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 September 30, 2019

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		(I.R.S. Employer
incorporation or organization)		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)

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

Title of each class		Trading Symbol(s)		Name of each Exchange on which registered

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	x	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

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, 76,508,294 shares outstanding as of October 11, 2019.

Table of Contents

CLOUD PEAK ENERGY INC.

TABLE OF CONTENTS

		Page
	PART I — FINANCIAL INFORMATION

Item 1	Financial Statements —
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018	1
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	2
	Unaudited Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2019 and 2018	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6

Cautionary Notice Regarding Forward-Looking Statements		57

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	61
Item 3	Quantitative and Qualitative Disclosures About Market Risk	91
Item 4	Controls and Procedures	92

	PART II — OTHER INFORMATION

Item 1	Legal Proceedings	94
Item 1A	Risk Factors	94
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	99
Item 3	Defaults Upon Senior Securities	99
Item 4	Mine Safety Disclosures	100
Item 5	Other Information	100
Item 6	Exhibits	100

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.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CLOUD PEAK ENERGY INC. (DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenue (Note 3)	$	220,227		$	233,080		$	533,755		$	655,087
Costs and expenses
Cost of product sold (exclusive of depreciation, depletion, and accretion)	194,999			208,504			517,805			597,448
Depreciation and depletion	(2,488		)	17,392			20,095			46,788
Accretion	1,699			1,947			4,796			5,359
(Gain) loss on derivative financial instruments	—			(730		)	(1,809		)	(730		)
Selling, general and administrative expenses	7,971			5,101			41,507			25,393
Impairments (Note 6)	—			—			621,005			800
Other operating costs	101			149			451			331
Total costs and expenses	202,282			232,363			1,203,850			675,389
Operating income (loss)	17,945			717			(670,095		)	(20,302		)
Other income (expense)
Net periodic postretirement benefit income (cost), excluding service cost	1,755			20,016			5,264			23,251
Interest income	241			304			634			841
Interest expense (contractual interest of $11.4 million and $32 million for the three and nine months ended September 30, 2019, respectively)	(2,027		)	(8,411		)	(14,801		)	(28,141		)
Reorganization items, net (Note 7)	(13,152		)	—			24,038			—
Other, net	(8		)	67			(505		)	(535		)
Total other income (expense)	(13,191		)	11,976			14,630			(4,584		)
Income (loss) before income tax provision and earnings from unconsolidated affiliates	4,754			12,693			(655,465		)	(24,886		)
Income tax benefit (expense)	(12		)	(5		)	(85		)	(302		)
Income (loss) from unconsolidated affiliates, net of tax	24			3			890			269
Net income (loss)	4,766			12,691			(654,660		)	(24,919		)
Other comprehensive income (loss)
Postretirement medical plan amortization of prior service costs	—			(612		)	—			(4,287		)
Postretirement medical plan change	—			24,659			—			24,659
Postretirement medical plan termination	(1,755		)	(19,477		)	(5,264		)	(19,477		)
Other comprehensive income (loss)	(1,755		)	4,570			(5,264		)	895
Total comprehensive income (loss)	$	3,011		$	17,261		$	(659,924	)	$	(24,024	)
Income (loss) per common share:
Basic	$	0.06		$	0.17		$	(8.57	)	$	(0.33	)
Diluted	$	0.06		$	0.16		$	(8.57	)	$	(0.33	)
Weighted-average shares outstanding - basic	76,508			75,778			76,347			75,623
Weighted-average shares outstanding - diluted	77,017			77,283			76,347			75,623

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

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CLOUD PEAK ENERGY INC. (DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30,			December 31,
	2019			2018
ASSETS
Current assets
Cash and cash equivalents	$	84,760		$	91,196
Restricted cash	40,023			725
Accounts receivable, net	41,676			33,527
Due from related parties	111			—
Inventories, net (Notes 6 and 13)	16,946			70,040
Income tax receivable	7,934			15,808
Other prepaid and deferred charges	28,349			27,527
Other assets	78			3,480
Total current assets	219,877			242,303

Noncurrent assets
Property, plant and equipment, net (Note 6)	67,454			654,372
Income tax receivable	7,884			15,768
Other assets	31,447			16,213
Total assets	$	326,662		$	928,656

LIABILITIES AND EQUITY
Liabilities not subject to compromise
Current liabilities
Accounts payable	$	43,536		$	34,210
Royalties and production and property taxes (Note 19)	22,194			53,232
Accrued expenses	27,732			26,385
Due to related parties	—			71
Current portion of federal coal lease obligations (Notes 15 and 19)	—			379
Debtor-in-possession financing	65,884			—
Other liabilities	1,205			4,019
Total current liabilities	160,551			118,296

Noncurrent liabilities
Senior notes (Notes 14 and 19)	—			396,373
Federal coal lease obligations, net of current portion (Notes 15 and 19)	—			1,404
Asset retirement obligations, net of current portion	96,940			92,591
Royalties and production and property taxes (Note 19)	10,232			20,587
Other liabilities	76			5,731
Total liabilities not subject to compromise	267,799			634,982
Liabilities subject to compromise (Note 19)	421,798			—
Total liabilities	689,597			634,982
Commitments and Contingencies (Notes 5 and 20)

Equity
Common stock ($0.01 par value; 200,000 shares authorized; 76,985 and 76,283 shares issued and 76,508 and 75,806 outstanding as of September 30, 2019 and December 31, 2018, respectively)	765			758
Treasury stock, at cost (477 shares as of both September 30, 2019 and December 31, 2018)	(6,498		)	(6,498		)
Additional paid-in capital	659,989			656,925
Retained earnings (accumulated deficit)	(1,025,210		)	(370,795		)
Accumulated other comprehensive income (loss)	8,019			13,284
Total equity (deficit)	(362,935		)	293,674
Total liabilities and equity	$	326,662		$	928,656

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

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CLOUD PEAK ENERGY INC. (DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

	Nine Months Ended September 30, 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

Net income (loss)	—	—		—	—			—			(609,679		)	—			(609,679		)
Postretirement benefit adjustment, net of tax	—	—		—	—			—			—			(1,755		)	(1,755		)
Equity-based compensation expense	—	—		—	—			1,100			—			—			1,100
Employee common stock withheld to cover withholding taxes	1	—		—	—			—			—			—			—
Balances as of June 30, 2019	76,508	$	765	477	$	(6,498	)	$	658,899		$	(1,029,975	)	$	9,774		$	(367,035	)

Net income (loss)	—	—		—	—			—			4,766			—			4,766
Postretirement benefit adjustment, net of tax	—	—		—	—			—			—			(1,755		)	(1,755		)
Equity-based compensation expense	—	—		—	—			1,090			—			—			1,090
Balances as of September 30, 2019	76,508	$	765	477	$	(6,498	)	$	659,989		$	(1,025,210	)	$	8,019		$	(362,935	)

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

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CLOUD PEAK ENERGY INC. (DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

	Nine Months Ended September 30, 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		$	11,970		$	998,834

Net income (loss)	—	—		—	—			—			(29,872		)	—			(29,872		)
Postretirement benefit adjustment, net of tax	—	—		—	—			—			—			(1,837		)	(1,837		)
RSU/PSU terminations & retirements	109	1		—	—			—			—			—			1
Restricted stock issuance, net of forfeitures	—	—		—	—			1,235			—			—			1,235
Exercise of stock options	—	—		—	—			(218		)	—			—			(218		)
Balances as of June 30, 2018	75,778	$	758	477	$	(6,498	)	$	654,193		$	309,557		$	10,133		$	968,143

Net income (loss)	—	—		—	—			—			12,691			—			12,691
Postretirement benefit adjustment, net of tax	—	—		—	—			—			—			4,569			4,569
Equity-based compensation expense	—	—		—	—			1,412			—			—			1,412
Balances as of September 30, 2018	75,778	$	758	477	$	(6,498	)	$	655,605		$	322,248		$	14,702		$	986,815

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

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CLOUD PEAK ENERGY INC. (DEBTOR-IN-POSSESSION)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Cash flows from operating activities
Net income (loss)	$	(654,660	)	$	(24,919	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and depletion	20,095			46,788
Accretion	4,796			5,359
Impairments	621,005			800
Loss (income) from unconsolidated affiliates, net of tax	(890		)	(269		)
Distributions of income from unconsolidated affiliates	2,250			1,000
Gain on sale of assets	(962		)	—
Equity-based compensation expense	3,295			(1,648		)
(Gain) loss on derivative financial instruments	(1,809		)	(730		)
Non-cash interest expense related to refinancings	216			1,611
Non-cash reorganization items	(44,615		)	—
Payment of deferred financing costs	—			(3,640		)
Net periodic postretirement benefit cost (credit)	(5,264		)	(22,792		)
Payments for logistics contracts	(7,500		)	(7,500		)
Logistics throughput contract amortization expense	11,331			12,099
Other	1,655			5,296
Changes in operating assets and liabilities:
Accounts receivable	(8,149		)	(12,192		)
Inventories, net	3,559			3,398
Due to or from related parties	(183		)	(1,488		)
Other assets	(1,590		)	8,698
AMT tax refund	15,768			—
Accounts payable and accrued expenses	61,468			15,013
Asset retirement obligations	(1,098		)	(816		)
Net cash provided by (used in) operating activities	18,718			24,068

Investing activities
Purchases of property, plant and equipment	(3,338		)	(7,165		)
Investment in development projects	—			(1,894		)
Proceeds from the sale of assets	3,208			69
Net cash provided by (used in) investing activities	(130		)	(8,990		)

Financing activities
Principal payments on federal coal leases	(379		)	(574		)
Principal payments on finance leases	(1,224		)	(1,952		)
Borrowings on debtor-in-possession financing	35,000			—
Payment of deferred financing costs	(500		)	(936		)
Payment amortized to deferred gain	—			(6,298		)
Net cash provided by (used in) financing activities	32,897			(9,760		)

Net increase (decrease) in cash, cash equivalents, and restricted cash	51,485			5,318
Cash, cash equivalents, and restricted cash at beginning of period	92,128			108,673
Cash, cash equivalents, and restricted cash at end of period	$	143,613		$	113,991

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

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Business

Organization

In connection with Cloud Peak Energy Inc.’s and substantially all of its wholly owned domestic subsidiaries’ ongoing cases under Chapter 11 (“Chapter 11”) of Title 11 of the U.S. Code (the “Bankruptcy Code”), on October 2, 2019, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) entered an Order (I) Approving Sale of the Debtors’ Assets Free and Clear of Liens, (II) Approving Assumption and Assignment of Executory Contracts and Unexpired Leases, and (III) Granting Related Relief [Docket No. 674] (the “Sale Order”), pursuant to which the Bankruptcy Court approved the sale of substantially all of the Company’s operating assets, including the Company’s Spring Creek, Cordero Rojo and Antelope mines, to Navajo Transitional Energy Company, LLC (“NTEC”) pursuant to that certain Asset Purchase Agreement dated as of August 19, 2019 (as amended, the “Asset Purchase Agreement”).

Subject to the satisfaction of certain closing conditions, the transactions contemplated by the Asset Purchase Agreement are expected to close in October 2019.

On October 4, 2019, the Debtors (as defined below) filed the Joint Chapter 11 Plan of Cloud Peak Energy Inc. and Certain of its Debtor Affiliates [Docket No. 680]. On October 14, 2019, the Debtors filed the First Amended Joint Chapter 11 Plan of Cloud Peak Energy Inc, and Certain of its Debtor Affiliates [Docket No. 711] (the “Plan”). The Debtors anticipate seeking confirmation of the Plan by the Bankruptcy Court at a hearing to be held with the Bankruptcy Court on December 5, 2019 at 9:30 a.m. (Eastern Time). See “History of Filing under Chapter 11 of the United States Bankruptcy Code” for further discussion on the Debtors’ bankruptcy filing, the Asset Purchase Agreement, and the Plan.

These financial statements and disclosures have been prepared on a going concern basis. The results of the operations for the three and nine month periods are provided. See “Liquidity and Ability to Continue as a Going Concern” below for more detail.

Since the Company will sell substantially all of its operating assets to NTEC, it was concluded that neither Assets Held for Sale nor Discontinued Operations presentation in these financial statements would be appropriate.

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 estimated fair value of associated land and certain mining equipment in the fourth quarter of 2018. We also impaired our Antelope Mine assets during the second quarter of 2019 as a result of the Winning Bid (as defined below) received during the sale process that is part of our Chapter 11 filing. See Note 6 of this Form 10-Q and 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.

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CLOUD PEAK ENERGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 estimated fair value of associated land. Our Spring Creek Mine assets were also significantly impaired in the second quarter of 2019 as a result of the Winning Bid (as defined below) received during the sale process that is part of our Chapter 11 filing. See Note 6 of this Form 10-Q and 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.

History of Filing under Chapter 11 of the United States Bankruptcy Code

During the fourth quarter of 2018 and through the filing date of our Quarterly Report on Form 10-Q for the period ended March 31, 2019, 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/or its assets 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 CPE, the “Debtors”) filed voluntary petitions (collectively, the “Bankruptcy Petitions”) under Chapter 11 in the Bankruptcy Court. Pursuant to an order entered by the Bankruptcy Court the Chapter 11 cases (collectively, the “Chapter 11 Cases”) are being jointly administered under the caption In re Cloud Peak Energy Inc., et al., Case No. 19-11047. Each Debtor continues 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.

The filing of the Bankruptcy Petitions constituted an event of default that accelerated our obligations under the documents governing each of our 12.00% second lien senior notes due 2021 (the “2021 Notes”) and the 6.375% senior notes due 2024 (the “2024 Notes” and together with the 2021 Notes, the “Notes”). Immediately after filing the Bankruptcy Petitions, the Company began notifying all known current or potential creditors of the Debtors of the bankruptcy filings.

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against the Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases also 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 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.

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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. On May 14, 2019, the Bankruptcy Court approved the relief sought in these motions on an interim basis.

The Debtors sought to sell all or substantially all of their operating assets pursuant to Section 363 of the Bankruptcy Code. To facilitate their marketing and sales process, the Debtors conducted an auction (the “Auction”) on August 15, 2019 and August 16, 2019, pursuant to bidding procedures approved by the Bankruptcy Court. Following the completion of the Auction, on August 16, 2019, the Debtors announced that the bid submitted by Navajo Transitional Energy Company, LLC (“NTEC”) was the winning bid (the “Winning Bid”), and the bid submitted by Aspen Coal & Energy, LLC was the backup bid. On August 19, 2019, the Debtors and NTEC entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) providing for the acquisition by NTEC of substantially all of the Debtors’ operating assets, including the Spring Creek, Cordero Rojo and Antelope mines (the “Assets”), in exchange for the payment of $15.7 million of cash at closing, a $40.0 million first lien promissory note secured by a first lien on all assets of NTEC (including the Assets), but subordinated to collateral for certain permitted senior lien debt (not to exceed $120 million) (the “Purchaser Take-Back Note”) and a $0.15/ton royalty, payable quarterly for a period of five years, on all tons produced and sold at the Antelope and Spring Creek mines, and on all tons produced and sold in excess of 10 million tons per year at the Cordero Rojo mine (the “Royalty”), as well as the assumption of coal production-related pre- and post-petition tax liabilities and coal royalty payments in an amount estimated to be approximately $87.5 million as of September 30, 2019, all reclamation obligations, up to $20 million in post-petition accounts payables, and cash to fund approximately $1 million in cure costs. Following the sale of substantially all of its operating assets, the Company will have certain real estate assets, expected proceeds from the Royalty, and certain debts not settled by the sale. In connection with the closing of the sale, the Company agreed to terminate substantially all of its employees, and NTEC agreed to make offers of employment to substantially all of the terminated employees of the Company.

On August 19, 2019, the Bankruptcy Court approved the transactions contemplated by the Asset Purchase Agreement, subject to the Debtors finalizing and submitting a proposed sale order under Section 363 of the Bankruptcy Code that must be entered by the Bankruptcy Court. On September 30, 2019, the Asset Purchase Agreement was amended to, among other things, provide for NTEC to acquire certain additional assets and assume certain additional liabilities, to modify NTEC’s assumption and rejection of certain contracts and leases, to provide that the Company bear certain expenses, including with respect to certain cure costs and administrative liabilities related to the Purchaser Take-Back Note, and to modify certain negative covenant terms of the Purchaser Take-Back Note. On October 2, 2019, the Bankruptcy Court entered the Sale Order, pursuant to which the Bankruptcy Court approved the sale of substantially all of the Company’s operating assets, including the Company’s Spring Creek, Cordero Rojo and Antelope mines, to NTEC pursuant to the Asset Purchase Agreement.

Subject to the satisfaction of certain closing conditions, the transactions contemplated by the Asset Purchase Agreement are expected to close in October 2019.

On October 4, 2019, the Debtors filed the Joint Chapter 11 Plan of Cloud Peak Energy Inc. and Certain of its Debtor Affiliates [Docket No. 680]. On October 14, 2019, the Debtors filed the First Amended Joint Chapter 11 Plan of Cloud Peak Energy Inc, and Certain of its Debtor Affiliates [Docket No. 711]. The Debtors anticipate seeking confirmation of the Plan at a hearing to be held with the Bankruptcy Court on December 5, 2019 at 9:30 a.m. (Eastern Time).

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The Plan contemplates the following treatment of claims against and interests in the Debtors:

· Holders of priority claims and secured claims (other than those arising under the prepetition 2021 Notes), including amounts outstanding under the DIP Credit Agreement (as defined below), will be unimpaired;

· Holders of claims under the prepetition 2021 Notes will be impaired and will receive their pro rata proportionate share of (i) the Purchaser Take-Back Note, (ii) the New Parent Equity (as defined in the Plan), representing 100% of the common stock in the reorganized Company, (iii) $34.5 million in reinstated prepetition 2021 Notes, as amended pursuant to an amended indenture, and (iv) a cash distribution;

· Holders of general unsecured claims will be impaired and will receive their pro rata share of an aggregate cash distribution of up to $1.25 million; and

· Holders of the Company’s existing common stock will be impaired and will not receive any recovery. All of the Company’s existing common stock with be extinguished by the Plan.

Unless otherwise specified, the treatment set forth in the Plan will be in full satisfaction of all claims against and interests in the Debtors, which will be discharged on the effective date of the Plan.

Under the Bankruptcy Code, only holders of claims or interests in “impaired” classes are entitled to vote on a plan. Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” under a plan unless (i) the plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default. If, however, the holder of an impaired claim or interest will not receive or retain any distribution under the plan on account of such claim or interest, the Bankruptcy Code deems such holder to have rejected the plan, and, accordingly, holders of such claims and interests do not actually vote on the plan. If a claim or interest is not impaired by the plan, the Bankruptcy Code deems the holder of such claim or interest to have accepted the plan and, accordingly, holders of such claims and interests are not entitled to vote on the plan. A vote may be disregarded if the Bankruptcy Court determines, pursuant to section 1126(e) of the Bankruptcy Code, that it was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code. The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the claims that cast ballots for acceptance or rejection of the plan. Only the holders of claims under the prepetition 2021 Notes and general unsecured claims (the “Voting Classes”) are entitled to vote to accept or reject the Plan. The holders of claims in the Voting Classes are impaired under the Plan and may, in certain circumstances, receive a distribution under the Plan. Accordingly, holders of claims in the Voting Classes have the right to vote to accept or reject the Plan.

The Plan provides certain releases and exculpations in favor of, among others, (i) the Debtors and each of their respective directors, officers, and managers as of the Petition Date and at any time thereafter through the effective date of the Plan, (ii) the DIP Lenders (as defined in the Plan), (iii) the DIP Agent (as defined in the Plan), (iv) the consenting noteholders, (v) the Committee (as defined in the Plan) and the members thereof, (vi) the general unsecured claims administrator, (vii) the prepetition 2021 Notes Indenture Trustee (as defined in the Plan), (viii) the prepetition Unsecured Notes Indenture Trustee (as defined in the Plan), and (ix) with respect to each of the foregoing, such entity and its Associated Entities (as defined in the Plan). The Debtors intend to present evidence at the confirmation hearing to demonstrate the basis for and propriety of the release and exculpation provisions pursuant to section 1123(b) of the Bankruptcy Code and Bankruptcy Rule 9019.

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

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of these risks and uncertainties, the Company’s assets, liabilities, officers and/or directors are expected to be significantly different following the sale pursuant to the Asset Purchase Agreement and the outcome of the Chapter 11 Cases, and the description of its operations, properties and capital plans included in these financial statements is not expected to accurately reflect its operations, properties and capital plans following the sale pursuant to the Asset Purchase Agreement and the Chapter 11 Cases. If we are not able to confirm a Chapter 11 plan, we could be forced to liquidate under Chapter 7 of the Bankruptcy Code.

As previously disclosed, 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, and trades under the symbol “CLDPQ”. Under the terms of the Plan submitted to the Bankruptcy Court, our existing common stock will be extinguished following confirmation of a Chapter 11 plan, and existing equity holders will not receive any consideration in respect of their equity interests.

For periods subsequent to filing the Bankruptcy Petitions, the Company will apply the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations”, in preparing its consolidated financial statements. ASC 852 requires that financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings have been recorded in Reorganization items, net on the Unaudited Condensed Consolidated Statement of Operations. In addition, the Unaudited Condensed Consolidated Balance Sheet has distinguished pre-petition liabilities subject to compromise from those that are not and post-petition liabilities. Obligations that may be impacted by the bankruptcy reorganization process have been classified as Liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts.

Potential Claims

The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to certain assumptions filed in connection therewith. These schedules and statements remain subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was on August 1, 2019 (the “Bar Date”). The Debtors’ have received approximately 442 proofs of claim as of October 11, 2019 for an amount of approximately $1.8 billion. Such amount includes duplicate claims across multiple debtor legal entities. These claims will be reconciled to amounts recorded in the Company’s accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Bankruptcy Court does not allow for claims that have been acknowledged as duplicates. In addition, the Company may ask the Bankruptcy Court to disallow claims that the Company believes have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. In light of the substantial number of claims filed, and expected to be filed, the claims resolution process may take considerable time to complete and likely will continue after the effective date of any Chapter 11 plan.

Sale and Plan Support Agreement

Prior to filing the Bankruptcy Petitions, on May 6, 2019, the Company and the Filing Subsidiaries entered into the Sale and Plan Support Agreement (the “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 Support Agreement provides that the holders of Notes party thereto will, among other things, support a marketing

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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 Credit Agreement (described below);

· certain of the Noteholders have provided the DIP Credit Agreement;

· 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.

On July 16, 2019, the Company and the Filing Subsidiaries and holders of approximately 62% in principal amount of the 2021 Notes and holders of more than 50% in principal amount of the 2024 Notes entered into Amendment No. 1 to the Support Agreement (“Support Agreement Amendment”).

The Support Agreement Amendment amended the definition of “Plan” (i.e., the Chapter 11 plan of liquidation that the parties to the Support Agreement agree to support) to include (i) a release of avoidance actions against holders of general unsecured claims, (ii) the payment of fees of the 2024 Notes trustee, (iii) the appointment of a general unsecured claims administrator and (iv) the effectuation of the Unsecured Creditor Sharing Agreement (as defined below).

The Support Agreement Amendment also provides consent by the parties thereto of certain uses of cash on hand by the Company and certain of its subsidiaries prior to any sale, including to pay “Critical Vendor Payments” (as defined in the Support Agreement Amendment), certain administrative expense and priority claims, expenses arising under certain executory contracts and unexpired leases in connection with a sale, and certain professional fees and expenses relating to key employee incentive and retention plans.

The Support Agreement Amendment also provides that the Plan shall include an agreement to share certain proceeds between the holders of Contingent Roll-Up Loans (as defined in the DIP Credit Agreement) under the DIP Credit Agreement and holders of 2021 Notes, on the one hand, and holders of unsecured claims, on the other (the “Unsecured Creditor Sharing Agreement”). The Unsecured Creditor Sharing Agreement provides that, upon recovery by the holders of 2021 Notes and Contingent Roll-Up Loans of at least 50% of their

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total claims, excess amounts up to 75% of such total claims will be distributed 90% to holders of such claims and 10% to holders of unsecured claims. Distributions in excess of 75% of the total claims of the holders of 2021 Notes and Contingent Roll-Up Loans will be paid 80% to holders of such claims and 20% to holders of unsecured claims. Following the Auction and entry of the Sale Order approving the NTEC sale, the Official Unsecured Creditors’ Committee agreed to a compromise and settlement, as set forth in the Plan as filed on October 4, 2019, under which holders of Allowed General Unsecured Claims (as defined in the Plan) will be entitled to share pro rata in the “General Unsecured Claims Cash Distribution Amount” (as defined in the Plan), which is an amount of $1.25 million, in full and final satisfaction of such claims. As a result of the satisfaction of the Specified Tax Condition (as defined in the DIP Credit Agreement) prior to the date of the Second Borrowing (as defined in the DIP Credit Agreement), no Contingent Roll-Up Loans were issued pursuant to the DIP Credit Agreement.

On July 18, 2019, the Bankruptcy Court entered an Order (Approving) (I) Authorizing the Debtors to Assume the Amended and Restated Sale and Plan Support Agreement, (II) Approving the Lien and Guaranty Settlement Contained in the Amended and Restated Sale and Support Agreement, (III) Modifying the Automatic Stay, and (IV) Granting Related Relief [Docket No. 478] pursuant to which the Bankruptcy Court approved the Support Agreement, as amended.

Debtor-In-Possession Financing

On May 15, 2019, the Debtors entered into a Superpriority Senior Secured Priming Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) by and among Cloud Peak Energy Inc. and the other Debtors, as borrowers, the various lenders from time to time party thereto (the “Lenders”) and Ankura Trust Company, LLC, as administrative agent and collateral agent providing for a debtor-in-possession term loan facility in an amount not to exceed (i) $35 million (as may be increased to give effect to any fees or interest that are paid in kind and to give effect to any incremental loans described below) (the “New Money Loans”) plus (ii) subject to the entry of a final order of the Bankruptcy Court approving the financing under the DIP Credit Agreement (the “Final DIP Order”), Roll-Up Loans (as defined below) on terms and conditions set forth in the DIP Credit Agreement. On May 15, 2019, the Bankruptcy Court granted interim approval of the motion to approve the DIP Credit Agreement (the “Interim DIP Order”) and borrowing of up to $10 million of the New Money Loans thereunder.

The Debtors’ obligations under the DIP Credit Agreement are secured by first priority priming liens on substantially all of the Debtors’ assets, subject to certain permitted liens and agreed exclusions, including the exclusion of assets that secure obligations under the A/R Securitization Program. The DIP Credit Agreement terminates on the earliest of: (a) February 15, 2020; (b) the date that without prior written consent of the requisite Lenders, any of the Chapter 11 Cases are converted to cases under chapter 7 of the Bankruptcy Code; (c) the date of dismissal of any of the Chapter 11 Cases without the prior written consent of the requisite Lenders; (d) the date of appointment in any Chapter 11 Case of a trustee without the prior written consent of the requisite Lenders; (e) the date of appointment in any of the Chapter 11 Cases of an examiner with expanded powers without prior written consent of the requisite Lenders; (f) consummation of a sale of all or substantially all of the Debtors’ assets, whether under Section 363 of the Bankruptcy Code or otherwise; (g) the consummation date of any plan under Chapter 11; (h) the termination in whole of the commitments following an event of default under the DIP Credit Agreement; or (i) thirty-five days after entry of the Interim DIP Order (or such later date as agreed by the Lenders), if the Final DIP Order has not been entered.

Proceeds of the New Money Loans are used only in connection with an approved budget (adjusted for agreed variances), for the purposes of: (i) general corporate and working capital purposes; (ii) costs of the administration of the Chapter 11 Cases; and (iii) payment of transaction costs, fees and expenses with respect to the DIP Credit Agreement. New Money Loans were made available in two or, if the Specified Tax Condition was not satisfied at the time of the Second Borrowing, three draws, each subject to the satisfaction of certain conditions under the DIP Credit Agreement, including compliance with a Borrowing Base (as defined in the DIP Credit Agreement). Borrowings under the DIP Credit Agreement are funded by the Lenders into an escrow account. The Debtors may request draws of funds from the escrow account on a weekly basis, subject to satisfaction of certain conditions, including the absence of defaults, that the draw is in accordance with the

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approved budget, that the SAPSA (as defined in the DIP Credit Agreement) remain in full force and effect and other customary conditions. Amounts that remain in the escrow account upon termination of the DIP Credit Agreement are returned to the collateral agent to pay off obligations outstanding in respect of the DIP Credit Agreement in the order provided therein. The Debtors borrowed $10 million for the first borrowing and $25 million for the second borrowing under the DIP Credit Agreement on May 16, 2019 and August 1, 2019, respectively, which were funded into the escrow account. There was no third borrowing as the Specified Tax Condition was satisfied at the time of the Second Borrowing.

On June 12, 2019, the Company launched a tender offer providing eligible holders of 2021 Notes the opportunity to participate as a lender under the DIP Credit Agreement on a pro rata basis up to such holder’s percentage ownership of the outstanding 2021 Notes, and to exchange, or “roll-up” a principal amount of their 2021 Notes equal to 80% of the $35 million New Money Loans provided by such Lender for an equal amount of loans incurred under the DIP Credit Agreement (all such loans, the “Roll-Up Loans”). The transactions contemplated by the tender offer closed on August 1, 2019. The tender offer participants that were not existing lenders under the DIP Credit Agreement (the “Non-Backstop Lenders”) subscribed for the assignment from the existing lenders (the “Backstop Lenders”) of approximately $3.8 million of New Money Loans, and the Non-Backstop Lenders and Backstop Lenders exchanged a total of $28 million of their 2021 Notes for Roll-Up Loans.

New Money Loans bear interest at a rate equal to, at our option, (a) the alternate base rate (subject to a 2% floor) plus 8% per annum or (b) the adjusted LIBOR rate (subject to a 1% floor) plus 9% annum. Roll-Up Loans bear interest at the adjusted LIBOR rate (subject to a 1% floor) plus 9% per annum rate. The Debtors will pay certain other agreed fees to the Lenders and the agents under the DIP Credit Agreement. Fees and interest are paid-in-kind and added to the principal amount of loans outstanding under the DIP Credit Agreement.

The DIP Credit Agreement contains usual and customary affirmative and negative covenants and events of default for transactions of this type. In addition, the Debtors are required to maintain a minimum liquidity of $12 million at all times, $6 million of which must be held at all times in a segregated escrow account.

On June 19, 2019, the DIP Credit Agreement was amended to extend the date by which the DIP Credit Agreement would otherwise terminate if the Final DIP Order were not entered and other milestone dates.

On June 25, 2019, the DIP Credit Agreement was further amended to, among other things, provide that upon entry of the Final DIP Order, the DIP Credit Agreement will be amended to accommodate and provide for the borrowing and roll-up mechanics described in the tender offer documentation.

On July 16, 2019, the Debtors entered into a Limited Waiver and Amendment No. 3 to the DIP Credit Agreement (the “DIP Limited Waiver”). The DIP Limited Waiver, among other things, waived the events of default arising under the DIP Credit Agreement as a result of the non-commencement of an auction for substantially all assets of the Debtors and the non-occurrence of a sale order under Section 363 of Title 11 of the U.S. Code by the Bankruptcy Court by the respective milestone dates set forth in the DIP Credit Agreement and amends the milestones for these and other events in the auction process.

On July 18, 2019, the Bankruptcy Court entered a Final Order (I) Authorizing the Debtors to (A) Obtain Postpetition Financing Secured by Senior Priming Liens and (B) Use Cash Collateral, (II) Granting Liens and Providing Superpriority Administrative Expense Status, (III) Granting Adequate Protection, (IV) Modifying the Automatic Stay and (V) Granting Related Relief [Docket No. 407] pursuant to which the Bankruptcy Court approved the DIP Credit Agreement, as amended.

On August 8, 2019, the DIP Credit Agreement was further amended to, among other things extend the milestone dates by which (i) an auction must commence for substantially all assets of the Debtors and (ii) a sale order under Section 363 of the Bankruptcy Code by the Bankruptcy Court must be entered.

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On August 19, 2019, August 23, 2019, August 29, 2019, and September 6, 2019, the DIP Credit Agreement was further amended to, among other things, extend the milestone dates by which a sale order under Section 363 of the Bankruptcy Code by the Bankruptcy Court must be entered.

On September 13, 2019, the DIP Credit Agreement was further amended to, among other things, (i) extend the milestone dates set forth in the DIP Credit Agreement by which a sale order under Section 363 of the Bankruptcy Code by the Bankruptcy Court must be entered and (ii) waive the event of default that had occurred and was continuing, under the DIP Credit Agreement as a result of non-compliance with the Approved Budget (as defined in the DIP Credit Agreement) due to an Unpermitted Variance (as defined in the DIP Credit Agreement) with respect to receipts for the week ending on September 6, 2019.

On September 20, 2019 and September 27, 2019, the DIP Credit Agreement was further amended to, among other things, extend the milestone dates by which a sale order under Section 363 of the Bankruptcy Code by the Bankruptcy Court must be entered.

Amendment to A/R Securitization Program

Cloud Peak Energy Resources LLC (“CPE Resources”), a wholly owned subsidiary of the Company, is party to an Accounts Receivable Securitization Program (the “A/R Securitization Program”) with PNC Bank, National Association, as administrator. On May 15, 2019, we entered into a Second Amended and Restated Receivables Purchase Agreement (the “Receivables Purchase Agreement Amendment”), by and among Cloud Peak Energy Receivables LLC (“CPE Receivables”), CPE Resources, the various Conduit Purchasers and Related Committed Purchasers (collectively, the “Purchasers”), LC Participants and Purchaser Agents from time to time party thereto, PNC Bank, National Association, as Administrator (the “Administrator”), and PNC Capital Markets LLC, as Structuring Agent. Prior to entering into the Receivables Purchase Agreement Amendment, it was approved by the Bankruptcy Court on May 14, 2019.

Under the terms of the A/R Securitization Program, eligible trade receivables consist of certain trade receivables from certain of the Company’s operating subsidiaries. The amount available with respect to the receivables sold into the A/R Securitization Program is subject to customary limits and reserves, including reserves based on customer concentration and prior past due balances. Of the eligible pool of receivables sold to CPE Receivables, undivided interests in only a portion of the pool are sold to the Purchasers under the facility, subject to a $35 million purchase limit, which was reduced from $70 million under the A/R Securitization Program prior to the Receivables Purchase Agreement Amendment. Although the Purchasers in the program bear the risk of non-payment of purchased receivables, CPE Resources has agreed to indemnify the Purchasers, Purchaser Agents, Administrator and other secured parties with respect to various matters, including any defaults by CPE Resources or its operating subsidiaries under the documents relating to the A/R Securitization Program, and may be required to repurchase receivables which do not comply with the requirements of the program. CPE Resources services the receivables sold into the A/R Securitization Program.

The Purchasers under the A/R Securitization Program will be entitled to receive payments reflecting a specified discount on amounts funded thereunder calculated on the basis of the commercial paper rate or alternate rate, as applicable. The commercial paper rate, which is applicable to the extent a Purchaser issues commercial paper to fund its purchases of receivables, is a rate equivalent to the weighted average cost incurred in connection with the issuance of such commercial paper. If the commercial paper rate is not applicable, the alternate rate will apply. The alternate rate is equal to 2.00% plus (i) one month LIBOR (subject to a 0% floor) or, (ii) if LIBOR is unavailable, the daily average base rate which is defined as the higher of either the prime rate or the federal funds rate plus 50 basis points. CPE Receivables will pay fees to the Administrator and Purchaser, including paying (i) the Administrator a structuring fee, (ii) each of the Purchasers facility fees and program fees and (iii) letter of credit fees to each letter of credit participants.

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The Receivables Purchase Agreement Amendment contains representations and warranties and affirmative, negative and financial covenants customary for financings of this type. The Receivables Purchase Agreement Amendment includes customary termination events for facilities of this type (with customary grace periods, if applicable), including termination events that relate specifically to certain aspects of the Chapter 11 Cases.

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. As a result of severe weather and flooding in the first quarter of 2019, the railroads serving the PRB were forced to reroute trains and repair and rebuild significant portions of their infrastructure. The impacts of these conditions carried over into the second quarter of 2019 and were exacerbated by further flooding. 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 September 30, 2019, and the results of our operations, comprehensive income (loss), equity, and cash flows for the nine months ended September 30, 2019 and 2018, in conformity with U.S. GAAP. Our results of operations for the three and nine months ended September 30, 2019 are 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

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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.

Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on our reported net income, current assets, total assets, current liabilities, total liabilities or equity.

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 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 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.

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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)	—			937			937
Other liabilities (noncurrent)	5,731			708			6,439

Equity
Retained earnings	$	(370,795	)	$	246		$	(370,549	)

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				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
United States (1)	$	156,103	$	143,963	$	399,488	$	411,060
South Korea (2)	58,951		73,642		123,657		210,176
Other (2)	5,173		15,475		10,610		33,851
Total revenue from external customers	$	220,227	$	233,080	$	533,755	$	655,087

(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.

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We attribute revenue to individual countries based on the location of the physical delivery of the coal. All of our revenue for the nine months ended September 30, 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 $719 million, which represents the average fixed prices on our committed contracts as of September 30, 2019. We expect to recognize approximately 74% 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 $162 million, which represents the average re-opener/indexed price on committed contracts as of September 30, 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 $49 million, which represents the average fixed prices on our committed contracts as of September 30, 2019. We expect to recognize approximately 80% 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.

Contract Balances

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

	September 30,		December 31,
	2019		2018
Trade accounts receivable	$	41,201	$	33,062
Other receivables	475		464
Accounts receivable, net	$	41,676	$	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

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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.

Revenue

The following table presents Revenue (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Owned and Operated Mines	$	173,693		$	161,977		$	431,630		$	459,570
Logistics and Related Activities	65,831			90,982			140,731			249,951
Other	—			3			—			8
Eliminations	(19,297		)	(19,882		)	(38,606		)	(54,442		)
Consolidated	$	220,227		$	233,080		$	533,755		$	655,087

Total Assets

The following table presents Total assets (in thousands):

	September 30,			December 31,
	2019			2018
Owned and Operated Mines	$	104,039		$	735,022
Logistics and Related Activities	31,863			29,327
Other	192,413			164,879
Eliminations	(1,653		)	(572		)
Consolidated	$	326,662		$	928,656

As of September 30, 2019 and December 31, 2018, all of our long-lived assets were located in the U.S. The change in Total assets, from December 31, 2018 to September 30, 2019, is primarily due to the impairment charge as described in Note 6.

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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):

	Nine Months Ended
	September 30,
	2019		2018
Owned and Operated Mines	$	3,434	$	14,224
Logistics and Related Activities	—		—
Other	108		299
Consolidated	$	3,542	$	14,523

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, (4) non-cash amortization expense related to transportation agreements with BNSF and Westshore, and (5) reorganization items incurred since our filing for Chapter 11.

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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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Adjusted EBITDA
Owned and Operated Mines	$	31,499		$	32,289		$	37,665		$	56,195
Logistics and Related Activities	(2,679		)	10,471			(11,217		)	24,858
Total Adjusted EBITDA for reportable segments	28,820			42,760			26,448			81,053

Unallocated net expenses	(8,605		)	(2,059		)	(41,133		)	(21,487		)

Adjustments to Income (loss) before income tax provision and earnings from unconsolidated affiliates
Depreciation and depletion	2,488			(17,392		)	(20,095		)	(46,788		)
Accretion	(1,699		)	(1,947		)	(4,796		)	(5,359		)
Impairments	—			—			(621,005		)	(800		)
Reorganization items, net	(13,152		)	—			24,038			—
Derivative financial instruments:
Gain (loss) on derivative financial instruments (1)	—			730			1,809			730
Settlement of derivative financial instruments	—			—			(1,809		)	—
Total derivative financial instruments	—			730			—			730
Interest expense, net	(1,787		)	(8,107		)	(14,167		)	(27,300		)
(Income) loss from unconsolidated affiliates, net of tax	(24		)	(3		)	(890		)	(269		)
Non-cash throughput amortization expense and contract termination payments	(1,288		)	(1,288		)	(3,865		)	(4,668		)
Income (loss) before income tax provision and earnings from unconsolidated affiliates	$	4,753		$	12,693		$	(655,466	)	$	(24,886	)

(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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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 September 30, 2019, there was $12.7 million recorded as a deferred asset for these agreements, of which $11.9 million and $0.8 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 $48.1 million and $58.4 million in costs under our export logistics agreements with Westshore and BNSF, including amortization of $3.7 million and $3.8 million, during the three months ended September 30, 2019 and 2018, respectively. We incurred $110.0 million and $161.1 million in costs under our export logistics agreements with Westshore and BNSF, including amortization of $17.1 million and $12.1 million, during the nine months ended September 30, 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):

	September 30,		December 31,
	2019		2018
Services
Transportation agreements (1)(2)	$	71,632	$	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. Impairments

To facilitate the sale of all or substantially all of their operating assets pursuant to Section 363 of the Bankruptcy Code, the Debtors filed a motion with the Bankruptcy Court to approve a marketing and bidding procedures process, including milestones by which interested parties were required to submit indications of interest and bids for all or a portion of the Debtors’ assets.

This motion was approved by the Bankruptcy Court in June 2019 and during July 2019, the Debtors received indicative bids, all of which indicated that the market value of the Debtor’s assets were significantly lower than their current book value. On August 15, 2019 and August 16, 2019, the Auction was held, and on August 19, 2019, the Bankruptcy Court approved the sale to NTEC subject to the Debtors finalizing and submitting a proposed sale order. See Note 1 for details of the Asset Purchase Agreement and the Winning Bid.

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As a result of the Winning Bid, which was the primary basis for estimating the forecasted cash flows under the income approach to determine the fair market value of our assets, we recorded an impairment of approximately $621 million. $618.4 million of the impairment is related to the Owned and Operated Mines segment, while the Logistics and Related Activities segment accounted for $0.5 million of the impairment. The remaining $2.1 million is related to Other. The impairment was comprised of $568 million of long-lived assets and mineral rights, primarily at our Antelope and Spring Creek mines as well as $49.5 million in materials and supplies inventory. The remaining $3.5 million is related to project development costs and right-of-use assets.

7. Reorganization items, net

In accordance with ASC 852, the statement of operations shall portray the results of operations of the reporting entity while it is in Chapter 11. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from reorganization and restructuring of the business shall be reported separately as reorganization items.

The following table presents Reorganization items, net (in thousands):

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2019			2019
Write-off of deferred gain on 2021 Notes(1)	$	—		$	53,455
Gain on settlement of liabilities subject to compromise (2)	286			363
Interest income	67			73
Write-off of debt issuance costs on debt subject to compromise	—			(9,203		)
Professional fees	(12,066		)	(19,153		)
Other reorganization expenses	(1,439		)	(1,497		)
Reorganization items, net	$	(13,152	)	$	24,038

(1) See Note 14 for information on the deferred gain.

(2) See Note 19 for information on liabilities subject to compromise.

During the third quarter of 2019, we identified and recorded an out-of-period adjustment related to the accounting for US Trustee fees. We concluded that this adjustment was not material to our consolidated financial statements for any of the current or prior periods presented. The adjustment was reflected as a $0.7 million increase of our Reorganization Items, net in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, 2019.

8. Income Taxes

Our statutory income tax rate including state income taxes, for the three and nine months ended September 30, 2019 and 2018 was approximately 23%. Our effective tax rate for the three months ended September 30, 2019 and 2018 was 0.3% and 0.0%, respectively. Our effective tax rate for the nine months ended September 30, 2019 and 2018 was 0.0% and (1.2)%, respectively. The difference between our statutory income tax rates and our effective income tax rates for the three and nine months ended September 30, 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.

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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 TCJA. In May 2019, we received $15.8 million in AMT credit refunds. We currently anticipate receipt of an additional approximately $15.8 million in AMT credit refunds over the next three years with approximately half of this value realized in 2020.

As of September 30, 2019, we had deferred tax assets principally arising from: AROs, postretirement benefits, contract rights, property, plant and equipment, mineral rights, and net operating loss carry-forwards. As of December 31, 2018, we had deferred tax assets principally arising from: AROs, postretirement benefits, contract rights, interest deduction carry-forwards, 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 September 30, 2019 and December 31, 2018, we had no uncertain tax positions that we expect to have a material impact on the Unaudited Condensed Consolidated 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.

9. Equity Method Investments

Equity method investments include our 50% equity investment in Venture Fuels Partnership, a coal marketing company. We have received distributions of $2.3 million and $1.0 million from the Venture Fuels Partnership during the nine months ended September 30, 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):

	September 30,		December 31,
	2019		2018
Venture Fuels Partnership	$	1,671	$	3,040
Other	991		982
Total equity method investments	$	2,662	$	4,022

10. Common Stock and Earnings (Loss) per Share

Common Stock

Under the terms of the Plan submitted to the Bankruptcy Court, our existing common stock will be extinguished following confirmation of the Plan, and existing equity holders will not receive any consideration in respect of their equity interests.

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 and trades under the symbol “CLDPQ”.

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

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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.

Earnings (Loss) per Share

Potential dilutive shares of common stock may include restricted stock units, options, and performance share units issued under our Long Term Incentive Plan (“LTIP”). See Note 18. We apply the treasury stock method to determine dilution from restricted stock 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				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019			2018
Numerator for calculation of diluted earnings (loss) per share:
Net income (loss)	$	4,766	$	12,691	$	(654,660	)	$	(24,919	)
Denominator for basic income (loss) per share — weighted-average shares outstanding	76,508		75,778		76,347			75,623
Dilutive effect of stock equivalents	509		1,505		—			—
Denominator for diluted earnings (loss) per share	77,017		77,283		76,347			75,623

Basic earnings (loss) per share	$	0.06	$	0.17	$	(8.57	)	$	(0.33	)
Diluted earnings (loss) per share	$	0.06	$	0.16	$	(8.57	)	$	(0.33	)

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 September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Anti-dilutive stock equivalents	2,446	2,075	2,681	3,239

11. 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

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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.

· 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 September 30, 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 September 30, 2019
	Level 1		Level 2		Total
Assets
Money market funds (1)	$	4,936	$	—	$	4,936

	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 $79.8 million and $62.5 million of demand deposits as of September 30, 2019 and December 31, 2018, respectively.

(2) See Note 12 for information on the (Gain) loss on derivative financial instruments recognized in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

12. 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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Offsetting and Balance Sheet Presentation

September 30, 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 September 30,					Nine Months Ended September 30,
	2019		2018			2019			2018
WTI derivative financial instruments	$	—	$	(730	)	$	(1,809	)	$	(730	)

See Note 11 for a discussion related to the fair value of derivative financial instruments.

13. Inventories, Net

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

	September 30,			December 31,
	2019			2018
Materials and supplies	$	64,424		$	68,519
Less: Obsolescence allowance	(49,154		)	(1,089		)
Material and supplies, net	15,270			67,430
Coal inventory	1,676			2,610
Inventories, net	$	16,946		$	70,040

During the second quarter of 2019, we increased our obsolescence allowance to reflect the fair value of our inventory as determined under the income approach based primarily on cash flows from the Winning Bid. The increase in this allowance was recorded as part of the overall asset impairment taken during the second quarter of 2019. See Note 6 for further details on the asset impairment.

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14. Senior Notes

Senior notes consisted of the following (in thousands):

	September 30, 2019
	Carrying Value (1)		Unamortized Discount and Debt Issuance Costs		Unamortized Deferred Gain on Forgiven Debt (2)		Principal (3)		Fair Value (4)
12.00% second lien senior notes due 2021	$	262,366	$	—	$	—	$	262,366	$	70,839
6.375% senior notes due 2024	56,408		—		—		56,408		1,692
Total senior notes	$	318,774	$	—	$	—	$	318,774	$	72,531

	December 31, 2018
	Carrying Value		Unamortized Discount and Debt Issuance Costs		Unamortized Deferred Gain on Forgiven Debt			Principal		Fair Value (4)
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 carrying value of our senior notes has been reclassified to Liabilities subject to compromise in the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2019.

(2) The deferred gain of $60.2 million relating to the 2021 Notes was written off reducing the carrying value to the principal amount. An additional $6.7 million in interest was accrued to reflect interest payable at the stated rate of 12%, rather than the troubled debt effective rate of 6.46%. The net amount of $53.5 million was recorded as Reorganization items, net in the second quarter of 2019.

(3) On August 1, 2019, the principal balance of the 2021 Notes was reduced by $28 million as a result of the Roll-Up Loans described below.

(4) 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 11 for further information on Level 2 fair value measurements.

CPE Resources, a wholly owned subsidiary of the Company, elected not to make an interest payment under its 2024 Notes of approximately $1.8 million, which was due on March 15, 2019. The 2024 Notes Indenture provided a 30-day grace period that extended the last date to make the interest payment to April 14, 2019 before an event of default would occur under the 2024 Notes Indenture. As a result of CPE Resources’ decision not to make the interest payment by April 14, 2019, an event of default occurred under the 2024 Notes Indenture.

CPE Resources elected not to make an interest payment obligation under the 2021 Notes of approximately $17.4 million, which was due on May 1, 2019. The 2021 Notes Indenture provided a 30-day grace period that extended the latest date for making this interest payment to May 31, 2019, before an event of default would occur under the 2021 Notes Indenture.

The filing of the Bankruptcy Petitions on May 10, 2019 constituted an event of default that accelerated our obligations under the documents governing each of our 2024 Notes and 2021 Notes.

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Date or to exercise control over the Debtors’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases also 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 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.

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. In connection with the Amended and Restated Support Agreement, the Company agreed to reaffirm the liens and guarantees under the 2021 Notes and the guarantees under the 2024 Notes.

In conjunction with the filing of the Debtors’ Chapter 11 Cases, debt issuance costs of $9.2 million were written off and recorded to Reorganization items, net on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2019.

On June 12, 2019, the Company launched a tender offer providing eligible holders of 2021 Notes the opportunity to participate as a lender under the DIP Credit Agreement on a pro rata basis up to such holder’s percentage ownership of the outstanding 2021 Notes, and to exchange, or “roll-up” a principal amount of their 2021 Notes equal to 80% of their $35 million commitments as a lender under the DIP Credit Agreement for an equal amount of Roll-Up Loans under the DIP Credit Agreement. The transactions contemplated by the tender offer closed on August 1, 2019. The Non-Backstop Lenders subscribed for the assignment from the Backstop Lenders of approximately $3.8 million of New Money Loans, and the Non-Backstop Lenders and Backstop Lenders exchanged a total of $28 million of their 2021 Notes for Roll-Up Loans.

15. 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.

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Weighted-average information related to our operating and finance leases as of September 30, 2019 was as follows:

Lease Term
Weighted-average remaining lease term - finance leases	1.1 years
Weighted-average remaining lease term - operating leases	3.6 years

Discount Rate
Weighted-average discount rate - finance leases	4.0	%
Weighted-average discount rate - operating leases	18.4	%

The components of our expenses related to our leases for the three and nine months ended September 30, 2019 were as follows (in thousands):

	Three Months		Nine Months
	Ended		Ended
	September 30,		September 30,
	2019		2019
Finance Lease Cost
Amortization of right-of-use assets	$	—	$	544
Interest expense on finance lease liabilities	21		66
Impairment of right-of-use asset	—		3,702
Operating Lease Cost
Lease expense	259		790
Impairment of right-of-use asset	—		1,418
Short-term Lease Cost
Short-term lease cost	21		87
Total lease cost	$	301	$	6.607

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Supplemental balance sheet information related to our leases as of September 30, 2019 were as follows (in thousands):

Operating Leases
Other assets (noncurrent)(1)	$	—

Liabilities subject to compromise (current portion)	$	946
Liabilities subject to compromise (noncurrent portion)	282
Total operating lease liabilities	$	1,228

Finance Leases
Property, plant, and equipment	$	13,967
Accumulated amortization	(10,265		)
Impairment	(3,702		)
Property, plant and equipment, net	$	—

Other liabilities (current)	$	1,205
Other liabilities (noncurrent)	76
Total finance lease liabilities	$	1,281

(1) During the second quarter of 2019, we recorded an impairment of our right-of-use assets to reflect the fair value as determined under the income approach based primarily on cash flows from the Winning Bid. See Note 6 for further details on the asset impairment.

Maturity of our lease liabilities as of September 30, 2019 were as follows (in thousands):

	Operating Leases		Finance Leases
2019	$	257	$	420
2020	937		856
2021	109		29
2022	13		—
2023	13		—
Thereafter	370		—
Total	1,699		1,305
Less: interest	471		24
Total principal payments	1,228		1,281
Less: current portion	946		1,205
Lease obligations, net of current portion	$	282	$	76

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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 consist of obligations payable to the Bureau of Land Management of the U.S. Department of the Interior for the West Antelope II South lease modification. Leases of this nature are

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excluded from the scope of ASC 842 as they represent a lease for natural resources. 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 September 30, 2019, and has been reclassified to Liabilities subject to compromise in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019.

16. Other Obligations

Debtor-in-Possession Financing

See Note 1 for a description of our DIP Credit Agreement. There was $35.0 million funded to the escrow account under the DIP Credit Agreement as of September 30, 2019. As of September 30, 2019, the Debtors had drawn on $4.0 million of this balance, leaving $31.0 million remaining in escrow. As of September 30, 2019, there was $65.9 million outstanding under the DIP Credit Agreement, including interest, fees and Roll-Up Loans.

A/R Securitization Program

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 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.

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.

On May 15, 2019, we entered into a Second Amended and Restated Receivables Purchase Agreement (the “Receivables Purchase Agreement Amendment”), by and among Cloud Peak Energy Receivables LLC (“CPE Receivables”), CPE Resources, the various Conduit Purchasers and Related Committed Purchasers (collectively, the “Purchasers”), LC Participants and Purchaser Agents from time to time party thereto, PNC Bank, National Association, as Administrator (the “Administrator”), and PNC Capital Markets LLC, as Structuring Agent. Prior to entering into the Receivables Purchase Agreement Amendment, it was approved by the Bankruptcy Court on May 14, 2019.

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Resources or its operating subsidiaries under the documents relating to the A/R Securitization Program, and may be required to repurchase receivables which do not comply with the requirements of the program. CPE Resources services the receivables sold into the A/R Securitization Program.

As of September 30, 2019, we had $19.8 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 $5.9 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 October 2019, bringing the available borrowing capacity to zero as of September 30, 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 September 30, 2019 or December 31, 2018.

Liquidity

We had no availability for borrowing under the A/R Securitization Program as of September 30, 2019. Our total liquidity, which includes cash and cash equivalents and undrawn funding under the DIP Credit Agreement, was $115.8 million as of September 30, 2019.

Debt Issuance Costs

There were $1.0 million and $1.0 million of unamortized debt issuance costs as of September 30, 2019 and December 31, 2018, respectively, related to the A/R Securitization Program (part of a non-debtor subsidiary) included in noncurrent Other assets. Debt issuance costs of $0.2 million were written off in the nine months ended September 30, 2019 related to the Receivable Purchase Agreement Amendment.

17. 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 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

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gain of $1.7 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						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Service cost	$	—		$	66		$	—		$	459
Interest cost	—			73			—			513
Amortization of prior service cost (credit)	—			(612		)	—			(4,287		)
Postretirement medical plan termination (gain) loss	(1,755		)	(19,477		)	(5,265		)	(19,477		)
Net periodic benefit cost (credit)	$	(1,755	)	$	(19,950	)	$	(5,265	)	$	(22,792	)

18. 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 nine months ended September 30, 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. Under the terms of the Plan submitted to the Bankruptcy Court, our existing equity-based compensation will be extinguished following confirmation of the Plan, and existing holders will not receive any consideration in respect of their equity interests.

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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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):

			Weighted-
			Average
	Number of		Grant-Date
	Shares		Fair Value
			(per share)
Non-vested units as of January 1, 2019	2,861		$	3.34
Granted	—		$	—
Forfeited	(69	)	$	3.51
Vested	(1,181	)	$	2.00
Non-vested units as of September 30, 2019	1,611		$	4.31

As of September 30, 2019, unrecognized compensation cost related to restricted stock awards was $1.2 million, which will be recognized over a weighted-average period of 1.2 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 September 30, 2019, $2.2 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 1.2 years.

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

			Weighted-
			Average
	Number of		Grant-Date
	Shares		Fair Value
			(per share)
Non-vested units as of January 1, 2019	3,928		$	3.33
Granted	—		$	—
Forfeited	(94	)	$	4.37
Canceled	(2,075	)	$	1.95
Non-vested units as of September 30, 2019	1,759		$	4.91

19. Liabilities Subject to Compromise

Liabilities subject to compromise (“LSTC”) represent liabilities incurred prior to the Chapter 11 filing that are unsecured or under-secured. These liabilities are reported at the estimated allowed claim amount, but are subject to adjustment through the Chapter 11 bankruptcy process and therefore have at least a possibility of not being repaid at the full claim amount. Furthermore, as the bankruptcy process continues, circumstances may arise that may change the classification of LSTC to liabilities not subject to compromise or vice versa. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed.

Liabilities subject to compromise consist of the following (in thousands):

	September 30,
	2019
Senior notes	$	318,774
Accounts payable	18,653
Royalties and production and property taxes	55,481
Accrued expenses	22,052
Federal coal lease obligations	1,404
Other liabilities	5,434
Total Liabilities subject to compromise	$	421,798

20. Commitments and Contingencies

Commitments

Purchase Commitments (1)

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

	September 30,		December 31,
	2019		2018
Capital Commitments
Equipment	$	4,123	$	1,861

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

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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 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 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

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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 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. On May 21, 2019, Antelope Coal filed a Suggestion of Bankruptcy informing the court that Antelope Coal had filed a voluntary petition in the Bankruptcy Court on May 10, 2019 seeking relief under Chapter 11 of the Bankruptcy Code and, as a result, the case was automatically stayed under section 362(a) of the Bankruptcy Code.

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.

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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 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. On May 21, 2019, Spring Creek filed a Suggestion of Bankruptcy informing the court that Spring Creek had filed a voluntary petition in the Bankruptcy Court on May 10, 2019 seeking relief under Chapter 11 of the Bankruptcy Code and, as a result, the case was automatically stayed under section 362(a) of the Bankruptcy Code. On June 17, 2019, Judge Watters issued an order staying the case.

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.

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Current Schedule—On May 13, 2019, WildEarth filed its Statement of Reasons setting forth the factual and legal basis for its appeal. On May 21, 2019, Spring Creek filed a Notice of Automatic Stay informing the IBLA that Spring Creek had filed a voluntary petition in the Bankruptcy Court on May 10, 2019 seeking relief under Chapter 11 of the Bankruptcy Code and, as a result, the appeal was automatically stayed under section 362(a) of the Bankruptcy Code. On June 3, 2019, WildEarth filed a Response to Spring Creek’s Notice in which WildEarth maintained that the automatic stay did not apply to this appeal. On July 1, 2019, Spring Creek filed a reply to WildEarth’s Response. On July 19, 2019, the IBLA issued an Order holding that the appeal was exempt from the automatic stay and directing all respondents (including Spring Creek) to file their Answers (response briefs) to WildEarth’s Statement of Reasons by August 8, 2019. On August 8, 2019, the IBLA extended the deadline for all respondents to file their Answers until August 23, 2019. All the respondents (including Spring Creek) filed their Answers on August 23, 2019.

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 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.

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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

Background—On 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.

Intervention by Cloud Peak Energy and Others—In 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 Schedule—On 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.

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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 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.

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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 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 nine months ended September 30, 2019, there were two customers that represented 10% or more of consolidated revenue. For the nine months ended September 30, 2018, there was one 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.

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 September 30, 2019, we had $394.7 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.

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21. 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):

	Nine Months Ended
	September 30,
	2019			2018
Beginning balance, January 1,	$	13,284		$	13,807
Amounts reclassified from accumulated other comprehensive income (loss)	(4,054		)	(18,298		)
Postretirement medical plan change	—			24,659
Tax expense (benefit)	(1,211		)	(5,466		)
Net current period other comprehensive income (loss)	(5,265		)	895
Ending balance, September 30,	$	8,019		$	14,702

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Postretirement Medical Plan (1)
Amortization of prior service costs (credits), before tax (2)	$	—		$	(612	)	$	—		$	(4,287	)
Postretirement medical plan termination (2)	(1,755		)	(19,477		)	(5,265		)	(19,477		)
Total before tax	(1,755		)	(20,089		)	(5,265		)	(23,764		)
Tax benefit (expense)	404			4,620			1,211			5,466
Amounts reclassified from AOCI	$	(1,351	)	$	(15,469	)	$	(4,054	)	$	(18,298	)

(1) See Note 17 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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22. 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 September 30, 2019 and 2018 that sum to the total of such amounts in the Unaudited Condensed Consolidated Statements of Cash Flows (in thousands):

	September 30,
	2019		2018
Cash and cash equivalents	$	84,760	$	109,459
Restricted cash - current	40,023		725
Restricted cash in other noncurrent assets	18,830		3,807
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	143,613	$	113,991

The current Restricted cash includes $31 million in an escrow account as of September 30, 2019, related to the undrawn funding under the DIP Credit Agreement, and $8.2 million in bidder deposits related to the Auction process.

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 September 30, 2019 based on the prior business day’s calculation.

Other Cash Flow Information (in thousands)

	Nine Months Ended
	September 30,
	2019			2018
Supplemental cash flow disclosures
Interest paid	$	1,088		$	17,190
Income taxes paid (refunded)	$	(15,673	)	$	220
Reorganization items, net paid	$	12,342		$	—

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(782	)	$	—
Operating cash flows from finance leases	$	(66	)	$	—

Supplemental non-cash investing and financing activities
Capital expenditures included in accounts payable	$	204		$	3,108
Assets acquired under federal coal lease	$	—		$	2,356
Operating right-of-use assets recognized	$	1,785		$	—
Impairment of right-of-use asset	$	(1,418	)	$	—
Refinance and discharge of senior note	$	(28,000	)	$	—
Senior note roll-up to DIP financing	$	28,000		$	—

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23. Supplemental Guarantor/Non-Guarantor Financial Information

In accordance with the indentures governing the senior notes outstanding as of September 30, 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.

· The combination of the Parent Guarantor (CPE Inc.), Issuing Company (CPE Resources), and Guarantor Subsidiaries columns in the tables below represent the Debtors’ Statement of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2019, the Debtors’ Balance Sheet as of September 30, 2019, and the Debtors’ Statement of Cash Flows for the nine months ended September 30, 2019. Entities included in the Non-Guarantor columns in the tables below are not included in the Chapter 11 Cases.

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CLOUD PEAK ENERGY INC. 10-Q