Company Quick10K Filing
Quick10K
Cloud Peak Energy
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-16 Enter Agreement, Exhibits
8-K 2019-06-19 Enter Agreement, Bankruptcy, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2019-06-04 Regulation FD
8-K 2019-05-14 Enter Agreement, Bankruptcy, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-05-07 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-06 Enter Agreement, Bankruptcy, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-04-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-12 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-29 Officers, Regulation FD, Exhibits
8-K 2019-01-11 Enter Agreement, Shareholder Rights, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-12-26 Regulation FD, Exhibits
8-K 2018-11-09 Leave Agreement, Officers, Regulation FD, Exhibits
8-K 2018-10-30 Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-01 Regulation FD, Exhibits
8-K 2018-07-27 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-11 Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-06-07 Other Events
8-K 2018-05-24 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-09 Officers, Shareholder Vote, Exhibits
8-K 2018-05-03 Regulation FD, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-02 Officers, Exhibits
8-K 2018-02-23 Regulation FD, Exhibits
8-K 2018-02-15 Earnings, Exhibits
8-K 2018-01-18 Officers
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TNDM Tandem Diabetes Care 3,740
SFM Sprouts Farmers Market 2,650
CEQP Crestwood Equity Partners 2,510
DAN Dana 2,500
OSBC Old Second Bancorp 396
CERC Cerecor 206
WUYI China Wuyi Mountain 0
CLD 2019-03-31
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 a19-7705_1ex31d1.htm
EX-31.2 a19-7705_1ex31d2.htm
EX-32.1 a19-7705_1ex32d1.htm
EX-32.2 a19-7705_1ex32d2.htm
EX-95.1 a19-7705_1ex95d1.htm

Cloud Peak Energy Earnings 2019-03-31

CLD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a19-7705_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31, 2019

 

or

 

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

For the transition period from                      to                    

 

Commission File Number:  001-34547

 

 

Cloud Peak Energy Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-3088162

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

748 T-7 Road, Gillette, Wyoming

 

82718

(Address of principal executive offices)

 

(Zip Code)

 

(307) 687-6000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

x  Yes      o  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

x  Yes      o  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large
accelerated filer

 

Accelerated
filer

 

Non-accelerated filer

 

Smaller reporting
company

 

Emerging growth
company

o

 

x

 

o

 

o

 

o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

o  Yes      x  No

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each Exchange on which registered

*

 

*

 

*

 


* On April 11, 2019, the New York Stock Exchange filed a Form 25 with the Securities and Exchange Commission to remove the common stock of Cloud Peak Energy Inc. from listing and registration on the New York Stock Exchange. Deregistration under Section 12(b) of the Act will become effective 90 days after the filing date of the Form 25.

 

Number of shares outstanding of Cloud Peak Energy Inc.’s common stock, as of the latest practicable date: Common stock, $0.01 par value per share, 76,507,272 shares outstanding as of May 3, 2019.

 

 

 


Table of Contents

 

CLOUD PEAK ENERGY INC.

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

 

 

Page

Item 1

Financial Statements —

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018

1

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

2

 

 

 

 

Unaudited Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2019 and 2018

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

4

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

Cautionary Notice Regarding Forward-Looking Statements

45

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

49

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

68

 

 

 

Item 4

Controls and Procedures

69

 

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1

Legal Proceedings

70

 

 

 

Item 1A

Risk Factors

70

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

75

 

 

 

Item 3

Defaults Upon Senior Securities

75

 

 

 

Item 4

Mine Safety Disclosures

75

 

 

 

Item 5

Other Information

76

 

 

 

Item 6

Exhibits

76

 

Unless the context indicates otherwise, the terms “Cloud Peak Energy,” the “Company,” “we,” “us,” and “our” refer to Cloud Peak Energy Inc. (“CPE Inc.”) and its subsidiaries.

 

i


Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1.       Financial Statements.

 

CLOUD PEAK ENERGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Revenue

 

$

145,077

 

$

216,309

 

Costs and expenses

 

 

 

 

 

Cost of product sold (exclusive of depreciation, depletion, and accretion)

 

159,960

 

192,534

 

Depreciation and depletion

 

10,687

 

14,996

 

Accretion

 

1,604

 

1,706

 

(Gain) loss on derivative financial instruments

 

(1,809

)

 

Selling, general and administrative expenses

 

18,572

 

7,318

 

Impairments

 

104

 

 

Other operating costs

 

239

 

126

 

Total costs and expenses

 

189,357

 

216,680

 

Operating income (loss)

 

(44,280

)

(371

)

Other income (expense)

 

 

 

 

 

Net periodic postretirement benefit income (cost), excluding service cost

 

1,755

 

1,617

 

Interest income

 

287

 

263

 

Interest expense

 

(7,692

)

(9,188

)

Other, net

 

(14

)

(268

)

Total other income (expense)

 

(5,664

)

(7,576

)

Income (loss) before income tax provision and earnings from unconsolidated affiliates

 

(49,944

)

(7,947

)

Income tax benefit (expense)

 

(40

)

(63

)

Income (loss) from unconsolidated affiliates, net of tax

 

236

 

272

 

Net income (loss)

 

(49,748

)

(7,738

)

Other comprehensive income (loss)

 

 

 

 

 

Postretirement medical plan amortization of prior service costs

 

 

(1,837

)

Postretirement medical plan termination

 

(1,755

)

 

Income tax on postretirement medical plan

 

 

 

Other comprehensive income (loss)

 

(1,755

)

(1,837

)

Total comprehensive income (loss)

 

$

(51,503

)

$

(9,575

)

Income (loss) per common share:

 

 

 

 

 

Basic

 

$

(0.65

)

$

(0.10

)

Diluted

 

$

(0.65

)

$

(0.10

)

Weighted-average shares outstanding - basic

 

76,020

 

75,329

 

Weighted-average shares outstanding - diluted

 

76,020

 

75,329

 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

1


Table of Contents

 

CLOUD PEAK ENERGY INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

43,633

 

$

91,196

 

Accounts receivable, net

 

24,706

 

33,527

 

Due from related parties

 

108

 

 

Inventories, net

 

70,722

 

70,040

 

Income tax receivable

 

15,768

 

15,808

 

Other prepaid and deferred charges

 

32,392

 

27,527

 

Other assets

 

804

 

4,205

 

Total current assets

 

188,133

 

242,303

 

 

 

 

 

 

 

Noncurrent assets

 

 

 

 

 

Property, plant and equipment, net

 

642,810

 

654,372

 

Income tax receivable

 

15,768

 

15,768

 

Other assets

 

35,617

 

16,213

 

Total assets

 

$

882,328

 

$

928,656

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

34,770

 

$

34,210

 

Royalties and production and property taxes

 

48,686

 

53,232

 

Accrued expenses

 

29,578

 

26,385

 

Due to related parties

 

1

 

71

 

Current portion of federal coal lease obligations

 

420

 

379

 

Other liabilities

 

2,574

 

4,019

 

Total current liabilities

 

116,029

 

118,296

 

 

 

 

 

 

 

Noncurrent liabilities

 

 

 

 

 

Senior notes

 

397,327

 

396,373

 

Federal coal lease obligations, net of current portion

 

984

 

1,404

 

Asset retirement obligations, net of current portion

 

93,923

 

92,591

 

Royalties and production and property taxes

 

25,679

 

20,587

 

Other liabilities

 

5,088

 

5,731

 

Total liabilities

 

639,030

 

634,982

 

Commitments and Contingencies (Notes 5 and 17)

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Common stock ($0.01 par value; 200,000 shares authorized; 76,984 and 76,283 shares issued and 76,507 and 75,806 outstanding as of March 31, 2019 and December 31, 2018, respectively)

 

765

 

758

 

Treasury stock, at cost (477 shares as of both March 31, 2019 and December 31, 2018)

 

(6,498

)

(6,498

)

Additional paid-in capital

 

657,799

 

656,925

 

Retained earnings (accumulated deficit)

 

(420,297

)

(370,795

)

Accumulated other comprehensive income (loss)

 

11,529

 

13,284

 

Total equity

 

243,298

 

293,674

 

Total liabilities and equity

 

$

882,328

 

$

928,656

 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

2


Table of Contents

 

CLOUD PEAK ENERGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Earnings/

 

Other

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Paid-In

 

(Accumulated

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit)

 

Income (Loss)

 

Total

 

Balances as of January 1, 2019

 

75,806

 

$

758

 

477

 

$

(6,498

)

$

656,925

 

$

(370,795

)

$

13,284

 

$

293,674

 

Net income (loss)

 

 

 

 

 

 

(49,748

)

 

(49,748

)

Adoption of new accounting standard

 

 

 

 

 

 

246

 

 

246

 

Postretirement benefit adjustment, net of tax

 

 

 

 

 

 

 

(1,755

)

(1,755

)

Equity-based compensation expense

 

 

 

 

 

1,106

 

 

 

1,106

 

Employee common stock withheld to cover withholding taxes

 

701

 

7

 

 

 

(232

)

 

 

(225

)

Balances as of March 31, 2019

 

76,507

 

$

765

 

477

 

$

(6,498

)

$

657,799

 

$

(420,297

)

$

11,529

 

$

243,298

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Earnings/

 

Other

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Paid-In

 

(Accumulated

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit)

 

Income (Loss)

 

Total

 

Balances as of January 1, 2018

 

75,167

 

$

752

 

477

 

$

(6,498

)

$

652,702

 

$

347,046

 

$

13,807

 

$

1,007,809

 

Net income (loss)

 

 

 

 

 

 

(7,738

)

 

(7,738

)

Adoption of new accounting standard

 

 

 

 

 

 

121

 

 

121

 

Postretirement benefit adjustment, net of tax

 

 

 

 

 

 

 

(1,837

)

(1,837

)

Equity-based compensation expense

 

 

 

 

 

1,644

 

 

 

1,644

 

Restricted stock issuance, net of forfeitures

 

502

 

5

 

 

 

(5

)

 

 

 

Employee common stock withheld to cover withholding taxes

 

 

 

 

 

(1,165

)

 

 

(1,165

)

Balances as of March 31, 2018

 

75,669

 

$

757

 

477

 

$

(6,498

)

$

653,176

 

$

339,429

 

$

11,969

 

$

998,833

 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

3


Table of Contents

 

CLOUD PEAK ENERGY INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

(49,748

)

$

(7,738

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and depletion

 

10,687

 

14,996

 

Accretion

 

1,604

 

1,706

 

Impairments

 

104

 

 

Loss (income) from unconsolidated affiliates, net of tax

 

(236

)

(272

)

Distributions of income from unconsolidated affiliates

 

 

1,000

 

Gain on sale of assets

 

(1,376

)

 

Equity-based compensation expense

 

1,106

 

(1,709

)

Settlement of completed derivatives

 

(1,809

)

 

Net periodic postretirement benefit cost (credit)

 

(1,755

)

(1,421

)

Payments for logistics contracts

 

(2,500

)

(2,500

)

Logistics throughput contract amortization expense

 

3,777

 

4,161

 

Other

 

1,077

 

2,075

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

8,821

 

5,050

 

Inventories, net

 

(693

)

2,523

 

Due to or from related parties

 

(179

)

193

 

Other assets

 

(2,604

)

6,524

 

Accounts payable and accrued expenses

 

3,365

 

(327

)

Asset retirement obligations

 

(272

)

(185

)

Net cash provided by (used in) operating activities

 

(30,631

)

24,076

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchases of property, plant and equipment

 

(1,143

)

(2,646

)

Investment in development projects

 

 

(360

)

Proceeds from the sale of assets

 

3,198

 

 

Net cash provided by (used in) investing activities

 

2,055

 

(3,006

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Principal payments on federal coal leases

 

(379

)

(574

)

Principal payments on finance leases

 

(408

)

(648

)

Net cash provided by (used in) financing activities

 

(787

)

(1,222

)

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

(29,363

)

19,848

 

Cash, cash equivalents, and restricted cash at beginning of period

 

92,128

 

108,673

 

Cash, cash equivalents, and restricted cash at end of period

 

$

62,765

 

$

128,521

 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

4


Table of Contents

 

CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  Organization and Business

 

We produce coal in the United States of America (“U.S.”) and the Powder River Basin (“PRB”).  We operate some of the safest mines in the coal industry.  According to the most current Mine Safety and Health Administration (“MSHA”) data, we have one of the lowest employee all injury incident rates among the largest U.S. coal producing companies.  We currently operate solely in the PRB, the lowest cost region of the major coal producing regions in the U.S., where we own and operate three surface coal mines: the Antelope Mine, the Cordero Rojo Mine, and the Spring Creek Mine.

 

Our Antelope Mine and Cordero Rojo Mine are located in Wyoming and our Spring Creek Mine is located in Montana.  Our mines produce subbituminous thermal coal with low sulfur content, and we sell our coal primarily to domestic and foreign electric utilities.  Thermal coal is primarily consumed by electric utilities and industrial consumers as fuel for electricity generation.  In 2018, the coal we produced generated approximately 2% of the electricity produced in the U.S.  We do not produce any metallurgical coal.  Our Cordero Rojo Mine was impaired down to the fair value of associated land and certain mining equipment in the fourth quarter of 2018.  See Note 7 of Notes to Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Form 10-K”) for further details.

 

In addition, we have two development projects, both located in the Northern PRB.  For purposes of this report, the term “Northern PRB” refers to the area in the PRB that lies within Montana and the northern part of Sheridan County, Wyoming.  The Youngs Creek project is an undeveloped surface mine project located in Wyoming, seven miles south of our Spring Creek Mine and contiguous with the Wyoming-Montana state line.  The Big Metal project is located near the Youngs Creek project on the Crow Indian Reservation in southeast Montana.  Any future development and coal production from these two projects remains subject to significant risk and uncertainty.  These two development projects were fully impaired in the fourth quarter of 2018, other than the fair value of associated land.  See Note 7 of Notes to Consolidated Financial Statements in Item 8 of our 2018 Form 10-K for further details.

 

Our logistics business provides a variety of services designed to facilitate the sale and delivery of coal.  These services include the purchase of coal from third parties or from our owned and operated mines, coordination of the transportation and delivery of purchased coal, negotiation of take-or-pay rail agreements and take-or-pay port agreements and demurrage settlement with vessel operators.  See Note 5 for further discussion.

 

Filing under Chapter 11 of the United States Bankruptcy Code

 

During the fourth quarter of 2018 and through the filing date of this Form 10-Q, we made a number of announcements regarding our engagement of various advisors to assist in reviewing alternatives including the potential sale of the Company and to assist in reviewing our capital structure and strategic restructuring alternatives.  During that time, we experienced a number of adverse events that negatively impacted our financial results, liquidity and future prospects, which raised substantial doubt about our ability to continue as a going concern, and resulted in our decision to seek Chapter 11 bankruptcy protection.

 

On May 10, 2019 (the “Petition Date”), Cloud Peak Energy Inc. (“CPE,” the “Company” or “we”) and substantially all of its wholly owned domestic subsidiaries (the “Filing Subsidiaries” and, together with Cloud Peak Energy, the “Debtors”) filed voluntary petitions (collectively, the “Bankruptcy Petitions”) under Chapter 11 (“Chapter 11”) of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).  The Debtors have filed a motion to have their Chapter 11 cases (collectively, the “Chapter 11 Cases”) jointly administered under the caption In re Cloud Peak Energy Inc., et al.  Each Debtor will continue to operate its business as a “debtor in possession” (“DIP”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.

 

5


Table of Contents

 

CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

On the Petition Date, the Debtors filed a number of motions with the Bankruptcy Court generally designed to stabilize their operations and facilitate the Debtors’ transition into Chapter 11.  Certain of these motions seek authority from the Bankruptcy Court for the Debtors to make payments upon, or otherwise honor, certain obligations that arose prior to the Petition Date, including obligations related to employee wages, salaries and benefits, taxes, and certain vendors and other providers essential to the Debtors’ businesses. The Debtors expect that the Bankruptcy Court will approve the relief sought in these motions on an interim basis.

 

The Debtors are seeking to sell all or substantially all of their assets pursuant to Section 363 of the Bankruptcy Code.  To facilitate their continued marketing and sales process, the Debtors will be filing a motion with the Bankruptcy Court to approve a marketing and bidding procedures process, including milestones by which parties in interest will be required to submit indications of interest and bids for all or a portion of the Debtors’ assets.

 

For the duration of the Chapter 11 Cases, the Company’s operations and its ability to develop and execute its business plan are subject to risks and uncertainties associated with the Chapter 11 Cases. As a result of these risks and uncertainties, the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of its operations, properties and capital plans included in these financial statements may not accurately reflect its operations, properties and capital plans following the Chapter 11 Cases.

 

As disclosed in our Current Report on Form 8-K on March 26, 2019, we were notified by the New York Stock Exchange (“NYSE”) that they had determined our common stock was no longer suitable for listing on the NYSE based on “abnormally low” price levels, pursuant to Section 802.01D of the NYSE Listed Company Manual, and commenced proceedings to delist our common stock.  Trading in our common stock was suspended immediately.  Our common stock began trading on the OTC Pink on March 27, 2019, under the symbol “CLDP”.  We expect that our existing common stock will be extinguished upon our emergence from Chapter 11, and existing equity holders are unlikely to receive any consideration in respect of their equity interests.

 

Sale and Plan Support Agreement

 

Prior to filing the Bankruptcy Petitions, on May 6, 2019, the Company and the Filing Subsidiaries entered into a Sale and Plan Support Agreement (the “Support Agreement”) with holders of approximately 62% in principal amount of the 12.00% second lien senior notes due 2021 (the “2021 Notes”) and holders of more than 50% in principal amount of the 6.375% senior notes due 2024 (the “2024 Notes” and together with the 2021 Notes, the “Notes”).  The Support Agreement provides that the holders of Notes party thereto will, among other things, support a marketing and sale process to be conducted by the Company in Chapter 11 and vote in favor of an orderly plan of liquidation that complies with certain provisions of the Support Agreement.

 

Subsequently, on May 9, 2019, the Company and the Filing Subsidiaries entered into an Amended and Restated Sale and Plan Support Agreement (the “Amended and Restated Support Agreement”) with holders of approximately 62% in principal amount of the 2021 Notes and holders of more than 50% in principal amount of the 2024 Notes.

 

The Amended and Restated Support Agreement provides, among other things, that:

 

·                  the holders of the Notes party thereto (the “Noteholders”) will support the sale process the Debtors will conduct during their Chapter 11 Cases;

 

·      the Noteholders will vote in favor of an orderly plan of liquidation that complies with certain provisions of the Amended and Restated Support Agreement;

 

·                  the holders of 2021 Notes will consent to priming liens and the use of cash collateral in connection with the DIP Financing (described below);

 

·                  certain of the Noteholders have committed to provide the DIP Financing;

 

·                  the Noteholders consent to receiving distributions of any sale proceeds after the payment of certain administrative and priority claims;

 

·                  the Company and the subsidiary guarantors under the indenture governing the 2021 Notes reaffirm the guarantees under the 2021 Notes and stipulate to the validity of liens held by the secured parties under the 2021 Notes; and

 

·                  the Company and the subsidiary guarantors under the indenture governing the 2024 Notes reaffirm the guarantees under the 2024 Notes.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Debtor-in-Possession Financing

 

The Debtors expect to enter into an approximately $35 million debtor-in-possession term loan facility (the “DIP Financing”) with certain of the Noteholders on terms and conditions set forth in the DIP credit agreement filed with the Bankruptcy Court.  The Company expects $10 million of the total DIP Financing will be available on an interim basis.  Upon approval by the Bankruptcy Court and the satisfaction of the conditions set forth in the DIP credit agreement, the DIP Financing will provide the Debtors with valuable liquidity, which, along with the A/R Securitization Program, cash on hand and cash generated from ongoing operations, will be used to support the business and the marketing and sale process.

 

Amendment to A/R Securitization Program

 

Cloud Peak Energy Resources LLC (“CPE Resources”) is party to an Accounts Receivable Securitization Program (the “A/R Securitization Program”) with PNC Bank, National Association, as administrator.  Effective May 10, 2019, we entered into a second amendment to the Amended and Restated Receivables Purchase Agreement (the “Receivables Purchase Agreement Amendment”) that modified the Receivables Purchase Agreement such that the Chapter 11 Cases would not result in an automatic termination of the A/R Securitization Program and resulting acceleration of the obligations thereunder.  However, if an order approving certain amendments to the A/R Securitization Program, the assumption of the related documents and superpriority status for the claims under the program is not entered on or prior to May 15, 2019, a termination event under the A/R Securitization Program will occur.  Should the A/R Securitization Program terminate, the Company would have to cash-collateralize the portion of letters of credit not currently cash-collateralized.

 

Liquidity and Ability to Continue as a Going Concern

 

Our liquidity outlook has continued to decline since the fourth quarter of 2018, which included the termination of our Amended Credit Agreement in November 2018.  Severe weather and train unavailability further compounded operational issues in the first quarter of 2019, affecting production at all three of our mines.  Further, lower export prices, and lower demand overall, are expected to result in significantly lower levels of cash flow from operating activities in the future and have limited our ability to access capital markets.  These factors raise substantial doubt about our ability to continue as a going concern.

 

Our consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should we be unable to continue as a going concern.  See “Filing under Chapter 11 of the United States Bankruptcy Code” above for information on our Bankruptcy Petitions.

 

Principles of Consolidation

 

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).  In accordance with U.S. GAAP for interim financial statements, these Unaudited Condensed Consolidated Financial Statements do not include certain information and footnote disclosures that are required to be included in annual financial statements prepared in conformity with U.S. GAAP.  The year-end Unaudited Condensed Consolidated Balance Sheet data was derived from the Audited Consolidated Financial Statements.  Accordingly, these Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements as of December 31, 2018 and 2017, and for each of the three years ended December 31, 2018, included in our 2018 Form 10-K.  In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments, which are of a normal and recurring nature, necessary for a fair statement of our financial position as of March 31, 2019, and the results of our operations, comprehensive income (loss), and cash flows for the three months ended March 31, 2019 and 2018, in conformity with U.S. GAAP.  Our results of operations for the three months ended March 31, 2019 are

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

not necessarily indicative of the results that may be expected for future quarters or for the year ending December 31, 2019.

 

The preparation of our Unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.  Significant estimates in these Unaudited Condensed Consolidated Financial Statements include: assumptions about the amount and timing of future cash flows and related discount rates used in determining asset retirement obligations (“AROs”) and in testing long-lived assets for impairment; the fair value of derivative financial instruments; the calculation of mineral reserves; equity-based compensation expense; workers’ compensation claims; reserves for contingencies and litigation; useful lives of long-lived assets; postretirement employee benefit obligations; the recognition and measurement of income tax benefits and related deferred tax asset valuation allowances; and allowances for inventory obsolescence and net realizable value.  Actual results could differ materially from those estimates.

 

Due to the tabular presentation of rounded amounts, certain tables reflect insignificant rounding differences.

 

2.  Accounting Policies and Standards Update

 

Recently Issued Accounting Pronouncements

 

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements.  Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”).

 

Recently Adopted Accounting Pronouncements

 

In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows companies to make a one-time reclassification of the stranded tax effects (as defined by ASU 2018-02) from accumulated other comprehensive income to retained earnings as a result of the tax legislation enacted in December 2017, commonly known as the “Tax Cuts and Jobs Act” (“TCJA”), and requires certain disclosures about stranded tax effects.  The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The amendments in this update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effects of the change in the U.S. federal corporate income tax rate in the TCJA is recognized.  We adopted this standard as of January 1, 2019.  As a result of our full valuation allowance on our net deferred tax asset, there was no revaluation impact due to the TCJA.  As such, there was no stranded tax impact to accumulated other comprehensive income (loss) (“AOCI”) as a result of the change in tax law.

 

From February 2016 through March 2019, the FASB issued several ASUs related to Leases (“ASC 842”), which required the lessee to recognize the assets and liabilities on all leases that may have not been recognized in the past, specifically, leases classified as operating leases under current U.S. GAAP (“ASC 840”).  The core principle of ASC 842 is that a lessee should recognize both a lease liability for its obligation to make lease payments to the lessor and a right-of-use asset reflecting its right to use the underlying asset during the term of the lease.  Under ASC 842, a lessee recognizes either an operating or a finance lease, with the pattern of expense recognition in the income statement differing depending on classification of the lease. There are also additional disclosure requirements under ASC 842, including expanded quantitative disclosures regarding the location and amounts related to operating and finance leases included in the financial statements, as well as qualitative disclosures about the nature of an entity’s leases.

 

The new guidance is effective for fiscal years beginning after December 15, 2018, including interim

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

periods within those fiscal years.  We adopted the new standard effective January 1, 2019 and elected the optional transition practical expedient, which allows us to adopt the standard on the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We will not retrospectively adjust prior periods, which will continue to be reported under ASC 840. Further, disclosures related to prior periods will also be reported under ASC 840.  We also elected the transitional package of practical expedients available within the new standard, which, among other things, allows a lessee to carry forward existing lease classification.  ASC 842 also includes an accounting policy election whereby a lessee may choose not to apply ASC 842 to leases with terms of one year or less. Instead, a lessee recognizes the lease payments in the statement of operations on a straight-line basis over the term of the lease. We have made this policy election and leases of this nature will not be included on our Unaudited Condensed Consolidated Balance Sheets.  Lastly, we elected the practical expedient whereby a lessee may include both lease and non-lease components in the calculation of the lease liability and right-of-use asset.

 

During 2017 and 2018, we evaluated our contracts with vendors under ASC 842.  Based upon our review, the adoption of this standard did not have a material impact on our results of operations, financial position, and cash flows.  The impact of ASC 842 is not material to our results due to our ownership of substantially all of our equipment and the fact that we have entered into very few operating leases. Additionally, the result of our review of our contracts with vendors yielded no change to our initial conclusion that these contracts did not contain a lease, as there were either no identified assets, or we did not obtain the right to control the use of an identified asset over a period of time. The adoption of ASC 842 did not have an impact on our accounting for capital leases, which are classified as finance leases under ASC 842.  In addition, the adoption of ASC 842 did not have an impact on our liquidity.

 

The following table reflects the adoption of ASC 842 on our Condensed Consolidated Balance Sheets as of January 1, 2019 (in thousands):

 

 

 

Balance as
of December
31, 2018

 

Adjustment
Due to ASC
842

 

Balance as
of January 1,
2019

 

Assets

 

 

 

 

 

 

 

Other assets (noncurrent)

 

$

16,213

 

$

1,785

 

$

17,998

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accrued expenses

 

$

26,385

 

$

(106

)

$

26,279

 

Other liabilities (current)

 

4,019

 

937

 

4,956

 

Other liabilities (noncurrent)

 

5,731

 

708

 

6,439

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Retained earnings

 

$

(370,795

)

$

246

 

$

(370,549

)

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3.  Revenue

 

Disaggregation of Revenue

 

In the following table, Revenue is disaggregated by primary geographic markets, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

United States (1)

 

$

107,818

 

$

138,232

 

South Korea (2)

 

31,822

 

66,021

 

Other (2)

 

5,437

 

12,056

 

Total revenue from external customers

 

$

145,077

 

$

216,309

 

 


(1)                                 The majority of our domestic revenue is attributable to the Owned and Operated Mines segment.

(2)                                 All South Korean revenue and the majority of Other geographical revenue is attributable to our Logistics and Related Activities segment.

 

We attribute revenue to individual countries based on the location of the physical delivery of the coal.  All of our revenue for the three months ended March 31, 2019 and 2018 originated in the United States.

 

Performance Obligations

 

In our Owned and Operated Mines segment, we have remaining performance obligations relating to fixed priced contracts of approximately $827 million, which represents the average fixed prices on our committed contracts as of March 31, 2019.  We expect to recognize approximately 88% of this revenue through 2020, with the remainder recognized thereafter.  We have remaining performance obligations relating to index priced contracts or contracts with price reopeners of approximately $164 million, which represents the average re-opener/indexed price on committed contracts as of March 31, 2019.  We expect to recognize approximately 44% of this revenue through 2020, with the remainder recognized thereafter.  In our Logistics and Related Activities segment, we have remaining performance obligations relating to our fixed price contracts of approximately $50 million, which represents the average fixed prices on our committed contracts as of March 31, 2019.  We expect to recognize approximately 81% of this revenue in 2019, and the remainder in 2020.

 

The tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons, or reduce tonnage, if such option exists in the customer contract.  Furthermore, export tons are subject to adjustment upon loading of vessels at the port and therefore represent the estimated tons we anticipate shipping.  The elimination of the purchase and sale of coal between reportable segments is not reflected above.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Contract Balances

 

Accounts receivable, net consisted of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Trade accounts receivable

 

$

24,300

 

$

33,062

 

Other receivables

 

406

 

464

 

Accounts receivable, net

 

$

24,706

 

$

33,527

 

 

4.  Segment Information

 

We have two reportable segments: our Owned and Operated Mines segment and our Logistics and Related Activities segment.

 

Our Owned and Operated Mines segment is characterized by the predominant focus on thermal coal production where the sale occurs at the mine site and where title and risk of loss generally pass to the customer at that point.  This segment includes our Antelope Mine, Cordero Rojo Mine, and Spring Creek Mine.  Sales in this segment are primarily to domestic electric utilities and some industrials, although a portion may be made to our Logistics and Related Activities segment.  Sales between reportable segments are priced based on prevailing market prices for arm’s length transactions.  Our mines utilize surface mining extraction processes and are all located in the PRB.  The gains and losses resulting from any domestic coal futures contracts and WTI derivative financial instruments are reported within this segment.

 

Our Logistics and Related Activities segment is characterized by the services we provide to our international and certain of our domestic customers where we deliver coal to the customer at a terminal or the customer’s plant or other delivery point, remote from our mine site.  Services provided include the purchase of coal from third parties or from our Owned and Operated Mines segment, at market prices, as well as the contracting and coordination of the transportation and other handling services from third-party operators, which are typically rail and terminal companies and may include chartering of a vessel.  Title and risk of loss are retained by the Logistics and Related Activities segment through the transportation and delivery process.  Title and risk of loss pass to the customer in accordance with the contract and typically occur at a vessel loading terminal, a vessel unloading terminal or an end use facility.  Risk associated with rail and terminal take-or-pay agreements is also borne by the Logistics and Related Activities segment.  The gains and losses resulting from any international coal forward contracts and international coal put options are reported within this segment.  Amortization related to the amended port and rail take-or-pay agreements are also included in this segment.  See Note 5 for additional information about the amended transportation agreements.  Incremental production taxes and royalties associated with the sales made by our Logistics and Related Activities segment are also included in this segment.

 

Our business activities that are not considered operating segments are included in Other, although they are not required to be included in this footnote.  They are provided for reconciliation purposes and include Selling, general and administrative expenses (“SG&A”) as well as results relating to broker activity.

 

Eliminations represent the purchase and sale of coal between reportable segments and the associated elimination of intercompany profit or loss in inventory and are provided for reconciliation purposes.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue

 

The following table presents Revenue (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Owned and Operated Mines

 

$

115,643

 

$

153,653

 

Logistics and Related Activities

 

39,134

 

79,636

 

Other

 

 

3

 

Eliminations

 

(9,700

)

(16,983

)

Consolidated

 

$

145,077

 

$

216,309

 

 

Capital Expenditures

 

The following table presents purchases of property, plant and equipment, investment in development projects, and capital expenditures included in Property, plant and equipment, net, Other assets, and Accounts payable (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Owned and Operated Mines

 

$

1,262

 

$

6,182

 

Logistics and Related Activities

 

 

 

Other

 

77

 

31

 

Consolidated

 

$

1,339

 

$

6,213

 

 

Adjusted EBITDA

 

EBITDA represents net income (loss) before: (1) interest income (expense) net, (2) income tax provision, (3) depreciation and depletion, and (4) amortization.  Adjusted EBITDA represents EBITDA as further adjusted for accretion, which represents non-cash increases in asset retirement obligation liabilities resulting from the passage of time, and specifically identified items that management believes do not directly reflect our core operations.  The specifically identified items that we routinely adjust for are:  (1) adjustments to exclude non-cash impairment charges, (2) adjustments for derivative financial instruments, excluding fair value mark-to-market gains or losses and including derivative settlements, (3) adjustments to exclude debt restructuring costs, and (4) non-cash amortization expense related to transportation agreements with BNSF and Westshore.

 

Adjusted EBITDA is an additional tool intended to assist our management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our core operations.  Adjusted EBITDA is a metric intended to assist management in evaluating operating performance, compensation decisions, comparing performance across periods, planning and forecasting future business operations and helping determine levels of operating and capital investments.

 

The following table reconciles segment Adjusted EBITDA to Income (loss) before income tax provision and earnings from unconsolidated affiliates (in thousands):

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Adjusted EBITDA

 

 

 

 

 

Owned and Operated Mines

 

$

(8,380

)

$

18,616

 

Logistics and Related Activities

 

(1,956

)

7,098

 

Total Adjusted EBITDA for reportable segments

 

(10,336

)

25,714

 

 

 

 

 

 

 

Unallocated net expenses

 

(18,284

)

(6,072

)

 

 

 

 

 

 

Adjustments to Income (loss) before income tax provision and earnings from unconsolidated affiliates

 

 

 

 

 

Depreciation and depletion

 

(10,687

)

(14,996

)

Accretion

 

(1,604

)

(1,706

)

Impairments

 

(104

)

 

Derivative financial instruments:

 

 

 

 

 

Gain (loss) on derivative financial instruments (1)

 

1,809

 

 

Settlement of derivative financial instruments

 

(1,809

)

 

Total derivative financial instruments

 

 

 

Interest expense, net

 

(7,405

)

(8,925

)

(Income) loss from unconsolidated affiliates, net of tax

 

(236

)

(272

)

Non-cash throughput amortization expense and contract termination payments

 

(1,288

)

(1,690

)

Income (loss) before income tax provision and earnings from unconsolidated affiliates

 

$

(49,944

)

$

(7,947

)

 


(1)                                 (Gain) loss on derivative financial instruments reflected in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

 

5.  Transportation Agreements

 

To ensure export terminal and rail capacity for export sales, we enter into multi-year throughput agreements with export terminal companies and railroads.  These types of take-or-pay agreements require us to pay for a minimum quantity of coal to be transported on the railway or through the terminal regardless of whether we sell any coal.  If we fail to make sufficient export sales to meet our minimum obligations under the take-or-pay agreements, we are still obligated to make payments to the export terminal company and railroad.

 

We have a throughput agreement with Westshore Terminals Limited Partnership (“Westshore”) for our export sales through their export terminal in Vancouver, British Columbia, and a complementary agreement with Burlington Northern Santa Fe Railroad (“BNSF”).

 

Current Agreements

 

Our current agreement with Westshore extends through 2022 and allows for greater capacity in 2021 and 2022 to 10.5 million total annual throughput tons.  We retain the right to terminate our commitments at any time in exchange for a buyout payment.  The termination payment varies throughout the period based upon an agreed schedule.  Additionally, after this Westshore agreement terminates and through 2024, if we ship to export customers, we are required to offer to ship through Westshore up to a specified annual tonnage on terms similar

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

to the agreement before shipping through any other export terminal.  Westshore has the right to accept or reject our offer in its sole discretion.

 

Our current agreement with BNSF extends through the end of 2020 with minimum payment commitments for each year.  We have the right to terminate our commitments for the remaining years at any time in exchange for buyout payments.  We have initiated discussions with BNSF regarding an extension through December 2022 to support our increased port capacity for our Asian export business.

 

In arriving at our current agreements, certain termination payments were made in prior years related to prior agreements.  These termination payments have been deferred and are being amortized over the remaining life of the current agreements.  As of March 31, 2019, there was $15.3 million recorded as a deferred asset for these agreements, of which $12.9 million and $2.4 million, were included in Other prepaid and deferred charges and Other assets, respectively, in the Unaudited Condensed Consolidated Balance Sheets.  As of December 31, 2018, there was $16.6 million recorded as a deferred asset for these agreements, of which $13.4 million and $3.2 million, were included in Other prepaid and deferred charges and Other assets, respectively, in the Unaudited Condensed Consolidated Balance Sheets.  We incurred $29.3 million and $52.3 million in costs under our export logistics agreements with Westshore and BNSF, including amortization of $3.8 million and $4.2 million, during the three months ended March 31, 2019 and 2018, respectively.  These costs are included in Cost of product sold in the Unaudited Condensed Statements of Operations and Comprehensive Income (Loss).

 

We had outstanding purchase commitments related to transportation agreements consisting of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Services

 

 

 

 

 

Transportation agreements (1)(2)

 

$

74,298

 

$

80,768

 

 


(1)                                 Includes undiscounted port take-or-pay commitments as agreed to in July 2018 for 2019-2022.  We have the right to terminate our commitments at any time in exchange for a buyout payment.  These amounts are considered minimum payments on services.  The per tonne loading charges reflect these advance payments.

(2)                                 Includes undiscounted rail take-or-pay commitments as agreed to in January 2018 for 2019-2020.  We have the right to terminate our commitments at any time in exchange for a buyout payment.  If we do not meet the required portion of our future nominated tons, there would be incremental liquidated damages due under the agreement.

 

6.  Income Taxes

 

Our statutory income tax rate including state income taxes, for the three months ended March 31, 2019 and 2018 was approximately 23%.  Our effective tax rate for the three months ended March 31, 2019 and 2018 was  (0.1)% and (0.8)%, respectively.  The difference between our statutory income tax rates and our effective income tax rates for the three months ended March 31, 2019 and 2018 is primarily the result of the impact of percentage depletion, income tax in the states in which we do business and changes in our valuation allowance.

 

The elimination of the Alternative Minimum Tax (“AMT”) and the ability to offset our regular tax liability or claim refunds for taxable years 2018 through 2021 for our AMT credits carried forward from prior periods, was a material impact of the Tax Cuts and Jobs Act legislation enacted in December 2017.  We currently anticipate we will realize approximately $31.5 million in AMT value over the next four years with approximately half of this value realized in 2019 for taxable year 2018.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

As of March 31, 2019 and December 31, 2018, we had deferred tax assets principally arising from: AROs, postretirement benefits, contract rights, and net operating loss carry-forwards.  As management cannot determine that it is more likely than not that we will realize the benefit of the deferred tax assets, a valuation allowance equal to the net deferred tax asset has been established.

 

As of March 31, 2019 and December 31, 2018, we had no uncertain tax positions that we expect to have a material impact on the financial statements as a result of tax deductions taken during the year or in prior periods or due to settlements with taxing authorities or lapses of applicable statues of limitations.  We are open to federal and state tax audits until the applicable statutes of limitations expire.  The statute of limitations has expired for all federal and state returns filed for periods ending before 2012.

 

7.  Equity Method Investments

 

Equity method investments include our 50% equity investment in Venture Fuels Partnership, a coal marketing company.  We have received distributions of $0.0 million and $1.0 million from the Venture Fuels Partnership during the three months ended March 31, 2019 and 2018, respectively.  Our equity method investments are included in noncurrent Other assets on the Unaudited Condensed Consolidated Balance Sheets and had a carrying amount of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Venture Fuels Partnership

 

$

3,273

 

$

3,040

 

Other

 

985

 

982

 

Total equity method investments

 

$

4,258

 

$

4,022

 

 

8.  Common Stock and Earnings (Loss) per Share

 

Common Stock

 

On March 26, 2019, we were notified by the NYSE that they had determined our common stock was no longer suitable for listing on the NYSE based on “abnormally low” price levels, pursuant to Section 802.01D of the NYSE Listed Company Manual, and commenced proceedings to delist our common stock.  Trading in our common stock was suspended immediately.  Our common stock began trading on the OTC Pink on March 27, 2019, under the symbol “CLDP”.  We expect that our existing common stock will be extinguished upon our emergence from Chapter 11, and existing equity holders are unlikely to receive any consideration in respect of their equity interests.

 

To be quoted on the OTC Pink, a market maker must have sponsored the security and comply with SEC Rule 15c2-11 before it can initiate a quote in a specific security.  The OTC Pink is a significantly more limited market than the NYSE, and the quotation of our common stock on the OTC Pink may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock.  This could further depress the trading price of our common stock and could also have a long-term adverse effect on our ability to raise capital. There can be no assurance that any public market for our common stock will exist in the future or that we will be able to relist our common stock on a national securities exchange.  In connection with the delisting of our common stock, there may also be other negative implications, including the potential loss of confidence in the Company by suppliers, customers and employees and the loss of institutional investor interest in our common stock.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Earnings (Loss) per Share

 

Potential dilutive shares of common stock may include restricted units, options, and performance share units issued under our Long Term Incentive Plan (“LTIP”).  See Note 16.  We apply the treasury stock method to determine dilution from restricted units, options, and performance share units.

 

The following table summarizes the calculation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Numerator for calculation of diluted earnings (loss) per share:

 

 

 

 

 

Net income (loss)

 

$

(49,748

)

$

(7,738

)

Denominator for basic income (loss) per share — weighted-average shares outstanding

 

76,020

 

75,329

 

Dilutive effect of stock equivalents

 

 

 

Denominator for diluted earnings (loss) per share

 

76,020

 

75,329

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(0.65

)

$

(0.10

)

Diluted earnings (loss) per share

 

$

(0.65

)

$

(0.10

)

 

For the periods presented, the following items were excluded from the diluted earnings (loss) per share calculation because they were anti-dilutive (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Anti-dilutive stock equivalents

 

3,256

 

4,227

 

 

9.  Fair Value of Financial Instruments

 

We use a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation.  The levels of the hierarchy, as defined below, give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

 

·                  Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets.  Our Level 1 assets currently include money market funds.

 

·                  Level 2 is defined as observable inputs other than Level 1 prices, including quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Our Level 2 assets and liabilities include derivative financial instruments with fair values derived from quoted prices in over-the-counter markets or from prices received from direct broker quotes.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

·                  Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.  We had no Level 3 financial instruments as of March 31, 2019 or December 31, 2018.

 

The tables below set forth, by level, our financial assets and liabilities that are recorded at fair value in the accompanying Unaudited Condensed Consolidated Balance Sheets (in thousands):

 

 

 

Fair Value as of March 31, 2019

 

 

 

Level 1

 

Level 2

 

Total

 

Assets

 

 

 

 

 

 

 

Money market funds (1)

 

$

22,896

 

$

 

$

22,896

 

 

 

 

Fair Value as of December 31, 2018

 

 

 

Level 1

 

Level 2

 

Total

 

Assets

 

 

 

 

 

 

 

Money market funds (1)

 

$

28,740

 

$

 

$

28,740

 

Liabilities

 

 

 

 

 

 

 

Derivative financial instruments (2)

 

$

 

$

2,386

 

$

2,386

 

 


(1)                                 Included in Cash and cash equivalents in the Unaudited Condensed Consolidated Balance Sheets along with $20.7 million and $62.5 million of demand deposits as of March 31, 2019 and December 31, 2018, respectively.

(2)                                 See Note 10 for information on the (Gain) loss on derivative financial instruments recognized in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

 

10.  Derivative Financial Instruments

 

WTI Derivatives

 

We use derivative financial instruments, such as swaps and collars, to help manage our exposure to market changes in diesel fuel prices.  The derivatives are indexed to the West Texas Intermediate (“WTI”) crude oil price as quoted on the New York Mercantile Exchange.  As such, the nature of the derivatives did not directly offset market changes to our diesel costs.

 

Under a swap agreement, if the monthly average index price is higher than the swap price, we receive the difference and if the monthly average index price is lower than the swap price, we pay the difference.  We currently do not hold any swap agreements.

 

In July 2018, we entered into collar agreements to fix a portion of our forecasted diesel costs for the remainder of 2018 and all of 2019. Under a collar agreement, we pay the difference between the monthly average index price and a floor price if the index price is below the floor, and we receive the difference between the ceiling price and the monthly average index price if the index price is above the ceiling price.  No amounts are paid or received if the index price is between the floor and ceiling prices.  While we would not receive the full benefit of price decreases beyond the floor price, the collars mitigate the risk of crude oil price increases and thereby increased diesel costs that would otherwise have a negative impact on our cash flow.  During the first quarter of 2019, we closed out our collar agreements.  We currently do not hold any collar agreements.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Offsetting and Balance Sheet Presentation

 

 

 

March 31, 2019

 

 

 

Gross Amounts
Recognized

 

Gross Amounts Offset
in the Consolidated
Balance Sheet

 

Net Amounts Presented
in the Consolidated
Balance Sheet

 

 

 

Assets

 

Liabilities

 

Assets

 

Liabilities

 

Assets

 

Liabilities

 

WTI derivative financial instruments

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

December 31, 2018

 

 

 

Gross Amounts
Recognized

 

Gross Amounts Offset
in the Consolidated
Balance Sheet

 

Net Amounts Presented
in the Consolidated
Balance Sheet

 

 

 

Assets

 

Liabilities

 

Assets

 

Liabilities

 

Assets

 

Liabilities

 

WTI derivative financial instruments

 

$

 

$

2,642

 

$

 

$

 

$

 

$

2,642

 

 

Derivative Gains and Losses

 

(Gain) loss on derivative financial instruments recognized in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

WTI derivative financial instruments

 

$

(1,809

)

$

 

 

See Note 9 for a discussion related to the fair value of derivative financial instruments.

 

11.  Inventories, Net

 

Inventories, net consisted of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Materials and supplies

 

$

68,438

 

$

68,519

 

Less: Obsolescence allowance

 

(1,100

)

(1,089

)

Material and supplies, net

 

67,338

 

67,430

 

Coal inventory

 

3,384

 

2,610

 

Inventories, net

 

$

70,722

 

$

70,040

 

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12.  Senior Notes

 

Senior notes consisted of the following (in thousands):

 

 

 

March 31, 2019

 

 

 

Carrying
Value

 

Unamortized
Discount and
Debt
Issuance
Costs

 

Unamortized
Deferred Gain
on Forgiven
Debt

 

Principal

 

Fair
Value (1)

 

12.00% second lien senior notes due 2021

 

$

341,608

 

$

8,925

 

$

(60,167

)

$

290,366

 

$

75,495

 

6.375% senior notes due 2024

 

55,720

 

688

 

 

56,408

 

5,641

 

Total senior notes

 

$

397,327

 

$

9,613

 

$

(60,167

)

$

346,774

 

$

81,136

 

 

 

 

December 31, 2018

 

 

 

Carrying
Value

 

Unamortized
Discount and
Debt
Issuance
Costs

 

Unamortized
Deferred Gain
on Forgiven
Debt

 

Principal

 

Fair
Value (1)

 

12.00% second lien senior notes due 2021

 

$

340,688

 

$

9,845

 

$

(60,167

)

$

290,366

 

$

177,123

 

6.375% senior notes due 2024

 

55,685

 

723

 

 

56,408

 

13,538

 

Total senior notes

 

$

396,373

 

$

10,568

 

$

(60,167

)

$

346,774

 

$

190,661

 

 


(1)                                 The fair value of the senior notes was based on observable market inputs, which are considered Level 2 in the fair value hierarchy.  See Note 9 for further information on Level 2 fair value measurements.

 

See Note 21 “Subsequent Events” for information regarding events of default under each of the 2024 Notes and the 2021 Notes and the consequences of the Bankruptcy Petitions.

 

The 2021 Notes were issued with joint and several guarantees by CPE Inc. and by all of our existing and future domestic restricted subsidiaries, and secured by second-priority liens on substantially all of our assets.  The 2024 Notes were issued with joint and several guarantees by CPE Inc. and by all of our existing and future domestic restricted subsidiaries.  The termination of the Amended Credit Agreement in November 2018 may have resulted in a release of the guarantees granted under the 2024 Notes Indenture and the guarantees and security interests granted under the 2021 Notes Indenture, in each case by all of our existing and future domestic restricted subsidiaries.  However, we believe that holders of the 2021 Notes and 2024 Notes may challenge whether such releases described above occurred, or were permitted to have occurred under applicable law.  As noted above, in connection with the Amended and Restated Support Agreement, the Company and the holders of the 2021 Notes and 2024 Notes agreed to settle this dispute and the Company agreed to reaffirm the liens and guarantees under the 2021 Notes and the guarantees under the 2024 Notes.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

13.  Leases

 

Leasing Activities

 

We have operating leases related to office space, railcars, and land with remaining lease terms ranging from less than two years to approximately 27 years.  In total, our operating leases were not material to our Unaudited Condensed Consolidated Balance Sheets, and required no significant judgments.  As these leases do not provide an implicit discount rate, we calculated the discount rate using various inputs such as the interest rate on our 2021 Notes adjusted for fair value, and the credit curve for CCC rated companies.  Some of our leases have renewal options.  For purposes of calculating the right-of-use asset and lease liability, we have assumed we will not exercise those renewal options.  Our office space lease includes common area maintenance, which is considered a non-lease component.  These costs are variable in nature and as such we have excluded them from the calculation of the right-of-use asset and lease liability.  Our leases related to office space and land are included in the Owned and Operated Mines segment, while the railcar lease is part of our Logistics and Related Activities segment.

 

We lease various equipment for use in our mining operations.  This equipment was previously classified as a capital lease under ASC 840, and capitalized on the Unaudited Condensed Consolidated Balance Sheets. Under ASC 842, these leases are classified as finance leases as ownership transfers at the end of the lease term.  These leases are included in the Owned and Operated Mines segment.

 

Weighted-average information related to our operating and finance leases as of March 31, 2019 was as follows:

 

Lease Term

 

 

 

Weighted-average remaining lease term - finance leases

 

1.3

years

Weighted-average remaining lease term - operating leases

 

3.3

years

 

 

 

 

Discount Rate

 

 

 

Weighted-average discount rate - finance leases

 

4.4

%

Weighted-average discount rate - operating leases

 

18.4

%

 

 

The components of our expenses related to our leases for the three months ended March 31, 2019 were as follows (in thousands):

 

Finance Lease Cost

 

 

 

Amortization of right-of-use assets

 

$

283

 

Interest expense on finance lease liabilities

 

26

 

Operating Lease Cost

 

 

 

Lease expense

 

272

 

Impairment of right-of-use asset

 

104

 

Short-term Lease Cost

 

 

 

Short-term lease cost

 

12

 

Total lease cost

 

$

697

 

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental balance sheet information related to our leases as of March 31, 2019 were as follows (in thousands):

 

Operating Leases

 

 

 

Other assets (noncurrent)

 

$

1,502

 

 

 

 

 

Other liabilities (current)

 

$

940

 

Other liabilities (noncurrent)

 

671

 

Total operating lease liabilities

 

$

1,611

 

 

 

 

 

Finance Leases

 

 

 

Property, plant, and equipment

 

$

13,967

 

Accumulated amortization

 

(9,985

)

Property, plant and equipment, net

 

$

3,982

 

 

 

 

 

Other liabilities (current)

 

$

1,633

 

Other liabilities (noncurrent)

 

464

 

Total finance lease liabilities

 

$

2,097

 

 

Maturity of our lease liabilities as of March 31, 2019 were as follows (in thousands):

 

 

 

Operating
Leases

 

Finance
Leases

 

2019

 

$

772

 

$

1,276

 

2020

 

937

 

858

 

2021

 

109

 

28

 

2022

 

13

 

 

2023

 

13

 

 

Thereafter

 

370

 

 

Total

 

2,214

 

2,162

 

Less: interest

 

603

 

65

 

Total principal payments

 

1,611

 

2,097

 

Less: current portion

 

940

 

1,633

 

Lease obligations, net of current portion

 

$

671

 

$

464

 

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

As we adopted ASC 842 as of January, 1, 2019, prior period information continues to be reported under ASC 840. As such, information regarding balances related to our leasing activities in these prior periods is included below.

 

Operating Leases

 

The minimum rental commitments under non-cancelable operating leases, with lease terms in excess of one year subsequent to December 31, 2018, were as follows (in thousands):

 

2019

 

$

1,525

 

2020

 

1,446

 

2021

 

201

 

2022

 

13

 

2023

 

13

 

Thereafter

 

370

 

 

Finance Leases

 

Assets under finance lease consisted of the following as of December 31, 2018 (in thousands):

 

Property, plant and equipment

 

$

13,967

 

Accumulated amortization

 

(8,987

)

Property, plant and equipment, net

 

$

4,980

 

 

Our finance equipment lease obligations are included in Other liabilities.  Future payments for these obligations as of December 31, 2018 were as follows (in thousands):

 

2019

 

$

1,711

 

2020

 

858

 

2021

 

28

 

2022

 

 

2023

 

 

Total

 

2,597

 

Less: interest

 

91

 

Total principal payments

 

2,505

 

Less: current portion

 

1,633

 

Lease obligations, net of current portion

 

$

872

 

 

Interest on the variable rate finance leases is imputed based on the one-month LIBOR plus 1.95% for a rate of 4.41% as of December 31, 2018.  Due to the variable nature of the imputed interest, fair value is equal to carrying value.

 

Federal Coal Lease Obligations

 

Our federal coal lease obligations, as reflected in the Unaudited Condensed Consolidated Balance Sheets, consist of obligations payable to the Bureau of Land Management of the U.S. Department of the Interior

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

for the West Antelope II South lease modification.  The future payments for our federal coal lease obligations are $0.6 million per year through 2022.  The balance of our federal coal lease obligations is $1.4 million as of March 31, 2019.  Leases of this nature are excluded from the scope of ASC 842 as they represent a lease for natural resources.

 

14.  Other Obligations

 

Accounts Receivable Securitization Program

 

On May 24, 2018, the A/R Securitization Program was amended to extend the term of the A/R Securitization Program to May 24, 2021 from January 23, 2020.  All other terms of the program remained substantially the same.  The A/R Securitization Program allows for a maximum borrowing capacity of $70 million.  The borrowing capacity is limited by eligible accounts receivable (as defined under the terms of the A/R Securitization Program), calculated on a daily basis, and will fluctuate from day to day.  The borrowing capacity is reduced by the undrawn face amount of letters of credit issued and outstanding under the A/R Securitization Program.  As of March 31, 2019, we had $14.6 million of borrowing capacity under the A/R Securitization Program, which was less than the undrawn face amount of letters of credit outstanding under the A/R Securitization Program of $25.7 million.  The $11.1 million difference between the borrowing capacity and the undrawn face amount of the letters of credit outstanding was cash-collateralized into a restricted cash account in early April 2019, thus bringing the borrowing capacity to zero as of March 31, 2019.  As of December 31, 2018, there was a $4.4 million deficit between the borrowing capacity and the undrawn face amount of letters of credit, which was cash-collateralized into a restricted cash account in early January 2019.  There were no borrowings outstanding under the A/R Securitization Program as of March 31, 2019 or December 31, 2018.

 

Our A/R Securitization Program supports the current collateral requirements associated with outstanding third-party surety bonds that primarily secure the performance of our reclamation and lease obligations.

 

On March 14, 2019, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) by and among Cloud Peak Energy Receivables LLC, CPE Resources and PNC Bank, National Association, as administrator, relating to the A/R Securitization Program, which provided that PNC Bank, National Association would not exercise any of its remedies upon a default under the A/R Securitization Program based on the existence of substantial doubt regarding our ability to continue as a going concern. Pursuant to the Forbearance Agreement, the forbearance period would have terminated on the earlier of (i) April 14, 2019 and (ii) the date on which any additional events of default may occur, as specified therein.  See Note 21 “Subsequent Events” for information regarding certain forbearance agreements and amendments entered into subsequent to March 31, 2019.

 

Liquidity

 

We had no availability for borrowing under the A/R Securitization Program as of March 31, 2019.  Our total liquidity, which includes cash and cash equivalents, was $43.6 million as of March 31, 2019.

 

Debt Issuance Costs

 

There were $0.9 million and $1.0 million of unamortized debt issuance costs as of March 31, 2019 and December 31, 2018, respectively, related to the A/R Securitization Program included in noncurrent Other assets.

 

15.  Postretirement Medical Plan

 

We maintain an unfunded postretirement medical plan to provide certain postretirement medical benefits to eligible employees.  In August 2018, we communicated the termination of our postretirement medical plan, effective January 1, 2019, to our employees.  Employees who retire on, or after, January 1, 2019 will not be

 

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Table of Contents

 

CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

eligible for postretirement benefits.  As part of the postretirement termination, we provided contributions for the remainder of 2018 and a lump-sum contribution for 2019 benefits to all eligible retirees.  An additional non-cash gain of $5.3 million will be released ratably through the plan termination date of December 31, 2019.  Net periodic postretirement benefit costs included the following components (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Service cost

 

$

 

$

197

 

Interest cost

 

 

220

 

Amortization of prior service cost (credit)

 

 

(1,837

)

Postretirement medical plan termination (gain) loss

 

(1,755

)

 

Net periodic benefit cost (credit)

 

$

(1,755

)

$

(1,420

)

 

16.  Equity-Based Compensation

 

Our LTIP permits awards to our employees and eligible non-employee directors, which we generally grant in the first quarter of each year.  No LTIP awards were granted during the first quarter of 2019.  The LTIP allows for the issuance of equity-based compensation in the form of restricted stock, restricted stock units, options, stock appreciation rights, dividend equivalent rights, performance awards, and share awards.  As of March 31, 2019, shares available for issuance under the LTIP were approximately 3.7 million shares.

 

Generally, each form of equity-based compensation awarded to eligible employees cliff vests on the third anniversary of the grant date, subject to meeting any applicable performance criteria for the award.  However, the awards will pro-rata vest sooner if an employee terminates employment with or stops providing services to us because of death, “disability,” “redundancy” or “retirement” (as such terms are defined in the award agreement or the LTIP, as applicable), or if an employee subject to an employment agreement is terminated by us for any reason other than for “cause” or leaves for “good reason” (as such terms are defined in the relevant employment agreement).  In addition, the awards will fully vest if an employee is terminated without cause (or leaves for good reason, if the employee is subject to an employment agreement) within two years after a “change in control” (as such term is defined in the LTIP) occurs.

 

The restricted stock units granted to our directors generally vest upon their resignation or retirement (except for a removal for cause) or upon certain events constituting a “change in control” (as such term is defined in the award agreement).  They will pro-rata vest if a director resigns or retires within one year of the date of grant.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Restricted Stock Units

 

We have granted restricted stock units under the LTIP to eligible employees and non-employee directors.  A summary of restricted stock unit award activity is as follows (in thousands, except per share amounts):

 

 

 

Number of
Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

 

 

 

 

(per share)

 

Non-vested units as of January 1, 2019

 

2,861

 

$

3.34

 

Granted

 

 

$

 

Forfeited

 

(55

)

$

3.43

 

Vested

 

(1,180

)

$

2.00

 

Non-vested units as of March 31, 2019

 

1,626

 

$

4.31

 

 

As of March 31, 2019, unrecognized compensation cost related to restricted stock awards was $1.8 million, which will be recognized over a weighted-average period of 1.6 years prior to vesting, which is included within Additional paid-in capital in our Unaudited Condensed Consolidated Balance Sheets.  These awards are ultimately delivered in common stock and are classified as equity awards.

 

Performance Share Units

 

Performance share units represent the right to receive a number of shares of common stock (or the equivalent cash value thereof) based on the achievement of targeted performance levels related to pre-established total stockholder return goals over a three-year period, and pay out may range from 0% to 200% of the targeted share number.

 

In previous years, the performance share units were settled in shares of common stock and the grant date fair value of the awards was calculated using a Monte Carlo simulation and amortized over the performance period.  The 2016 grants were expected to be settled in cash upon any vesting in March 2019, and therefore, were accounted for as a liability award and were included within Accrued expenses in the Unaudited Condensed Consolidated Balance Sheets and marked to market on a quarterly basis.  This award did not achieve its performance target related to total shareholder return and therefore the payout was zero.  As such, all compensation expense associated with the 2016 PSUs was reversed in December 2018.

 

The weighted-average grant date fair values of the performance share units granted during the year ended December 31, 2018 was $4.05 per share.  As of March 31, 2019, $3.5 million of unrecognized compensation cost, which represents the unvested portion of the fair market value of performance share units granted, is expected to be recognized over a weighted-average vesting period of 1.6 years.

 

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

A summary of performance share unit award activity is as follows (in thousands, except per share amounts):

 

 

 

Number of
Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

 

 

 

 

(per share)

 

Non-vested units as of January 1, 2019

 

3,928

 

$

3.33

 

Granted

 

 

$

 

Forfeited

 

(76

)

$

4.27

 

Canceled

 

(2,075

)

$

1.95

 

Non-vested units as of March 31, 2019

 

1,777

 

$

4.90

 

 

17.  Commitments and Contingencies

 

Commitments

 

Purchase Commitments (1)

 

We had outstanding purchase commitments consisting of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Capital Commitments

 

 

 

 

 

Equipment

 

$

2,951

 

$

1,861

 

 


(1)           See Note 5 for information regarding Transportation Commitments.

 

Contingencies

 

Litigation

 

Administrative Appeals of the BLM’s Approval of the West Antelope II South Lease Modification

 

Background—On February 1, 2, and 5, 2018, the Powder River Basin Resource Council (“PRBRC”), the Sierra Club, and WildEarth Guardians (“WildEarth”), respectively, filed separate appeals with the Interior Board of Land Appeals (“IBLA”) challenging the Deputy State Wyoming BLM Director’s November 11, 2017 decision, which was publicly noticed on Bureau of Land Management’s (“BLM”) website on January 5, 2018 (“2018 BLM Decision”), to approve Antelope Coal LLC’s (“Antelope Coal”) proposed modification of Antelope Coal’s West Antelope II South (“WAII South”) lease.  Antelope Coal is a 100% owned subsidiary of Cloud Peak Energy.  The 2018 BLM Decision that is the subject of all three appeals approves the proposed amendment of WAII South lease.  This lease modification, which was entered into on February 1, 2018, by BLM and Antelope Coal, adds coal underlying nearly 857 surface acres to Antelope Coal’s existing federal leases.  PRBRC, the Sierra Club, and WildEarth have asked the IBLA to vacate the 2018 BLM Decision and direct the BLM to prepare additional environmental analysis on the impacts of the lease modification.

 

The 2018 BLM Decision was issued after a previous August 15, 2014 decision (“2014 BLM Decision”) had been set aside by the IBLA following previous administrative appeals filed by PRBRC, WildEarth, and the Sierra Club.  On February 7, 2017, the IBLA issued a decision setting aside the 2014 BLM Decision to issue the

 

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WAII South lease modification and remanding that decision to BLM on the narrow ground that the Wyoming High Plains District Manager lacked the appropriate delegation of authority to approve such a leasing decision.  The IBLA specifically declined to address the merits of WildEarth’s and PRBRC’s claims challenging whether BLM’s underlying environmental analysis was sufficient to support the agency’s lease modification decision.  On April 10, 2017, BLM filed a petition with the Director of the Department of Interior’s Office of Hearings and Appeals (the “OHA Director”) asking the OHA Director to reverse the IBLA’s February 7, 2017 decision and remand to the IBLA with instructions to decide the merits of the underlying WildEarth and PRBRC appeals.  On September 11, 2017, after full briefing by the parties, the OHA Director denied BLM’s Petition for OHA Director Review thereby concluding the appeals and giving full force and effect to the IBLA’s February 7, 2017 order remanding the matter to BLM and providing BLM with broad discretion on how to proceed.  Upon remand, the BLM reapproved the WAII South lease modification through the 2018 BLM Decision.

 

Intervention by Cloud Peak Energy and State of Wyoming—On February 16 and March 5, 2018, Antelope Coal and the State of Wyoming, respectively, moved to intervene in the PRBRC, WildEarth, and Sierra Club appeals as respondents to defend the 2018 BLM Decision.  On April 10, 2018, the IBLA granted both motions to intervene.

 

Current Schedule.  On March 21, 2018, BLM filed a Motion to Dismiss the Sierra Club appeal due to the Sierra Club’s failure to file a Statement of Reasons by the briefing deadline.  On February 27 and March 5, 2018, PRBRC and WildEarth, respectively, each filed a Statement of Reasons in their appeals.  On March 29, March 30, and April 2, 2018, the State of Wyoming, BLM, and Antelope Coal, respectively, filed Answer briefs in the PRBRC appeal.  On April 3, 5, and 9, 2018, the State of Wyoming, BLM, and Antelope Coal, respectively, filed Answer briefs in the WildEarth appeal.  On April 11, 2018, PRBRC filed a reply brief and on April 12, 2018, BLM filed a clarification to PRBRC’s Reply Brief.  On June 6, 2018, the IBLA denied BLM’s motion to dismiss Sierra Club’s appeal and instead rejected Sierra Club’s appeal on the merits and affirmed the underlying 2018 BLM’s Decision.  The IBLA has not yet ruled on the PRBRC or WildEarth appeals.

 

We believe the PRBRC and WildEarth pending appeals challenging the BLM’s West Antelope II South lease modification Decision Record are without merit.  Nevertheless, if the appellants’ claims are successful, the timing and ability of Cloud Peak Energy to mine the coal underlying the lease modification surface acres could be materially adversely impacted.  We are unable to estimate a loss or range of loss for this contingency because (1) the challenges do not seek monetary relief, (2) the nature of the relief sought is to require the regulatory agency to address alleged deficiencies in complying with applicable regulatory and legal requirements and (3) even if the challenges are successful in whole or in part, the IBLA has broad discretion in determining the nature of the relief ultimately granted.

 

WildEarth’s Regulatory Challenge to OSM’s Approval Process for Antelope Mine Plan

 

Background—On September 15, 2015, WildEarth filed a complaint in the Colorado District Court challenging the Department of Interior’s and Office of Surface Mining Reclamation and Enforcement’s (collectively, “OSM”) approvals of mine plans for four different coal mines, one of which is located in Colorado and three of which are located in Wyoming.  The challenged approvals included one mine plan modification that was issued to Antelope Coal for the Antelope Mine in Wyoming.  The plaintiff seeks to vacate existing, required regulatory approvals and to enjoin mining operations at Antelope Mine.

 

Intervention by Cloud Peak Energy and Others—In November and December of 2015, the State of Wyoming and all the operators of the mines whose mine plans are being challenged—Antelope Coal, New Mexico Coal Resources, LLC, Bowie Resources, LLC, and Thunder Basin Coal, L.L.C., moved to intervene as Defendants to defend the challenged mine plans.  On February 18, 2016, the Colorado District Court granted all the parties’ intervention motions.

 

Current Schedule—On November 25, 2015, the OSM filed a motion to sever WildEarth’s complaint and transfer those claims against the two Wyoming mines (Antelope and Black Thunder) to the District of Wyoming

 

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and the New Mexico mine (El Segundo) to the District of New Mexico.  Each of the prospective intervenors filed conditional responses in support of OSM’s transfer motion, and WildEarth filed an opposition to OSM’s transfer motion.  On June 17, 2016, the Colorado District Court granted OSM’s motion to sever and transfer WildEarth’s claims against the Antelope and Black Thunder mine plans to the District of Wyoming and the El Segundo mine plan to the District of New Mexico.  The challenges against the Antelope and Black Thunder mine plans, which are docketed as separate cases, have both been assigned to Judge Johnson of the District of Wyoming.  Because Antelope Coal and Wyoming had each been granted intervention by the Colorado District Court, the Wyoming District Court acknowledged both parties as Intervenor-Defendants after WildEarth’s challenge to the Antelope Mine was transferred to the District of Wyoming.  On October 7, 2016, OSM filed its administrative record for the case challenging the Antelope mine plan.  On October 21, 2016, WildEarth filed a motion to supplement the administrative record with three administrative documents prepared by other federal agencies.  On November 4, 2016, OSM and Antelope Coal each filed opposition briefs.  On December 1, 2016, after full briefing, the court denied WildEarth’s motion to supplement the record.  WildEarth filed its opening merits brief on January 27, 2017.  Opposition briefs by OSM, Antelope Coal, and the State of Wyoming were filed April 5, 2017.  On June 2, 2017, WildEarth filed its reply brief.  On August 22, 2017 and September 20, 2017, WildEarth filed two separate notices of supplemental authority.  OSM and Antelope Coal each filed responses to WildEarth’s first notice on September 6, 2017 and September 21, 2017, respectively.  Antelope Coal and the State of Wyoming filed a joint response to WildEarth’s second notice on October 27, 2017.  The merits briefing has been completed and the parties are awaiting a decision from the court.

 

We believe WildEarth’s challenge is without merit.  Nevertheless, if WildEarth’s claims against OSM’s approval of the Antelope mine plan modification are successful, any court order granting the requested relief could have a material adverse impact on our shipments, financial results and liquidity, and could result in claims from third parties if we are unable to meet our commitments under pre-existing commercial agreements as a result of any required reductions or modifications to our mining activities.  We are unable to estimate a loss or range of loss for this contingency because (1) the challenge does not seek monetary relief, (2) the nature of the relief sought is to require the regulatory agency to address alleged deficiencies in complying with applicable regulatory and legal requirements and (3) even if the challenges are successful in whole or in part, the court has broad discretion in determining the nature of the relief ultimately granted.

 

WildEarth’s Regulatory Challenge to OSM’s Approval Process for Spring Creek Mine Plan

 

Background—On June 8, 2017, WildEarth and the Montana Environmental Information Center (“MEIC”) filed a complaint in the Montana District Court challenging OSM’s re-approval of a mine plan modification that was issued to Cloud Peak Energy for the Spring Creek Mine in Montana.  WildEarth and MEIC seek to vacate existing, required regulatory approvals and to enjoin mining operations at the Spring Creek Mine.

 

Intervention by Spring Creek Coal—On August 31, 2017, Spring Creek Coal LLC moved to intervene in the WildEarth and MEIC’s challenge to the mine plan.  On September 26, 2017, the court granted Spring Creek Coal’s intervention motion.

 

Current Schedule— OSM answered the plaintiffs’ complaint on August 24, 2017.  OSM lodged the administrative record with the court and served the record on all parties on January 17, 2018.  Plaintiffs filed their motion for summary judgment on April 6, 2018.  Federal Defendants filed their response and cross motion for summary judgment on June 1, 2018; and Spring Creek filed its opposition and cross motion on June 6, 2018.  Plaintiffs filed their reply brief on June 29, 2018 and the reply briefs for the Federal Defendants and Spring Creek were filed on July 23, 2018 and July 25, 2018, respectively.  On February 11, 2019, Magistrate Judge Cavan issued his Findings of Fact and Recommendations of Law (“Magistrate’s Order”) finding that OSM had failed to fully analyze the environmental impacts of approving the Spring Creek mining plan.  He did not recommend vacatur of the current mine plan, but instead recommended that OSM be given 240 days to prepare a supplemental environmental analysis to address several alleged deficiencies while the current mine plan remains in effect.  On March 21, 2019, the parties filed their briefs with objections to the Magistrate’s Order with District

 

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Judge Watters.  The parties all filed their responses to the other parties’ objections with District Judge Watters on April 22, 2019.  The briefing is now completed and the parties are awaiting a decision from the court.

 

We believe WildEarth’s and MEIC’s challenge is without merit.  Nevertheless, if WildEarth’s and MEIC’s claims against OSM’s approval of the Spring Creek mine plan modification are successful, any court order granting the requested relief could have a material adverse impact on our shipments, financial results and liquidity, and could result in claims from third parties if we are unable to meet our commitments under pre-existing commercial agreements as a result of any required reductions or modifications to our mining activities.  We are unable to estimate a loss or range of loss for this contingency because (1) the challenge does not seek monetary relief, (2) the nature of the relief sought is to require the regulatory agency to address alleged deficiencies in complying with applicable regulatory and legal requirements and (3) even if the challenges are successful in whole or in part, the court has broad discretion in determining the nature of the relief ultimately granted, including whether to adopt in whole or in part Magistrate Judge Cavan’s recommendation that the current mine plan should remain in place while OSM prepares a supplemental environmental analysis.

 

WildEarth’s Appeal of OSM Decision Denying Request for Informal Review of Inspection Request at Spring Creek Mine.

 

Background—On April 23, 2019, WildEarth filed an appeal with the IBLA challenging OSM’s denial of WildEarth’s request that OSM inspect and issue a cessation order to Spring Creek Mine alleging that OSM should not permit Spring Creek to continue mining coal from a federal lease that WildEarth believes was improperly issued by the BLM ten years ago.  OSM had previously denied two previous requests by WildEarth (one to the local OSM office and another to the Western Regional OSM Director) asking for the same relief.  OSM rejected WildEarth’s request on the basis that there was no reason to believe any violation had occurred at the Spring Creek Mine.

 

Current Schedule—WildEarth has until May 13, 2019 to file its Statement of Reasons setting forth the factual and legal basis for its appeal.

 

We believe the WildEarth appeal challenging OSM’s denial of WildEarth’s inspection and cessation request are without merit.  Nevertheless, if WildEarth’s appeal is successful, the timing and ability of Cloud Peak Energy to mine the coal underlying the affected lease at the Spring Creek Mine could be materially adversely impacted.  We are unable to estimate a loss or range of loss for this contingency because (1) WildEarth has not yet set forth the factual and legal basis of its appeal and has not yet pled any specific request for relief, (2) the appeal does not seek monetary relief, and (3) even if the appeal is successful in whole or in part, the IBLA has broad discretion in determining the nature of the relief ultimately granted.

 

California Climate Change Litigation

 

Background—On July 17, 2017, three California local governments filed separate but largely identical complaints in California Superior Court, naming numerous fossil fuel companies as defendants (together, the “California Climate Change Litigation”).  The Plaintiffs are the County of San Mateo, the County of Marin, and the City of Imperial Beach.  Defendants include Rio Tinto PLC, Rio Tinto LTD, Rio Tinto Energy America Inc., Rio Tinto Minerals Inc., Rio Tinto Services Inc., Chevron Corp., Chevron U.S.A. Inc., ExxonMobil Corp, BP P.L.C., BP America, Inc., Royal Dutch Shell Company LLC, Citgo Petroleum Corp., ConocoPhillips, ConocoPhillips Company, Phillips 66, Peabody Energy Corp., Total E&P USA Inc., Total Specialties USA Inc., Arch Coal, Inc., ENI S.p.A., ENI Oil & Gas Inc., Statoil ASA, Anadarko Petroleum Corp., Occidental Petroleum Corp., Repsol S.A., Repsol Energy North America Corp., Repsol Trading USA Corp., Marathon Oil Company, Marathon Oil Corporation, Marathon Petroleum Corp., Hess Corp., Devon Energy Corp., Devon Energy Production Company, L.P., Encana Corp., and Apache Corp.  Cloud Peak Energy is not a named defendant.

 

By way of summary only, Plaintiffs allege that defendants knowingly contributed to GHG emissions through the production and sale of fossil fuels that have adversely impacted the environment, thereby creating

 

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financial liabilities for the plaintiffs.  Plaintiffs also allege that defendants engaged in a coordinated effort to conceal and deny their own knowledge of those climate change threats, discredit scientific evidence and create doubt in the minds of customers, consumers, regulators, the media, journalists, teachers and the public about the consequences of the impacts of their fossil fuel pollution.  Based on these allegations, plaintiffs assert that defendants are liable under various causes of action including public nuisance, failure to warn, design defect, private nuisance, negligence, and trespass.  Plaintiffs seek unspecified compensatory damages, equitable relief to abate the alleged nuisances, attorneys’ fees, punitive damages, disgorgement of profits, costs of suit and other relief as the court may deem proper.

 

Indemnity Sought From Cloud Peak Energy by Rio Tinto—In August 2017, Cloud Peak Energy received a notice from various Rio Tinto entities, including Rio Tinto Energy America Inc., Rio Tinto Minerals Inc., and Rio Tinto Services Inc., seeking indemnification from Cloud Peak Energy for liabilities in connection with the California Climate Change Litigation.  Cloud Peak Energy entered into various agreements with Rio Tinto and its affiliates in connection with the 2009 IPO and separation from Rio Tinto.  Under the Master Separation Agreement, Cloud Peak Energy agreed to indemnify Rio Tinto for certain liabilities relating to Cloud Peak Energy’s business conducted prior to and after the closing of our separation from Rio Tinto, which may potentially include liabilities in connection with the California Climate Change Litigation.

 

Current Schedule — On July 17, 2017, Plaintiffs filed their lawsuits in the Superior Court of the State of California for the County of San Mateo, the Superior Court of the State of California for the County of Marin, and the Superior Court for the County of Contra Costa, respectively.  On August 24, 2017, the cases were removed to the U.S. District Court for the Northern District of California (the “Court”), where they were deemed related and assigned to Judge Vince Chhabria.  Plaintiffs indicated that they intended to move to remand the cases back to state court, and the parties stipulated that Defendants would not be required to respond to the complaints until the Court ruled on the motion to remand.  The Court signed that Stipulation and Order on September 22, 2017.  On September 25, 2017, Plaintiffs filed their motion to remand.  The Court granted Plaintiffs’ motion to remand on March 16, 2018.  On March 26, 2018, Defendants filed (1) a Notice of Appeal to the U.S. Court of Appeals for the Ninth Circuit relating to the District Court’s order granting remand, and (2) a motion to stay the remand order pending appeal.  On April 9, 2018, Judge Chhabria granted Defendants’ motion to stay the remand order pending appeal.  On June 6, 2018, Plaintiffs filed a motion to partially dismiss Defendants’ appeal, arguing the Court of Appeals lacked jurisdiction to consider certain aspects of the remand order.  Defendants opposed the motion.  On August 20, 2018, the Ninth Circuit motions panel referred Plaintiffs’ motion to partially dismiss to the merits panel for decision, and set a schedule for briefing on the merits.  Defendants’ filed their opening brief on November 21, 2018 and Plaintiffs’ filed their answering brief on January 22, 2019; Defendants filed their reply brief on March 14, 2019.  The Ninth Circuit has not set a date for oral argument.

 

If the Plaintiffs were to prevail in the California Climate Change Litigation and if we are required to indemnify Rio Tinto for any portion of the resulting liabilities, those amounts could be significant and could have a material adverse impact on our financial condition, results and liquidity.  We are unable to estimate a loss or range of loss for this contingency because of the broad claims and unspecified damages alleged by the plaintiffs against a significant number of defendants and because of the early stage of the California Climate Change Litigation.

 

Challenge to BLM’s Approval of Revised Resource Management Plans for MT and WY

 

BackgroundOn March 15, 2016, a group of environmental plaintiffs—Western Organization of Resource Councils, Montana Environmental Information Center, Powder River Basin Resource Council, Northern Plains Resource Council, Sierra Club, and Natural Resources Defense Council—filed a complaint in the U.S. District Court for Montana challenging the BLM’s September 2015 approval of the Miles City, MT and Buffalo, WY, revised Resource Management Plans (“RMPs”).  The Plaintiffs seek to vacate the 2015 RMPs, require BLM to undertake supplemental environmental analysis under the National Environmental Policy Act (“NEPA”), and enjoin BLM and the federal defendants from approving any new leases or project permits for coal or oil and gas resources within the two planning areas until BLM prepares a new NEPA analysis and revises its RMPs.

 

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Intervention by Cloud Peak Energy and OthersIn February, March, and April, 2017, Cloud Peak Energy, the State of Wyoming, and Peabody Caballo Mining, LLC and BTU Western Resources, Inc. (“Peabody”), respectively, moved to intervene in the case.  The court granted all the parties intervention motions in March (Cloud Peak) and April (Wyoming and Peabody), 2017.

 

Current ScheduleOn March 26, 2018, the court issued an Amended Opinion and Order (revising the court’s March 23, 2018 Order) granting the Plaintiffs’ Cross-Motion for Summary Judgment on three claims and granting Defendants’ and Defendant-Intervenors’ Cross-Motions for Summary Judgment on three claims.  The court held that BLM must prepare supplemental environmental impact statements for both the Miles City and Buffalo RMPs.  The court also directed BLM to incorporate the court’s conclusions in any pending or future coal or oil and gas leases or permits in the Miles City and Buffalo planning areas until BLM completes the supplemental NEPA analysis for both RMPs.  The court further ordered the parties to meet and confer in good faith in an attempt to reach an agreement regarding the appropriate remedy.  The parties were ordered to submit separate briefs to the court by May 25, 2018 recommending appropriate remedies in light of the court’s March 26th Order if they could not reach a voluntary agreement on remedy.

 

The parties were unable to reach agreement on the appropriate remedy and each filed a separate remedy brief on May 25, 2018.  On June 14, 2018, Federal Defendants and Defendant- Intervenors each filed a motion seeking the court’s leave to file a brief in response to Plaintiffs’ remedies brief.  Plaintiffs filed a joint opposition brief to these motions on June 28, 2018.  On July 31, 2018, the court issued a final remedy order that directed BLM to complete a new remedial environmental analysis (and related coal screening) by November 29, 2019.  During the pendency of that supplemental analysis, BLM is also ordered to undertake a comprehensive environmental analysis for any new coal or oil & gas leasing decision in compliance with the court’s March 26, 2018 Order.  The court rejected Plaintiffs request for injunctive relief that would have impacted mining operations during the completion of BLM’s supplemental environmental analysis.

 

On August 1, 2018, the court entered judgment for the Plaintiffs on Claims 1, 3, and 5 of their complaint, and for Defendants and Defendant-Intervenors (including Cloud Peak Energy) on Claims 2, 4, and 6 of Plaintiffs’ complaint.  The court’s judgment also implemented the court’s July 31, 2018 remedy order.  On October 1, 2018, BLM filed a protective notice of appeal in the Montana District Court appealing that court’s August 1, 2018 judgment to the U.S. Court of Appeals for the Ninth Circuit.  On October 11, 2018, the State of Wyoming filed a notice of appeal.  On October 12, 2018, Plaintiffs filed a notice of cross-appeal.  On October 15, 2018, Cloud Peak and Peabody each filed notices of appeal. On January 2, 2019, the Ninth Circuit issued an order granting the Federal Defendants’ and other parties’ motions to dismiss each of their appeals, thereby concluding all the parties’ appeals.  On November 28, 2018, BLM published in the Federal Register administrative notices of intent to prepare the supplemental environmental analyses for the Buffalo, WY and Miles City, MT RMPs as directed by the Montana District Court.

 

We believe the Plaintiffs’ challenge is without merit.  While the court ordered BLM to prepare supplemental environmental analyses for each RMP, it declined to grant any remedy that would disrupt or adversely impact the operations at any of the coal mines (including our mines) within the two planning areas.  Nevertheless, if Plaintiffs decided to challenge any subsequent planning decisions by BLM, and if they were successful in obtaining remedies adversely impacting the operations at any of our mines, the timing and our ability to obtain leases and permit approvals could be materially adversely impacted.

 

Other Legal Proceedings

 

We are involved in other legal proceedings arising in the ordinary course of business and may become involved in additional proceedings from time to time.  We believe that there are no other legal proceedings pending that are likely to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.  Nevertheless, we cannot predict the impact of future developments affecting our claims and lawsuits, and any resolution of a claim or lawsuit or an accrual within a particular fiscal period may materially and adversely impact our results of operations for that period.  In addition to claims and lawsuits against us, our

 

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leases by application, leases by modification, permits, and other industry regulatory processes and approvals, including those applicable to the utility and coal logistics and transportation industries, may also continue to be subject to legal challenges that could materially and adversely impact our mining operations, results, and liquidity.  These regulatory challenges may seek to vacate prior regulatory decisions and authorizations that are legally required for some or all of our current or planned mining activities.  If we are required to reduce or modify our mining activities as a result of these challenges, the impact could have a material adverse effect on our shipments, financial results and liquidity, and could result in claims from third parties if we are unable to meet our commitments under pre-existing commercial agreements as a result of any such required reductions or modifications to our mining activities.

 

Most of our pending legal proceedings have been stayed as a result of filing the Bankruptcy Petitions on May 10, 2019 and the effect of the automatic stay.

 

Effect of Automatic Stay

 

Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases automatically stayed the continuation of most legal proceedings or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim.  Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

 

Tax Contingencies

 

Our income tax calculations are based on application of the respective U.S. federal or state tax laws.  Our tax filings, however, are subject to audit by the respective tax authorities.  Accordingly, we recognize tax benefits when it is more likely than not a position will be upheld by the tax authorities.  To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense.

 

Several non-income based production tax audits related to federal and state royalties and severance taxes are currently in progress.  The financial statements reflect our best estimate of taxes and related interest and penalties due for potential adjustments that may result from the resolution of such tax audits.  From time to time, we receive audit assessments and engage in settlement discussions with applicable tax authorities, which may result in adjustments to our estimates of taxes and related interest and penalties.

 

Concentrations of Risk and Major Customers

 

For the three months ended March 31, 2019, there was one customer that represented 10% or more of consolidated revenue.  For the three months ended March 31, 2018, there was no single customer that represented 10% or more of consolidated revenue.  We generally do not require collateral or other security on accounts receivable because our customers are comprised primarily of investment grade electric utilities.  Credit risk is controlled through credit approvals and monitoring procedures.

 

Guarantees and Off-Balance Sheet Risk

 

In the normal course of business, we are party to guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit, performance or surety bonds and indemnities, which are not reflected on the Unaudited Condensed Consolidated Balance Sheets.  In our past experience, virtually no claims have been made against these financial instruments.  Management does not expect any material losses to result from these guarantees or off-balance sheet instruments.

 

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U.S. federal and state laws require we secure certain of our obligations to reclaim lands used for mining and to secure coal lease obligations.  The primary method we have used to meet these reclamation obligations and to secure coal lease obligations is to provide a third-party surety bond, typically through an insurance company.  Specific bond amounts may change over time, depending on the activity at the respective site and any specific requirements by federal or state laws.  As of March 31, 2019, we had $407.3 million of reclamation and lease bonds backed by collateral of $25.7 million in the form of letters of credit under our A/R Securitization Program used for mining, securing coal lease obligations, and for other operating requirements.  We have self-bonded, by cash collateralizing, an additional $1.7 million in April 2019.  If we are unable to obtain or retain required surety bonds, we may be unable to satisfy legal requirements necessary to conduct our mining operations.

 

18.  Accumulated Other Comprehensive Income (Loss)

 

The changes in AOCI related to our postretirement medical plan by component, net of tax are as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Beginning balance, January 1,

 

$

13,284

 

$

13,807

 

Amounts reclassified from accumulated

 

 

 

 

 

other comprehensive income (loss)

 

(1,351

)

(1,415

)

Postretirement medical plan change

 

 

 

Tax expense (benefit)

 

(404

)

(422

)

Net current period other comprehensive income (loss)

 

(1,755

)

(1,837

)

Ending balance, March 31,

 

$

11,529

 

$

11,969

 

 

The reclassifications out of AOCI are as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Postretirement Medical Plan (1)

 

 

 

 

 

Amortization of prior service costs (credits), before tax (2)

 

$

 

$

(1,837

)

Postretirement medical plan termination (2)

 

(1,755

)

 

Total before tax

 

(1,755

)

(1,837

)

Tax expense (benefit)

 

404

 

422

 

Amounts reclassified from AOCI

 

$

(1,351

)

$

(1,415

)

 


(1)                                 See Note 15 for the components of our net periodic postretirement benefit costs.

(2)                                 Presented on the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

 

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19.  Supplemental Cash Flow Information

 

Restricted Cash

 

The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported in the Unaudited Condensed Consolidated Balance Sheets as of March 31, 2019 and 2018 that sum to the total of such amounts in the Unaudited Condensed Consolidated Statements of Cash Flows:

 

 

 

March 31,

 

 

 

2019

 

2018

 

Cash and cash equivalents

 

$

43,633

 

$

127,796

 

Restricted cash in other current assets

 

725

 

725

 

Restricted cash in other noncurrent assets

 

18,407

 

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

62,765

 

$

128,521

 

 

The restricted cash in other noncurrent assets represents the difference between the borrowing capacity of the A/R Securitization Program and the undrawn face amount of the letters of credit that was cash-collateralized as of March 31, 2019 based on the prior business day’s calculation.

 

Other Cash Flow Information

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Supplemental cash flow disclosures

 

 

 

 

 

Interest paid

 

$

770

 

$

2,835

 

Income taxes paid (refunded)

 

$

(5

)

$

(24

)

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

Operating cash flows from operating leases

 

$

(267

)

$

 

Operating cash flows from finance leases

 

$

(26

)

$

 

 

 

 

 

 

 

Supplemental non-cash investing and financing activities

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

196

 

$

851

 

Assets acquired under federal coal lease

 

$

 

$

2,356

 

Operating right-of-use assets recognized

 

$

1,606

 

$

 

Impairment of right-of-use asset

 

$

(104

)

$

 

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

20.  Supplemental Guarantor/Non-Guarantor Financial Information

 

In accordance with the indentures governing the senior notes outstanding as of March 31, 2019, CPE Inc. and certain of our 100% owned U.S. subsidiaries (the “Guarantor Subsidiaries”) have fully and unconditionally guaranteed the senior notes on a joint and several basis.  These guarantees of either series of senior notes are subject to release in the following customary circumstances:

 

·                  a sale or other disposition (including by way of consolidation or merger or otherwise) of the Guarantor Subsidiary or the sale or other disposition of all or substantially all the assets of the Guarantor Subsidiary (other than to CPE Inc. or a Restricted Subsidiary (as defined in the applicable indenture) of CPE Inc.) otherwise not in violation of  the applicable indenture;

 

·                  a disposition of the majority of the capital stock of a Guarantor Subsidiary to a third person otherwise not in violation of the applicable indenture, after which the applicable Guarantor Subsidiary is no longer a Restricted Subsidiary;

 

·                  upon a liquidation or dissolution of a Guarantor Subsidiary so long as no default under the applicable indenture occurs as a result thereof;

 

·                  the designation in accordance with the applicable indenture of the Guarantor Subsidiary as an Unrestricted Subsidiary or the Guarantor Subsidiary otherwise ceases to be a Restricted Subsidiary of CPE Inc. in accordance with the applicable indenture;

 

·                  defeasance or discharge of such series of senior notes;

 

·                  the release, other than the discharge through payment by the Guarantor Subsidiary, of all other guarantees by such Restricted Subsidiary of Debt (as defined in the applicable indenture) of either issuer of the senior notes or the debt of another Guarantor Subsidiary under the Amended Credit Agreement; or

 

·                  in the case of the indenture for the 2021 Notes, as set forth in the First Lien/Second Lien Intercreditor Agreement, dated October 17, 2016, among CPE Resources, Cloud Peak Energy Finance Corp., PNC Bank, National Association, as Senior Representative for the First Lien Credit Agreement Secured Parties and Wilmington Trust, National Association, as the Second Priority Representative for the Second Lien Indenture Secured Parties.

 

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