Patriot Coal Corporation (fka PCXCQ)

[marayatano]

Patriot’s Hatfield: 88 percent of retirees never worked for Patriot
May 1, 2013, 2:38pm CDT Updated: May 1, 2013, 3:32pm CDT


Patriot Coal CEO Ben Hatfield said Wednesday morning during testimony in the company’s bankruptcy hearing that 88 percent of Patriot’s retirees never worked for Patriot.

Of Patriot's retirees and their dependents, 49 percent are former Peabody Energy employees and their dependents, 39 percent are former Magnum Coal employees and their dependents and 12 percent are former Patriot employees and their dependents.

He said the company was saddled with "inordinate liabilities" when it was spun off from St. Louis-based Peabody Energy in 2007.

Patriot filed for Chapter 11 bankruptcy protection in July 2012. It had assumed most of its legacy liabilities during the spinoff, and it also acquired retiree liabilities when it bought Magnum Coal in 2008. Magnum had purchased certain assets that were at one time owned by Arch Coal, also based in St. Louis.

Hatfield’s testimony in U.S. Bankruptcy Court in St. Louis included factors that led to Patriot’s bankruptcy, cost savings the company has made and details of negotiations with the United Mine Workers of America.

Hatfield said the current coal market is the worst he has seen in his 30 years in the business: In early 2012, demand plummeted and coal prices dropped. Lower natural gas prices coupled with a mild winter forced Patriot to dramatically downsize, Hatfield said. Prices offered for coal were significantly below production costs.

Patriot (OTC: PCXCQ) reported a net loss of $730.6 million in 2012 on $1.92 billion in revenue.

The company reduced costs by cutting jobs, reducing production, decreasing salaries for nonunion employees, renegotiating contracts, and requiring nonunion and salaried employees to pay more of their health care premiums, he said.

(Page 2 of 2)

Of the $62 million Patriot realized in cost savings, about $31 million will be used for incentives for mine supervisors, management, department heads, the executive team and other management employees, Hatfield said The company needs to offer an incentive program in order to retain those employees and keep the mines running, he said.

Also during testimony, Hatfield described his negotiations with the UMWA to come to an agreement on changes to wages, benefits and pensions for union employees and changes on health care benefits for union retirees.

Patriot is looking for $150 million in annual savings, and the union was initially offering deals that would result in about 10 percent of that, Hatfield said.

Patriot’s costs per employee associated with post-employment benefits are $393,000, which Hatfield said is much higher than that of its competitors. Peabody Energy's costs per employee associated with post-employment benefits are $125 million, while Arch Coal's are $8 million, according to a slide Hatfield presented in court.

Patriot’s newest proposal would give the union a 35 percent equity stake in the reorganized coal company and $15 million in profit sharing and would send future proceeds from litigation and royalty payments to a Voluntary Employee Beneficiary Association Trust.

“If we don’t get the savings that we are targeting, I see no future for this company besides liquidation,” Hatfield said.

Arthur Traynor, a UMWA lawyer, and Srinivas Akunuri, a principal at PricewaterhouseCoopers LLP who is working as a consultant and advisor for the union, are expected to testify in the case Wednesday afternoon.

http://www.bizjournals.com/stlouis/blog/2013/05/patriots-hatfield-88-percent-of.html?page=2