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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

or

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

For the transition period from                      to                    

Commission File Number:  001-34547

(307) 687-6000

(Registrant’s telephone number, including area code)

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

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):

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.

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CLOUD PEAK ENERGY INC.

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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.

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

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

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

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

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CLOUD PEAK ENERGY INC.

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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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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):

3.  Revenue