur | |||||||||||||||||||||||||||||||||||||||
By Classification | By Mining Method | By Control | (Btu per | Content | Ash | |||||||||||||||||||||||||||||||||||
Area | Total | Proven | Probable | Underground | Surface | Owned | Leased | lb.) | (%) | (%) | ||||||||||||||||||||||||||||||
Panther | 70,312 | 30,977 | 39,335 | 70,312 | — | 799 | 69,513 | 13,523 | 0.96 | 4.58 | ||||||||||||||||||||||||||||||
Pond Fork | 22,176 | 20,839 | 1,337 | 13,895 | 8,281 | — | 22,176 | 12,702 | 0.82 | 8.33 | ||||||||||||||||||||||||||||||
Cabin Creek North | 78,609 | 62,222 | 16,387 | 50,453 | 28,156 | — | 78,609 | 12,448 | 0.80 | 9.83 | ||||||||||||||||||||||||||||||
Logan County | 52,085 | 45,164 | 6,921 | 21,550 | 30,535 | 6,077 | 46,008 | 12,758 | 0.78 | 9.26 | ||||||||||||||||||||||||||||||
Cabin Creek South | 52,188 | 37,239 | 14,949 | 45,988 | 6,199 | — | 52,188 | 13,439 | 1.15 | 6.05 | ||||||||||||||||||||||||||||||
Campbell’s Creek | 10,075 | 10,044 | 31 | 10,075 | — | 171 | 9,904 | 12,240 | 0.82 | 10.97 | ||||||||||||||||||||||||||||||
Shrewsbury | 19,741 | 13,320 | 6,421 | 19,741 | — | 19,741 | — | 13,041 | 0.87 | 6.88 | ||||||||||||||||||||||||||||||
Blue Creek | 81,442 | 55,961 | 25,481 | 77,282 | 4,160 | — | 81,442 | 12,420 | 1.19 | 10.12 | ||||||||||||||||||||||||||||||
Lincoln/Boone | 219,983 | 138,099 | 81,884 | 166,128 | 53,855 | 8,939 | 211,044 | 12,661 | 1.13 | 7.91 | ||||||||||||||||||||||||||||||
Total / Average | 606,611 | 413,865 | 192,746 | 475,426 | 131,187 | 35,727 | 570,884 | 12,783 | 1.02 | 8.06 | ||||||||||||||||||||||||||||||
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Total | Non-Union | Union | ||||||||||
Mining Complex | Employees | Employees | Employees | |||||||||
Panther | 187 | 187 | 0 | |||||||||
Remington | 263 | 263 | 0 | |||||||||
Jupiter | 204 | 204 | 0 | |||||||||
Apogee | 248 | 49 | 199 | |||||||||
Catenary | 353 | 353 | 0 | |||||||||
Hobet | 385 | 69 | 316 | |||||||||
Little Creek | 7 | 7 | 0 | |||||||||
Other | 75 | 75 | 0 | |||||||||
Total | 1,722 | 1,207 | 515 | |||||||||
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Three Months Ended | ||||||||||||||||
March 31, | Increase (Decrease) | |||||||||||||||
2008 | 2007 | Tons/$ | % | |||||||||||||
(Dollars and tons in thousands; | ||||||||||||||||
except per ton amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Tons sold | 4,461 | 4,576 | (115 | ) | (2.5 | )% | ||||||||||
Coal sales | $ | 220,566 | $ | 200,431 | $ | 20,135 | 10.0 | % | ||||||||
Other revenues | 10,102 | 16,112 | (6,010 | ) | (37.3 | )% | ||||||||||
Total revenue | $ | 230,668 | $ | 216,543 | $ | 14,125 | 6.5 | % | ||||||||
Average coal sales price per ton sold | $ | 49.44 | $ | 43.80 | $ | 5.64 | 12.9 | % | ||||||||
Three Months Ended | Increase (Decrease) | |||||||||||||||
March 31, | to Income | |||||||||||||||
2008 | 2007 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Mining Operations Adjusted EBITDA | $ | 25,326 | $ | 22,338 | $ | 2,988 | 13.4 | % | ||||||||
Corporate and Other: | ||||||||||||||||
Past mining obligation expenses | (4,214 | ) | (9,237 | ) | 5,023 | 54.4 | % | |||||||||
Selling and administrative expenses | (8,881 | ) | (7,956 | ) | (925 | ) | (11.6 | )% | ||||||||
Total corporate and other | 13,095 | 17,193 | 4,098 | 23.8 | % | |||||||||||
Gain on coal sales supply contract restructuring | 183 | — | 183 | 100.0 | % | |||||||||||
Sales contract accretion (amortization) | 15,029 | (409 | ) | 15,438 | n/a | |||||||||||
Depreciation, depletion, and amortization | (27,846 | ) | (27,370 | ) | (476 | ) | (1.7 | )% | ||||||||
Asset retirement obligation expense | (1,741 | ) | (1,246 | ) | (495 | ) | (39.8 | )% | ||||||||
Interest expense | (5,314 | ) | (5,132 | ) | (182 | ) | (3.5 | )% | ||||||||
Interest income | 194 | 424 | (230 | ) | (54.2 | )% | ||||||||||
Costs associated with credit facility amendment | (3,572 | ) | — | (3,572 | ) | n/a | ||||||||||
Loss generated from change in market value of interest rate swap | (2,285 | ) | (257 | ) | (2,028 | ) | n/a | |||||||||
Loss from continuing operations | (13,121 | ) | (28,845 | ) | 15,724 | 54.5 | % | |||||||||
Loss from discontinued operations | — | (2,272 | ) | 2,272 | 100.0 | % | ||||||||||
Loss before income taxes | (13,121 | ) | (31,117 | ) | 17,996 | 57.8 | % | |||||||||
Income tax expense | (1,384 | ) | — | (1,384 | ) | n/a | ||||||||||
Net loss | $ | (14,405 | ) | $ | (31,117 | ) | $ | 16,612 | 53.4 | % | ||||||
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Year Ended December 31, | Increase (Decrease) | |||||||||||||||
2007 | 2006 | Tons/$ | % | |||||||||||||
(Dollars and tons in thousands, | ||||||||||||||||
except per ton amounts) | ||||||||||||||||
Tons sold | 18,300 | 16,099 | 2,201 | 13.7 | % | |||||||||||
Coal sales | $ | 813,974 | $ | 767,788 | $ | 46,186 | 6.0 | % | ||||||||
Gain on exchange of mining reserves | 15,262 | — | 15,262 | 100.0 | % | |||||||||||
Other revenues | 68,018 | 42,994 | 25,024 | 58.2 | % | |||||||||||
Total revenues | $ | 897,254 | $ | 810,782 | $ | 86,472 | 10.7 | % | ||||||||
Average coal sales price per ton sold | $ | 44.48 | $ | 47.69 | $ | (3.21 | ) | (6.7 | )% |
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Increase (Decrease) | ||||||||||||||||
Year Ended December 31, | to Income | |||||||||||||||
2007 | 2006 | $ | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Mining Operations Adjusted EBITDA | $ | 117,883 | $ | 138,236 | $ | (20,353 | ) | (14.7 | )% | |||||||
Corporate and Other: | ||||||||||||||||
Past mining obligation expense | (41,201 | ) | (41,906 | ) | 705 | 1.7 | % | |||||||||
Selling and administrative expenses | (32,713 | ) | (23,658 | ) | (9,055 | ) | (38.3 | )% | ||||||||
Total corporate and other | (73,914 | ) | (65,564 | ) | (8,350 | ) | (12.7 | )% | ||||||||
Gain (loss) on coal sales supply contract restructuring | 375 | (25,513 | ) | 25,888 | n/a | |||||||||||
Sales contract accretion (amortization) | (19,808 | ) | 31,951 | (51,759 | ) | n/a | ||||||||||
Depreciation, depletion, and amortization | (112,210 | ) | (113,978 | ) | 1,768 | 1.6 | % | |||||||||
Asset retirement obligation expense | (7,430 | ) | (4,637 | ) | (2,793 | ) | (60.2 | )% | ||||||||
Interest expense | (22,855 | ) | (15,248 | ) | (7,607 | ) | (49.9 | )% | ||||||||
Interest income | 1,740 | 1,434 | 306 | 21.3 | % | |||||||||||
Loss on debt extinguishment | — | (9,677 | ) | 9,677 | 100.0 | % | ||||||||||
Gain (loss) generated from change in market value of interest rate swap | (1,551 | ) | 748 | (2,299 | ) | n/a | ||||||||||
Loss from continuing operations | (117,770 | ) | (62,248 | ) | (55,522 | ) | (89.2 | )% | ||||||||
Loss from discontinued operations | (3,787 | ) | (15,643 | ) | 11,856 | 75.8 | % | |||||||||
Net loss | $ | (121,557 | ) | $ | (77,891 | ) | $ | (43,666 | ) | (56.1 | )% | |||||
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One-Percentage | One-Percentage | |||||||
Point Increase | Point Decrease | |||||||
(In thousands) | ||||||||
Effect on total of service cost and interest cost components | $ | 4,887 | $ | (3,998 | ) | |||
Effect on year-end postretirement benefit obligation | 62,643 | (51,959 | ) |
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Payments Due by Year as of December 31, 2007 | ||||||||||||||||
Within | After | |||||||||||||||
1 Year | 2-3 Years | 4-5 Years | 5 Years | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Long term debt obligations | $ | 45,780 | $ | 13,573 | $ | 4,573 | $ | 186,500 | ||||||||
Operating lease obligations | 15,323 | 16,230 | 878 | — | ||||||||||||
Coal reserves lease and royalty obligations | 7,638 | 19,297 | 16,589 | 32,955 | ||||||||||||
Other long-term liabilities(1) | 31,159 | 87,609 | 76,952 | 383,552 | ||||||||||||
Total contractual cash obligations | $ | 99,900 | $ | 136,709 | $ | 98,992 | $ | 603,007 | ||||||||
(1) | Represents long-term liabilities relating to Magnum’s postretirement benefit plans, work-related injuries and illnesses and mine reclamation and end-of-mine costs. |
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First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
2007 | ||||||||||||||||
Net sales | $ | 216,543 | $ | 258,255 | $ | 225,790 | $ | 196,666 | ||||||||
Operating income (loss) before depreciation, depletion, and amortization | 3,689 | 17,350 | 3,400 | (5,109 | ) | |||||||||||
Loss from continuing operations | (28,845 | ) | (15,559 | ) | (32,409 | ) | (40,957 | ) | ||||||||
Net loss | (31,117 | ) | (16,625 | ) | (32,341 | ) | (41,474 | ) | ||||||||
2006 | ||||||||||||||||
Net sales | 144,678 | 210,390 | 219,188 | 236,526 | ||||||||||||
Operating (loss) income before depreciation, depletion, and amortization | (2,205 | ) | 16,121 | 22,824 | 38,052 | |||||||||||
(Loss) income from continuing operations | (37,159 | ) | (17,563 | ) | (13,341 | ) | 5,815 | |||||||||
Net (loss) income | (37,159 | ) | (17,423 | ) | (30,352 | ) | 7,043 |
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For the Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Historical | Pro Forma | Pro Forma | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenues | ||||||||||||
Sales | $ | 813,974 | $ | 812,090 | $ | 706,444 | ||||||
Gain on exchange of mining reserves | 15,262 | — | — | |||||||||
Other revenues | 68,018 | 46,775 | 47,270 | |||||||||
Total revenues | 897,254 | 858,865 | 753,714 | |||||||||
Costs and expenses | ||||||||||||
Operating costs and expenses | 820,572 | 756,928 | 672,435 | |||||||||
(Gain) loss on coal sales supply contract restructuring | (375 | ) | 25,513 | — | ||||||||
Sales contract amortization (accretion) | 19,808 | (31,951 | ) | (82,509 | ) | |||||||
Depreciation, depletion and amortization | 112,210 | 122,424 | 99,053 | |||||||||
Asset retirement obligation expense | 7,430 | 5,169 | 7,995 | |||||||||
Selling and administrative expenses | 32,713 | 27,213 | 24,752 | |||||||||
Operating profit (loss) | (95,104 | ) | (46,431 | ) | 31,988 | |||||||
Interest expense | 22,855 | 19,126 | 35,138 | |||||||||
Interest income | (1,740 | ) | (1,434 | ) | (278 | ) | ||||||
Loss on debt extinguishment | — | 9,677 | 23,415 | |||||||||
(Gain) loss generated from change in market value of interest rate swap | 1,551 | (2,504 | ) | — | ||||||||
Income (loss) from continuing operations | (117,770 | ) | (71,296 | ) | (26,287 | ) | ||||||
Loss from discontinued operations | (3,787 | ) | (13,952 | ) | 3,053 | |||||||
Net loss | $ | (121,557 | ) | $ | (85,248 | ) | $ | (23,234 | ) | |||
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Year Ended December 31, | Increase (Decrease) | |||||||||||||||
2007 | 2006 | Tons/$ | % | |||||||||||||
Historical | Pro Forma | |||||||||||||||
(Dollars and tons in thousands; except per ton amounts) | ||||||||||||||||
Tons sold | 18,300 | 18,164 | 136 | 0.7 | % | |||||||||||
Coal sales | $ | 813,974 | $ | 812,090 | $ | 1,884 | 0.2 | % | ||||||||
Gain on exchange of mining reserves | 15,262 | — | 15,262 | 100.0 | % | |||||||||||
Other revenues | 68,018 | 46,775 | 21,243 | 45.4 | % | |||||||||||
Total revenues | $ | 897,254 | $ | 858,865 | $ | 38,389 | 4.5 | % | ||||||||
Average coal sales price per ton sold | $ | 44.48 | $ | 44.71 | $ | (0.23 | ) | (0.5 | )% |
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Increase (Decrease) | ||||||||||||||||
Year Ended December 31, | to Income | |||||||||||||||
2007 | 2006 | $ | % | |||||||||||||
Historical | Pro Forma | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Mining Operations Adjusted EBITDA | $ | 117,883 | $ | 143,843 | $ | (25,960 | ) | (18.0 | )% | |||||||
Corporate and Other: | ||||||||||||||||
Past mining obligation expenses | (41,201 | ) | (41,906 | ) | 705 | 1.7 | % | |||||||||
Selling and administrative expenses | (32,713 | ) | (27,213 | ) | (5,500 | ) | (20.2 | )% | ||||||||
Total corporate and other | (73,914 | ) | (69,119 | ) | (4,795 | ) | (6.9 | )% | ||||||||
Gain (loss) on coal sales supply contract restructuring | 375 | (25,513 | ) | 25,888 | n/a | |||||||||||
Sales contract accretion (amortization) | (19,808 | ) | 31,951 | (51,759 | ) | n/a | ||||||||||
Depreciation, depletion, and amortization | (112,210 | ) | (122,424 | ) | 10,214 | 8.3 | % | |||||||||
Asset retirement obligation expense | (7,430 | ) | (5,169 | ) | (2,261 | ) | (43.7 | )% | ||||||||
Interest expense | (22,855 | ) | (19,126 | ) | (3,729 | ) | (19.5 | )% | ||||||||
Interest income | 1,740 | 1,434 | 306 | 21.3 | % | |||||||||||
Loss on debt extinguishment | — | (9,677 | ) | 9,677 | 100.0 | % | ||||||||||
Gain (loss) generated from change in market value of interest rate swap | (1,551 | ) | 2,504 | (4,055 | ) | n/a | ||||||||||
Loss from continuing operations | (117,770 | ) | (71,296 | ) | (46,474 | ) | (65.2 | )% | ||||||||
Loss from discontinued operations | (3,787 | ) | (13,952 | ) | 10,165 | 72.9 | % | |||||||||
Net loss | $ | (121,557 | ) | $ | (85,248 | ) | $ | (36,309 | ) | (42.6 | )% | |||||
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Year Ended December 31, | Increase (Decrease) | |||||||||||||||
2006 | 2005 | Tons/$ | % | |||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
(Dollars and tons in thousands, except per ton amounts) | ||||||||||||||||
Tons sold | 18,164 | 18,350 | (186 | ) | (1.0 | )% | ||||||||||
Coal sales | $ | 812,090 | $ | 706,444 | $ | 105,646 | 15.0 | % | ||||||||
Other revenues | 46,775 | 47,270 | (495 | ) | (1.0 | )% | ||||||||||
Total revenues | $ | 858,865 | $ | 753,714 | $ | 105,151 | 14.0 | % | ||||||||
Average coal sales price per ton sold | $ | 44.71 | $ | 38.50 | $ | 6.21 | 16.1 | % |
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Year Ended December 31, | Increase (Decrease) | |||||||||||||||
2006 | 2005 | $ | % | |||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Mining Operations Adjusted EBITDA | $ | 143,843 | $ | 115,235 | $ | 28,608 | 24.8 | % | ||||||||
Corporate and Other: | ||||||||||||||||
Past mining obligations | (41,906 | ) | (33,956 | ) | (7,950 | ) | (23.4 | )% | ||||||||
Selling and administrative expenses | (27,213 | ) | (24,752 | ) | (2,461 | ) | (9.9 | )% | ||||||||
Total corporate and other | (69,119 | ) | (58,708 | ) | (10,411 | ) | (17.7 | )% | ||||||||
Loss on coal sales supply contract restructuring | (25,513 | ) | — | (25,513 | ) | (100.0 | )% | |||||||||
Sales contract accretion | 31,951 | 82,509 | (50,558 | ) | (61.3 | )% | ||||||||||
Depreciation, depletion, and amortization | (122,424 | ) | (99,053 | ) | (23,371 | ) | (23.6 | )% | ||||||||
Asset retirement obligation expense | (5,169 | ) | (7,995 | ) | 2,826 | 35.3 | % | |||||||||
Interest expense | (19,126 | ) | (35,138 | ) | 16,012 | 45.6 | % | |||||||||
Interest income | 1,434 | 278 | 1,156 | n/a | ||||||||||||
Loss on debt extinguishment | (9,677 | ) | (23,415 | ) | 13,738 | 58.7 | % | |||||||||
Gain (loss) generated from change in market value of interest rate swap | 2,504 | — | 2,504 | 100.0 | % | |||||||||||
Loss from continuing operations | (71,296 | ) | (26,287 | ) | (45,009 | ) | (171.2 | )% | ||||||||
Loss from discontinued operations | (13,952 | ) | 3,053 | (17,005 | ) | n/a | ||||||||||
Net loss | $ | (85,248 | ) | $ | (23,234 | ) | $ | (62,014 | ) | (266.9 | )% | |||||
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• | Various coal supply agreements; | |
• | Tax Separation Agreement; | |
• | Coal Act Liability Assumption Agreement; | |
• | NBCWA Liability Assumption Agreement; | |
• | Salaried Employee Liability Assumption Agreement; | |
• | Administrative Services Agreement; | |
• | Transition Services Agreement; | |
• | Employee Matters Agreement; | |
• | Various real property agreements; | |
• | Throughput and Storage Agreement for a coal transloading facility; | |
• | Master Equipment Sublease Agreement; | |
• | Software License Agreement; and | |
• | Common Interest Agreement. |
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• | The business, operations, contracts, assets and liabilities of Patriot and its affiliates, whether arising before or after the spin-off; | |
• | Liabilities or obligations associated with the Patriot business, as defined in the Separation Agreement, or otherwise assumed by Patriot pursuant to the Separation Agreement, including liabilities associated with litigation related to the Patriot business; | |
• | Any breach by Patriot of the Separation Agreement or any of the ancillary agreements entered into in connection with the Separation Agreement; and | |
• | Any untrue statement or alleged untrue statement of any material fact contained in Patriot’s information statement dated October 24, 2007 filed onForm 8-K or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated, except for information for which Peabody will agree to indemnify Patriot as described below. |
• | The business, operations, contracts, assets and liabilities of Peabody and its affiliates (other than the Patriot business), whether arising before or after the spin-off; | |
• | Liabilities or obligations of Peabody or its affiliates other than those of an entity forming part of the Patriot business or otherwise assumed by Patriot pursuant to the Separation Agreement, including liabilities associated with litigation that is not related to the Patriot business; | |
• | Any breach by Peabody of the Separation Agreement or any of the ancillary agreements entered into in connection with the Separation Agreement; | |
• | Certain retiree healthcare costs, as described under Liability Assumption Agreements and Administrative Services Agreement below; and | |
• | Any untrue statement or alleged untrue statement of any material fact regarding Peabody included in certain sections of Patriot’s information statement dated October 24, 2007 filed onForm 8-K. |
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• | Execute and deliver any additional instruments and documents and take any other actions the other party may reasonably request to effectuate the purposes of the Separation Agreement and the ancillary agreements and their terms; and | |
• | To take all actions and do all things reasonably necessary under applicable laws and agreements or otherwise to consummate and make effective the transactions contemplated by the Separation Agreement and the ancillary agreements. |
• | retention by Peabody of certain retiree healthcare liabilities of $615.8 million; | |
• | the forgiveness of the outstanding intercompany payables to Peabody on October 31, 2007 of $81.5 million; | |
• | the retention by Patriot of trade accounts receivable at October 31, 2007, previously recorded through intercompany receivables, of $68.6 million; | |
• | a $30.0 million cash contribution; |
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• | the retention by Peabody of assets and asset retirement obligations related to certain Midwest mining operations of a net $8.1 million; | |
• | less the transfer of intangible assets of $22.7 million related to purchased contract rights for a supply contract retained by Peabody. |
No. of | No. of | Weighted Avg. | Remaining | |||||||||||||||||||||
Underlying | Underlying | Remaining | Term | Price Range | Weighted | Remaining | ||||||||||||||||||
Peabody Counterparty | Contracts | Customers | Term | (Range) | (Per Ton) | Avg. Price | Tons | |||||||||||||||||
(Millions) | ||||||||||||||||||||||||
COALSALES, LLC | 32 | 27 | 20 months | 1-34 months | $ | 30-80 | $ | 56.27 | 10.2 | |||||||||||||||
COALSALES II, LLC | 3 | 3 | 1 month | 1 month | $ | 20-40 | $ | 37.76 | 0.1 | |||||||||||||||
COALTRADE International, LLC | 6 | 6 | 13 months | 1-18 months | $ | 67-86 | $ | 76.30 | 1.8 | |||||||||||||||
TOTAL | 41 | 36 | 12.1 | |||||||||||||||||||||
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• | Patriot will generally be responsible for coordinating shipments and the delivery of the coal into railcars for COALSALES II customers. | |
• | Patriot will supply from 1,412,500 to 1,600,250 tons of coal per contract half-year to COALSALES II through December 31, 2012. | |
• | Conforming coal must be provided from pre-approved Patriot production sources and shipping origins to meet specific quality parameters in accordance with specific sampling, weighing and analysis requirements. Non-conforming deliveries may be rejected by COALSALES II, which could lead to suspension and agreement termination if not remedied. | |
• | For Patriot coal shipments during the period from January 1, 2008 through December 31, 2011, to entitle COALSALES II to a first priority right of production, COALSALES II will make a monthly prepayment to Patriot, ten (10) days prior to the beginning of each month, in the amount of $1,041,666 per month plus any applicable taxes and royalties related thereto. | |
• | The unadjusted price for coal supplied under the agreement (also known as the Base Price) ranges from $45.00 to $52.08 per ton through December 31, 2012 and will be adjusted (within certain limits and on certain conditions) to reflect changes in cost due to new laws or regulations or changes in existing laws or regulations. | |
• | To determine the Selling Price for coal, the Base Price is adjusted upward or downward for sulfur and calorific value quality variances from the agreement’s coal quality specifications. | |
• | Payment terms are within 22 days after the end of each half-month and COALSALES II must pay Patriot regardless of whether or not the ultimate customer has paid COALSALES II. | |
• | The agreement contains force majeure provisions allowing for the temporary suspension of performance by Patriot or the customer for the duration of specified events beyond the control of the affected party. Any shortfall in coal deliveries is generally required to be made up within twelve months. | |
• | In general, COALSALES II will bear the risk of default, non-performance and termination by its customers unless caused by or attributable to Patriot. Should a COALSALES II customer fail to |
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perform under its agreement with COALSALES II and damage Patriot, COALSALES II will have the obligation to pursue its rights and remedies against such customer for the benefit of Patriot, as applicable. |
• | Patriot will supply coal to COALSALES through December 31, 2011 and unless otherwise agreed to among the parties, COALSALES will have no right to extend the agreement beyond such date. | |
• | Should the ultimate coal customer voluntarily elect to terminate its contract with COALSALES early, COALSALES may continue to take full delivery under its agreement with Patriot or elect to terminate the agreement and pay to Patriot the liquidated damages (25% of the Base Price, see below) it receives from the ultimate coal customer. COALSALES may also terminate the agreement with Patriot if the ultimate coal customer terminates its agreement with COALSALES due to specified increases in transportation costs, and no liquidated damages apply. | |
• | Coal is to be shipped in relatively equal monthly shipments of 290,000 tons per month with allowed variances of five (5%) percent per month should the ultimate coal customer so elect. The volume of coal to be shipped under the agreement may be reduced by COALSALES, if the ultimate coal customer reduces shipments of coal due to new environmental laws or regulations. | |
• | Patriot will generally be responsible for coordinating shipments and the delivery of the coal into barges provided by the ultimate coal customer. | |
• | Conforming coal must be provided from Patriot’s Highland Mine (unless other production sources are approved by the ultimate coal customer) to meet specific quality parameters. Patriot is responsible for performing all sampling, weighing and analysis requirements. Non-conforming deliveries may be rejected by COALSALESand/or the ultimate coal customer, which could lead to suspension and agreement termination if not remedied. | |
• | The Base Price for coal supplied under the agreement ranges from $31.62 to $34.23 per ton through December 31, 2011 and may be adjusted (within certain limits) to reflect changes in cost due to new laws or regulations or changes in existing law or regulation. | |
• | Payment terms are within 30 days after the unloading of coal by the ultimate customer, or if later, the receipt of Patriot’s invoice. Should there be any dispute of the invoiced amount by the ultimate coal customer, COALSALES will have the right to make a partial payment to Patriot excluding such disputed amount. | |
• | Sixty (60) days after the end of each calendar quarter, COALSALES will invoice Patriot for quality variances from the coal specifications contained in the agreement. Such invoice will include upward or downward price adjustments for moisture, ash, sulfur and calorific value. | |
• | The agreement contains force majeure provisions allowing for the temporary suspension of performance by Patriot or the customer for the duration of specified events beyond the control of the affected party. Any shortfall in coal deliveries will be made up at Patriot’s election, subject to mutual agreement on scheduling with the ultimate coal customer. |
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• | The Underlying Contract is generally terminable by the non-defaulting party for any material uncured breach. In general, COALSALES will bear the risk of default, non-performance and termination by the end customer unless caused by or attributable to Patriot. Should the ultimate coal customer fail to perform under its agreement with COALSALES and damage Patriot, COALSALES will have the obligation to pursue its rights and remedies against the ultimate coal customer for the benefit of Patriot, as applicable. |
• | Merging or consolidating with or into another corporation; | |
• | Liquidating or partially liquidating; | |
• | Selling or transferring all or substantially all of its assets in a single transaction or series of related transactions, or selling or transferring any portion of its assets that would violate certain continuity requirements imposed by the Code; and | |
• | Redeeming or otherwise repurchasing any of its capital stock other than pursuant to open market stock repurchase programs meeting certain IRS requirements. |
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Institutional Stockholders | ||||
ArcLight Energy Partners Fund I, L.P. | $ | 15,000,000.00 | ||
ArcLight Energy Partners Fund II, L.P. | $ | 48,214,596.00 | ||
Caisse De Depot Et Placement Du Quebec | $ | 9,600,000.00 | ||
Cascade Investment, L.L.C. | $ | 11,588,720.00 | ||
Citigroup Capital Partners II Employee Master Fund, L.P. | $ | 2,676,285.57 | ||
Citigroup Capital Partners II 2006 Citigroup Investment, L.P. | $ | 2,382,601.53 | ||
Citigroup Capital Partners II Onshore, L.P. | $ | 1,208,231.36 | ||
Citigroup Capital Partners II Cayman Holdings, L.P. | $ | 1,513,948.54 | ||
Howard Hughes Medical Institute | $ | 7,585,617.00 | ||
Individual Stockholders | ||||
H. Douglas Dahl | $ | 20,000.00 | ||
Officers | ||||
Paul Vining | $ | 154,000.00 | ||
David Turnbull | $ | 20,000.00 | ||
Richard Verheij | $ | 25,000.00 | ||
B. Scott Spears | $ | 11,000.00 | ||
Total Notes | $ | 100,000,000.00 |
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• | the board of directors approved the business combination before the stockholder became an interested stockholder, or the board approved the transaction that resulted in the stockholder becoming an interested stockholder; | |
• | upon completion of the transaction which resulted in the stockholder becoming an interested stockholder, such stockholder owned at least 85% of the voting stock outstanding when the transaction |
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began other than shares held by directors who are also officers and other than shares held by certain employee stock plans; or |
• | the board approved the business combination after the stockholder became an interested stockholder and the business combination was approved at a meeting by at least two-thirds of the outstanding voting stock not owned by such stockholder. |
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• | Delaware law; | |
• | Magnum’s restated certificate of incorporation, which we refer to in this proxy statement/prospectus as Magnum’s charter; | |
• | Magnum’s restated by-laws, which we refer to in this proxy statement/prospectus as Magnum’s bylaws; and | |
• | Magnum’s stockholders’ agreement dated as of March 21, 2006 among Magnum and certain Magnum stockholders party thereto, which we refer to in this proxy statement/prospectus as the Magnum stockholders agreement. |
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• | before the date the person became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; | |
• | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares owned by directors who are also officers and certain employee stock plans); or | |
• | the business combination is approved by the corporation’s board of directors and the holders of two-thirds of the corporation’s voting stock, excluding shares owned by the interested stockholder. |
• | the corporation’s original certificate of incorporation contains a provision expressly electing not to be governed by Section 203; | |
• | the corporation, by action of its board of directors, adopted within ninety days following the enactment of Section 203 an amendment to its by-laws expressly electing not to be governed by the statute; | |
• | the corporation, by action of a majority of its stockholders, adopts an amendment to its certificate of incorporation or by-laws expressly electing not to be governed by the statute; or | |
• | the stockholder becomes an interested stockholder inadvertently and divests itself of sufficient shares so that the stockholder ceases to be an interested stockholder (which exception applies only if the stockholder would not have been an interested stockholder, but for the inadvertent acquisition, at any time within the three-year period immediately prior to a business combination between the corporation and the stockholder). |
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• | Patriot’s and Magnum’s ability to complete the merger; | |
• | failure to obtain Patriot stockholder approval of the issuance of Patriot common stock to the holders of Magnum common stock pursuant to the merger agreement; | |
• | failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory or other approvals necessary to complete the merger; | |
• | the availability and cost of financing required to repay Magnum’s indebtedness upon closing of the merger; | |
• | failure to consummate or delay in consummating the merger for other reasons; | |
• | Patriot’s ability to successfully integrate operations and to realize the synergies from the merger; | |
• | changes in laws or regulations; | |
• | changes in general economic conditions, including coal and power market conditions; | |
• | the outcome of commercial negotiations involving sales contracts or other transactions; | |
• | Patriot’s dependence on Peabody Energy Corporation in the near future relating to certain coal sales agreements; | |
• | geologic, equipment and operational risks associated with mining; | |
• | supplier performance and the availability and cost of key equipment and commodities; | |
• | Patriot’s and Magnum’s ability to recover coal reserves; | |
• | labor availability and relations; | |
• | availability and costs of transportation; | |
• | weather patterns affecting energy demand; | |
• | Magnum’s dependence on its operations at the Panther mine; | |
• | the correctness of Magnum’s assumptions regarding its likely future expenses related to employee benefit plans and reclamation and mine closure obligations; | |
• | Arch Coal’s fulfillment of its indemnification obligations to Magnum under the Arch purchase and sale agreement and Magnum’s indemnification obligations to Arch Coal thereunder; |
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• | Magnum’s dependence on Arch Coal and certain former customers of Arch Coal in connection with certain coal supply agreements; | |
• | risks associated with environmental laws and compliance; and | |
• | the availability and costs of competing energy resources. |
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dated as of
April 2, 2008
among
MAGNUM COAL COMPANY,
PATRIOT COAL CORPORATION
COLT MERGER CORPORATION,
and
ARCLIGHT ENERGY PARTNERS FUND I, L.P.
AND
ARCLIGHT ENERGY PARTNERS FUND II, L.P., acting jointly, as
Stockholder Representative
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Page | ||||||
ARTICLE 1 Definitions | ||||||
Section 1.01. | Definitions | A-1 | ||||
Section 1.02. | Other Definitional and Interpretative Provisions | A-12 | ||||
ARTICLE 2 The Merger | ||||||
Section 2.01. | The Merger | A-12 | ||||
Section 2.02. | Conversion of Shares | A-13 | ||||
Section 2.03. | Surrender and Payment | A-13 | ||||
Section 2.04. | Certain Adjustments | A-14 | ||||
Section 2.05. | Fractional Shares | A-14 | ||||
Section 2.06. | Withholding Rights | A-15 | ||||
Section 2.07. | Lost Certificates | A-15 | ||||
Section 2.08. | Escrow Account | A-15 | ||||
Section 2.09. | Dissenting Shares | A-16 | ||||
ARTICLE 3 The Surviving Corporation | ||||||
Section 3.01. | Certificate of Incorporation | A-16 | ||||
Section 3.02. | Bylaws | A-16 | ||||
Section 3.03. | Directors and Officers | A-16 | ||||
ARTICLE 4 Representations and Warranties of the Company | ||||||
Section 4.01. | Corporate Existence and Power | A-17 | ||||
Section 4.02. | Corporate Authorization | A-17 | ||||
Section 4.03. | Governmental Authorization | A-17 | ||||
Section 4.04. | Non-contravention | A-18 | ||||
Section 4.05. | Capitalization; Ownership of Shares | A-18 | ||||
Section 4.06. | Subsidiaries | A-19 | ||||
Section 4.07. | Financial Statements | A-19 | ||||
Section 4.08. | Absence of Certain Changes | A-20 | ||||
Section 4.09. | No Undisclosed Material Liabilities | A-20 | ||||
Section 4.10. | Compliance with Laws; Mining Compliance Matters | A-20 | ||||
Section 4.11. | Litigation | A-21 | ||||
Section 4.12. | Investment Banker and Finders’ Fees | A-21 | ||||
Section 4.13. | Opinion of Financial Advisor | A-21 | ||||
Section 4.14. | Taxes | A-22 | ||||
Section 4.15. | Tax Treatment | A-23 | ||||
Section 4.16. | Employee Benefit Plans | A-23 | ||||
Section 4.17. | Employees | A-25 | ||||
Section 4.18. | Labor Matters | A-25 | ||||
Section 4.19. | Environmental Matters | A-25 | ||||
Section 4.20. | Antitakeover Statutes; Company Stockholders Agreement; Absence of Dissenters Rights | A-26 |
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Section 4.21. | Material Contracts | A-27 | ||||
Section 4.22. | Properties | A-28 | ||||
Section 4.23. | Intellectual Property | A-31 | ||||
Section 4.24. | Insurance Coverage | A-31 | ||||
Section 4.25. | Licenses and Permits | A-32 | ||||
Section 4.26. | Affiliate Transactions | A-32 | ||||
Section 4.27. | Customers and Suppliers | A-32 | ||||
Section 4.28. | Absence of Certain Business Practices | A-32 | ||||
Section 4.29. | Disclosure | A-33 | ||||
Section 4.30. | No Company Material Adverse Effect | A-33 | ||||
Section 4.31. | No Other Representations or Warranties | A-33 | ||||
ARTICLE 5 Representations and Warranties of Parent | ||||||
Section 5.01. | Corporate Existence and Power | A-33 | ||||
Section 5.02. | Corporate Authorization | A-34 | ||||
Section 5.03. | Governmental Authorization | A-34 | ||||
Section 5.04. | Non-contravention | A-34 | ||||
Section 5.05. | Capitalization | A-35 | ||||
Section 5.06. | Subsidiaries | A-35 | ||||
Section 5.07. | SEC Filings | A-35 | ||||
Section 5.08. | Financial Statements | A-36 | ||||
Section 5.09. | Absence of Certain Changes | A-36 | ||||
Section 5.10. | No Undisclosed Material Liabilities | A-36 | ||||
Section 5.11. | Compliance with Laws; Mining Compliance Matters | A-37 | ||||
Section 5.12. | Litigation | A-37 | ||||
Section 5.13. | Investment Banker and Finders’ Fees | A-38 | ||||
Section 5.14. | Opinion of Financial Advisor | A-38 | ||||
Section 5.15. | Taxes | A-38 | ||||
Section 5.16. | Tax Treatment | A-38 | ||||
Section 5.17. | Employee Benefit Plans | A-39 | ||||
Section 5.18. | Labor Matters | A-39 | ||||
Section 5.19. | Environmental Matters | A-40 | ||||
Section 5.20. | Antitakeover Statutes and Rights Agreement | A-41 | ||||
Section 5.21. | Material Contracts; Affiliate Transactions | A-41 | ||||
Section 5.22. | Properties | A-41 | ||||
Section 5.23. | Intellectual Property | A-43 | ||||
Section 5.24. | Licenses and Permits | A-43 | ||||
Section 5.25. | Absence of Certain Business Practices | A-43 | ||||
Section 5.26. | Financing | A-43 | ||||
Section 5.27. | No Parent Material Adverse Effect | A-44 | ||||
Section 5.28. | No Other Representations and Warranties | A-44 |
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ARTICLE 6 Covenants of the Company | ||||||
Section 6.01. | Conduct of the Company | A-44 | ||||
Section 6.02. | Notice of Stockholder Consents; Company Information Statement | A-46 | ||||
Section 6.03. | No Solicitation | A-47 | ||||
Section 6.04. | Tax Matters | A-48 | ||||
Section 6.05. | Transaction Expenses | A-48 | ||||
Section 6.06. | Company Convertible Debt | A-48 | ||||
Section 6.07. | 280G Approval | A-49 | ||||
ARTICLE 7 Covenants of Parent | ||||||
Section 7.01. | Conduct of Parent | A-49 | ||||
Section 7.02. | Obligations of Merger Subsidiary | A-49 | ||||
Section 7.03. | Stock Exchange Listing | A-49 | ||||
Section 7.04. | Employee Matters | A-49 | ||||
Section 7.05. | Board Appointments | A-50 | ||||
Section 7.06. | Director and Officer Indemnification | A-50 | ||||
Section 7.07. | Books and Records | A-50 | ||||
ARTICLE 8 Covenants of Parent and the Company | ||||||
Section 8.01. | Commercially Reasonable Efforts | A-51 | ||||
Section 8.02. | Certain Filings | A-51 | ||||
Section 8.03. | Public Announcements | A-52 | ||||
Section 8.04. | Further Assurances | A-52 | ||||
Section 8.05. | Notices of Certain Events | A-52 | ||||
Section 8.06. | Confidentiality | A-53 | ||||
Section 8.07. | Tax-free Reorganization | A-53 | ||||
Section 8.08. | Access to Information | A-53 | ||||
Section 8.09. | Registration Statement; Parent Stockholder Meeting | A-54 | ||||
Section 8.10. | Financing | A-55 | ||||
ARTICLE 9 Conditions to the Merger | ||||||
Section 9.01. | Conditions to the Obligations of Each Party | A-56 | ||||
Section 9.02. | Conditions to the Obligations of Parent and Merger Subsidiary | A-57 | ||||
Section 9.03. | Conditions to the Obligations of the Company | A-59 | ||||
ARTICLE 10 Termination | ||||||
Section 10.01. | �� | Termination | A-59 | |||
Section 10.02. | Effect of Termination | A-60 |
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ARTICLE 11 Survival; Indemnification; Stockholder Representative Matters | ||||||
Section 11.01. | Survival | A-61 | ||||
Section 11.02. | Indemnification | A-61 | ||||
Section 11.03. | Procedures | A-64 | ||||
Section 11.04. | Adjustment to Consideration for Tax Purposes | A-66 | ||||
Section 11.05. | Stockholder Representative | A-66 | ||||
ARTICLE 12 Miscellaneous | ||||||
Section 12.01. | Notices | A-67 | ||||
Section 12.02. | Amendments and Waivers | A-68 | ||||
Section 12.03. | Expenses | A-69 | ||||
Section 12.04. | Disclosure Schedule References | A-69 | ||||
Section 12.05. | Binding Effect; Benefit; Assignment | A-69 | ||||
Section 12.06. | Governing Law | A-69 | ||||
Section 12.07. | Jurisdiction | A-69 | ||||
Section 12.08. | WAIVER OF JURY TRIAL | A-70 | ||||
Section 12.09. | Counterparts; Effectiveness | A-70 | ||||
Section 12.10. | Entire Agreement | A-70 | ||||
Section 12.11. | Severability | A-70 | ||||
Section 12.12. | Specific Performance | A-70 | ||||
Section 12.13. | Representation of the Company and its Stockholders | A-70 |
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Term | Section | |
Acceptable Parent Financing Terms | 8.10(a) | |
Agreement | Preamble | |
Alternate Financing Documents | 8.10(a) | |
Books and Records | 7.07 | |
Certificates | 2.03(a) | |
Closing | 2.01(b) | |
Closing Date | 2.01(b) | |
Company | Preamble | |
Company Core Representations | Article 4 | |
Company Covenant Breach | 11.02 | |
Company Employee | 7.04(a) | |
Company Employee Plans | 4.16(a) | |
Company Leased Real Property | 4.22(a) | |
Company Leased Tangible Property | 4.22(b) | |
Company Material Environmental Applications | 4.19(h) | |
Company Material Mining Applications | 4.10(b) | |
Company Outstanding Stock Number | 9.02(j) | |
Company Outstanding Stock Number Certificate | 9.02(j) | |
Company Owned Real Property | 4.22(d) | |
Company Owned Tangible Property | 4.22(e) | |
Company Permits | 4.25 | |
Company Securities | 4.05(b) | |
Company Stockholder Approval | 4.02(a) | |
Company Subsidiary Securities | 4.06(b) | |
Company Surety Bonds | 4.10(c) | |
Company Warranty Breach | 11.02 | |
Continuing Employee | 7.04(a) | |
D&O Insurance | 7.06(b) | |
Deductible Amount | 11.02(a) | |
De minimis Amount | 11.02(a) | |
Direct Indemnification Claims | 11.02(c) | |
Dissenting Shares | 2.09 | |
Effective Time | 2.01(b) | |
12.01 | ||
End Date | 10.01(b)(i) | |
Escrow Account | 2.08(a) | |
Escrow Availability Amount | 11.03(a) | |
Escrow Property | 2.08(a) | |
Escrow Only Claims | 11.02(b) | |
Escrow Shares | 2.08(a) | |
Excess Transaction Expenses Deduction Amount | 9.02(h) | |
Exchange Agent | 2.03(a) | |
Indemnified Party | 11.03 |
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Term | Section | |
Indemnifying Party | 11.03 | |
Information Statement | 6.02(b) | |
Material Contract | 4.21(b) | |
Merger | Preamble | |
Merger Consideration | 2.02(a) | |
Merger Subsidiary | Preamble | |
Multiemployer Plan | 4.16(c) | |
Non-Core Cap Availability Amount | 11.03(a) | |
Parent | Preamble | |
Parent Board Recommendation | 8.09(e) | |
Parent Cap | 11.02(d) | |
Parent Core Claims | 11.02(e) | |
Parent Core Representations | Article 5 | |
Parent Covenant Breach | 11.02(d) | |
Parent Credit Agreement | 5.26 | |
Parent Indemnified Parties | 11.02(a) | |
Parent Financing | 5.26 | |
Parent Financing Commitment Letter | 5.26 | |
Parent Leased Real Property | 5.22(b) | |
Parent Leased Tangible Property | 5.22(a) | |
Parent Material Contract | 5.21 | |
Parent Material Mining Applications | 5.11(b) | |
Parent Non-Core Claims | 11.02(e) | |
Parent Owned Real Property | 5.22(d) | |
Parent Owned Tangible Property | 5.22(e) | |
Parent Permits | 5.24 | |
Parent SEC Documents | 5.07(a) | |
Parent Securities | 5.05(b) | |
Parent Stock Issuance | 5.02(a) | |
Parent Stockholder Approval | 5.02(a) | |
Parent Stockholder Meeting | 8.09(a) | |
Parent Subsidiary Securities | 5.06(b) | |
Parent Surety Bonds | 5.11(c) | |
Parent Warranty Breach | 11.02 | |
Preferred Stock | 5.05(a) | |
Pro Rata Share | 2.08(b) | |
Related Person | 4.26 | |
Representatives | 6.03(a) | |
Rights Agreement | 5.20(b) | |
Seller Group | 12.13 | |
Stockholder Consents | Preamble | |
Stockholder Control | Preamble | |
Stockholder Indemnified Parties | 11.02(d) | |
Stockholder Representative | Preamble |
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Term | Section | |
Superior Proposal | 6.03(c) | |
Support Agreements | Recitals | |
Surviving Corporation | 2.01(a) | |
Tax | 4.14(j) | |
Taxing Authority | 4.14(j) | |
Tax Return | 4.14(j) | |
Tax Sharing Agreements | 4.14(j) | |
Third Party Interests | 4.06(b) | |
TSA | 5.16 | |
368 Reorganization | 4.15 | |
Voting Agreement | Recitals |
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Counsel and Secretary
Freshfields Bruckhaus Deringer LLP 520 Madison Avenue 34th Floor New York, New York 10022 Attention: | Matthew F. Herman Esq. Melissa Raciti-Knapp Esq. Facsimile No.:(212) 277-4001 e-mail: matthew.herman@freshfields.com melissa.raciti@freshfields.com |
ArcLight Energy Partners Fund II, L.P.
c/o ArcLight Capital Partners LLC
200 Clarendon Street, 55th Floor
Boston, MA 02117
Attention: General Counsel
Facsimile No.:(617) 867-4698
Four Times Square
New York, New York 10036
Attention: Sean C. Doyle, Esq.
Facsimile No.:(212) 735-2000
e-mail: sean.doyle@skadden.com
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By: | /s/ Paul Vining |
Title: | President and Chief Executive Officer |
By: | /s/ Richard M. Whiting |
Title: | President and Chief Executive Officer |
By: | /s/ Mark N. Schroeder |
Title: | President |
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ARCLIGHT ENERGY PARTNERS FUND II, L.P.,
acting jointly, as Stockholder Representative
By: | ArcLight PEF GP, LLC, its General Partner |
By: | ArcLight Capital Holdings, LLC, its Manager |
By: | /s/ Daniel R. Revers |
Title: | Manager |
By: | ArcLight PEF GP II, LLC, its General Partner |
By: | ArcLight Capital Holdings, LLC, its Manager |
By: | /s/ Daniel R. Revers |
Title: | Manager |
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12312 Olive Boulevard, Suite 400
St. Louis, Missouri 63141
Attention: Joseph W. Bean
Facsimile No.:(314) 275-3656
450 Lexington Avenue
New York, NY 10017
Attention: William L. Taylor
Facsimile No.:(212) 450-4800
ArcLight Energy Partners Fund II, L.P.
c/o ArcLight Capital Partners, LLC
152 West 57th Street, 53rd Floor
New York, NY 10019
Attention: Robb E. Turner
Senior Partner
Facsimile No.:212-888-9275
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ArcLight Energy Partners Fund II, L.P.
c/o ArcLight Capital Partners, LLC
200 Clarendon Street, 55th Floor
Boston, MA 02117
Attention: Christine M. Miller
Associate General Counsel
Facsimile No.: 617.867.4698
Four Times Square
New York, New York 10022
Attention: Sean C. Doyle, Esq.
Facsimile No.:(212) 735-2000
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By: | /s/ Richard M. Whiting |
Title: | President and Chief Executive Officer |
and
By: | ArcLight PEF GP, LLC, its |
By: | ArcLight Capital Holdings, |
By: | /s/ Daniel R. Revers |
Title: | Manager |
By: | ArcLight PEF GP II, LLC, |
By: | ArcLight Capital Holdings, LLC, |
By: | /s/ Daniel R. Revers |
Title: | Manager |
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By: | ArcLight PEF GP, LLC, |
By: | ArcLight Capital Holdings, LLC, |
By: | /s/ Daniel R. Revers |
Title: | Manager |
By: | ArcLight PEF GP II, LLC, |
By: | ArcLight Capital Holdings, LLC, its Manager | |
By: | /s/ Daniel R. Revers |
Title: | Manager |
By: | /s/ Ghislain Gauthier |
Title: | Senior Vice-President |
By: | /s/ Cyrille Vittecoq |
Title: | Vice-President, Investments |
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By: | /s/ Michael Larsor |
Title: | Business Manager |
CITIGROUP INVESTMENT, L.P.
By: | Citigroup Private Equity LP, |
By: | /s/ Darren Friedman |
Title: | Vice President |
By: | Citigroup Private Equity LP, its |
By: | /s/ Darren Friedman |
Title: | Vice President |
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By: | Citigroup Private Equity LP, its general partner | |
By: | /s/ Darren Friedman |
By: | Citigroup Private Equity LP, |
By: | /s/ Darren Friedman |
Title: | Vice President |
By: | /s/ Landis Zimmerman |
Title: | Vice President + Chief Investment Officer |
By: | /s/ Howard Stern |
Title: | Its Authorized Representative |
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By: | /s/ Mark H. Hayes |
Title: | Manager of Natural |
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Shares of Company | Company Convertible | |||||||
Stock Held by the | Debt Notes Held by | |||||||
Stockholder Name | Stockholder(1) | the Stockholder | ||||||
ARCLIGHT ENERGY PARTNERS FUND I, L.P. | 17,843,448 | $ | 15,000,000.00 | |||||
ARCLIGHT ENERGY PARTNERS FUND II, L.P. | 9,300,554 | $ | 48,214,596.00 | |||||
CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC | 4,946,990 | $ | 9,600,000.00 | |||||
CASCADE INVESTMENT, L.L.C. | 4,946,990 | $ | 11,588,720.00 | |||||
CITIGROUP CAPITAL PARTNERS II 2006 CITIGROUP INVESTMENT, L.P. | 1,017,068 | $ | 2,382,601.53 | |||||
CITIGROUP CAPITAL PARTNERS II EMPLOYEE MASTER FUND, L.P. | 1,142,457 | $ | 2,676,285.57 | |||||
CITIGROUP CAPITAL PARTNERS II ONSHORE, L.P. | 515,792 | $ | 1,208,231.36 | |||||
CITIGROUP CAPITAL PARTNERS II CAYMAN HOLDINGS, L.P. | 646,263 | $ | 1,513,949.54 | |||||
HOWARD HUGHES MEDICAL INSTITUTE | 3,321,580 | $ | 7,585,617.00 | |||||
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY | 3,321,580 | $ | 0.00 | |||||
THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY | 1,784,315 | $ | 0.00 | |||||
PAUL VINING | 549,787 | $ | 154,000.00 | |||||
TIMOTHY ELLIOTT | 338,022 | $ | 0.00 | |||||
DAVID TURNBULL | 122,870 | $ | 20,000.00 | |||||
RICHARD VERHEIJ | 202,974 | $ | 25,000.00 | |||||
TOM MCQUADE | 110,169 | $ | 0.00 | |||||
B. SCOTT SPEARS | 114,957 | $ | 11,000.00 | |||||
KEITH ST. CLAIR | 266,948 | $ | 0.00 | |||||
ROBERT BENNETT | 221,733 | $ | 0.00 | |||||
DWAYNE FRANCISCO | 335,629 | $ | 0.00 |
(1) | Subject to adjustment in the case of individuals in the event of net vesting of shares pursuant to the Stock Plan. |
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Title: | Managing Director |
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a. | Certain publicly available financial statements and other business and financial information of the Company and the industries in which it operates; |
b. | Certain internal financial statements and other financial and operating data concerning the Company and the Target, respectively, including, without limitation, that which the Company and the Target have respectively identified as being the most current financial statements available; |
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Patriot Coal Corporation
April 2, 2008
c. | Certain financial forecasts, as well as information relating to certain strategic, financial and operational benefits anticipated from the Proposed Transaction, prepared by the management of the Company; | |
d. | Certain financial forecasts prepared by the management of Target, as adjusted by the management of the Company; | |
e. | A draft of the Merger Agreement dated March 25, 2008; |
2. | Discussed the operations, financial conditions, future prospects and projected operations and performance of the Company and the Target, respectively, with the management of the Company and discussed the Proposed Transaction with the management of the Company; | |
3. | Reviewed the historical trading price and trading volume of the Company’s common stock, and the publicly traded securities of certain other companies that we deemed relevant; | |
4. | Compared the financial performance of the Company and the Target with those of certain other publicly traded companies that we deemed relevant; | |
5. | Compared certain financial terms of the Proposed Transaction to financial terms, to the extent publicly available, of certain other business combination transactions that we deemed relevant; and | |
6. | Conducted such other analyses and considered such other factors as we deemed appropriate. |
1. | Relied upon the accuracy, completeness, and fair presentation of all information, data and representations obtained from public sources or provided to it from private sources, including Company management, and did not independently verify such information; | |
2. | Assumed that any estimates, evaluations, forecasts and projections (financial or otherwise) (including, without limitation, as to the strategic, financial and operational benefits anticipated from the Proposed Transaction (the “Strategic Benefits”) and including, without limitation, as to projections by the Company’s management and industry sources as to future coal prices) furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and we have further assumed that the Strategic Benefits will be realized at the times and in the amounts projected by the Company; | |
3. | Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed; | |
4. | Assumed that information supplied to Duff & Phelps and representations and warranties made in the Merger Agreement are accurate in all material respects and that each party will perform in all material respects all covenants and agreements required to be performed by such party; | |
5. | Assumed that all of the conditions required to implement the Proposed Transaction will be satisfied and that the Proposed Transaction will be completed in accordance with the Merger Agreement without any material amendments thereto or any waivers of any terms or conditions thereof; |
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Patriot Coal Corporation
April 2, 2008
6. | Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Proposed Transaction will be obtained without any adverse effect on the Company or the contemplated benefits expected to be derived in the Proposed Transaction; | |
7. | Assumed and relied upon, without verification, the accuracy and adequacy of the legal advice given by counsel to the Company on all legal matters with respect to the Proposed Transaction; | |
8. | Assumed all procedures required by law to be taken in connection with the Proposed Transaction have been or will be duly, validly and timely taken and that the Proposed Transaction will be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable statutes, rules and regulations; | |
9. | Assumed that the Proposed Transaction will be treated as a tax-free transaction for United States federal income tax purposes; |
10. | Relied upon, without independent verification, representations by management of the Company and any third-party estimates as to the expenses and annual cash costs of certain liabilities of the Company and Target associated with (i) reclamation of mines, (ii) health care benefits for past and present work force, (iii) workers’ compensation claims for compensable work-related injuries and occupational disease, and (iv) federally mandated benefits for occupational disease (collectively, the “Legacy Liabilities”); and | |
11. | Assumed that there would be no material change in regulations governing the production of coal, regulations that would restrict key users of coal (i.e., coal-fired power plants, etc.) from utilizing coal as an input, or regulations that would materially increase the expected cash obligations related to Legacy Liabilities. |
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Patriot Coal Corporation
April 2, 2008
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Patriot Coal Corporation
April 2, 2008
Patriot Coal Corporation
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KE Ventures, LLC
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Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands, except | ||||||||||||
share and per share data) | ||||||||||||
Revenues | ||||||||||||
Sales | $ | 1,069,316 | $ | 1,142,521 | $ | 960,901 | ||||||
Other revenues | 4,046 | 5,398 | 17,376 | |||||||||
Total revenues | 1,073,362 | 1,147,919 | 978,277 | |||||||||
Costs and expenses | ||||||||||||
Operating costs and expenses | 1,109,315 | 1,051,932 | 869,163 | |||||||||
Depreciation, depletion and amortization | 85,640 | 86,458 | 65,972 | |||||||||
Asset retirement obligation expense | 20,144 | 24,282 | 15,572 | |||||||||
Selling and administrative expenses | 45,137 | 47,909 | 57,123 | |||||||||
Other operating income: | ||||||||||||
Net gain on disposal or exchange of assets | (81,458 | ) | (78,631 | ) | (57,042 | ) | ||||||
Income from equity affiliates | (63 | ) | (60 | ) | (15,578 | ) | ||||||
Operating profit (loss) | (105,353 | ) | 16,029 | 43,067 | ||||||||
Interest expense | 8,337 | 11,419 | 9,833 | |||||||||
Interest income | (11,543 | ) | (1,417 | ) | (1,553 | ) | ||||||
Income (loss) before income taxes and minority interests | (102,147 | ) | 6,027 | 34,787 | ||||||||
Income tax provision | — | 8,350 | — | |||||||||
Minority interests | 4,721 | 11,169 | — | |||||||||
Net income (loss) | (106,868 | ) | (13,492 | ) | 34,787 | |||||||
Effect of minority purchase arrangement | (15,667 | ) | — | — | ||||||||
Net income (loss) attributable to common stockholders | $ | (122,535 | ) | $ | (13,492 | ) | $ | 34,787 | ||||
Weighted average shares outstanding, basic and diluted | 26,570,940 | N/A | N/A | |||||||||
Earnings per share, basic and diluted: | ||||||||||||
Net loss | $ | (4.02 | ) | N/A | N/A | |||||||
Effect of minority purchase arrangement | (0.59 | ) | N/A | N/A | ||||||||
Net loss attributable to common stockholders | $ | (4.61 | ) | N/A | N/A | |||||||
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December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands, except share data) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 5,983 | $ | 398 | ||||
Accounts receivable and other, net of allowance for doubtful accounts of $251 and $252 as of December 31, 2007 and 2006, respectively | 125,985 | 31,583 | ||||||
Net receivable from former affiliates | — | 141,021 | ||||||
Inventories | 31,037 | 34,692 | ||||||
Prepaid expenses and other current assets | 6,214 | 7,004 | ||||||
Total current assets | 169,219 | 214,698 | ||||||
Property, plant, equipment and mine development | ||||||||
Land and coal interests | 689,338 | 628,569 | ||||||
Buildings and improvements | 282,703 | 270,990 | ||||||
Machinery and equipment | 330,338 | 377,693 | ||||||
Less accumulated depreciation, depletion and amortization | (426,090 | ) | (434,565 | ) | ||||
Property, plant, equipment and mine development, net | 876,289 | 842,687 | ||||||
Notes receivable | 126,381 | 52,975 | ||||||
Investments and other assets | 27,948 | 67,821 | ||||||
Total assets | $ | 1,199,837 | $ | 1,178,181 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities | ||||||||
Current maturities of long-term debt | $ | 927 | $ | — | ||||
Trade accounts payable | 66,811 | 53,573 | ||||||
Accrued expenses | 116,781 | 162,871 | ||||||
Total current liabilities | 184,519 | 216,444 | ||||||
Long-term debt | 11,438 | 20,722 | ||||||
Note payable to former affiliate | — | 62,000 | ||||||
Asset retirement obligations | 134,364 | 139,703 | ||||||
Workers’ compensation obligations | 192,730 | 207,860 | ||||||
Accrued postretirement benefit costs | 527,315 | 1,139,017 | ||||||
Obligation to industry fund | 31,064 | 25,626 | ||||||
Other noncurrent liabilities | 36,091 | 40,483 | ||||||
Total liabilities | 1,117,521 | 1,851,855 | ||||||
Minority interests | — | 16,153 | ||||||
Stockholders’ equity (deficit): | ||||||||
Common stock ($0.01 par value; 100,000,000 shares authorized; 26,758,768 shares issued and outstanding at December 31, 2007) | 268 | — | ||||||
Additional paid-in capital | 189,451 | — | ||||||
Retained earnings (deficit) | (33,363 | ) | — | |||||
Accumulated other comprehensive loss | (74,040 | ) | (322,121 | ) | ||||
Former Parent’s equity (deficit) | — | (367,706 | ) | |||||
Total stockholders’ equity (deficit) | 82,316 | (689,827 | ) | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,199,837 | $ | 1,178,181 | ||||
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Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income (loss) | $ | (106,868 | ) | $ | (13,492 | ) | $ | 34,787 | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation, depletion and amortization | 85,640 | 86,458 | 65,972 | |||||||||
Net gain on disposal or exchange of assets | (81,458 | ) | (78,631 | ) | (57,042 | ) | ||||||
Stock-based compensation expense | 1,299 | — | — | |||||||||
Income from equity affiliates | (63 | ) | (60 | ) | (15,578 | ) | ||||||
Dividends received from equity investments | — | 9,935 | 7,552 | |||||||||
Minority interest | 4,721 | 11,169 | — | |||||||||
Changes in current assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable | (19,058 | ) | 2,043 | 4,844 | ||||||||
Inventories | 3,655 | (7,998 | ) | (4,497 | ) | |||||||
Other current assets | 790 | (3,769 | ) | 1,247 | ||||||||
Accounts payable and accrued expenses | 10,828 | (10,932 | ) | (6,596 | ) | |||||||
Interest on notes receivable | (10,013 | ) | (876 | ) | — | |||||||
Asset retirement obligations | 4,473 | 3,006 | (13,465 | ) | ||||||||
Workers’ compensation obligations | 6,654 | (3,163 | ) | 3,011 | ||||||||
Accrued postretirement benefit costs | 22,264 | 4,677 | 11,273 | |||||||||
Obligation to industry fund | 7,286 | (2,253 | ) | (3,033 | ) | |||||||
Other, net | (9,849 | ) | (16,855 | ) | (10,652 | ) | ||||||
Net cash provided by (used in) operating activities | (79,699 | ) | (20,741 | ) | 17,823 | |||||||
Cash Flows From Investing Activities | ||||||||||||
Additions to property, plant, equipment and mine development | (55,594 | ) | (80,224 | ) | (75,151 | ) | ||||||
Acquisitions, net | (47,733 | ) | (44,538 | ) | — | |||||||
Additions to advance mining royalties | (3,964 | ) | (6,065 | ) | (6,094 | ) | ||||||
Proceeds from disposal of assets, net of notes receivable | 29,426 | 48,168 | 13,496 | |||||||||
Net change in receivables from/payables to former affiliates | 132,586 | 84,652 | 38,220 | |||||||||
Net cash provided by (used in) investing activities | 54,721 | 1,993 | (29,529 | ) | ||||||||
Cash Flows From Financing Activities | ||||||||||||
Contribution from former Parent | 43,647 | 44,538 | — | |||||||||
Long-term debt payments | (8,358 | ) | (23,792 | ) | — | |||||||
Issuance of notes payable | — | — | 11,459 | |||||||||
Credit facility origination fees | (4,726 | ) | — | — | ||||||||
Distribution to minority interests | — | (2,119 | ) | — | ||||||||
Net cash provided by financing activities | 30,563 | 18,627 | 11,459 | |||||||||
Net increase (decrease) in cash and cash equivalents | 5,585 | (121 | ) | (247 | ) | |||||||
Cash and cash equivalents at beginning of year | 398 | 519 | 766 | |||||||||
Cash and cash equivalents at end of year | $ | 5,983 | $ | 398 | $ | 519 | ||||||
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Accumulated | ||||||||||||||||||||||||
Additional | Retained | Other | Former | |||||||||||||||||||||
Common | Paid-in | Earnings | Comprehensive | Parent’s | ||||||||||||||||||||
Stock | Capital | (Deficit) | Loss | Equity | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
December 31, 2004 | $ | — | $ | — | $ | — | $ | — | $ | (1,200,284 | ) | $ | (1,200,284 | ) | ||||||||||
Net income | — | — | — | — | 34,787 | 34,787 | ||||||||||||||||||
Dividend from subsidiary of former Parent | — | — | — | — | 766,745 | 766,745 | ||||||||||||||||||
December 31, 2005 | — | — | — | — | (398,752 | ) | (398,752 | ) | ||||||||||||||||
Net loss | — | — | — | — | (13,492 | ) | (13,492 | ) | ||||||||||||||||
SFAS No. 158 adoption impact of postretirement plans and workers’ compensation obligations (net of taxes of $0): | ||||||||||||||||||||||||
Accumulated actuarial loss | — | — | — | (318,614 | ) | — | (318,614 | ) | ||||||||||||||||
Prior service cost | — | — | — | (3,507 | ) | — | (3,507 | ) | ||||||||||||||||
Contribution from former Parent | — | — | — | — | 44,538 | 44,538 | ||||||||||||||||||
December 31, 2006 | — | — | — | (322,121 | ) | (367,706 | ) | (689,827 | ) | |||||||||||||||
Net loss | — | — | (33,363 | ) | — | (73,505 | ) | (106,868 | ) | |||||||||||||||
Postretirement plans and workers’ compensation obligations (net of taxes of $0): | ||||||||||||||||||||||||
Changes in accumulated actuarial loss | — | — | — | 70,278 | — | 70,278 | ||||||||||||||||||
Changes in prior service cost | — | — | — | 12,469 | — | 12,469 | ||||||||||||||||||
Total comprehensive loss | (24,121 | ) | ||||||||||||||||||||||
Contributions from former Parent | — | — | — | — | 13,647 | 13,647 | ||||||||||||||||||
Consummation of spin-off transaction on October 31, 2007 | 266 | 188,152 | — | 165,334 | 427,564 | 781,316 | ||||||||||||||||||
Stock based compensation | — | 1,299 | — | — | — | 1,299 | ||||||||||||||||||
Stock grants to employees | 2 | — | — | — | — | 2 | ||||||||||||||||||
December 31, 2007 | $ | 268 | $ | 189,451 | $ | (33,363 | ) | $ | (74,040 | ) | $ | — | $ | 82,316 | ||||||||||
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(1) | Consummation of Spin-off Transaction and Basis of Presentation |
• | retention by Peabody of certain retiree healthcare liabilities of $615.8 million; | |
• | the forgiveness of the outstanding intercompany payables to Peabody on October 31, 2007 of $81.5 million; | |
• | the retention by Patriot of trade accounts receivable at October 31, 2007, previously recorded through intercompany receivables, of $68.6 million; | |
• | a $30.0 million cash contribution; | |
• | the retention by Peabody of assets and asset retirement obligations related to certain Midwest mining operations of a net $8.1 million; | |
• | less the transfer of intangible assets of $22.7 million related to purchased contract rights for a supply contract retained by Peabody. |
(2) | Summary of Significant Accounting Policies |
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Years | ||||
Building and improvements | 10 to 20 | |||
Machinery and equipment | 1 to 30 | |||
Leasehold improvements | Shorter of life of asset, mine or lease |
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• | Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses have carrying values which approximate fair value due to the short maturity or the financial nature of these instruments. | |
• | The fair value of notes receivable approximates the carrying value as of December 31, 2007 and 2006. | |
• | The fair value of net payables to former affiliates approximated the carrying value as of December 31, 2006. |
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(3) | Risk Management and Financial Instruments |
(4) | Net Gain on Disposal or Exchange of Assets and Other Commercial Events |
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(5) | Earnings per Share |
(6) | Acquisition |
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(7) | Inventories |
December 31, | December 31, | |||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Saleable coal | $ | 13,519 | $ | 16,651 | ||||
Materials and supplies | 13,385 | 13,343 | ||||||
Raw coal | 4,133 | 4,698 | ||||||
Total | $ | 31,037 | $ | 34,692 | ||||
(8) | Leases |
Operating | Coal | |||||||
�� | Leases | Reserves | ||||||
(Dollars in thousands) | ||||||||
2008 | $ | 24,117 | $ | 12,059 | ||||
2009 | 21,589 | 10,400 | ||||||
2010 | 20,369 | 7,113 | ||||||
2011 | 15,070 | 4,914 | ||||||
2012 | 7,278 | 4,466 | ||||||
2013 and thereafter | 6,500 | 6,676 | ||||||
Total minimum lease and royalty payments | $ | 94,923 | $ | 45,628 | ||||
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(9) | Accrued Expenses |
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Accrued healthcare, including post-retirement | $ | 30,120 | $ | 78,174 | ||||
Workers’ compensation obligations | 23,778 | 24,456 | ||||||
Accrued payroll and related benefits | 21,565 | 20,803 | ||||||
Accrued taxes other than income | 13,339 | 15,257 | ||||||
Other accrued benefits | 9,487 | 8,272 | ||||||
Accrued royalties | 5,281 | 4,381 | ||||||
Accrued lease payments | 1,692 | 1,745 | ||||||
Other accrued expenses | 11,519 | 9,783 | ||||||
Total accrued expenses | $ | 116,781 | $ | 162,871 | ||||
(10) | Income Taxes |
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Federal statutory rate | $ | (35,751 | ) | $ | 2,110 | $ | 12,176 | |||||
Depletion | (11,281 | ) | (15,006 | ) | (15,184 | ) | ||||||
State income taxes, net of U.S. federal tax benefit | (6,911 | ) | (2,183 | ) | (10,180 | ) | ||||||
Minority interest | (1,652 | ) | (3,909 | ) | — | |||||||
Changes in valuation allowance | 55,183 | 26,864 | 81,213 | |||||||||
Changes in tax reserves | 107 | 172 | 224 | |||||||||
Deemed liquidation of subsidiary | — | — | (68,397 | ) | ||||||||
Other, net | 305 | 302 | 148 | |||||||||
Total | $ | — | $ | 8,350 | $ | — | ||||||
E-17
Table of Contents
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Deferred tax assets: | ||||||||
Postretirement benefit obligations | $ | 233,881 | $ | 486,847 | ||||
Tax credits and loss carryforwards | 20,346 | 6,032 | ||||||
Accrued workers’ compensation liabilities | 91,925 | 92,610 | ||||||
Accrued reclamation and mine closing liabilities | 53,483 | 54,855 | ||||||
Obligation to industry fund | 12,672 | 10,251 | ||||||
Other | 20,387 | 6,772 | ||||||
Total gross deferred tax assets | 432,694 | 657,367 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant, equipment and mine development, leased coal interests and advance royalties, principally due to differences in depreciation, depletion and asset writedowns | 162,092 | 159,284 | ||||||
Total gross deferred tax liabilities | 162,092 | 159,284 | ||||||
Valuation allowance | (270,602 | ) | (498,083 | ) | ||||
Net deferred tax liability | $ | — | $ | — | ||||
Deferred taxes consisted of the following: | ||||||||
Current deferred income taxes | $ | — | $ | — | ||||
Noncurrent deferred income taxes | — | — | ||||||
Net deferred tax liability | $ | — | $ | — | ||||
E-18
Table of Contents
(11) | Long-Term Debt |
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Promissory Notes | $ | 12,365 | $ | 12,365 | ||||
Notes Payable | — | 8,357 | ||||||
Total | $ | 12,365 | $ | 20,722 | ||||
(12) | Credit Facility |
E-19
Table of Contents
(13) | Asset Retirement Obligations |
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Balance at beginning of year | $ | 139,703 | $ | 134,447 | ||||
Liabilities incurred | 1,427 | 10,441 | ||||||
Liabilities settled or disposed | (17,249 | ) | (22,414 | ) | ||||
Accretion expense | 14,237 | 15,917 | ||||||
Revisions to estimate | 4,961 | 1,312 | ||||||
Liabilities conveyed to Peabody (upon spin-off) | (8,715 | ) | — | |||||
Balance at end of year | $ | 134,364 | $ | 139,703 | ||||
E-20
Table of Contents
(14) | Workers’ Compensation Obligations |
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Service cost | $ | 2,971 | $ | 2,807 | $ | 4,137 | ||||||
Interest cost | 9,124 | 9,568 | 10,244 | |||||||||
Net amortization of actuarial gains | (1,607 | ) | (1,369 | ) | (1,352 | ) | ||||||
Total occupational disease | 10,488 | 11,006 | 13,029 | |||||||||
Traumatic injury claims | 13,160 | 10,984 | 17,505 | |||||||||
State assessment taxes | 4,373 | 10,388 | 16,315 | |||||||||
Total provision | $ | 28,021 | $ | 32,378 | $ | 46,849 | ||||||
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Discount rate | 6.00 | % | 5.90 | % | 6.10 | % | ||||||
Inflation rate | 3.50 | % | 3.50 | % | 3.50 | % |
E-21
Table of Contents
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Occupational disease costs | $ | 155,829 | $ | 173,924 | ||||
Traumatic injury claims | 60,679 | 58,392 | ||||||
Total obligations | 216,508 | 232,316 | ||||||
Less current portion (included in Accrued expenses) | (23,778 | ) | (24,456 | ) | ||||
Noncurrent obligations (included in Workers’ compensation obligations) | $ | 192,730 | $ | 207,860 | ||||
Accumulated | ||||
Actuarial Gain | ||||
(Dollars in thousands) | ||||
December 31, 2006 (Initial adoption of SFAS No. 158) | $ | 9,006 | ||
Net amortization | 825 | |||
Change to actuarial gain arising during period | 11,953 | |||
December 31, 2007 | $ | 21,784 | ||
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Change in benefit obligation: | ||||||||
Beginning of year obligation | $ | 173,924 | $ | 165,954 | ||||
Service cost | 2,971 | 2,807 | ||||||
Interest cost | 9,124 | 9,568 | ||||||
Net change in actuarial loss (gain) | (21,653 | ) | 4,311 | |||||
Benefit and administrative payments | (8,537 | ) | (8,716 | ) | ||||
Net obligation at end of year | 155,829 | 173,924 | ||||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of period | — | — | ||||||
Employer contributions | 8,537 | 8,716 | ||||||
Benefits paid | (8,537 | ) | (8,716 | ) | ||||
Fair value of plan assets at end of period | — | — | ||||||
Funded status at end of period | $ | (155,829 | ) | $ | (173,924 | ) | ||
E-22
Table of Contents
(15) | Pension and Savings Plans |
(16) | Postretirement Healthcare Benefits |
E-23
Table of Contents
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Service cost for benefits earned | $ | 981 | $ | 599 | $ | 538 | ||||||
Interest cost on accumulated postretirement benefit obligation | 65,964 | 62,385 | 62,615 | |||||||||
Amortization of prior service cost | (1,306 | ) | (2,545 | ) | (2,685 | ) | ||||||
Amortization of actuarial losses | 34,260 | 26,866 | 22,896 | |||||||||
Net periodic postretirement benefit costs | $ | 99,899 | $ | 87,305 | $ | 83,364 | ||||||
December 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Change in benefit obligation: | ||||||||
Accumulated postretirement benefit obligation at beginning of period | $ | 1,214,032 | $ | 1,088,507 | ||||
Service cost | 981 | 599 | ||||||
Interest cost | 65,964 | 62,385 | ||||||
Participant contributions | 840 | 956 | ||||||
Plan amendments | 11,687 | 10,166 | ||||||
Retention by Peabody of certain liabilities | (615,837 | ) | — | |||||
Benefits paid | (74,948 | ) | (81,984 | ) | ||||
Change in actuarial (gain) or loss | (47,971 | ) | 133,403 | |||||
Accumulated postretirement benefit obligation at end of period | 554,748 | 1,214,032 | ||||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of period | — | — | ||||||
Employer contributions | 74,108 | 81,028 | ||||||
Participant contributions | 840 | 956 | ||||||
Benefits paid and administrative fees (net of Medicare Part D reimbursements) | (74,948 | ) | (81,984 | ) | ||||
Fair value of plan assets at end of period | — | — | ||||||
Accrued postretirement benefit obligation | (554,748 | ) | (1,214,032 | ) | ||||
Less current portion (included in Accrued expenses) | 27,433 | 75,015 | ||||||
Noncurrent obligation (included in Accrued postretirement benefit costs) | $ | (527,315 | ) | $ | (1,139,017 | ) | ||
E-24
Table of Contents
Accumulated | Prior | |||||||
Actuarial Loss | Service Cost | |||||||
(Dollars in thousands) | ||||||||
December 31, 2006 (Initial adoption of SFAS No. 158) | $ | (327,587 | ) | $ | (3,507 | ) | ||
Amortization | 34,260 | (1,306 | ) | |||||
Retention by Peabody of certain liabilities | 165,334 | — | ||||||
Change to actuarial loss arising during period | 44,024 | (7,656 | ) | |||||
December 31, 2007 | $ | (83,969 | ) | $ | (12,469 | ) | ||
Year Ended December 31, | ||||
2007 | 2006 | |||
Discount rate | 6.80% | 6.00% | ||
Rate of compensation increase | 3.50% | 3.50% | ||
Measurement date | December 31, 2007 | December 31, 2006 |
Year Ended December 31, | ||||||
2007 | 2006 | 2005 | ||||
Discount rate | 6.00% | 5.90% | 6.10% | |||
Rate of compensation increase | 3.50% | 3.50% | 3.50% | |||
Measurement date | December 31, 2006 | December 31, 2005 | December 31, 2004 |
Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
Healthcare cost trend rate assumed for next year | 7.50 | % | 7.50 | % | ||||
Rate to which the cost trend is assumed to decline (the ultimate trend rate) | 4.75 | % | 4.75 | % | ||||
Year that the rate reaches that ultimate trend rate | 2013 | 2012 |
E-25
Table of Contents
+1.0% | −1.0% | |||||||
(Dollars in thousands) | ||||||||
Effect on total service and interest cost components for 2007 | $ | 8,163 | $ | (7,494 | ) | |||
Effect on year-end 2007 postretirement benefit obligation | 66,450 | (60,983 | ) |
Postretirement | ||||
Benefits | ||||
(Dollars in thousands) | ||||
2008 | $ | 27,433 | ||
2009 | 30,685 | |||
2010 | 34,275 | |||
2011 | 37,950 | |||
2012 | 43,721 | |||
Years2013-2017 | 245,715 |
E-26
Table of Contents
(17) | Related Party Transactions |
E-27
Table of Contents
• | retention by Peabody of certain retiree healthcare liabilities of $615.8 million; | |
• | the forgiveness of the outstanding intercompany payables to Peabody on October 31, 2007 of $81.5 million; | |
• | the retention by Patriot of trade accounts receivable at October 31, 2007, previously recorded through intercompany receivables, of $68.6 million; | |
• | a $30.0 million cash contribution; | |
• | the retention by Peabody of assets and asset retirement obligations related to certain Midwest mining operations of a net $8.1 million; | |
• | less the transfer of intangible assets of $22.7 million to Peabody from Patriot related to purchased contract rights for a supply contract retained by Peabody. |
E-28
Table of Contents
(18) | Guarantees |
Workers’ | ||||||||||||||||||||
Reclamation | Lease | Compensation | ||||||||||||||||||
Obligations | Obligations | Obligations | Other(1) | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Surety Bonds | $ | 84,109 | $ | — | $ | 12,961 | $ | 12,030 | $ | 109,100 | ||||||||||
Letters of Credit | 61,883 | 16,949 | 170,844 | 3,871 | 253,547 | |||||||||||||||
$ | 145,992 | $ | 16,949 | $ | 183,805 | $ | 15,901 | $ | 362,647 | |||||||||||
(1) | Other includes letters of credit and surety bonds related to collateral for surety companies and bank guarantees, road maintenance and performance guarantees. |
E-29
Table of Contents
(19) | Commitments and Contingencies |
(20) | Segment Information |
E-30
Table of Contents
Corporate | ||||||||||||||||
Appalachia | Illinois Basin | and Other(1) | Consolidated | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 821,116 | $ | 252,246 | $ | — | $ | 1,073,362 | ||||||||
Adjusted EBITDA | 89,850 | 11,862 | (101,281 | ) | 431 | |||||||||||
Additions to property, plant, equipment and mine development | 48,955 | 6,639 | — | 55,594 | ||||||||||||
Income from equity affiliates | 63 | — | — | 63 |
Corporate | ||||||||||||||||
Appalachia | Illinois Basin | and Other(1) | Consolidated | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 890,198 | $ | 257,721 | $ | — | $ | 1,147,919 | ||||||||
Adjusted EBITDA | 204,827 | (1,900 | ) | (76,158 | ) | 126,769 | ||||||||||
Additions to property, plant, equipment and mine development | 72,236 | 7,988 | — | 80,224 | ||||||||||||
Income from equity affiliates | 60 | — | — | 60 |
Corporate | ||||||||||||||||
Appalachia | Illinois Basin | and Other(1) | Consolidated | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 742,753 | $ | 235,524 | $ | — | $ | 978,277 | ||||||||
Adjusted EBITDA | 227,100 | 1,645 | (104,134 | ) | 124,611 | |||||||||||
Additions to property, plant, equipment and mine development | 67,775 | 7,376 | — | 75,151 | ||||||||||||
Income from equity affiliates | 15,578 | — | — | 15,578 |
(1) | Corporate and Other results include the gains on disposal of assets discussed in Note 4. |
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Total Adjusted EBITDA | $ | 431 | $ | 126,769 | $ | 124,611 | ||||||
Depreciation, depletion and amortization | (85,640 | ) | (86,458 | ) | (65,972 | ) | ||||||
Asset retirement obligation expense | (20,144 | ) | (24,282 | ) | (15,572 | ) | ||||||
Interest expense | (8,337 | ) | (11,419 | ) | (9,833 | ) | ||||||
Interest income | 11,543 | 1,417 | 1,553 | |||||||||
Income tax provision | — | (8,350 | ) | — | ||||||||
Minority interests | (4,721 | ) | (11,169 | ) | — | |||||||
Net income (loss) | $ | (106,868 | ) | $ | (13,492 | ) | $ | 34,787 | ||||
E-31
Table of Contents
(21) | Stockholders’ Equity |
Shares | ||||
Outstanding | ||||
October 31, 2007(shares outstanding at spin-off) | 26,570,940 | |||
Stock grants to employees | 187,828 | |||
December 31, 2007 | 26,758,768 | |||
E-32
Table of Contents
(22) | Stock-Based Compensation |
E-33
Table of Contents
December 31, 2007 | ||
Weighted-average fair value | $15.34 | |
Risk-free interest rate | 4.22% | |
Expected option life | 6.69 years | |
Expected volatility | 30.64% | |
Dividend yield | 0% |
E-34
Table of Contents
(23) | Summary Quarterly Financial Information (Unaudited) |
Year Ended December 31, 2007 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(Dollars in thousands except per share and stock price data) | ||||||||||||||||
Revenues | $ | 269,663 | $ | 256,221 | $ | 293,301 | $ | 254,177 | ||||||||
Operating profit | (10,698 | ) | (4,392 | ) | (39,823 | ) | (50,440 | ) | ||||||||
Net loss | (11,951 | ) | (5,814 | ) | (39,451 | ) | (49,652 | ) | ||||||||
Basic and diluted loss attributable to common stockholders per share | N/A | N/A | N/A | $ | (2.17 | ) | ||||||||||
Weighted average shares used in calculating basic earnings per share | N/A | N/A | N/A | 26,570,940 | ||||||||||||
Stock price — high and low prices | N/A | N/A | N/A | $ | 43.00-$27.16 |
Year Ended December 31, 2006 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 289,107 | $ | 312,495 | $ | 285,038 | $ | 261,279 | ||||||||
Operating profit | 21,530 | 2,648 | 9,290 | (17,439 | ) | |||||||||||
Net income (loss) | 13,921 | (1,774 | ) | (2,954 | ) | (22,685 | ) |
E-35
Table of Contents
Balance | Charged to | Balance | ||||||||||||||||||
Beginning | Costs and | at End of | ||||||||||||||||||
Description | of Period | Expenses | Deductions(1) | Other | Period | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Year Ended December 31, 2007 | ||||||||||||||||||||
Reserves deducted from asset accounts: | ||||||||||||||||||||
Advance royalty recoupment reserve | $ | 4,716 | $ | — | $ | — | $ | (1,985 | )(2) | $ | 2,731 | |||||||||
Reserve for materials and supplies | 1,458 | 74 | — | (1,252 | )(2) | 280 | ||||||||||||||
Allowance for doubtful accounts | 252 | — | (1 | ) | — | 251 | ||||||||||||||
Year Ended December 31, 2006 | ||||||||||||||||||||
Reserves deducted from asset accounts: | ||||||||||||||||||||
Advance royalty recoupment reserve | $ | 4,836 | $ | — | $ | — | $ | (120 | )(3) | $ | 4,716 | |||||||||
Reserve for materials and supplies | 1,519 | — | (61 | ) | — | 1,458 | ||||||||||||||
Allowance for doubtful accounts | 92 | 160 | — | — | 252 | |||||||||||||||
Year Ended December 31, 2005 | ||||||||||||||||||||
Reserves deducted from asset accounts: | ||||||||||||||||||||
Advance royalty recoupment reserve | $ | 6,975 | $ | — | $ | (2,551 | ) | $ | 412 | (3) | $ | 4,836 | ||||||||
Reserve for materials and supplies | 1,816 | — | (297 | ) | — | 1,519 | ||||||||||||||
Allowance for doubtful accounts | — | 92 | — | — | 92 |
(1) | Reserves utilized, unless otherwise indicated. | |
(2) | Balance transferred to Peabody as part of Patriot spin-off. | |
(3) | Peabody restructured entities which resulted in the reclassification of advances and related reserves. |
E-36
Table of Contents
F-1 | ||||
Audited Consolidated Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
F-i
Table of Contents
F-1
Table of Contents
December 31 | ||||||||
2007 | 2006 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 28,350 | $ | 37,598 | ||||
Receivables: | ||||||||
Trade | 73,972 | 46,614 | ||||||
Other | 3,965 | 6,619 | ||||||
Inventories | 46,737 | 32,284 | ||||||
Prepaid coal sales contract restructuring | — | 101,064 | ||||||
Prepaid royalties | 22,027 | 19,973 | ||||||
Other current assets | 12,409 | 13,057 | ||||||
Total current assets | 187,460 | 257,209 | ||||||
Property, plant, and equipment: | ||||||||
Mine development costs | 100,970 | 80,658 | ||||||
Buildings, land, equipment, and preparation plants | 439,840 | 398,233 | ||||||
Mining rights | 893,006 | 868,826 | ||||||
Accumulated depreciation, depletion, and amortization | (326,070 | ) | (218,965 | ) | ||||
Property, plant, and equipment, net | 1,107,746 | 1,128,752 | ||||||
Goodwill | 68,744 | 123,418 | ||||||
Other noncurrent assets | 15,289 | 13,774 | ||||||
Total assets | $ | 1,379,239 | $ | 1,523,153 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 81,599 | $ | 56,187 | ||||
Accrued expenses and other current liabilities | 79,745 | 61,164 | ||||||
Long-term debt, current portion | 45,780 | 3,465 | ||||||
Below market coal sales supply contracts acquired | 63,662 | 82,509 | ||||||
Total current liabilities | 270,786 | 203,325 | ||||||
Long-term debt | 204,646 | 203,355 | ||||||
Below market coal sales supply contracts acquired | 194,826 | 257,609 | ||||||
Asset retirement obligation | 54,138 | 44,769 | ||||||
Postretirement benefit obligation | 452,032 | 566,811 | ||||||
Workers’ compensation | 3,934 | 7,081 | ||||||
Other noncurrent liabilities | 26,930 | 30,631 | ||||||
Total liabilities | 1,207,292 | 1,313,581 | ||||||
Liabilities related to discontinued operations | — | 812 | ||||||
Stockholders’ equity: | ||||||||
Common stock — $0.01 per share par value; 52,200,000 shares authorized, 51,675,226 shares issued, and 49,718,206 shares outstanding as of December 31, 2007, and 52,200,000 shares authorized, 51,675,226 shares issued, and 49,200,000 shares outstanding as of December 31, 2006 | 497 | 492 | ||||||
Additional paid-in capital | 294,927 | 289,849 | ||||||
Accumulated other comprehensive income | 79,661 | — | ||||||
Retained deficit | (203,138 | ) | (81,581 | ) | ||||
Total stockholders’ equity | 171,947 | 208,760 | ||||||
Total liabilities and stockholders’ equity | $ | 1,379,239 | $ | 1,523,153 | ||||
F-2
Table of Contents
Arch | |||||||||||||||||
Period from | Properties | ||||||||||||||||
Inception | (Predecessor) | ||||||||||||||||
through | Year Ended | ||||||||||||||||
Year Ended December 31 | December 31 | December 31 | |||||||||||||||
2007 | 2006 | 2005 | 2005 | ||||||||||||||
(In thousands) | |||||||||||||||||
Coal sales | $ | 813,974 | $ | 767,788 | $ | — | $ | 488,774 | |||||||||
Gain on exchange of mining reserves | 15,262 | — | — | — | |||||||||||||
Other revenue | 68,018 | 42,994 | — | 24,273 | |||||||||||||
Total revenues | 897,254 | 810,782 | — | 513,047 | |||||||||||||
Costs of coal sales | 825,778 | 718,770 | — | 485,902 | |||||||||||||
Sales contract amortization (accretion) | 19,808 | (31,951 | ) | — | — | ||||||||||||
(Gain) loss on coal sales supply contract restructuring | (375 | ) | 25,513 | — | — | ||||||||||||
Selling, general, and administrative expenses | 32,713 | 23,658 | 3,690 | 17,721 | |||||||||||||
Other expenses | — | — | — | 849 | |||||||||||||
Total costs and expenses | 877,924 | 735,990 | 3,690 | 504,472 | |||||||||||||
Operating income (loss) before depreciation, depletion, and amortization | 19,330 | 74,792 | (3,690 | ) | 8,575 | ||||||||||||
Depreciation, depletion, and amortization | 114,434 | 114,297 | — | 34,567 | |||||||||||||
Operating loss | (95,104 | ) | (39,505 | ) | (3,690 | ) | (25,992 | ) | |||||||||
Interest expense, net of interest income | 21,115 | 13,814 | — | 7,035 | |||||||||||||
Change in market value of interest rate swap | 1,551 | (748 | ) | — | — | ||||||||||||
Loss on debt extinguishment | — | 9,677 | — | — | |||||||||||||
Loss from continuing operations | (117,770 | ) | (62,248 | ) | (3,690 | ) | (33,027 | ) | |||||||||
Loss from discontinued operations | (3,787 | ) | (15,643 | ) | — | — | |||||||||||
Net loss | $ | (121,557 | ) | $ | (77,891 | ) | $ | (3,690 | ) | $ | (33,027 | ) | |||||
F-3
Table of Contents
Additional | Other | |||||||||||||||||||
Common | Paid-in | Comprehensive | Retained | |||||||||||||||||
Stock | Capital | Income | Deficit | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Inception, October 5, 2005 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Net loss for period from inception through December 31, 2005 | — | — | — | (3,690 | ) | (3,690 | ) | |||||||||||||
Balance at December 31, 2005 | — | — | — | (3,690 | ) | (3,690 | ) | |||||||||||||
Combination of majority interest of entities under common control and acquisition of related minority interest (18,181,470 shares issued) | 182 | (137,221 | ) | — | — | (137,039 | ) | |||||||||||||
Sale of stock upon recapitalization of the Company, net of issuances costs of $7,000 (31,018,530 shares issued) | 310 | 427,070 | — | — | 427,380 | |||||||||||||||
Net loss for year ended December 31, 2006 | — | — | — | (77,891 | ) | (77,891 | ) | |||||||||||||
Balance at December 31, 2006 | 492 | 289,849 | — | (81,581 | ) | 208,760 | ||||||||||||||
Net loss for year ended December 31, 2007 | — | — | — | (121,557 | ) | (121,557 | ) | |||||||||||||
Effect of adoption of SFAS No. 158 | — | — | 79,661 | — | 79,661 | |||||||||||||||
Employee stock compensation (518,206 shares) | 5 | 5,078 | — | — | 5,083 | |||||||||||||||
Balance at December 31, 2007 | $ | 497 | $ | 294,927 | $ | 79,661 | $ | (203,138 | ) | $ | 171,947 | |||||||||
F-4
Table of Contents
(In thousands) | ||||
Owner’s equity, December 31, 2004 | $ | 564,120 | ||
Net loss | (33,027 | ) | ||
Owner’s equity, December 31, 2005 (immediately prior to the acquisition of Arch Properties by Magnum Coal Company) | $ | 531,093 | ||
F-5
Table of Contents
Arch | |||||||||||||||||
Period from | Properties | ||||||||||||||||
Inception | (Predecessor) | ||||||||||||||||
through | Year Ended | ||||||||||||||||
Year Ended December 31 | December 31 | December 31 | |||||||||||||||
2007 | 2006 | 2005 | 2005 | ||||||||||||||
(In thousands) | |||||||||||||||||
Operating activities | |||||||||||||||||
Net loss | $ | (121,557 | ) | $ | (77,891 | ) | $ | (3,690 | ) | $ | (33,027 | ) | |||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||||||
Depreciation, depletion, and amortization and restructuring | 114,434 | 114,297 | — | 34,567 | |||||||||||||
Sales contract (accretion) amortization | 19,808 | (31,951 | ) | — | — | ||||||||||||
Gain on disposal of property, plant, and equipment | (1,822 | ) | (802 | ) | — | (180 | ) | ||||||||||
Amortization of loan costs included in interest expense | 931 | 629 | — | 1,980 | |||||||||||||
Stock compensation expense | 8,002 | 5,519 | — | — | |||||||||||||
Change in market value of derivative | 1,551 | (748 | ) | — | — | ||||||||||||
(Gain) loss on coal sales contract buyout | (375 | ) | 25,513 | — | — | ||||||||||||
Loss on extinguishment of debt | — | 9,677 | — | — | |||||||||||||
Coal sales contract restructuring and buyout | — | (183,779 | ) | — | — | ||||||||||||
Depreciation on abandoned equipment | — | 2,494 | — | — | |||||||||||||
Pension curtailment on abandonment | — | 584 | — | — | |||||||||||||
Loss on abandoned equipment | — | 6,541 | — | — | |||||||||||||
Gain on exchange of mining reserves | (15,262 | ) | — | — | — | ||||||||||||
Payments on asset retirement obligation | (2,006 | ) | (264 | ) | — | — | |||||||||||
Change in working capital accounts: | |||||||||||||||||
(Increase) decrease in accounts receivable | (27,358 | ) | 6,770 | — | 5,368 | ||||||||||||
Decrease (increase) in accounts receivable — other | 2,654 | 37,661 | — | (1,425 | ) | ||||||||||||
(Decrease) increase in amount due to affiliates, net | — | (23,202 | ) | 18,690 | 22,946 | ||||||||||||
Increase in inventory | (14,453 | ) | (4,037 | ) | — | (3,750 | ) | ||||||||||
(Increase) decrease in prepaid expenses and other assets | (5,403 | ) | 17,281 | — | (823 | ) | |||||||||||
Increase in accounts payable — trade | 25,412 | 5,923 | — | 3,587 | |||||||||||||
Increase (decrease) in accrued liabilities | 14,852 | (23,390 | ) | — | 1,606 | ||||||||||||
Increase in accrued postretirement benefits other than pension | 15,627 | 22,441 | — | 23,432 | |||||||||||||
Increase (decrease) in asset retirement obligations | 4,937 | 75 | — | (2,049 | ) | ||||||||||||
Decrease in accrued workers’ compensation | (690 | ) | (149 | ) | — | (3,695 | ) | ||||||||||
(Decrease) increase in other liabilities | (2,230 | ) | (510 | ) | — | 2,896 | |||||||||||
Net cash provided by (used in) operating activities | 17,052 | (91,318 | ) | 15,000 | 51,433 | ||||||||||||
Investing activities | |||||||||||||||||
Investment in equipment and mine development | (64,411 | ) | (86,425 | ) | — | (51,623 | ) | ||||||||||
Proceeds from dispositions of equipment | 2,275 | 898 | — | 180 | |||||||||||||
Purchase of Arch Properties, net of cash acquired | — | — | (14,973 | ) | — | ||||||||||||
Cash acquired through acquisition of Trout Coal Holdings, LLC and Dakota, LLC | — | 20,983 | — | — | |||||||||||||
Net cash used in investing activities | (62,136 | ) | (64,544 | ) | (14,973 | ) | (51,443 | ) | |||||||||
Financing activities | |||||||||||||||||
Proceeds from sale of stock | — | 427,380 | — | — | |||||||||||||
Repayment of due to affiliate | — | (23,594 | ) | — | — | ||||||||||||
Proceeds from loans | 60,000 | 200,000 | — | — | |||||||||||||
Repayment of loans and capital lease obligations | (24,164 | ) | (402,246 | ) | — | — | |||||||||||
Debt issuance cost | — | (8,107 | ) | — | — | ||||||||||||
Net cash provided by financing activities | 35,836 | 193,433 | — | — | |||||||||||||
Net (decrease) increase in cash | (9,248 | ) | 37,571 | 27 | (10 | ) | |||||||||||
Cash, beginning of year | 37,598 | 27 | — | 37 | |||||||||||||
Cash, end of year | $ | 28,350 | $ | 37,598 | $ | 27 | $ | 27 | |||||||||
Supplemental schedule of noncash financing activity | |||||||||||||||||
Capital leases | $ | 7,770 | $ | 8,628 | $ | — | $ | — |
F-6
Table of Contents
1. | Company |
F-7
Table of Contents
2. | Significant Accounting Policies |
F-8
Table of Contents
December 31 | ||||||||
2007 | 2006 | |||||||
Coal | $ | 10,644 | $ | 7,208 | ||||
Supplies, net of allowance | 36,093 | 25,076 | ||||||
$ | 46,737 | $ | 32,284 | |||||
F-9
Table of Contents
Total | ||||||||||||
Accretion | Gain from | Accretion/Gain | ||||||||||
From Coal | Contract | From Coal | ||||||||||
Sales Contracts | Restructuring | Sales Contracts | ||||||||||
Years ending December 31: | ||||||||||||
2008 | $ | (62,466 | ) | $ | (1,196 | ) | $ | (63,662 | ) | |||
2009 | (59,770 | ) | (1,450 | ) | (61,220 | ) | ||||||
2010 | (28,988 | ) | (678 | ) | (29,666 | ) | ||||||
2011 | (30,310 | ) | — | (30,310 | ) | |||||||
2012 | (12,183 | ) | — | (12,183 | ) | |||||||
2013 and thereafter | (61,447 | ) | — | (61,447 | ) | |||||||
Total income | $ | (255,164 | ) | $ | (3,324 | ) | $ | (258,488 | ) | |||
F-10
Table of Contents
F-11
Table of Contents
F-12
Table of Contents
F-13
Table of Contents
Before Application | After Application | |||||||||||
of SFAS No. 158 | Adjustments | of SFAS No. 158 | ||||||||||
(In thousands) | ||||||||||||
Debit (credit) | ||||||||||||
Deferred tax asset | $ | 239,171 | $ | (54,674 | ) | $ | 184,497 | |||||
Valuation reserve on deferred tax asset | (239,171 | ) | 54,674 | (184,497 | ) | |||||||
Goodwill | 123,418 | (54,674 | ) | 68,744 | ||||||||
Liabilities for: | ||||||||||||
Workers’ compensation | (7,006 | ) | 2,436 | (4,571 | ) | |||||||
Postretirement benefits | (607,740 | ) | 130,426 | (477,314 | ) | |||||||
UMWA Combined Fund liabilities | (16,543 | ) | 1,473 | (15,070 | ) | |||||||
Total liabilities | (1,341,607 | ) | 134,315 | (1,207,292 | ) | |||||||
Accumulated other comprehensive income | — | (79,661 | ) | (79,661 | ) | |||||||
Total stockholders’ equity | (92,286 | ) | (79,661 | ) | (171,947 | ) |
3. | Acquisitions |
F-14
Table of Contents
Cash | $ | 27 | ||
Receivables | 86,454 | |||
Inventories | 24,063 | |||
Above market coal sales supply contracts | 12,746 | |||
Property, plant, and equipment, including mining rights | 870,947 | |||
Goodwill | 123,418 | |||
Below market coal sales supply contract | (441,001 | ) | ||
Other postemployment benefits, net of VEBA | (565,257 | ) | ||
Other current assets and liabilities, net | (32,732 | ) | ||
Other noncurrent assets and liabilities, net | (63,665 | ) | ||
Total purchase price (paid in cash) | $ | 15,000 | ||
Net Assets | ||||
Increase | ||||
(Decrease) | ||||
Arch Properties, as reported at December 31, 2005 | $ | 531,093 | ||
Due from Arch affiliates, net | (669,774 | ) | ||
Arch Properties, adjusted net assets | (138,681 | ) | ||
Purchase accounting adjustments: | ||||
Property, plant, and equipment | 561,851 | |||
Goodwill | 123,418 | |||
Other current assets and liabilities, net | 36,151 | |||
Other noncurrent assets and liabilities, net | 26,495 | |||
Coal sales supply contracts | (428,255 | ) | ||
Other postemployment benefits, net of VEBA | (165,979 | ) | ||
Total purchase price | $ | 15,000 | ||
F-15
Table of Contents
Cash | $ | 20,982 | ||
Accounts receivable | 11,210 | |||
Inventories | 4,184 | |||
Property, plant, and equipment, including mining rights | 277,987 | |||
Other noncurrent assets and liabilities, net | 2,183 | |||
Debt | (397,938 | ) | ||
Amounts due to affiliates, net | (28,107 | ) | ||
Other postemployment benefits | (6,838 | ) | ||
Other current assets and liabilities, net | (28,619 | ) | ||
Combination of majority interest of entities under common control | (144,956 | ) | ||
Acquisition of minority interest | 7,917 | |||
Total equity, excluding shares exchanged | $ | (137,039 | ) | |
2006 | 2005 | |||||||
Total revenue | $ | 858,865 | $ | 753,714 | ||||
Cost of goods sold | (761,672 | ) | (678,967 | ) | ||||
Sales contract accretion | 31,951 | 82,509 | ||||||
Loss on sales contract buyout | (25,513 | ) | — | |||||
Selling, general, and administrative | (27,213 | ) | (24,752 | ) | ||||
Depreciation, depletion, and amortization | (122,849 | ) | (100,516 | ) | ||||
Operating (loss) income | (46,431 | ) | 31,988 | |||||
Interest expense, net of interest income | (17,692 | ) | (34,860 | ) | ||||
Other expenses | (7,173 | ) | (23,415 | ) | ||||
Loss before cumulative effect in change in accounting principle | (71,296 | ) | (26,287 | ) | ||||
Discontinued operations | (13,952 | ) | 3,053 | |||||
Net loss before taxes | $ | (85,248 | ) | $ | (23,234 | ) | ||
Proceeds from investors, net of expenses | $ | 427,380 | ||
New loan facility proceeds | 200,000 | |||
Total proceeds received | 627,380 | |||
Loan repayment including accrued interest | (402,087 | ) | ||
Repayment of amounts advanced by ArcLight and loan fees | (32,920 | ) | ||
Cash received | $ | 192,373 | ||
F-16
Table of Contents
4. | Debt and Capital Leases |
2007 | 2006 | |||||||
Credit facility borrowing | $ | 236,500 | $ | 198,500 | ||||
Capital leases | 13,926 | 8,320 | ||||||
250,426 | 206,820 | |||||||
Current portion | 45,780 | 3,465 | ||||||
Long-term portion | $ | 204,646 | $ | 203,355 | ||||
F-17
Table of Contents
Credit | Capital | |||||||
Facility | Lease | |||||||
Borrowing | Obligation | |||||||
2008 | $ | 42,000 | $ | 3,780 | ||||
2009 | 2,000 | 4,103 | ||||||
2010 | 2,000 | 5,470 | ||||||
2011 | 2,000 | 573 | ||||||
2012 | 2,000 | — | ||||||
Thereafter | 186,500 | — | ||||||
$ | 236,500 | $ | 13,926 | |||||
5. | Extinguishment of Debt |
F-18
Table of Contents
6. | Other Current Assets and Liabilities |
2007 | 2006 | |||||||
Other current assets: | ||||||||
Prepaid insurance | $ | 6,196 | $ | 5,810 | ||||
Deferred longwall costs | 5,731 | 6,605 | ||||||
Other | 482 | 642 | ||||||
$ | 12,409 | $ | 13,057 | |||||
Accrued expenses and other current liabilities: | ||||||||
Payroll and related costs | $ | 29,835 | $ | 24,563 | ||||
Postretirement benefits, current portion | 25,282 | 15,113 | ||||||
Production taxes | 9,297 | 8,630 | ||||||
Valley fills | 4,003 | 1,010 | ||||||
Royalties | 3,310 | 3,728 | ||||||
Medical claims | 3,289 | 2,428 | ||||||
Asset retirement obligation, current portion | 1,351 | 2,914 | ||||||
Workers’ compensation, current portion | 637 | 844 | ||||||
Other | 2,741 | 1,934 | ||||||
$ | 79,745 | $ | 61,164 | |||||
7. | Income Taxes |
Year Ended December 31 | |||||||||||||||||
Arch | |||||||||||||||||
Properties | |||||||||||||||||
(Predecessor) | |||||||||||||||||
2007 | 2006 | 2005 | 2005 | ||||||||||||||
Benefit at statutory rates | $ | (42,545 | ) | $ | (27,262 | ) | $ | (1,292 | ) | $ | (11,680 | ) | |||||
Percentage of depletion allowance | — | — | — | (4,804 | ) | ||||||||||||
State taxes, net effect of federal taxes | — | — | — | (1,869 | ) | ||||||||||||
Increase in valuation allowance | 42,290 | 27,262 | 1,292 | 18,228 | |||||||||||||
Other | 255 | — | — | 125 | |||||||||||||
$ | — | $ | — | $ | — | $ | — | ||||||||||
F-19
Table of Contents
Year Ended December 31 | |||||||||||||||||
Arch | |||||||||||||||||
Properties | |||||||||||||||||
(Predecessor) | |||||||||||||||||
2007 | 2006 | 2005 | 2005 | ||||||||||||||
Current expense from continuing operations: | |||||||||||||||||
Federal | $ | — | $ | — | $ | — | $ | — | |||||||||
State | — | — | — | — | |||||||||||||
Deferred expenses from continuing operations: | |||||||||||||||||
Federal and state | (42,290 | ) | (27,262 | ) | (1,292 | ) | (18,228 | ) | |||||||||
Changes in valuation allowance | 42,290 | 27,262 | 1,292 | 18,228 | |||||||||||||
Income tax expense from continuing operations | — | — | — | — | |||||||||||||
Income tax expense related to discontinued operations | — | — | — | — | |||||||||||||
$ | — | $ | — | $ | — | $ | — | ||||||||||
2007 | 2006 | |||||||
Deferred tax assets: | ||||||||
Postretirement benefits | $ | 195,699 | $ | 238,589 | ||||
Below market coal sales supply contracts acquired | 105,980 | 139,449 | ||||||
Net operating loss carryforwards | 64,897 | 8,057 | ||||||
Asset retirement obligations | 22,750 | 19,523 | ||||||
UMWA pension benefits | 5,527 | 6,248 | ||||||
Black lung liability | 1,874 | 3,249 | ||||||
Stock compensation | 1,859 | 2,263 | ||||||
Other current assets | 964 | 304 | ||||||
Other | 5,513 | 6,310 | ||||||
Gross deferred tax assets | 405,063 | 423,992 | ||||||
Deferred tax liabilities: | ||||||||
Fixed assets | 272,341 | 285,263 | ||||||
Other | 3,950 | 2,847 | ||||||
Gross deferred tax liabilities | 276,291 | 288,110 | ||||||
Net deferred tax assets | 128,772 | 135,882 | ||||||
Valuation allowance on operating loss carryforwards | (64,897 | ) | (8,057 | ) | ||||
Valuation allowance on other net deferred tax assets | (63,875 | ) | (127,825 | ) | ||||
$ | — | $ | — | |||||
F-20
Table of Contents
2007 | 2006 | |||||||
Deferred tax asset, current | $ | 36,419 | $ | 41,794 | ||||
Valuation reserve on current deferred tax asset | (36,419 | ) | (41,794 | ) | ||||
Deferred tax asset, current (net) | $ | — | $ | — | ||||
Deferred tax asset, noncurrent | $ | 92,353 | $ | 94,088 | ||||
Valuation reserve on noncurrent deferred tax asset | (92,353 | ) | (94,088 | ) | ||||
Deferred tax asset, noncurrent (net) | $ | — | $ | — | ||||
8. | Derivative and Financial Instruments |
9. | Asset Retirement Obligations and Reclamation |
F-21
Table of Contents
2007 | 2006 | |||||||
Asset retirement obligation liability at beginning of period | $ | 47,683 | $ | 28,348 | ||||
Accretion expense | 3,374 | 2,646 | ||||||
Assumption of Trout liability | — | 14,005 | ||||||
Assumption of Dakota liability | — | 4,272 | ||||||
Additions from property development | 2,981 | 441 | ||||||
Liabilities settled | (2,006 | ) | (264 | ) | ||||
Adjustments in the liability from annual recosting | 3,457 | (1,765 | ) | |||||
Total asset retirement obligation liability at end of period | 55,489 | 47,683 | ||||||
Asset retirement obligation liability, current | 1,351 | 2,914 | ||||||
Asset retirement obligation liability, noncurrent | $ | 54,138 | $ | 44,769 | ||||
10. | Accrued Workers’ Compensation |
F-22
Table of Contents
Arch Properties | |||||||||||||
(Predecessor) | |||||||||||||
2007 | 2006 | 2005 | |||||||||||
Self-insured black lung benefits: | |||||||||||||
Service cost | $ | — | $ | — | $ | 371 | |||||||
Interest cost | 288 | 444 | 840 | ||||||||||
Net amortization | (134 | ) | — | (1,969 | ) | ||||||||
Total black lung expense | 154 | 444 | (758 | ) | |||||||||
Traumatic injury claims and assessments | — | — | 11,725 | ||||||||||
Total expense | $ | 154 | $ | 444 | $ | 10,967 | |||||||
Payments for black lung benefits | $ | 1,072 | $ | 832 | $ | 14,593 | |||||||
Discount rate | 6.05 | % | 5.90 | % | 5.80 | % | |||||||
Cost escalation rate | 5.00 | % | 5.00 | % | 4.00 | % |
December 31 | ||||||||
2007 | 2006 | |||||||
Black lung costs | $ | 4,571 | $ | 7,925 | ||||
Less amount included in accrued expenses | 637 | 844 | ||||||
Noncurrent obligations | $ | 3,934 | $ | 7,081 | ||||
2007 | 2006 | |||||||
Beginning of year obligation | $ | 7,925 | $ | 8,313 | ||||
Service cost | — | — | ||||||
Interest cost | 288 | 444 | ||||||
Net amortization | (134 | ) | — | |||||
Actuarial gain | (2,436 | ) | — | |||||
Benefit and administrative payments | (1,072 | ) | (832 | ) | ||||
Accrued costs | 4,571 | 7,925 | ||||||
Unrecognized gain | — | 675 | ||||||
Net obligation at end of year | $ | 4,571 | $ | 7,250 | ||||
Discount rate | 6.80 | % | 6.05 | % |
F-23
Table of Contents
Workers’ | ||||
Compensation | ||||
2008 | $ | 637 | ||
2009 | 574 | |||
2010 | 512 | |||
2011 | 451 | |||
2012 | 389 | |||
2013 and thereafter | 2,008 | |||
$ | 4,571 | |||
11. | Employee Benefit Plans |
F-24
Table of Contents
F-25
Table of Contents
Arch | |||||||||||||||||
Properties | |||||||||||||||||
Magnum | (Predecessor) | ||||||||||||||||
2007 | 2006 | 2005 | 2005 | ||||||||||||||
Change in benefit obligation | |||||||||||||||||
Benefit obligation at January 1 | $ | 563,468 | $ | 580,257 | $ | — | $ | — | |||||||||
Service cost | 1,339 | 2,415 | — | — | |||||||||||||
Interest cost | 33,681 | 33,699 | — | — | |||||||||||||
Acquisition of Arch Properties | — | — | 580,257 | — | |||||||||||||
Assumption of Dakota | — | 8,188 | — | — | |||||||||||||
Curtailment | — | 584 | — | — | |||||||||||||
Plan amendments | 6,366 | 5,563 | — | — | |||||||||||||
Medicare Part D Reimbursements | 1,030 | — | — | ||||||||||||||
Retiree contributions | 2,881 | — | — | ||||||||||||||
Unrecognized gains | (98,811 | ) | (41,610 | ) | — | — | |||||||||||
Benefits paid | (30,845 | ) | (25,628 | ) | — | — | |||||||||||
Benefit obligation at December 31 | $ | 479,109 | $ | 563,468 | $ | 580,257 | $ | — | |||||||||
Change in plan assets | |||||||||||||||||
Value of plan assets at January 1 | $ | 15,606 | $ | 15,000 | $ | — | $ | — | |||||||||
Actual return on plan assets | 356 | 606 | — | — | |||||||||||||
Acquisition of Arch Properties | — | — | 15,000 | — | |||||||||||||
Medicare Part D Reimbursements | 1,030 | — | — | — | |||||||||||||
Retiree contributions | 2,881 | — | — | — | |||||||||||||
Contributions | 12,767 | 25,628 | — | — | |||||||||||||
Benefits paid | (30,845 | ) | (25,628 | ) | — | — | |||||||||||
Value of plan assets at December 31 | $ | 1,795 | $ | 15,606 | $ | 15,000 | $ | — | |||||||||
Net amount recognized | |||||||||||||||||
Funded status of the plan | $ | 477,314 | $ | 547,862 | $ | 565,257 | $ | — | |||||||||
Unrecognized actuarial gain | — | 40,362 | — | — | |||||||||||||
Unrecognized prior service costs | — | (6,300 | ) | — | — | ||||||||||||
Accrued benefit costs | $ | 477,314 | $ | 581,924 | $ | 565,257 | $ | — | |||||||||
Balance sheet amounts | |||||||||||||||||
Benefit obligation | $ | 477,314 | $ | 581,924 | $ | 565,257 | $ | — | |||||||||
Less current portion | (25,282 | ) | (15,113 | ) | (28,309 | ) | — | ||||||||||
Long-term liability | $ | 452,032 | $ | 566,811 | $ | 536,948 | $ | — | |||||||||
Components of pension benefit costs | |||||||||||||||||
Service cost | $ | 1,339 | $ | 2,415 | $ | — | $ | 2,166 | |||||||||
Interest cost | 33,681 | 33,699 | — | 28,600 | |||||||||||||
Actual return on plan assets | (356 | ) | (606 | ) | — | — | |||||||||||
Other amortization and deferrals | 3,898 | (635 | ) | — | 24,001 | ||||||||||||
$ | 38,562 | $ | 34,873 | $ | — | $ | 54,767 | ||||||||||
Assumptions | |||||||||||||||||
Discount rate for projected benefit obligation | 6.80 | % | 6.05 | % | 5.90 | % | N/A | ||||||||||
Discount rate for net periodic benefit cost | 6.05 | % | 5.90 | % | N/A | 6.00 | % |
F-26
Table of Contents
2007 | 2006 | 2005 | ||||||||||
Health care cost trend rate assumed for next year | 7.00 | % | 7.50 | % | 7.50 | % | ||||||
Ultimate trend rate | 5.00 | % | 5.00 | % | 5.00 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2012 | 2012 | 2011 |
One-Percentage | One-Percentage | |||||||
Point Increase | Point Decrease | |||||||
(In thousands) | ||||||||
Effect on total of service cost and interest cost components | $ | 4,887 | $ | (3,998 | ) | |||
Effect on year-end postretirement benefit obligation | 62,643 | (51,959 | ) |
Other | ||||
Postretirement | ||||
Benefits | ||||
2008 | $ | 25,282 | ||
2009 | 28,805 | |||
2010 | 30,952 | |||
2011 | 32,674 | |||
2012 | 33,984 | |||
2013 and thereafter | 325,617 | |||
$ | 477,314 | |||
F-27
Table of Contents
F-28
Table of Contents
12. | Stock-Based Compensation |
Weighted Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
(Shares in thousands) | ||||||||
Activity during 2006: | ||||||||
Granted | 2,602 | $ | 9.81 | |||||
Forfeitures | (152 | ) | 9.81 | |||||
Unvested at December 31, 2006 | 2,450 | 13.43 | ||||||
Granted | 551 | 9.81 | ||||||
Vested | (518 | ) | 9.81 | |||||
Shares exchanged for taxes | (381 | ) | 9.81 | |||||
Forfeitures | (151 | ) | 9.81 | |||||
Unvested at December 31, 2007 | 1,951 | $ | 7.54 | |||||
13. | Discontinued Operations |
F-29
Table of Contents
2007 | 2006 | |||||||
Coal sales | $ | — | $ | 15,674 | ||||
Costs and expense | (3,787 | ) | (17,386 | ) | ||||
Depreciation | — | (2,494 | ) | |||||
Loss on abandoned assets | — | (6,541 | ) | |||||
Curtailment loss on OPEB | — | (584 | ) | |||||
Loss on asset recovery and mine closure | — | (4,312 | ) | |||||
Loss from discontinued operations | $ | (3,787 | ) | $ | (15,643 | ) | ||
14. | Credit Concentrations and Market Risks |
F-30
Table of Contents
15. | Related-Party Transactions |
16. | Commitments |
F-31
Table of Contents
Operating | Coal | |||||||
Leases | Reserves | |||||||
Years ending December 31: | ||||||||
2008 | $ | 15,323 | $ | 7,638 | ||||
2009 | 11,044 | 10,364 | ||||||
2010 | 5,186 | 8,933 | ||||||
2011 | 878 | 8,537 | ||||||
2012 | — | 8,052 | ||||||
2013 and thereafter | — | 32,955 | ||||||
Total minimum lease payments | $ | 32,431 | $ | 76,479 | ||||
17. | Quarterly Financial Information (Unaudited) |
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
2007 | ||||||||||||||||
Net sales | $ | 216,543 | $ | 258,255 | $ | 225,790 | $ | 196,666 | ||||||||
Operating income (loss) before depreciation, depletion, and amortization | 3,689 | 17,350 | 3,400 | (5,109 | ) | |||||||||||
Loss from continuing operations | (28,845 | ) | (15,559 | ) | (32,409 | ) | (40,957 | ) | ||||||||
Net loss | (31,117 | ) | (16,625 | ) | (32,341 | ) | (41,474 | ) | ||||||||
2006 | ||||||||||||||||
Net sales | 144,678 | 210,390 | 219,188 | 236,526 | ||||||||||||
Operating (loss) income before depreciation, depletion, and amortization | (2,205 | ) | 16,121 | 22,824 | 38,052 | |||||||||||
(Loss) income from continuing operations | (37,159 | ) | (17,563 | ) | (13,341 | ) | 5,815 | |||||||||
Net (loss) income | (37,159 | ) | (17,423 | ) | (30,352 | ) | 7,043 |
18. | Contingencies |
F-32
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F-33
Table of Contents
Three Months Ended March 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands, except share and per share amounts) | ||||||||
Revenues | ||||||||
Sales | $ | 279,101 | $ | 269,041 | ||||
Other revenues | 5,233 | 622 | ||||||
Total revenues | 284,334 | 269,663 | ||||||
Costs and expenses | ||||||||
Operating costs and expenses | 259,118 | 277,665 | ||||||
Depreciation, depletion and amortization | 18,610 | 21,358 | ||||||
Asset retirement obligation expense | 3,416 | 5,655 | ||||||
Selling and administrative expenses | 8,289 | 10,909 | ||||||
Net gain on disposal of assets | (194 | ) | (35,226 | ) | ||||
Operating loss | (4,905 | ) | (10,698 | ) | ||||
Interest expense | 2,322 | 2,825 | ||||||
Interest income | (3,249 | ) | (2,646 | ) | ||||
Loss before income taxes and minority interests | (3,978 | ) | (10,877 | ) | ||||
Income tax benefit | (912 | ) | — | |||||
Minority interests | — | 1,074 | ||||||
Net loss | $ | (3,066 | ) | $ | (11,951 | ) | ||
Weighted average shares outstanding, basic and diluted | 26,570,940 | N/A | ||||||
Earnings (loss) per share, basic and diluted | $ | (0.12 | ) | N/A |
G-1
Table of Contents
(Unaudited) | ||||||||
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 9,408 | $ | 5,983 | ||||
Accounts receivable and other, net of allowance for doubtful accounts of $251 as of March 31, 2008 and December 31, 2007 | 138,806 | 125,985 | ||||||
Inventories | 36,612 | 31,037 | ||||||
Prepaid expenses and other current assets | 14,033 | 6,214 | ||||||
Total current assets | 198,859 | 169,219 | ||||||
Property, plant, equipment and mine development | ||||||||
Land and coal interests | 691,157 | 689,338 | ||||||
Buildings and improvements | 286,307 | 282,703 | ||||||
Machinery and equipment | 338,008 | 330,338 | ||||||
Less accumulated depreciation, depletion and amortization | (443,652 | ) | (426,090 | ) | ||||
Property, plant, equipment and mine development, net | 871,820 | 876,289 | ||||||
Notes receivable | 129,495 | 126,381 | ||||||
Investments and other assets | 27,360 | 27,948 | ||||||
Total assets | $ | 1,227,534 | $ | 1,199,837 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Short-term borrowings | $ | 22,500 | $ | — | ||||
Trade accounts payable | 76,690 | 66,811 | ||||||
Accrued expenses | 113,485 | 117,708 | ||||||
Total current liabilities | 212,675 | 184,519 | ||||||
Long-term debt, less current maturities | 10,453 | 11,438 | ||||||
Asset retirement obligations | 136,409 | 134,364 | ||||||
Workers’ compensation obligations | 192,636 | 192,730 | ||||||
Accrued postretirement benefit costs | 529,269 | 527,315 | ||||||
Obligation to industry fund | 30,255 | 31,064 | ||||||
Other noncurrent liabilities | 32,149 | 36,091 | ||||||
Total liabilities | 1,143,846 | 1,117,521 | ||||||
Stockholders’ equity: | ||||||||
Common stock ($0.01 par value; 100,000,000 shares authorized; 26,760,377 and 26,758,768 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively) | 268 | 268 | ||||||
Additional paid-in capital | 191,410 | 189,451 | ||||||
Accumulated deficit | (36,429 | ) | (33,363 | ) | ||||
Accumulated other comprehensive loss | (71,561 | ) | (74,040 | ) | ||||
Total stockholders’ equity | 83,688 | 82,316 | ||||||
Total liabilities and stockholders’ equity | $ | 1,227,534 | $ | 1,199,837 | ||||
G-2
Table of Contents
Three Months Ended March 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Cash Flows From Operating Activities | ||||||||
Net loss | $ | (3,066 | ) | $ | (11,951 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation, depletion and amortization | 18,610 | 21,358 | ||||||
Net gain on disposal of assets | (194 | ) | (35,226 | ) | ||||
Income tax benefit | (912 | ) | — | |||||
Stock-based compensation expense | 1,959 | — | ||||||
Changes in current assets and liabilities: | ||||||||
Accounts receivable | (12,821 | ) | 7,910 | |||||
Inventories | (5,575 | ) | (8,282 | ) | ||||
Other current assets | (6,907 | ) | (7,727 | ) | ||||
Accounts payable and accrued expenses | 5,598 | (1,328 | ) | |||||
Interest on notes receivable | (3,157 | ) | (1,352 | ) | ||||
Asset retirement obligations | 2,189 | 2,181 | ||||||
Workers’ compensation obligations | (639 | ) | 793 | |||||
Accrued postretirement benefit costs | 5,029 | 6,934 | ||||||
Obligation to industry fund | (860 | ) | 3,587 | |||||
Other, net | (4,086 | ) | (950 | ) | ||||
Net cash used in operating activities | (4,832 | ) | (24,053 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Additions to property, plant, equipment and mine development | (12,030 | ) | (16,370 | ) | ||||
Additions to advance mining royalties | (1,480 | ) | (680 | ) | ||||
Proceeds from disposal of assets, net of notes receivable | 194 | 14,350 | ||||||
Net change in receivables from former affiliates | — | 40,360 | ||||||
Net cash provided by (used in) investing activities | (13,316 | ) | 37,660 | |||||
Cash Flows From Financing Activities | ||||||||
Short-term borrowings | 22,500 | — | ||||||
Long-term debt payments | (927 | ) | — | |||||
Net cash provided by financing activities | 21,573 | — | ||||||
Net increase in cash and cash equivalents | 3,425 | 13,607 | ||||||
Cash and cash equivalents at beginning of year | 5,983 | 398 | ||||||
Cash and cash equivalents at end of period | $ | 9,408 | $ | 14,005 | ||||
G-3
Table of Contents
(1) | Basis of Presentation |
(2) | New Accounting Pronouncements |
G-4
Table of Contents
(3) | Gain on Disposal of Assets |
(4) | Income Tax Benefit |
(5) | Earnings per Share |
(6) | Inventories |
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Raw coal | $ | 4,889 | $ | 4,133 | ||||
Saleable coal | 17,832 | 13,519 | ||||||
Materials and supplies | 13,891 | 13,385 | ||||||
Total | $ | 36,612 | $ | 31,037 | ||||
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(7) | Comprehensive Income |
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Net loss | $ | (3,066 | ) | $ | (11,951 | ) | ||
Accumulated actuarial loss and prior service cost realized | 2,479 | 9,517 | ||||||
Comprehensive loss | $ | (587 | ) | $ | (2,434 | ) | ||
(8) | Postretirement Benefit Costs |
Three Months Ended March 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Service cost for benefits earned | $ | 203 | $ | 146 | ||||
Interest cost on accumulated postretirement benefit obligation | 9,198 | 18,272 | ||||||
Amortization of prior service cost | (170 | ) | (87 | ) | ||||
Amortization of actuarial loss | 3,245 | 9,795 | ||||||
Net periodic postretirement benefit costs | $ | 12,476 | $ | 28,126 | ||||
(9) | Segment Information |
G-6
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Three Months Ended March 31, 2008 | ||||||||||||||||
Corporate | ||||||||||||||||
Appalachia | Illinois Basin | and Other | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 217,995 | $ | 66,339 | $ | — | $ | 284,334 | ||||||||
Adjusted EBITDA | 41,998 | 5,339 | (30,216 | ) | 17,121 | |||||||||||
Additions to property, plant, equipment and mine development | 10,402 | 1,043 | 585 | 12,030 |
Three Months Ended March 31, 2007 | ||||||||||||||||
Corporate | ||||||||||||||||
Appalachia | Illinois Basin | and Other | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | $ | 202,075 | $ | 67,588 | $ | — | $ | 269,663 | ||||||||
Adjusted EBITDA | 23,626 | 6,744 | (14,055 | ) | 16,315 | |||||||||||
Additions to property, plant, equipment and mine development | 14,228 | 2,142 | — | 16,370 |
Three Months Ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Total Adjusted EBITDA | $ | 17,121 | $ | 16,315 | ||||
Depreciation, depletion and amortization | (18,610 | ) | (21,358 | ) | ||||
Asset retirement obligation expense | (3,416 | ) | (5,655 | ) | ||||
Interest expense | (2,322 | ) | (2,825 | ) | ||||
Interest income | 3,249 | 2,646 | ||||||
Income tax benefit | 912 | — | ||||||
Minority interests | — | (1,074 | ) | |||||
Net loss | $ | (3,066 | ) | $ | (11,951 | ) | ||
(10) | Commitments and Contingencies |
G-7
Table of Contents
(11) | Guarantees |
(12) | Related Party Transactions |
G-8
Table of Contents
(13) | Subsequent Event |
G-9
Table of Contents
Table of Contents
H-1 | ||||
H-2 | ||||
H-3 | ||||
H-4 |
H-i
Table of Contents
Three Months Ended March 31 | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Revenues | ||||||||
Coal sales | $ | 220,566 | $ | 200,431 | ||||
Other revenue | 10,102 | 16,112 | ||||||
Total revenues | 230,668 | 216,543 | ||||||
Costs and expenses | ||||||||
Operating costs and expenses (exclusive of items below) | 209,556 | 203,442 | ||||||
Sales contract (accretion) amortization | (15,029 | ) | 409 | |||||
Gain on coal sales supply contract restructuring | (183 | ) | — | |||||
Depreciation, depletion and amortization | 27,846 | 27,370 | ||||||
Asset retirement obligation expense | 1,741 | 1,246 | ||||||
Selling, general and administrative expenses | 8,881 | 7,956 | ||||||
Operating loss | (2,144 | ) | (23,880 | ) | ||||
Interest expense | 5,314 | 5,132 | ||||||
Interest income | (194 | ) | (424 | ) | ||||
Cost associated with credit facility amendment | 3,572 | — | ||||||
Change in market value of interest rate swap | 2,285 | 257 | ||||||
Loss from continuing operations | (13,121 | ) | (28,845 | ) | ||||
Loss from discontinued operations | — | (2,272 | ) | |||||
Net loss before income taxes | (13,121 | ) | (31,117 | ) | ||||
Income taxes | (1,384 | ) | — | |||||
Net loss | $ | (14,505 | ) | $ | (31,117 | ) | ||
H-1
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March 31 | December 31 | |||||||
2008 | 2007 | |||||||
(Unaudited) | Note 1 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 33,357 | $ | 28,350 | ||||
Receivables: | ||||||||
Trade | 76,353 | 73,972 | ||||||
Other | 1,954 | 3,965 | ||||||
Inventories | 52,267 | 46,737 | ||||||
Prepaid royalties | 21,073 | 22,027 | ||||||
Other current assets | 11,851 | 12,409 | ||||||
Total current assets | 196,855 | 187,460 | ||||||
Property, plant, and equipment: | ||||||||
Mine development costs | 106,271 | 100,970 | ||||||
Buildings, land, equipment, and preparation plants | 453,148 | 439,840 | ||||||
Mining rights | 907,671 | 893,006 | ||||||
Accumulated depreciation, depletion, and amortization | (353,973 | ) | (326,070 | ) | ||||
Property, plant, and equipment, net | 1,113,117 | 1,107,746 | ||||||
Goodwill | 68,744 | 68,744 | ||||||
Other noncurrent assets | 13,115 | 15,289 | ||||||
Total assets | $ | 1,391,831 | $ | 1,379,239 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 83,685 | $ | 81,599 | ||||
Accrued expenses and other current liabilities | 105,827 | 79,745 | ||||||
Long-term debt, current portion | 25,861 | 45,780 | ||||||
Below market coal sales supply contracts acquired | 63,461 | 63,662 | ||||||
Total current liabilities | 278,834 | 270,786 | ||||||
Long-term debt | 223,288 | 204,646 | ||||||
Below market coal sales supply contracts acquired | 179,815 | 194,826 | ||||||
Asset retirement obligation | 54,948 | 54,138 | ||||||
Postretirement benefit obligation | 454,107 | 452,032 | ||||||
Other noncurrent liabilities | 45,413 | 30,864 | ||||||
Total liabilities | 1,236,405 | 1,207,292 | ||||||
Stockholders’ equity: | ||||||||
Common stock — $0.01 per share par value; 52,200,000 shares authorized, 51,675,226 shares issued, and 49,718,206 shares outstanding as of March 31, 2008 and December 31, 2007 | 497 | 497 | ||||||
Additional paid-in capital | 294,927 | 294,927 | ||||||
Accumulated other comprehensive income | 77,645 | 79,661 | ||||||
Retained deficit | (217,643 | ) | (203,138 | ) | ||||
Total stockholders’ equity | 155,426 | 171,947 | ||||||
Total liabilities and stockholders’ equity | $ | 1,391,831 | $ | 1,379,239 | ||||
H-2
Table of Contents
Three Months Ended March 31 | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Operating activities | ||||||||
Net loss | $ | (14,505 | ) | $ | (31,117 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation, depletion and amortization | 27,846 | 27,370 | ||||||
Sales contract (accretion) amortization | (15,029 | ) | 409 | |||||
Gain on disposal of property, plant and equipment | — | (78 | ) | |||||
Amortization of loan costs included in interest expense | 253 | 220 | ||||||
Stock compensation expenses | 2,215 | 2,026 | ||||||
Change in market value of interest rate swap | 2,285 | 257 | ||||||
Payments on asset retirement obligation | 200 | — | ||||||
Gain on coal sales contract restructuring | (183 | ) | — | |||||
Change in working capital accounts: | ||||||||
Increase in accounts receivable | (2,381 | ) | (35,037 | ) | ||||
Decrease (increase) accounts receivable — other | 2,011 | (67 | ) | |||||
Increase in inventory | (5,530 | ) | (12,099 | ) | ||||
Decrease (increase) in prepaid expenses and other assets | 3,434 | (2,079 | ) | |||||
Increase in accounts payable — trade | 2,086 | 25,434 | ||||||
Increase in accrued liabilities | 21,582 | 7,290 | ||||||
Increase accrued postretirement benefits other than pension | 55 | 4,964 | ||||||
Increase in asset retirement obligations | 1,034 | 589 | ||||||
Decrease in accrued workers compensation | (245 | ) | (11 | ) | ||||
Increase in other liabilities | 271 | 152 | ||||||
Net cash provided by (used in) operating activities | 25,399 | (11,777 | ) | |||||
Investing activities | ||||||||
Investment in equipment and development | (18,976 | ) | (9,091 | ) | ||||
Proceeds from dispositions of equipment | — | 78 | ||||||
Net cash used in investing activities | (18,976 | ) | (9,013 | ) | ||||
Financing activities | ||||||||
Proceeds from loans | 100,000 | 20,000 | ||||||
Repayment of loans and capital lease obligations | (101,416 | ) | (855 | ) | ||||
Net cash (used in) provided by financing activities | (1,416 | ) | 19,145 | |||||
Net increase (decrease) in cash | 5,007 | (1,645 | ) | |||||
Cash, beginning of period | 28,350 | 37,598 | ||||||
Cash, end of period | $ | 33,357 | $ | 35,953 | ||||
H-3
Table of Contents
1. | Company |
2. | New Accounting Pronouncements |
H-4
Table of Contents
3. | Inventories |
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
Coal | $ | 15,184 | $ | 10,644 | ||||
Supplies, net of allowance | 37,083 | 36,093 | ||||||
$ | 52,267 | $ | 46,737 | |||||
4. | Coal Sales Contracts |
H-5
Table of Contents
Total Accretion/ | ||||||||||||
Gain from | Accretion | Gain from | ||||||||||
Contract Restructuring | from Sales Contact | Coal Sales Contracts | ||||||||||
1st year | $ | (1,184 | ) | $ | (62,277 | ) | $ | (63,461 | ) | |||
2nd year | (1,323 | ) | (52,334 | ) | (53,657 | ) | ||||||
3rd year | (477 | ) | (29,172 | ) | (29,649 | ) | ||||||
4th year | — | (25,846 | ) | (25,846 | ) | |||||||
5th year | — | (12,183 | ) | (12,183 | ) | |||||||
Thereafter | — | (58,480 | ) | (58,480 | ) | |||||||
Total expense (income) | $ | (2,984 | ) | $ | (240,292 | ) | $ | (243,276 | ) | |||
5. | Comprehensive Income |
Accumulated other comprehensive income at December 31, 2007 | $ | 79,661 | ||
Change in actuarial gains for other postretirement benefits | (2,016 | ) | ||
Accumulated other comprehensive income at March 31, 2008 | $ | 77,645 | ||
6. | Debt and Capital Leases |
H-6
Table of Contents
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
Credit facility borrowing | $ | 116,000 | $ | 196,500 | ||||
Revolving credit facility | 20,000 | 40,000 | ||||||
Subordinated second lien convertible note | 100,139 | — | ||||||
Capital leases | 13,010 | 13,926 | ||||||
249,149 | 250,426 | |||||||
Current portion | (25,861 | ) | (45,780 | ) | ||||
Long-term portion | $ | 223,288 | $ | 204,646 | ||||
Credit | Capital | |||||||
Facility | Lease | |||||||
Borrowing | Obligation | |||||||
1st year | $ | 22,000 | $ | 3,861 | ||||
2nd year | 2,000 | 4,188 | ||||||
3rd year | 2,000 | 4,482 | ||||||
4th year | 2,000 | 479 | ||||||
5th year | 2,000 | — | ||||||
Thereafter | 206,139 | — | ||||||
$ | 236,139 | $ | 13,010 | |||||
7. | Income Taxes |
H-7
Table of Contents
8. | Other Postretirement Benefits |
2008 | 2007 | |||||||
Components of pension benefit costs | ||||||||
Service cost | $ | 1,255 | $ | 604 | ||||
Interest cost | 7,925 | 8,656 | ||||||
$ | 9,180 | $ | 9,260 | |||||
9. | Commitments |
10. | Contingencies |
H-8
Table of Contents
11. | Subsequent Events |
H-9
Table of Contents
your proxy card in the
envelope provided as soon
as possible.
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o | ||||
FOR | AGAINST | ABSTAIN | ||||||
1. | The approval of the issuance of up to 11,901,729 shares of Patriot Coal Corporation common stock to the holders of common stock of Magnum Coal Company pursuant to the Agreement and Plan of Merger dated as of April 2, 2008, among Patriot Coal Corporation, Magnum Coal Company, Colt Merger Corporation, and ArcLight Energy Partners Fund I, L.P. and ArcLight Energy Partners Fund II, L.P., acting jointly, as stockholder representative. | o | o | o | ||||
RECOMMENDATION:The Board recommends voting “FOR” Proposal 1. | ||||||||
2. | In their discretion, the proxies are authorized to act upon any other matter as may properly come before the Special Meeting, including the approval of any proposal to adjourn or postpone the Special Meeting to a later date to solicit additional proxies in favor of Proposal 1 in the event there are not sufficient votes for the approval of Proposal 1 at the Special Meeting. | |||||||
If you vote over the Internet or by telephone, please do not mail your card. | ||||||||
MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING. | o |
Signature of Stockholder | Date: | Signature of Stockholder | Date: |
Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
Table of Contents
PROXY VOTING INSTRUCTIONS
(1-800-776-9437) in the United States or1-718-921-8500from foreign countries and follow the instructions. Have your proxy card available when you call.
COMPANY NUMBER | |||||
ACCOUNT NUMBER | |||||
| |||||
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o | ||||
FOR | AGAINST | ABSTAIN | ||||||
1. | The approval of the issuance of up to 11,901,729 shares of Patriot Coal Corporation common stock to the holders of common stock of Magnum Coal Company pursuant to the Agreement and Plan of Merger dated as of April 2, 2008, among Patriot Coal Corporation, Magnum Coal Company, Colt Merger Corporation, and ArcLight Energy Partners Fund I, L.P. and ArcLight Energy Partners Fund II, L.P., acting jointly, as stockholder representative. | o | o | o | ||||
RECOMMENDATION:The Board recommends voting “FOR” Proposal 1. | ||||||||
2. | In their discretion, the proxies are authorized to act upon any other matter as may properly come before the Special Meeting, including the approval of any proposal to adjourn or postpone the Special Meeting to a later date to solicit additional proxies in favor of Proposal 1 in the event there are not sufficient votes for the approval of Proposal 1 at the Special Meeting. | |||||||
If you vote over the Internet or by telephone, please do not mail your card. | ||||||||
MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING. | o |
Signature of Stockholder | Date: | Signature of Stockholder | Date: |
Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
Table of Contents
PATRIOT COAL CORPORATION