Chapter 11 Reorganization Filings (Notes) | 9 Months Ended |
Sep. 30, 2013 |
Chapter 11 Reorganization Filings [Abstract] | ' |
Reorganization under Chapter 11 of US Bankruptcy Code Disclosure [Text Block] | ' |
Bankruptcy Proceedings |
Chapter 11 Reorganization Filings |
On July 9, 2012 (the Initial Petition Date), Patriot Coal Corporation, as a stand-alone entity, and substantially all of its wholly-owned subsidiaries (the Initial Filing Subsidiaries and, together with Patriot Coal Corporation, the Initial Debtors) filed voluntary petitions for reorganization (the Chapter 11 Petitions) under Chapter 11 of Title 11 of the U.S. Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the Southern District of New York. On December 19, 2012, the U.S. Bankruptcy Court for the Southern District of New York entered an order transferring the bankruptcy cases to the U.S. Bankruptcy Court for the Eastern District of Missouri (the U.S. Bankruptcy Court for the Eastern District of Missouri and/or the U.S. Bankruptcy Court for the Southern District of New York, as applicable, the Bankruptcy Court). On September 23, 2013 (the Subsequent Petition Date, together with the Initial Petition Date, the Petition Date), Brody Mining, LLC and Patriot Ventures LLC (the New Debtors, together with the Initial Debtors, the Debtors), wholly-owned subsidiaries (the New Filing Subsidiaries, together with the Initial Filing Subsidiaries, the Filing Subsidiaries) of Patriot Coal Corporation, filed Chapter 11 Petitions under the Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of Missouri. On September 27, 2013, the Bankruptcy Court approved the New Debtors’ motions to jointly administer their Chapter 11 cases with the existing Chapter 11 cases of the Initial Debtors. The Debtors’ Chapter 11 cases are being jointly administered under the caption In re: Patriot Coal Corporation, et al. (Case No. 12-51502) (the Bankruptcy Case). Our joint ventures and certain of our other subsidiaries (collectively, the Non-Debtor Subsidiaries) were not included in the Chapter 11 filings. |
The Debtors are currently operating as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In general, the Debtors are authorized to, and continue to, operate as an ongoing business, but may not engage in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court. |
As required by the Bankruptcy Code, the U.S. Trustee for the Southern District of New York appointed an official committee of unsecured creditors (the Creditors’ Committee). The Creditors’ Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court. |
Financial Reporting Considerations |
For periods subsequent to filing the Chapter 11 Petitions, we have applied Financial Accounting Standards Board Accounting Standards Codification (ASC) 852, “Reorganizations” (ASC 852), in preparing the condensed consolidated financial statements. ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings have been recorded in “Reorganization items, net” on the condensed consolidated statement of operations. In addition, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified in “Liabilities subject to compromise” on the condensed consolidated balance sheets. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. |
Bankruptcy Initiatives |
In the sixteen months since the Petition Date, we have been working on multiple fronts to stabilize our business, address our unsustainable cost structure and preserve jobs and benefits for thousands of our workers. We have achieved significant progress in creating a competitive labor and benefit cost structure by restructuring wage and benefit programs for our current workforce and preparing to transition certain retiree healthcare benefits to a Voluntary Employee Beneficiary Association (VEBA) trust. |
Sections 1113 and 1114 |
In relation to the bankruptcy process and pursuant to Sections 1113 and 1114 of the Bankruptcy Code, we renegotiated the terms of collective bargaining agreements between certain Patriot subsidiaries and the United Mine Workers of America (UMWA), as well as certain postretirement healthcare benefits. In November 2012, the Debtors commenced the Sections 1113 and 1114 process with the UMWA and began negotiating in good faith for consensual agreements to achieve the level of labor cost and postretirement healthcare benefit savings necessary for the successful reorganization of the Debtors. In March 2013, the Debtors filed a motion with the Bankruptcy Court seeking to modify collective bargaining agreements with the UMWA and certain UMWA-related retiree healthcare benefits. On May 29, 2013, the Bankruptcy Court granted the motion in its entirety. On June 7, 2013, the UMWA appealed the Bankruptcy Court’s decision. |
Effective July 1, 2013, Patriot exercised the authority granted to us by the Bankruptcy Court to implement changes to UMWA-represented employee wages, benefits and healthcare plans, but chose to implement significantly improved terms reflecting our subsequent negotiations with the UMWA. In August 2013, Patriot negotiated new Collective Bargaining Agreements (new CBAs) with the UMWA. The new CBAs were ratified by union members on August 16, 2013. On August 22, 2013, the Bankruptcy Court entered an order approving the new CBAs, a Memorandum of Understanding (MOU), and a VEBA Funding Agreement (described below). The new CBAs are retroactive to July 1, 2013. |
The following are some of the key provisions of the new CBAs and the MOU that affect UMWA employees: |
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• | Various adjustments to wages, including future wage changes; | | | | | | | | | | | | | | |
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• | Elimination of shift differential payments and premium overtime pay, but UMWA employees will receive 1.5 times their regular pay for any hours worked over 40 hours per week and holidays; | | | | | | | | | | | | | | |
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• | Reductions to paid time off and adjustments to work rules; | | | | | | | | | | | | | | |
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• | UMWA employees now receive a healthcare plan closely matching that of Patriot non-union employees but with lower out-of-pocket maximums and without healthcare premiums; | | | | | | | | | | | | | | |
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• | Patriot will contribute three percent of UMWA employees’ gross wages into a 401(k) or similar plan in lieu of the obligation to provide retiree healthcare in the future; and | | | | | | | | | | | | | | |
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• | Debtors participating in and contributing to the United Mine Workers of America 1974 Pension Plan (the 1974 Pension Plan) will continue to do so. | | | | | | | | | | | | | | |
The following are some of the key provisions of the new CBAs and the MOU that affect UMWA retirees: |
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• | The UMWA has established a VEBA which will assume the Debtors’ obligations to provide retiree healthcare benefits to certain UMWA retirees effective July 1, 2013; | | | | | | | | | | | | | | |
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• | The Company will continue to administer retiree healthcare benefits to UMWA retirees through December 31, 2013, subject to certain limitations and funding requirements; and | | | | | | | | | | | | | | |
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• | Patriot, on behalf of itself and certain Patriot subsidiaries, has entered into an agreement to provide certain funding to the VEBA (the VEBA Funding Agreement or VFA). | | | | | | | | | | | | | | |
The MOU reflects certain other understandings between Patriot, certain Patriot subsidiaries and the UMWA: |
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• | Any chapter 11 plan of reorganization filed in Patriot’s Chapter 11 bankruptcy case will not conflict with or alter the new CBAs or the MOU and shall not propose or contain any involuntary releases by the UMWA; and | | | | | | | | | | | | | | |
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• | Provided that certain requirements are met, the UMWA will support and the VEBA will not object to or vote against the confirmation of a plan of reorganization. | | | | | | | | | | | | | | |
Patriot also agreed that each Patriot subsidiary that is signatory to a new CBA that requires participation in and contributions to the 1974 Pension Plan will continue their obligation to participate in and contribute to the 1974 Pension Plan at the rates set forth in the new CBA through 2016, and, for the years 2017 and 2018, at the rates set forth in any successor to the 2011 National Bituminous Coal Wage Agreement. In connection therewith, the UMWA also made certain representations to Patriot. |
The Bankruptcy Court’s May 29, 2013 ruling also authorized Patriot to implement the transition of UMWA-related retiree healthcare benefits to a VEBA trust. Under the new CBAs and the MOU, each approved by the Bankruptcy Court on August 22, 2013, and the VFA, approved by the Bankruptcy Court on August 22, 2013 and amended on November 4, 2013, funding for the VEBA will consist of (i) a 35% ownership stake in the reorganized company, (ii) profit sharing contributions up to a maximum of $300 million, (iii) a royalty contribution for every ton produced at all existing mining complexes, and (iv) an initial cash contribution of $10 million on or prior to the effective date of the Debtors' plan of reorganization and $5 million at the end of the first quarter of 2014. The VEBA trust is being designed and administered by trustees appointed by the UMWA. The liability associated with these obligations totals approximately $1.02 billion as of September 30, 2013 and December 31, 2012 and is classified as “Liabilities subject to compromise” in the condensed consolidated balance sheets. The UMWA reserves the right to terminate the new CBAs, the MOU and the VFA if the VEBA does not receive the initial $10 million payment that is contemplated by the VFA to be paid to the VEBA on or prior to the effective date of the Debtors’ plan of reorganization. |
We continue to provide healthcare benefits for more than 2,300 individuals who receive healthcare benefits pursuant to the Coal Industry Retiree Health Benefit Act of 1992 (Coal Act). We spent approximately $14 million on Coal Act liabilities in 2012. The liabilities associated with these obligations are classified as liabilities not subject to compromise in the condensed consolidated balance sheets. |
Other Initiatives |
On March 14, 2013, Patriot filed a lawsuit against Peabody Energy Corporation (Peabody) and one of its subsidiaries. In connection with Patriot’s 2007 spinoff from Peabody, Peabody agreed to assume the obligations for healthcare costs associated with thousands of UMWA retirees and dependents who had been employed by Peabody entities that were transferred to Patriot in the spinoff. Patriot sought a declaration from the Bankruptcy Court that any relief Patriot was able to obtain through the bankruptcy proceedings with respect to the healthcare benefits of its subsidiaries’ retirees would not relieve Peabody of its own liabilities with respect to the healthcare benefits of the UMWA retirees and dependents. On October 24, 2013, Patriot, Peabody and the UMWA, on behalf of itself and the UMWA-represented employees and retirees, entered into a settlement, which sets forth the principle terms that would resolve the various disputes among the three parties (the Peabody Settlement). As part of the Peabody Settlement, Peabody agreed to, among other things, (i) provide $310 million to the VEBA, (ii) issue and replace, as applicable, $126 million of letters of credit and (iii) provide credit support for Patriot’s federal black lung obligations. The settlement also provides for broad mutual releases of claims and causes of action among the parties. The Bankruptcy Court approved the Peabody Settlement on November 7, 2013. |
The Peabody Settlement is also subject to certain conditions, including the satisfaction of certain minimum liquidity standards by Patriot and the effectiveness of Patriot’s plan of reorganization. The Peabody Settlement may be terminated if, by March 31, 2014, a plan of reorganization that is consistent with the Peabody Settlement is not effective. |
On October 23, 2013, Patriot and Arch Coal, Inc. (Arch) entered into a settlement that resolves various disputes between the parties (the Arch Settlement). As part of the Arch Settlement, Arch agreed to (i) provide $5 million of cash to Patriot, (ii) purchase Patriot’s South Guffey reserve for $16 million and (iii) relieve Patriot of the obligation to post $16 million of letters of credit for the next two years. The settlement also provides for broad mutual releases of claims and causes of action among the parties. The Bankruptcy Court approved the Arch Settlement on November 7, 2013. The settlement is subject to, among other things, the effectiveness of Patriot’s plan of reorganization. The Arch Settlement will terminate if, by March 31, 2014, a plan of reorganization that is consistent with the Arch Settlement is not effective. |
Other Wage and Benefit Programs |
On April 26, 2013, the Bankruptcy Court entered an order authorizing the Debtors to discontinue substantially all of their non-union retiree healthcare programs, eliminate retiree life insurance benefits for current non-union employees, and cap life insurance benefits for current non-union retirees, effective July 31, 2013. Pursuant to this order, the Debtors contributed $250,000 in cash to a VEBA trust for the benefit of current non-union retirees, and, upon emergence from bankruptcy, will contribute $3.75 million in cash to the VEBA. The VEBA trust will be designed and administered by a Retiree Committee consisting of appointed non-union retirees. Pursuant to the order, the Debtors and the Retiree Committee have also agreed to engage in good faith discussions and negotiations to replace some or all of the remaining retiree life insurance benefits with other retiree benefits that are economically cash neutral or more advantageous to the Debtors, and/or to consider accelerating the payment or provision of any such existing or replacement benefits if economically beneficial to the Debtors. |
At December 31, 2012, the liability associated with these plans totaled approximately $63 million and was classified as “Liabilities subject to compromise” in the condensed consolidated balance sheet. In the second quarter of 2013, Patriot recognized a curtailment gain of $6.9 million related to the termination of these plans. Patriot also reduced its postretirement benefit obligation and the corresponding unrecognized loss in accumulated other comprehensive loss by $20.7 million in relation to the settlement of these plan obligations for current non-union employees. The settlement of the terminated benefits for retirees will not be recognized until the contribution is made in full to the VEBA. The remaining balances of both the terminated and surviving non-union retiree benefit obligations remain in “Liabilities subject to compromise” at September 30, 2013. |
On March 15, 2013, the Bankruptcy Court authorized the Debtors to terminate the Patriot Coal Corporation Supplemental 401(k) Retirement Plan (the Supplemental 401(k) Plan) and on April 1, 2013, Patriot’s board of directors approved the termination of the Supplemental 401(k) Plan effective as of March 31, 2013. The Supplemental 401(k) Plan provided for certain salaried employees to defer a specified portion of their compensation until retirement and also provided an employer match and discretionary contribution based on Patriot’s performance. The Supplemental 401(k) Plan was unfunded and the termination resulted in approximately $2.5 million of compensation deferrals being treated as pre-petition general unsecured claims rather than being paid in cash. As of September 30, 2013 and December 31, 2012, the liability associated with this plan is classified as “Liabilities subject to compromise” in the condensed consolidated balance sheets. |
Bankruptcy Process |
The Bankruptcy Court has authorized us to pay certain of our pre-petition obligations, including payments for employee wages, salaries and certain benefits and payments to certain shippers and critical vendors, subject to certain limitations. The Debtors are required to pay vendors and other providers in the ordinary course for goods and services received after the filing of the Chapter 11 Petitions and to pay certain other business-related payments necessary to maintain the operation of our business. We have retained legal and financial professionals to advise us on the bankruptcy proceedings. From time to time, we may seek the Bankruptcy Court’s approval for the retention of additional professionals. |
Rejected Contracts |
Since the Petition Date, the Debtors have received approval from the Bankruptcy Court to reject a number of equipment leases and other executory contracts of various types. On January 15, 2013, the Debtors filed a motion for authorization to assume or reject all of their unexpired leases of nonresidential real property, including their coal reserve leases. Substantially all of their assumptions and rejections were subsequently approved by the Bankruptcy Court. As of September 30, 2013, most of the lease cure payments have been made. We are working to resolve differences in cure amounts and certain other discreet issues with counterparties that objected to our motion. In conjunction with the assumption of these leases and payment of cure amounts, Patriot reclassified approximately $14 million of royalty and real estate tax accruals from “Liabilities subject to compromise” to liabilities not subject to compromise in the first quarter of 2013. |
The Debtors continue to review executory contracts and unexpired leases to determine which contracts will be rejected, assumed or renegotiated. We expect additional liabilities subject to compromise will arise due to rejection of executory contracts, including leases, and from the determination of the Bankruptcy Court (or agreement by parties in interest) of allowed claims for contingencies and other disputed amounts. Due to the uncertain nature of many of the potential claims, we cannot project the magnitude of such claims with certainty. We also expect that the assumption of additional executory contracts and unexpired leases will convert certain of the liabilities subject to compromise to liabilities not subject to compromise. |
Pre-Petition Claims |
On September 27, 2013, the Bankruptcy Court entered an order establishing October 24, 2013 as the bar date for potential creditors of the New Debtors, other than governmental units, to file claims. The bar date for governmental units to file claims against the New Debtors was established as March 24, 2014. |
The Debtors have received approximately 4,294 proofs of claim, a portion of which assert, in part or in whole, unliquidated amounts. In the aggregate, total liquidated proofs of claim of approximately $308.7 billion have been filed against the Debtors. During the second quarter of 2013, the UMWA levied claims for postretirement benefit obligations against each of the Initial Filing Subsidiaries, significantly increasing the total liquidated proofs of claim. New and amended claims may be filed in the future, including claims amended to assign values to claims originally filed with no designated value. We are in the process of reconciling such claims to the amounts listed in the Debtors’ books and records. Differences between liability amounts estimated by the Debtors and claims filed by creditors are being investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claims. |
Through the claims resolution process, we have identified a substantial number of claims that we believe should be disallowed by the Bankruptcy Court because they are duplicative, have already been satisfied, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. As of October 30, 2013, we estimate that the claims resolution process will reduce the total liquidated proof of claims by approximately $304.1 billion, primarily due to redundant claims. As of October 30, 2013, approximately 2,128 claims totaling $287.1 million have been expunged, withdrawn or settled and the Debtors have filed additional objections with the Bankruptcy Court that would reduce claims by $204.8 million. We continue to evaluate the filed claims and expect to continue to file claim objections with the Bankruptcy Court. |
In addition, as a result of this process, we may identify additional liabilities that need to be recorded or reclassified to liabilities subject to compromise and will adjust amounts as necessary. Such adjustments may be material. The determination of how liabilities will ultimately be treated cannot be made until the Bankruptcy Court approves a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time. |
Plan of Reorganization |
In order to successfully exit Chapter 11, the Debtors are required to propose and obtain confirmation by the Bankruptcy Court of a plan of reorganization that satisfies the requirements of the Bankruptcy Code. In addition, a plan of reorganization will be voted on by certain holders of impaired claims. A plan of reorganization, among other things, would resolve the Debtors’ pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to emerging from bankruptcy. |
On August 21, 2013, the Bankruptcy Court entered an order extending our exclusivity period to file a plan of reorganization to December 1, 2013. On September 6, 2013, Patriot filed a Plan of Reorganization (POR) with the Bankruptcy Court. We subsequently filed amended versions of the POR on October 9, 2013, October 26, 2013, and November 4, 2013. |
Under section 1125 of the Bankruptcy Code, a disclosure statement must be approved by the Bankruptcy Court before the debtors may solicit acceptance of a proposed plan of reorganization. To be approved by the Bankruptcy Court, the disclosure statement must contain adequate information that would enable a hypothetical investor to make an informed judgment about the plan. Once the disclosure statement is approved by the Bankruptcy Court, the Debtors may send the proposed plan of reorganization, the disclosure statement and ballots to all creditors entitled to vote. The Debtors submitted a disclosure statement in respect of the Third Amended POR to the Bankruptcy Court on November 4, 2013 (the Disclosure Statement). The Bankruptcy Court approved the Disclosure Statement on November 7, 2013. |
The POR provides for a reorganization of the Debtors and the resolution of all outstanding claims against and interests in the Debtors. The POR contemplates two rights offerings to raise $250 million of capital through the issuance of (i) senior secured second lien notes and (ii) warrants exercisable for new class A common stock. The POR will provide eligible holders of allowed claims on account of Patriot’s 8.25% Senior Notes and Patriot’s 3.25% Convertible Notes, and eligible holders of allowed general unsecured claims above a certain threshold, an opportunity to participate in these rights offerings. Such claim holders will also receive a distribution of new class A common stock. Claim holders who do not participate in the rights offerings will receive a cash distribution on a pro rata basis in accordance with the POR. |
The POR also contemplates payment in full of the DIP Facilities in accordance with the terms thereof. |
For the POR to be effective, certain conditions must be satisfied, including: |
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▪ | An order confirming the POR must be entered by the Bankruptcy Court; | | | | | | | | | | | | | | |
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▪ | The backstop commitment agreement must be in full force and effect and the transactions contemplated thereunder must be consummated; | | | | | | | | | | | | | | |
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▪ | The exit financing facilities must be consummated; | | | | | | | | | | | | | | |
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▪ | Each of the new CBAs, the MOU and the VFA must be in effect; | | | | | | | | | | | | | | |
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▪ | All actions, documents and agreements necessary to implement the POR must be executed; | | | | | | | | | | | | | | |
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▪ | The Debtors must have received any authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions or documents that are necessary to implement the POR and that are required by law, regulation or order; and | | | | | | | | | | | | | | |
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▪ | Each of the new organizational documents for the reorganized company must be in full force and effect. | | | | | | | | | | | | | | |
Under the distribution priorities established by the Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. No assurance can be given as to what values, if any, will be ascribed to creditors and/or stockholders or what types or amounts of distributions, if any, they will receive. A plan of reorganization could result in holders of certain liabilities and/or securities, including common stock, receiving no distribution on account of their interests and cancellation of their holdings. The Debtors’ current proposed POR provides no distribution for holders of equity securities. Because of such possibilities, there is significant uncertainty regarding the value of our liabilities and securities, including our common stock. At this time, there is no assurance we will be able to restructure as a going concern or successfully implement a plan of reorganization. |
Backstop Commitment Agreement |
The rights offerings contemplated by the POR will be backstopped by certain funds and accounts managed and/or advised by Knighthead Capital Management, LLC (Knighthead). On November 4, 2013, Patriot and Knighthead entered into a backstop commitment agreement, which sets forth the terms of Knighthead’s backstop commitment, the rights offerings and related financing transactions. Subject to certain conditions, Knighthead has committed to purchase, for the applicable subscription price, all of the notes and warrants that are not purchased in the rights offerings up to an aggregate subscription price of $250,025,000. The proceeds from the rights offering will be used toward the consummation of the POR. In exchange for the backstop commitment, Patriot has agreed to distribute to Knighthead (and any other party that becomes a backstop party under the agreement in accordance with their backstop commitment percentage set forth in the agreement) rights to purchase up to 40% of the notes offered in the rights offerings and up to 40% of the warrants offered in the rights offerings, in the aggregate, for an aggregate subscription price of $100,010,000. Patriot expects that the proceeds of the rights offerings, combined with the proceeds from the exit financing facilities and the cash and credit support received pursuant to the Peabody Settlement and the Arch Settlement, will provide the Debtors with the liquidity necessary for consummation of the POR. |
As a result of the rights offerings and the Peabody Settlement, the VEBA is expected to receive more than $400 million in cash over the next four years. The transactions contemplated by the agreement with Knighthead are subject to, among other things, (i) the Debtors entering into definitive documentation for the exit financing facilities; (ii) satisfaction of certain minimum liquidity standards by Patriot; and (iii) the VEBA having been funded with the amount contemplated by the backstop commitment agreement to be funded on the effective date of the POR. |
The Bankruptcy Court approved the backstop commitment agreement and the rights offerings procedures on November 7, 2013. |
Notwithstanding approval by the Bankruptcy Court, the backstop commitment agreement may be terminated by the backstop parties if (i) there has been a material adverse change since October 9, 2013; (ii) the Bankruptcy Court enters an order confirming a plan of reorganization other than the POR; (iii) the Debtors breach any representation, warranty or covenant in the backstop commitment agreement in any material respect, or it shall be reasonably apparent that the Debtors shall be unable to satisfy each of the conditions to closing on or before the effective date of the POR, and such failure or inability remains uncured or continues for a period of ten business days following delivery of written notice thereof to the Debtors by the backstop parties; (iv) the Debtors enter into or seek court authority to enter into an alternative transaction; or (v) the effective date of the POR shall not have occurred by December 31, 2013. |
Going Concern Matters |
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared assuming we will continue as a going concern, although the Bankruptcy Case and weak industry conditions raise substantial doubt about our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or to the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern is dependent upon, among other things, market conditions and our ability to (i) improve profitability; (ii) meet the financial covenants of the DIP Facilities (defined in Note 10) or obtain appropriate amendments or waivers; (iii) obtain financing to replace the DIP Facilities upon emergence; and (iv) restructure our obligations in a manner that allows us to obtain confirmation of a plan of reorganization by the Bankruptcy Court. In order to improve profitability, we continue to take actions to further reduce operating expenses and align our production to meet market demand. As a result of the Bankruptcy Case, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession pursuant to the Bankruptcy Code, we may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Facilities), for amounts other than those reflected in the accompanying unaudited condensed consolidated financial statements. Further, any plan of reorganization could materially change the amounts and classifications of assets and liabilities reported in the historical consolidated financial statements. |
Reorganization Items |
Our reorganization items for the three and nine months ended September 30, 2013 and 2012 consist of the following: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
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Professional fees | $ | 10,859 | | | $ | 19,786 | | | $ | 46,490 | | | $ | 19,786 | |
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Provision for rejected executory contracts and leases | 12,646 | | | 32,155 | | | 14,842 | | | 32,155 | |
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Losses from adjusting debt from carrying value to amount of allowed claim | — | | | 27,021 | | | — | | | 27,021 | |
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Accounts payable settlement gains | 68 | | | (2,748 | ) | | (10,994 | ) | | (2,748 | ) |
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Interest income | (4 | ) | | — | | | (15 | ) | | — | |
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Reorganization items, net | $ | 23,569 | | | $ | 76,214 | | | $ | 50,323 | | | $ | 76,214 | |
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Professional fees are directly related to the reorganization and include fees associated with our advisors, the Creditors’ Committee and certain secured creditors. Net cash paid for reorganization items for the three and nine months ended September 30, 2013 totaled $12.6 million and $46.0 million, respectively, all of which related to professional fees. Net cash paid for reorganization items for the three and nine months ended September 30, 2012 totaled $6.5 million, all of which related to professional fees. Interest income represents interest earned on investment of proceeds from DIP financing. Reorganization items exclude charges related to the restructuring of our operations, including mine closures and production cuts. See Note 4 for further details on restructuring charges. |
Liabilities Subject to Compromise |
Liabilities subject to compromise represent unsecured obligations that will be accounted for under a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events. Liabilities subject to compromise also include certain items that may be assumed under the plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise. |
Liabilities subject to compromise consist of the following: |
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| September 30, 2013 | | December 31, 2012 | | | | | | | | |
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Postretirement benefit obligations, excluding Coal Act | $ | 1,436,700 | | | $ | 1,517,284 | | | | | | | | | |
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Unsecured debt | 458,500 | | | 458,500 | | | | | | | | | |
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Interest payable | 4,838 | | | 4,838 | | | | | | | | | |
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Rejected executory contracts and leases | 177,226 | | | 151,449 | | | | | | | | | |
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Trade payables | 71,315 | | | 78,086 | | | | | | | | | |
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Other accruals | 23,870 | | | 52,150 | | | | | | | | | |
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Liabilities subject to compromise | $ | 2,172,449 | | | $ | 2,262,307 | | | | | | | | | |
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Other accruals primarily include liabilities subject to compromise related to accrued royalty payments, litigation reserves, employee claims and other operating accruals. Royalty and real estate tax cure payments on real property lease contract assumptions approved by the Bankruptcy Court were reclassified to liabilities not subject to compromise during the first quarter of 2013. |
Debtor Financial Statements |
The following unaudited condensed combined financial statements represent the financial statements for the Debtors applicable to that period. The Company’s Non-Debtor Subsidiaries are accounted for as non-consolidated subsidiaries in these Debtor financial statements and, as such, their net loss is included in “Loss from non-debtor entities” in the condensed combined statement of operations and their net assets are included as “Investments in and advances to non-debtor entities” in the condensed combined balance sheets. The Debtors’ condensed combined financial statements have been prepared in accordance with the guidance in ASC 852. |
Intercompany transactions between the Debtors have been eliminated in the condensed combined financial statements. Intercompany transactions between the Debtors and Non-Debtor Subsidiaries have not been eliminated in the Debtors’ condensed combined financial statements. |
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PATRIOT COAL CORPORATION |
UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS - DEBTORS |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
| (Dollars in thousands) |
Revenues | | | | | | | |
Sales | $ | 322,390 | | | $ | 442,935 | | | $ | 1,077,363 | | | $ | 1,445,546 | |
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Other revenues | 3,674 | | | 5,261 | | | 10,625 | | | 39,293 | |
|
Total revenues | 326,064 | | | 448,196 | | | 1,087,988 | | | 1,484,839 | |
|
Costs and expenses | | | | | | | |
|
Operating costs and expenses | 361,855 | | | 434,598 | | | 1,134,225 | | | 1,367,150 | |
|
Depreciation, depletion and amortization | 43,582 | | | 48,906 | | | 136,189 | | | 135,430 | |
|
Asset retirement obligation expense | (14,257 | ) | | 19,496 | | | 20,284 | | | 377,737 | |
|
Sales contract accretion | — | | | — | | | — | | | (11,628 | ) |
|
Impairment and restructuring charge | — | | | 18,434 | | | (1,453 | ) | | 60,892 | |
|
Selling and administrative expenses | 8,917 | | | 12,611 | | | 27,506 | | | 42,741 | |
|
Net gain on disposal or exchange of assets | (224 | ) | | (457 | ) | | (3,422 | ) | | (3,125 | ) |
Income from equity affiliates | — | | | — | | | (234 | ) | | (130 | ) |
|
Loss (income) from non-debtor entities | 1,803 | | | (1,863 | ) | | 11,359 | | | (3,491 | ) |
|
Operating loss | (75,612 | ) | | (83,529 | ) | | (236,466 | ) | | (480,737 | ) |
Interest expense and other | 13,995 | | | 13,661 | | | 42,051 | | | 46,168 | |
|
DIP financing fees | 11,719 | | | 42,552 | | | 11,719 | | | 42,552 | |
|
Interest income | (2 | ) | | (15 | ) | | (15 | ) | | (113 | ) |
Loss before reorganization items and income taxes | (101,324 | ) | | (139,727 | ) | | (290,221 | ) | | (569,344 | ) |
Reorganization items, net | 23,569 | | | 76,214 | | | 50,323 | | | 76,214 | |
|
Loss before income taxes | (124,893 | ) | | (215,941 | ) | | (340,544 | ) | | (645,558 | ) |
Income tax benefit | — | | | (8 | ) | | — | | | (8 | ) |
|
Net loss | $ | (124,893 | ) | | $ | (215,933 | ) | | $ | (340,544 | ) | | $ | (645,550 | ) |
|
|
|
| | | | | | | | | | | | | | | |
PATRIOT COAL CORPORATION |
UNAUDITED CONDENSED COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) - DEBTORS |
| | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
| (Dollars in thousands) |
| | | | | | | |
Net loss | $ | (124,893 | ) | | $ | (215,933 | ) | | $ | (340,544 | ) | | $ | (645,550 | ) |
Accumulated actuarial loss and prior service credit realized in net loss | 17,119 | | | 13,715 | | | 56,140 | | | 41,147 | |
|
Plan curtailment - prior service credit recognized | — | | | — | | | (6,876 | ) | | — | |
|
Reduction in postretirement benefit obligations due to terminations | — | | | — | | | 76,218 | | | — | |
|
Net change in fair value of diesel fuel hedge | 44 | | | 2,822 | | | 34 | | | 2,571 | |
|
Realized gains of diesel fuel hedge | (180 | ) | | (346 | ) | | (461 | ) | | (1,472 | ) |
Other comprehensive income | 16,983 | | | 16,191 | | | 125,055 | | | 42,246 | |
|
Comprehensive loss | $ | (107,910 | ) | | $ | (199,742 | ) | | $ | (215,489 | ) | | $ | (603,304 | ) |
|
|
| | | | | | | | |
| | | | | | | | | | | | | | | |
PATRIOT COAL CORPORATION | | | | | | | | |
CONDENSED COMBINED BALANCE SHEETS - DEBTORS | | | | | | | | |
| | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 | | | | | | | | |
| (unaudited) | | | | | | | | | | |
| (Dollars in thousands) | | | | | | | | |
ASSETS | | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 102,551 | | | $ | 333,175 | | | | | | | | | |
| | | | | | | |
Accounts receivable and other, net | 103,995 | | | 105,135 | | | | | | | | | |
| | | | | | | |
Inventories | 83,325 | | | 99,219 | | | | | | | | | |
| | | | | | | |
Deferred income taxes | 48,479 | | | 65,036 | | | | | | | | | |
| | | | | | | |
Prepaid expenses and other current assets | 22,814 | | | 36,734 | | | | | | | | | |
| | | | | | | |
Total current assets | 361,164 | | | 639,299 | | | | | | | | | |
| | | | | | | |
Property, plant, equipment and mine development | | | | | | | | | | | |
Land and coal interests | 2,899,224 | | | 2,892,799 | | | | | | | | | |
| | | | | | | |
Buildings and improvements | 599,384 | | | 571,985 | | | | | | | | | |
| | | | | | | |
Machinery and equipment | 796,176 | | | 767,749 | | | | | | | | | |
| | | | | | | |
Less accumulated depreciation, depletion and amortization | (1,243,317 | ) | | (1,130,027 | ) | | | | | | | | |
Property, plant, equipment and mine development, net | 3,051,467 | | | 3,102,506 | | | | | | | | | |
| | | | | | | |
Cash collateralization deposits | 64,990 | | | 64,990 | | | | | | | | | |
| | | | | | | |
Investments and other assets | 13,715 | | | 6,193 | | | | | | | | | |
| | | | | | | |
Investments in and advances to non-debtor entities | 17,718 | | | 23,428 | | | | | | | | | |
| | | | | | | |
Total assets | $ | 3,509,054 | | | $ | 3,836,416 | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | | | | |
Liabilities not subject to compromise | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | |
Accounts payable and accrued expenses | $ | 244,595 | | | $ | 245,098 | | | | | | | | | |
| | | | | | | |
Current maturities of long-term debt | 381,684 | | | 375,409 | | | | | | | | | |
| | | | | | | |
Total current liabilities | 626,279 | | | 620,507 | | | | | | | | | |
| | | | | | | |
Long-term debt, less current maturities | 8,533 | | | 1,766 | | | | | | | | | |
| | | | | | | |
Deferred income taxes | 48,479 | | | 65,036 | | | | | | | | | |
| | | | | | | |
Asset retirement obligations | 704,363 | | | 720,461 | | | | | | | | | |
| | | | | | | |
Workers’ compensation obligations | 259,286 | | | 254,680 | | | | | | | | | |
| | | | | | | |
Coal Act postretirement benefit obligations | 82,915 | | | 87,805 | | | | | | | | | |
| | | | | | | |
Obligation to industry fund | 31,838 | | | 34,278 | | | | | | | | | |
| | | | | | | |
Other noncurrent liabilities | 19,503 | | | 22,805 | | | | | | | | | |
| | | | | | | |
Total liabilities not subject to compromise | 1,781,196 | | | 1,807,338 | | | | | | | | | |
| | | | | | | |
Liabilities subject to compromise | 2,172,449 | | | 2,262,307 | | | | | | | | | |
| | | | | | | |
Total liabilities | 3,953,645 | | | 4,069,645 | | | | | | | | | |
| | | | | | | |
Total stockholders’ deficit | (444,591 | ) | | (233,229 | ) | | | | | | | | |
Total liabilities and stockholders’ deficit | $ | 3,509,054 | | | $ | 3,836,416 | | | | | | | | | |
| | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | |
PATRIOT COAL CORPORATION | | | | | | | | | |
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS - DEBTORS | | | | | | | | | |
| | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | | | | |
| 2013 | 2012 | | | | | | | | | |
| (Dollars in thousands) | | | | | | | | | |
Cash Flows From Operating Activities | | | | | | | | | | | |
Net loss | $ | (340,544 | ) | $ | (645,550 | ) | | | | | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | |
Depreciation, depletion and amortization | 136,189 | | 135,430 | | | | | | | | | | |
| | | | | | | | |
Debtor-in-possession debt financing fees | 11,719 | | 42,552 | | | | | | | | | | |
| | | | | | | | |
Amortization of deferred financing costs | — | | 3,986 | | | | | | | | | | |
| | | | | | | | |
Amortization of debt discount | — | | 5,076 | | | | | | | | | | |
| | | | | | | | |
Sales contract accretion | — | | (11,628 | ) | | | | | | | | | |
| | | | | | | | |
Impairment and restructuring charge | (1,453 | ) | 60,892 | | | | | | | | | | |
| | | | | | | | |
Net gain on disposal or exchange of assets | (3,422 | ) | (3,125 | ) | | | | | | | | | |
Income from equity affiliates | (234 | ) | (130 | ) | | | | | | | | | |
Loss from non-debtor entities | 11,359 | | (3,491 | ) | | | | | | | | | |
| | | | | | | | |
Stock-based compensation expense | 4,129 | | 776 | | | | | | | | | | |
| | | | | | | | |
Non-cash reorganization items, net | 3,848 | | 56,428 | | | | | | | | | | |
| | | | | | | | |
Gain on benefit plan curtailments | (6,876 | ) | — | | | | | | | | | | |
| | | | | | | | |
Changes in current assets and liabilities: | | | | | | | | | | | |
Accounts receivable | 1,139 | | 79,137 | | | | | | | | | | |
| | | | | | | | |
Inventories | 16,142 | | (30,170 | ) | | | | | | | | | |
| | | | | | | | |
Other current assets | 10,767 | | (1,135 | ) | | | | | | | | | |
| | | | | | | | |
Accounts payable and accrued expenses | (19,639 | ) | 1,701 | | | | | | | | | | |
| | | | | | | | |
Advances to non-debtor entities | (142 | ) | 2,530 | | | | | | | | | | |
| | | | | | | | |
Asset retirement obligations | (10,604 | ) | 305,375 | | | | | | | | | | |
| | | | | | | | |
Workers’ compensation obligations | 4,952 | | 7,157 | | | | | | | | | | |
| | | | | | | | |
Postretirement benefit obligations | 45,918 | | 39,310 | | | | | | | | | | |
| | | | | | | | |
Obligation to industry fund | (1,843 | ) | (2,257 | ) | | | | | | | | | |
Cash collateralization deposit | — | | (46,000 | ) | | | | | | | | | |
| | | | | | | | |
Other, net | (5,877 | ) | 518 | | | | | | | | | | |
| | | | | | | | |
Net cash used in operating activities | (144,472 | ) | (2,618 | ) | | | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | | | | |
Additions to property, plant, equipment and mine development | (60,095 | ) | (123,174 | ) | | | | | | | | | |
Additions to advance mining royalties | (7,207 | ) | (17,024 | ) | | | | | | | | | |
Acquisitions | (1,186 | ) | (2,530 | ) | | | | | | | | | |
Proceeds from disposal or exchange of assets | 3,442 | | 3,490 | | | | | | | | | | |
| | | | | | | | |
Net cash used in investing activities | (65,046 | ) | (139,238 | ) | | | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | | | | |
Proceeds from debtor-in-possession debt | — | | 375,000 | | | | | | | | | | |
| | | | | | | | |
Debtor-in-possession debt financing fees | (11,719 | ) | (42,552 | ) | | | | | | | | | |
Long-term debt payments | (5,833 | ) | (1,305 | ) | | | | | | | | | |
Deferred financing costs | — | | (1,595 | ) | | | | | | | | | |
| | | | | | | | |
Proceeds from employee stock programs | — | | 930 | | | | | | | | | | |
| | | | | | | | |
Coal reserve financing transaction | (3,554 | ) | — | | | | | | | | | | |
| | | | | | | | |
Net cash provided by (used in) financing activities | (21,106 | ) | 330,478 | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | (230,624 | ) | 188,622 | | | | | | | | | | |
| | | | | | | | |
Cash and cash equivalents at beginning of year | 333,175 | | 194,162 | | | | | | | | | | |
| | | | | | | | |
Cash and cash equivalents at end of period | $ | 102,551 | | $ | 382,784 | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |