Aug. 6, 2010, 12:38 p.m. EDT · Recommend · Post:
10-Q: PATRIOT COAL CORP
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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Notice Regarding Forward-Looking Statements This report and other materials filed or to be filed by Patriot Coal Corporation include statements of our expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. You can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," "foresees" or the negative version of those words or other comparable words and phrases. Any forward-looking statements contained in this report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
geologic, equipment and operational risks associated with mining;
changes in general economic conditions, including coal, power and steel market conditions;
changes in the interpretation, enforcement or application of existing and potential coal mining laws and regulations;
availability and costs of competing energy resources;
regulatory and court decisions including, but not limited to, those impacting permits issued pursuant to the Clean Water Act;
environmental laws and regulations and changes in the interpretation or enforcement thereof, including those affecting our operations and those affecting our customers' coal usage;
developments in greenhouse gas emission regulation and treatment, including any development of commercially successful carbon capture and storage techniques or market-based mechanisms, such as a cap-and-trade system, for regulating greenhouse gas emissions;
labor availability and relations;
the outcome of pending or future litigation;
changes in the costs to provide healthcare to eligible active employees and certain retirees under postretirement benefit obligations;
changes to contribution requirements to multi-employer retiree healthcare and pension plans;
reductions of purchases or deferral of shipments by major customers;
availability and costs of credit, surety bonds and letters of credit;
customer performance and credit risks;
inflationary trends, including those impacting materials used in our business;
worldwide economic and political conditions;
downturns in consumer and company spending;
supplier and contract miner performance, and the availability and cost of key equipment and commodities;
availability and costs of transportation;
difficulty in implementing our business strategy;
our ability to replace proven and probable coal reserves;
the outcome of commercial negotiations involving sales contracts or other transactions;
our ability to respond to changing customer preferences;
our dependence on Peabody Energy for more than 10% of our revenues;
failure to comply with debt covenants;
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the effects of mergers, acquisitions and divestitures, including our ability to successfully integrate mergers and acquisitions;
weather patterns affecting energy demand;
competition in our industry;
interest rate fluctuation;
wars and acts of terrorism or sabotage;
impact of pandemic illness; and
other factors, including those discussed in Legal Proceedings set forth in Part I, Item 3 of our 2009 Annual Report on Form 10-K and Part II, Item 1 of this report.
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in our 2009 Annual Report on Form 10-K and in this report. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in, contemplated or implied by our forward-looking statements. We do not undertake any obligation (and expressly disclaim any such obligation) to update or revise the forward-looking statements, except as required by federal securities laws.
Illinois Basin. In the Illinois Basin, we have three mining complexes located in Union and Henderson counties in western Kentucky. In the Illinois Basin, we sold 3.4 million and 7.0 million tons of coal in the six months ended June 30, 2010 and the year ended December 31, 2009, respectively. As of December 31, 2009, we controlled 646 million tons of proven and probable coal reserves in the Illinois Basin, of which 126 million tons were assigned to current operations.
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Results of Operations
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Tons Sold and Revenues
Three Months Ended Six Months Ended
June 30, Increase (Decrease) June 30, Increase (Decrease)
2010 2009 Tons/$ % 2010 2009 Tons/$ %
(Dollars and tons in thousands, except per ton amounts)
Tons Sold
Appalachia Mining Operations 6,431 6,498 (67 ) (1.0 )% 12,280 13,137 (857 ) (6.5 )%
Illinois Basin Mining Operations 1,635 1,771 (136 ) (7.7 )% 3,381 3,590 (209 ) (5.8 )%
Total Tons Sold 8,066 8,269 (203 ) (2.5 )% 15,661 16,727 (1,066 ) (6.4 )%
Average sales price per ton sold
Appalachia Mining Operations $ 72.28 $ 63.88 $ 8.40 13.1 % $ 69.64 $ 66.11 $ 3.53 5.3 %
Illinois Basin Mining Operations 42.20 39.50 2.70 6.8 % 42.24 38.81 3.43 8.8 %
Revenue
Appalachia Mining Operations $ 464,801 $ 415,089 $ 49,712 12.0 % $ 855,181 $ 868,545 $ (13,364 ) (1.5 )%
Illinois Basin Mining Operations 68,999 69,960 (961 ) (1.4 )% 142,827 139,342 3,485 2.5 %
Appalachia Other 5,192 21,947 (16,755 ) (76.3 )% 8,241 28,045 (19,804 ) (70.6 )%
Total Revenues $ 538,992 $ 506,996 $ 31,996 6.3 % $ 1,006,249 $ 1,035,932 $ (29,683 ) (2.9 )%
Segment Operating Costs and Expenses(1)
Appalachia Mining Operations and Other $ 387,952 $ 368,431 $ 19,521 5.3 % $ 710,518 $ 758,498 $ (47,980 ) (6.3 )%
Illinois Basin Mining Operations 70,532 66,087 4,445 6.7 % 137,543 132,428 5,115 3.9 %
Total Segment Operating Costs and Expenses $ 458,484 $ 434,518 $ 23,966 5.5 % $ 848,061 $ 890,926 $ (42,865 ) (4.8 )%
Segment Adjusted EBITDA
Appalachia Mining Operations and Other $ 82,041 $ 68,605 $ 13,436 19.6 % $ 152,904 $ 138,092 $ 14,812 10.7 %
Illinois Basin Mining Operations (1,533 ) 3,873 (5,406 ) (139.6 )% 5,284 6,914 (1,630 ) (23.6 )%
Total Segment Adjusted EBITDA $ 80,508 $ 72,478 $ 8,030 11.1 % $ 158,188 $ 145,006 $ 13,182 9.1 %
(1) Segment Operating Costs and Expenses represent consolidated operating costs and expenses of $503.0 million and $467.7 million less past mining operations of $44.5 million and $34.2 million for the three months ended June 30, 2010 and 2009, respectively, as described below, plus back-to-back contract accretion of $1.0 million for the three months ended June 30, 2009. Segment
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Revenues in the Appalachia segment were higher in the three months ended June 30, 2010 compared to the same period in 2009 primarily due to higher average sales price per ton for both thermal and metallurgical coal and an increased mix of metallurgical tons sold. Increased sales of metallurgical coal from our Panther and Winchester mines drove the higher metallurgical sales volume. Total sales volumes were comparable for the three months ended June 30, 2010 compared to the prior year due to the decrease in thermal sales resulting from the weakened thermal coal market, which was mostly offset by the increase in metallurgical sales.
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Our Segment Adjusted EBITDA for Appalachia was higher in the six months ended June 30, 2010 compared to the prior year primarily due to higher average sales prices and lower costs resulting from suspended or reduced production at certain mining operations, in particular some of our higher cost operations, in response to the economic recession experienced throughout 2009. These increases were partially offset by decreased sales volumes in 2010.
Three Months Ended Six Months Ended
June 30, Favorable (Unfavorable) June 30, Favorable (Unfavorable)
2010 2009 $ % 2010 2009 $ %
(Dollars in thousands)
Segment Adjusted EBITDA $ 80,508 $ 72,478 $ 8,030 11.1 % $ 158,188 $ 145,006 $ 13,182 9.1 %
Corporate and Other:
Past mining obligation expense (44,475 ) (34,211 ) (10,264 ) (30.0 )% (87,941 ) (72,011 ) (15,930 ) (22.1 )%
Net gain on disposal or exchange of assets 17,759 4,031 13,728 340.6 % 41,555 4,061 37,494 923.3 %
Selling and administrative expenses (13,198 ) (11,360 ) (1,838 ) (16.2 )% (25,972 ) (24,246 ) (1,726 ) (7.1 )%
Total Corporate and Other (39,914 ) (41,540 ) 1,626 3.9 % (72,358 ) (92,196 ) 19,838 21.5 %
Depreciation, depletion and amortization (50,350 ) (50,357 ) 7 0.0 % (99,962 ) (105,336 ) 5,374 5.1 %
Sales contract accretion, net 33,735 61,721 (27,986 ) (45.3 )% 59,043 138,528 (79,485 ) (57.4 )%
Reclamation and remediation obligation expense (11,004 ) (7,611 ) (3,393 ) (44.6 )% (21,850 ) (14,062 ) (7,788 ) (55.4 )%
Restructuring and impairment charge (14,838 ) - (14,838 ) n/a (14,838 ) - (14,838 ) n/a
Interest expense (14,795 ) (9,137 ) (5,658 ) (61.9 )% (23,827 ) (17,730 ) (6,097 ) (34.4 )%
Interest income 3,249 5,836 (2,587 ) (44.3 )% 6,691 9,323 (2,632 ) (28.2 )%
Income (loss) before income taxes (13,409 ) 31,390 (44,799 ) (142.7 )% (8,913 ) 63,533 (72,446 ) (114.0 )%
Income tax provision (165 ) - (165 ) n/a (400 ) - (400 ) n/a
Net income (loss) $ (13,574 ) $ 31,390 $ (44,964 ) (143.2 )% $ (9,313 ) $ 63,533 $ (72,846 ) (114.7 )%
Past mining obligations were higher in the three and six months ended June 30, 2010 than the corresponding periods in the prior year primarily due to changes in assumptions related to our actuarially-determined liabilities for retiree healthcare and workers' compensation obligations, with approximately one-half of the cost increase arising from the change to the discount rate. The increase also included higher costs in 2010 related to suspended operations.
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Net sales contract accretion decreased in the three and six months ended June 30, 2010 as compared to the prior year due to the expiration of several contracts assumed in the Magnum acquisition in the second half of 2009.
Aug 06, 2010
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