##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWASHINGTON, D.C.
    20549
 Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    001-33466
      PATRIOT COAL
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware

20-5622045(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)12312 Olive Boulevard, Suite 400
    St. Louis, Missouri

63141(Zip Code)(Address of principal executive
    offices)   (314) 275-3600
    (Registrants telephone number, including area code)
    (Former name, former address and former fiscal year, if changed
    since last report)
  Securities
    Registered Pursuant to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share
    Preferred Share Purchase Rights

New York Stock Exchange
    New York Stock Exchange   Securities
    Registered Pursuant to Section 12(g) of the Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ

Smaller reporting
    company o(Do not check if a smaller reporting
    company)   Rule 12b-2  o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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TABLE OF CONTENTS  CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTSPART IItem 1. Business.Item 1A. Risk Factors.Item 1B. Unresolved Staff Comments.Item 2. Properties.Item 3. Legal Proceedings.Item 4. Submission of Matters to a Vote of Security Holders.PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Item 6. Selected Consolidated Financial Data.Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.Item 7A Quantitative and Qualitative Disclosures About Market Risk.Item 8. Financial Statements and Supplementary Data.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Item 9A. Controls and Procedures.Item 9B. Other Information.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.Item 11. Executive Compensation.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Item 13. Certain Relationships and Related Transactions, and Director Independence.Item 14. Principal Accounting Fees and Services.PART IVItem 15. Exhibits and Financial Statement Schedules.SIGNATURESReport of Independent Registered Public Accounting FirmCONSOLIDATED BALANCE SHEETSPATRIOT COAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWSPATRIOT COAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)PATRIOT COAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007Amendment No. 1 to the Separation Agreement, Plan of Reorganization and DistributionAmendment 1 to Master Coal Supply AgreementAmendment 1 to Master Coal Supply AgreementAmendment 1 to Master Coal Supply AgreementList of SubsidiariesConsent of Independent Registered Accounting FirmConsent of Independent Registered Accounting FirmCertification by Chief Executive Officer Pursuant to Section 302Certification by Chief Financial Officer Pursuant to Section 302Certification Pursuant to Section 906 by Chief Executive OfficerCertification Pursuant to Section 906 by Chief Financial Officer    Table of Contents  
  CAUTIONARY
    NOTICE REGARDING FORWARD-LOOKING STATEMENTS
      
    difficulty in implementing our business strategy;
    geologic, equipment and operational risks associated with mining;
    the outcome of commercial negotiations involving sales contracts
    or other transactions;
    customer performance and credit risks;
    supplier and contract miner performance, and the availability
    and cost of key equipment and commodities;
    availability and costs of transportation;
    our ability to replace proven and probable coal reserves;
    labor availability and relations;
    our ability to respond to changing customer preferences;
    availability and costs of credit, surety bonds and letters of
    credit;
    our dependence on Peabody Energy for a substantial portion of
    our revenues;
    price volatility and demand, particularly in higher margin
    products;
    reductions of purchases by major customers;
    failure to comply with debt covenants;
    the effects of mergers, acquisitions and divestitures;
    regulatory and court decisions including, but not limited to,
    those impacting permits issued pursuant to the Clean Water Act;
    environmental laws and regulations including those affecting our
    operations and those affecting our customers coal usage;
    developments in greenhouse gas emission regulation and
    treatment, including any development of commercially successful
    carbon capture and storage techniques;
    coal mining laws and regulations;
    the outcome of pending or future litigation;
    coal and power market conditions;
    weather patterns affecting energy demand; 2




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
    competition in our industry;
    changes in postretirement benefit obligations;
    changes to contribution requirements to multi-employer benefit
    funds;
    availability and costs of competing energy resources;
    worldwide economic and political conditions;
    interest rate fluctuation;
    inflationary trends, including those impacting materials used in
    our business;
    economic strength and political stability of countries in which
    we serve customers;
    downturns in consumer and company spending;
    wars and acts of terrorism or sabotage;
    impact of pandemic illness; and
    other factors, including those discussed in Legal Proceedings,
    set forth in Item 3 of this report.   3




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PART I
  Unless the context indicates otherwise, all references in
    this report to Patriot, the Company, us, we, or our include
    Patriot Coal Corporation and its subsidiaries (Patriot).
    Effective October 31, 2007, Patriot was spun-off from
    Peabody Energy Corporation (Peabody) and became a separate,
    publicly-traded company. This transaction is referred to in this
    Form 10-K
    as the distribution or the spin-off.
    Prior to the spin-off, Patriot Coal Corporation and its
    subsidiaries were wholly-owned subsidiaries of Peabody and our
    operations were a part of Peabodys operations.
 
  Item 1.
    Business.  Overview
    high-Btu
      Mining
    Operations
    
    Appalachia.  In southern West Virginia, we have
    five company-operated mines and numerous contractor-operated
    mines, serviced by four coal preparation plants. These
    operations and related infrastructure are located in Boone and
    Kanawha counties. In northern West Virginia, we have one
    company-operated mine, serviced by a preparation plant and
    related infrastructure. These operations are located in
    Monongalia County. We sold 14.4 million tons of coal in the
    year ended December 31, 2007. As of December 31, 2007,
    we controlled 586 million tons of proven and probable coal
    reserves in Appalachia, of which 283 million tons were
    assigned to current operations.
    Illinois Basin.  In the Illinois Basin, we have
    four company-operated mines, serviced by three preparation
    plants. These operations and related infrastructure are located
    in Union and Henderson counties in western Kentucky. We sold
    7.7 million tons of coal in the year ended
    December 31, 2007. As of December 31, 2007, we
    controlled 676 million tons of proven and probable coal
    reserves in the Illinois Basin, of which 131 million tons
    were assigned to current operations.  4




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Prep Plant StatisticsMining



2007 Tons





Plant


CoalLocation

Operation

Mine(s)

Method(1)

Met/Steam

Sold(2)


Employees


Capacity(3)


Recovery(4)(Tons in thousands)Appalachia

Big Mountain

Big Mountain No. 16, Contract

CM

Steam


1,650



223



900


47%Rocklick

Harris No. 1, Contract

LW, CM

Met/Steam


3,298



435



2,000


30% met65% steamWells

Rivers Edge, Contract

CM

Met


3,109



145



1,350


50%Kanawha Eagle

Eagle, Coalburg

CM

Met/Steam


2,109



N/A



700


45%Federal

Federal No. 2

LW, CM

Steam


4,100



466



1,300


79%Purchased coal

N/A

N/A

N/A


165



N/ASubtotal


14,431



1,269Illinois Basin

Highland

Highland No. 9

CM

Steam


4,071



432



2,000


60%Bluegrass

Patriot, Freedom

TS, CM

Steam


2,554



258



400


79%Dodge Hill

Dodge Hill

CM

Steam


1,072



154



300


48%Big Run(5)

Big Run

CM

Steam


15



N/A



N/A


N/ASubtotal


7,712



844Other

N/A

N/A

N/A


N/A



181



N/A


N/ATotal


22,143



2,294     (1)
    
    LW = Longwall, CM = Continuous Miner, TS =
    Truck-and-Shovel.(2)
    
    Tons sold for each plant were the same as actual annual plant
    production in 2007, subject to stockpile variations.(3)
    
    Tons per hour; plant capacity is raw, or run of mine, feed rate
    into the plant.(4)
    
    Coal recovery is the saleable product coming out of the plant
    divided by the raw product coming into the plant.(5)
    
    Big Run was sold in the first half of 2007.  Appalachia
  Big
    Mountain
   5




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Rocklick
    Wells
    Kanawha
    Eagle
    Federal
  high-Btu
  Illinois
    Basin
  Highland
    Bluegrass
  truck-and-shovel
 6




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Dodge
    Hill
    Customers
    and Backlog
      and/or
  Commitments as of February 29, 20082011 andFiscal Year:

2008


2009


2010


Later


TotalTons (millions):


23.5



16.7



9.0



10.2



59.4           and/or
 7




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Sales and
    Marketing
    Transportation
      Suppliers
   8




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Technical
    Innovation
          Competition
      Employees &
    Labor Relations
     9




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Certain
    Liabilities
    Asset
    Retirement Obligations
    Workers
    Compensation
    Retiree
    Healthcare
         10




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Regulatory
    Matters
   11




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Mine
    Safety and Health
      one-hour
   12




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Black
    Lung
    Environmental
    Laws
        Surface
    Mining Control and Reclamation Act
       13




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Mine
    Closure Costs
      Clean
    Air Act
  and/or
 14




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Acid
    Rain
    Clean Air
    Interstate Rule (CAIR)
  2009-2010
  Clean Air
    Mercury Rule (CAMR)
  cap-and-trade
  National
    Ambient Air Quality Standards
    New
    Source Review Regulations
   15




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Environmental
    Defense v. Duke Energy Corp.
  Regional
    Haze
    Carbon
    Dioxide Emissions
  Massachusetts v. EPA
  State
    Laws
    Global
    Climate Change
  and/or
 16




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Clean
    Water Act
  National
    Pollutant Discharge Elimination System (NPDES)
        Section 404
     17




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Resource
    Conservation and Recovery Act
    Federal
    and State Superfund Statutes
  clean-up
  Toxic
    Release Reporting
    Additional
    Information
  1-800-SEC-0330
  (314) 275-3680
 
  Item 1A.
    Risk
    Factors.  RISK
    FACTORS
  You should carefully consider the risks described below,
    together with all of the other information included in this
    report, in evaluating our company and our common stock. If any
    of the risks described below actually occurs, our business,
    financial results, financial condition and stock price could be
    materially adversely affected.
  Risk
    Factors Relating to the Spin-Off
  Our
    historical and pro forma financial information may not be
    indicative of our future results as an independent
    company.
   18




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Peabody
    shareholders who received Patriot shares at the time of the
    spin-off and Peabody could be subject to material amounts of
    taxes if the spin-off is determined to be a taxable
    transaction.
      Patriot
    could be liable to Peabody for adverse tax consequences
    resulting from certain change in control transactions and
    therefore could be prevented from engaging in strategic or
    capital raising transactions.
    The
    agreements that we have entered into with Peabody involve
    conflicts of interest.
   19




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We did
    not operate as an independent company prior to the spin-off, and
    we may experience increased costs which could decrease our
    overall profitability.
    Risk
    Factors Relating to Our Business
  A
    decline in coal prices could reduce our revenues and the value
    of our coal reserves.
    As our
    coal supply agreements expire, our revenues and operating
    profits could suffer if we are unable to renew our agreements or
    find alternate buyers willing to purchase our coal on comparable
    terms to those in our contracts.
     20




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We
    derive a substantial portion of our revenues from Peabody
    subsidiaries, and any material failure by these subsidiaries to
    make payments for coal sales or receive payments from their
    ultimate customers for coal supplied by us would adversely
    affect our revenues.
    The
    loss of, or significant reduction in, purchases by parties to
    existing coal supply agreements sourced from our operations
    could adversely affect our revenues.
    Any
    change in coal consumption patterns by steel producers or North
    American electric power generators resulting in a decrease in
    the use of coal by those consumers could result in lower prices
    for our coal, which would reduce our revenues and adversely
    impact our earnings and the value of our coal
    reserves.
     21




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A
    decrease in the price of metallurgical coal or our production of
    metallurgical coal could decrease our anticipated
    profitability.
      Failures
    of contractor-operated sources to fulfill the delivery terms of
    their contracts with us could reduce our
    profitability.
  and/or
  Inaccuracies
    in our estimates of economically recoverable coal reserves could
    result in lower than expected revenues, higher than expected
    costs or decreased profitability.
      If the
    coal industry experiences overcapacity in the future, our
    profitability could be impaired.
   22




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We
    could be negatively affected if we fail to maintain satisfactory
    labor relations.
      A
    shortage of skilled labor and qualified managers in our
    operating regions could pose a risk to achieving improved labor
    productivity and competitive costs and could adversely affect
    our profitability.
    A
    decrease in the availability or increase in costs of key
    supplies, capital equipment or commodities could decrease our
    anticipated profitability.
    Our
    coal mining production and delivery are subject to conditions
    and events beyond our control, which could result in higher
    operating expenses and/or decreased production and sales and
    adversely affect our operating results.
     23




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Defects
    in title of any leasehold interests in our properties could
    limit our ability to mine these properties or result in
    significant unanticipated costs.
    Our
    future success depends upon our ability to develop our existing
    coal reserves and to acquire additional reserves that are
    economically recoverable.
        If
    transportation for our coal becomes unavailable or uneconomic
    for our customers, our ability to sell coal could
    suffer.
     24




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Our
    operations may depend on the availability of additional
    financing and access to funds under our credit
    facility.
    Failure
    to obtain or renew surety bonds in a timely manner and on
    acceptable terms could affect our ability to secure reclamation
    and employee-related obligations, which could adversely affect
    our ability to mine coal.
        If our
    business does not generate sufficient cash for operations, we
    may not be able to repay borrowings under our credit facility or
    fund other liquidity needs.
    The
    covenants in our credit facility impose restrictions that could
    limit our operational and financial flexibility.
   25




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Our
    ability to operate our company effectively could be impaired if
    we lose key personnel or fail to attract qualified
    personnel.
    Terrorist
    attacks and threats, escalation of military activity in response
    to such attacks or acts of war may negatively affect our
    business, financial condition and results of
    operations.
    Risks
    Related to Environmental and Other Regulation
  Our
    mining operations are extensively regulated, which imposes
    significant costs on us, and future regulations and developments
    could increase those costs or limit our ability to produce
    coal.
     26




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Our
    expenditures for postretirement benefit obligations could be
    materially higher than we have predicted if our actual
    experience differs from the underlying
    assumptions.
    We
    could be liable for certain retiree healthcare obligations to be
    assumed by Peabody in connection with the
    spin-off.
      Due to
    our participation in multi-employer pension plans, we may have
    exposure that extends beyond what our obligations would be with
    respect to our employees.
      Our
    exposure to statutory retiree healthcare costs could be
    significantly higher than we have estimated.
   27




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Concerns
    about the environmental impacts of coal combustion, such as
    impacts on global climate change, are resulting in increased
    regulation of coal combustion and could significantly affect
    demand for our products.
  Massachusetts v.
    Environmental Protection Agency and/or
    We may
    be unable to obtain and renew permits necessary for our
    operations, which would reduce our production, cash flows and
    profitability.
    Our
    operations may impact the environment or cause exposure to
    hazardous substances, and our properties may have environmental
    contamination, which could result in material liabilities to
    us.
  and/or
   28




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Item 1B.
    Unresolved
    Staff Comments.   
  Item 2.
    Properties.  Coal
    Reserves
      Proven and Probable Reserves as ofDecember 31,
    2007(1)Owned


Leased


TotalGeographic Region

Tons


Tons


Tons(Tons in millions)Appalachia


228



358



586Illinois Basin


410



266



676Total proven and probable coal reserves


638



624



1,262     (1)
    
    Reserves have been adjusted to take into account recoverability
    factors in producing a saleable product.    
    Proven (Measured) Reserves are reserves for which
    (a) quantity is computed from dimensions defined by
    outcrops, trenches, workings or drill holes; grade
    and/or
    quality are computed from the results of detailed sampling and
    (b) the sites for inspection, sampling and measurement are
    spaced so close and the geographic character is so well defined
    that size, shape, depth and mineral content of coal reserves are
    well-established.
    Probable (Indicated) Reserves are reserves for which quantity
    and grade
    and/or
    quality are computed from information similar to that used for
    proven (measured) reserves, but the sites for inspection,
    sampling and measurement are farther apart or are otherwise less
    adequately spaced. The degree of assurance, although lower than
    that for proven (measured) reserves, is high enough to assume
    continuity between points of observation.   29




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30




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PRODUCTION
    AND ASSIGNED
    RESERVES(1)
  Sulfur Content(2)>1.2 to 2.5Production





≤1.2 lbs.


lbs.


>2.5 lbs.





As of December 31,
    2007Year


Year


Year





Sulfur


Sulfur


Sulfur


As


AssignedEnded


Ended


Ended





Dioxide


Dioxide


Dioxide


Received


Proven andGeographic Region/

Dec 31,


Dec 31,


Dec 31,


Type of


per


per


per


Btu per


ProbableMining Complex

2007


2006


2005


Coal


Million Btu


Million Btu


Million Btu


Pound(3)


Reserves


Owned


Leased


Surface


Underground(Tons in millions)Appalachia:Federal


4.0



4.6



4.1



Steam











59



13,400



59



39



20







59Big Mountain


1.6



2.0



1.9



Steam



4



33







12,300



37







37







37Kanawha Eagle


2.1



1.9







Met/Steam



43



27



27



13,100



98







98







98Rocklick


3.1



3.8



4.6



Met/Steam



5



32



3



12,900



39







39



9



30Wells


3.2



2.3



2.6



Met/Steam



16



34







13,500



50







50







50Total


14.0



14.6



13.2







68



126



89







283



39



244



9



274Illinois Basin:Highland


3.9



3.7



3.8



Steam











80



11,400



80



29



51







80Dodge Hill


1.1



1.1



1.2



Steam











15



12,600



15



1



14







15Bluegrass(4)


2.5



3.9



4.2



Steam











36



10,900



36







36



2



34Total


7.5



8.7



9.2















131







131



30



101



2



129Total


21.5



23.3



22.4







68



126



220







414



69



345



11



403  31




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ASSIGNED
    AND UNASSIGNED PROVEN AND PROBABLE COAL
    RESERVES(1)AS
    OF DECEMBER 31, 2007
  Sulfur Content(2)≤1.2


>1.2 tolbs.


2.5 lbs.


>2.5 lbs.Sulfur


Sulfur


SulfurProven











Dioxide


Dioxide


Dioxide


Asand











per


per


per


ReceivedTotal Tons


Probable








Type of


Million


Million


Million


Btu per


Reserve Control


Mining MethodCoal Seam Location

Assigned


Unassigned


Reserves


Proven


Probable


Coal


Btu


Btu


Btu


Pound(3)


Owned


Leased


Surface


Underground(Tons in millions)Appalachia:Ohio






26



26



19



7



Steam











26



11,300



26











26West Virginia


283



277



560



346



214



Met/Steam



107



234



219



13,000



202



358



13



547Total


283



303



586



365



221







107



234



245







228



358



13



573Illinois Basin:Illinois






265



265



112



153



Steam



3



14



248



11,100



263



2



1



264Kentucky


131



280



411



214



197



Steam











411



11,200



147



264



32



379Total


131



545



676



326



350







3



14



659







410



266



33



643Total proven and probable


414



848



1,262



691



571







110



248



904







638



624



46



1,216     (1)
    
    Assigned reserves represent recoverable coal reserves that we
    have committed to mine at locations operating as of
    December 31, 2007. Unassigned reserves represent coal at
    suspended locations and coal that has not been committed. These
    reserves would require new mine development, mining equipment or
    plant facilities before operations could begin on the property.(2)
    
    Compliance coal is defined by Phase II of the Clean Air Act
    as coal having sulfur dioxide content of 1.2 pounds or less per
    million Btu. Non-compliance coal is defined as coal having
    sulfur dioxide content in excess of this standard. Electricity
    generators are able to use coal that exceeds these
    specifications by using emissions reduction technology, using
    emissions allowance credits or blending higher sulfur coal with
    lower sulfur coal.(3)
    
    As-received Btu per pound includes the weight of moisture in the
    coal on an as sold basis. The average moisture content used in
    the determination of as received Btu in Appalachia was 7%. The
    moisture content used in the determination of as received Btu in
    Illinois Basin ranged from 9% to 14%.(4)
    
    Includes Big Run, which was sold in the first half of 2007. 
  Item 3.
    Legal
    Proceedings.    Environmental
    Claims and Litigation
   32




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Item 4.
    Submission
    of Matters to a Vote of Security Holders.    Executive
    Officers
    Name

Age

PositionsRichard M. Whiting


53



President, Chief Executive Officer & DirectorIrl F. Engelhardt.


61



Chairman of the Board of Directors, Executive Advisor and
    DirectorMark N. Schroeder


51



Senior Vice President & Chief Financial OfficerJiri Nemec


51



Senior Vice President & Chief Operating OfficerCharles A. Ebetino, Jr.


55



Senior Vice President  Corporate DevelopmentJoseph W. Bean


45



Senior Vice President, General Counsel & Corporate SecretaryMichael V. Altrudo


60



Senior Vice President & Chief Marketing OfficerSara E. Wade


38



Senior Vice President  Human Resources   Richard
    M. Whiting
  President,
    Chief Executive Officer and Director
   33




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Irl F.
    Engelhardt
  Chairman
    of the Board of Directors, Executive Advisor and
    Director
    Mark N.
    Schroeder
  Senior
    Vice President & Chief Financial Officer
      Jiri
    Nemec
  Senior
    Vice President & Chief Operating Officer
  20-year
   34




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Charles
    A. Ebetino, Jr.
  Senior
    Vice President  Corporate Development
      Joseph W.
    Bean
  Senior
    Vice President, General Counsel & Corporate
    Secretary
      Michael
    V. Altrudo
  Senior
    Vice President & Chief Marketing Officer
    Sara E.
    Wade
  Senior
    Vice President  Human Resources
   35




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PART II
 
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.      Dividend
    Policy
   36




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Stock
    Performance Graph
  ©
  CUMULATIVE
    TOTAL RETURN
    Based upon an initial investment of $100 on November 01,
    2007
    with dividends reinvested
  
     1-Nov-07


30-Nov-07


31-Dec-07Patriot Coal Corp.


$
100



$
90



$
111S&P
    ©
    600


$
100



$
97



$
96Custom Composite Index (9 Stocks)


$
100



$
109



$
125   Regulation S-K,
 37




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Item 6.
    Selected
    Consolidated Financial Data.     38




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Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except for share and per share data)(Unaudited)Results of Operations Data:RevenuesSales

$
1,069,316


$
1,142,521


$
960,901


$
812,055


$
586,556Other revenues


4,046



5,398



17,376



4,369



3,190Total revenues


1,073,362



1,147,919



978,277



816,424



589,746Costs and expensesOperating costs and expenses


1,109,315



1,051,932



869,163



740,816



640,713Depreciation, depletion and amortization


85,640



86,458



65,972



62,580



57,720Asset retirement obligation expense


20,144



24,282



15,572



27,262



17,930Selling and administrative expenses


45,137



47,909



57,123



58,491



41,118Other operating income:Net gain on disposal or exchange of assets


(81,458
)(1)


(78,631
)(1)


(57,042
)(1)


(5,764
)


(23,390
)Income from equity affiliates(2)


(63
)


(60
)


(15,578
)


(12,335
)


(3,410
)Operating profit (loss)


(105,353
)


16,029



43,067



(54,626
)


(140,935
)Interest expense


8,337



11,419



9,833



12,701



12,746Interest income


(11,543
)


(1,417
)


(1,553
)


(918
)


(1,960
)Income (loss) before income taxes and minority interests


(102,147
)


6,027



34,787



(66,409
)


(151,721
)Income tax provision






8,350











Minority interests(2)


4,721



11,169







275



Income (loss) before accounting changes


(106,868
)


(13,492
)


34,787



(66,684
)


(151,721
)Cumulative effect of accounting changes


















(4,833
)(3)Net income (loss)


(106,868
)


(13,492
)


34,787



(66,684
)


(156,554
)Effect of minority purchase arrangement


(15,667
)














Net income (loss) attributable to common stockholders

$
(122,535
)

$
(13,492
)

$
34,787


$
(66,684
)

$
(156,554
)Loss per share, basic and diluted

$
(4.61
)


N/A



N/A



N/A



N/AWeighted average shares outstanding  basic and diluted


26,570,940



N/A



N/A



N/A



N/ABalance Sheet Data (at period end)
    (2003-2004
    unaudited):Total assets

$
1,199,837


$
1,178,181


$
1,113,058


$
836,608


$
848,640Total liabilities


1,117,521



1,851,855
(4)


1,511,810



2,036,892



1,989,225Total long-term debt


11,438



20,722



11,459







Minority interests






16,153











Total stockholders equity (deficit)


82,316



(689,827
)


(398,752
)


(1,200,284
)


(1,140,585
) 39




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##### Table of Contents



Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except for share and per share data)(Unaudited)Other Data:Tons sold (in millions and unaudited)


22.1



24.3



23.8



24.6



21.0Net cash provided by (used in):Operating activities

$
(79,699
)

$
(20,741
)

$
17,823


$
(62,205
)

$
(176,544
)Investing activities


54,721



1,993



(29,529
)


55,850



116,512Financing activities


30,563



18,627



11,459



6,985



60,000Adjusted EBITDA(5)(unaudited)


431



126,769



124,611



35,216



(65,285
)Past mining obligation payments (unaudited)


144,811



150,672



154,479



179,299



175,597Additions to property, plant, equipment and mine development


55,594



80,224



75,151



36,780



74,550Acquisitions, net


47,733



44,538







2,490



     (1)
    
    Net gain on disposal or exchange of assets included a
    $37.4 million gain from an exchange of coal reserves as
    part of a dispute settlement with a third-party supplier in
    2005, gains of $66.6 million from sales of coal reserves
    and surface lands in 2006 and gains of $78.5 million from
    the sales of coal reserves and surface land in 2007.(2)
    
    In March 2006, we increased our 49% interest in KE Ventures, LLC
    to an effective 73.9% interest and began combining KE Ventures,
    LLCs results with ours effective January 1, 2006. In
    2007, we purchased the remaining interest. Prior to 2006,
    KE Ventures, LLC was accounted for on an equity basis and
    included in income from equity affiliates in our statement of
    operations.(3)
    
    The charge to cumulative effect of accounting changes related to
    the January 1, 2003 adoption of SFAS No. 143,
    Accounting for Asset Retirement Obligations and the
    change in method of amortizing actuarial gain and losses related
    to net periodic postretirement benefit costs.(4)
    
    We adopted SFAS No. 158, Employers
    Accounting for Defined Benefit Pension and Other Postretirement
    Plans on December 31, 2006, and as a result,
    increased noncurrent liabilities and decreased total invested
    capital (accumulated other comprehensive loss) by
    $322.1 million.(5)
    
    Adjusted EBITDA is defined as net income (loss) before deducting
    net interest expense, income taxes, minority interests, asset
    retirement obligation expense, depreciation, depletion and
    amortization and cumulative effect of accounting changes.
    Adjusted EBITDA is used by management to measure operating
    performance, and management also believes it is a useful
    indicator of our ability to meet debt service and capital
    expenditure requirements. The term Adjusted EBITDA does not
    purport to be an alternative to operating income, net income or
    cash flows from operating activities as determined in accordance
    with GAAP as a measure of profitability or liquidity. Because
    Adjusted EBITDA is not calculated identically by all companies,
    our calculation may not be comparable to similarly titled
    measures of other companies. 40




---



##### Table of Contents



Adjusted EBITDA is calculated as follows (unaudited):  Year Ended December 31,2007


2006


2005


2004


2003(In thousands)Net income (loss)

$
(106,868
)

$
(13,492
)

$
34,787


$
(66,684
)

$
(156,554
)Cumulative effect of accounting changes


















4,833Income tax provision






8,350











Depreciation, depletion and amortization


85,640



86,458



65,972



62,580



57,720Asset retirement obligation expense


20,144



24,282



15,572



27,262



17,930Interest expense


8,337



11,419



9,833



12,701



12,746Interest income


(11,543
)


(1,417
)


(1,553
)


(918
)


(1,960
)Minority interests


4,721



11,169







275



Adjusted EBITDA

$
431


$
126,769


$
124,611


$
35,216


$
(65,285
)  
  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  Overview
        Basis of
    Preparation
    
    retention by Peabody of certain retiree healthcare liabilities
    of $615.8 million;
    the forgiveness of the outstanding intercompany payables to
    Peabody on October 31, 2007 of $81.5 million; 41




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##### Table of Contents




    the retention by Patriot of trade accounts receivable at
    October 31, 2007, previously recorded through intercompany
    receivables, of $68.6 million;
    a $30.0 million cash contribution;
    the retention by Peabody of assets and asset retirement
    obligations related to certain Midwest mining operations of a
    net $8.1 million;
    less the transfer of intangible assets of $22.7 million
    related to purchased contract rights for a supply contract
    retained by Peabody.    Selling
    and Administrative Expenses
    Interest
    Expense
    Income
    Tax Provision
     42




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##### Table of Contents



Results
    of Operations
  Segment
    Adjusted EBITDA
    Geologic
    Conditions
    Year
    ended December 31, 2007 compared to year ended
    December 31, 2006
  Summary
   43




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##### Table of Contents



Tons
    Sold and Revenues
  Year Ended December 31,


Increase (Decrease)2007


2006


Tons/$


%(Dollars and tons in thousands, except per ton amounts)Appalachia


14,432



15,292



(860
)


(5.6
)%Illinois Basin


7,711



8,998



(1,287
)


(14.3
)%Total Tons Sold


22,143



24,290



(2,147
)


(8.8
)%Appalachia

$
821,116


$
890,198


$
(69,082
)


(7.8
)%Illinois Basin


252,246



257,721



(5,475
)


(2.1
)%Total Revenues

$
1,073,362


$
1,147,919


$
(74,557
)


(6.5
)%Average sales price per ton sold:Appalachia

$
56.89


$
58.21


$
(1.32
)


(2.3
)%Illinois Basin


32.71



28.64



4.07



14.2
%       Segment
    Adjusted EBITDA
  Year Ended December 31,


Increase (Decrease)2007


2006


$


%(Dollars in thousands)Appalachia

$
89,850


$
204,827


$
(114,977
)


(56.1
)%Illinois Basin


11,862



(1,900
)


13,762



n/aSegment Adjusted EBITDA

$
101,712


$
202,927


$
(101,215
)


(49.9
)%      44




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##### Table of Contents



Net
    Income (Loss)
  Year Ended


Increase (Decrease)December 31,


to Income2007


2006


$


%(Dollars in thousands)Segment Adjusted EBITDA

$
101,712


$
202,927


$
(101,215
)


(49.9
)%Corporate and Other:Past mining obligation expense


(137,602
)


(106,880
)


(30,722
)


(28.7
)%Net gain on disposal of assets


81,458



78,631



2,827



3.6
%Selling and administrative expenses


(45,137
)


(47,909
)


2,772



5.8
%Total corporate and other


(101,281
)


(76,158
)


(25,123
)


(33.0
)%Depreciation, depletion and amortization


(85,640
)


(86,458
)


818



0.9
%Asset retirement obligation expense


(20,144
)


(24,282
)


4,138



17.0
%Interest expense:Peabody


(4,969
)


(5,778
)


809



14.0
%Third-Party


(3,368
)


(5,641
)


2,273



40.3
%Interest income


11,543



1,417



10,126



n/aIncome (loss) before income taxes and minority interest


(102,147
)


6,027



(108,174
)


n/aIncome tax provision






(8,350
)


8,350



n/aMinority interests


(4,721
)


(11,169
)


6,448



57.7
%Net income (loss)


(106,868
)


(13,492
)


(93,376
)


n/aEffect of minority purchase arrangement


(15,667
)






(15,667
)


n/aNet income (loss) attributable to common stockholders

$
(122,535
)

$
(13,492
)

$
(109,043
)


n/a   Past
    Mining Obligation Expense
    Net
    Gain on Disposal of Assets
    Selling
    and Administrative Expenses
   45




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##### Table of Contents



Depreciation,
    Depletion and Amortization
    Asset
    Retirement Obligation Expense
    Interest
    Expense (Income)
      Income
    Tax Provision
    Minority
    Interests
    Effect
    of Minority Purchase Arrangement
    Unaudited
    Pro Forma Consolidated Financial Data
   46




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##### Table of Contents



Unaudited
    Pro Forma Consolidated Statement of Operations
  Twelve Months Ended December 31, 2007Historical


Adjustments


Pro Forma(Dollars in thousands)RevenuesSales

$
1,069,316


$
22,850
(a)

$
1,092,166Other revenues


4,046







4,046Total revenues


1,073,362



22,850



1,096,212Costs and expensesOperating costs and expenses


1,109,315



(51,875
)(b)


1,058,600(1,125
)(c)2,285
(a)Depreciation, depletion and amortization


85,640



(1,717
)(d)


83,923Asset retirement obligation expense


20,144







20,144Selling and administrative expenses


45,137



(13,237
)(e)


31,900Other operating income:Net gain on disposal of assets


(81,458
)






(81,458
)Income from equity affiliates


(63
)






(63
)Operating profit (loss)


(105,353
)


88,519



(16,834
)Interest expense


3,368



5,267
(f)


8,635Interest expense related to former Parent


4,969



(4,969
)(g)


Interest income


(11,543
)






(11,543
)Income (loss) before income taxes and minority interests


(102,147
)


88,221



(13,926
)Income tax provision






5,967
(h)


5,967Minority interests


4,721







4,721Net income (loss)


(106,868
)


82,254



(24,614
)Effect of minority purchase arrangement


(15,667
)






(15,667
)Net income (loss) attributable to common stockholders

$
(122,535
)

$
82,254


$
(40,281
)   Notes to
    Unaudited Pro Forma Consolidated Statement of
    Operations
  (a)
    
    Reflects an increase to revenues (and related royalties and
    taxes) related to the repricing of a coal supply agreement to
    increase the price paid to Patriot to be more reflective of the
    then current market pricing for similar quality coal at the time
    of the spin-off. 47




---



##### Table of Contents



(b)
    
    Reflects a decrease to operating costs and expenses for the
    impact of Peabodys agreement to assume certain of
    Patriots retiree healthcare liabilities in the aggregate
    amount of $603.4 million as of December 31, 2007.(c)
    
    Reflects reversal of historical expense related to pension
    benefit obligations that were not assumed by Patriot.(d)
    
    Reflects the non-cash transfer to Peabody of an intangible asset
    related to a purchased contract right recorded on Patriots
    historical financial statements in Investments and Other Assets
    and historically sourced from Patriot mining operations. As part
    of the spin-off, Peabody retained the coal supply contract with
    the ultimate customer.(e)
    
    Reflects adjustment for estimated selling and administrative
    costs for Patriots stand-alone management and
    administrative structure and functions. Prior to the spin-off,
    these services were provided by Peabody under various agreements
    between Peabody and its subsidiaries, and the historical amount
    was the result of an allocation of Peabodys overall
    selling and administrative costs. The allocation of these
    Peabody costs was not deemed reasonable for Patriot on a
    stand-alone basis and a pro forma amount was estimated based on
    a detailed
    build-up of
    expected support costs by function for the Patriot operations as
    a stand alone business. The costs allocated to Patriot by
    Peabody were higher than Patriots pro forma estimate
    because the Peabody allocation reflected higher costs compared
    to Patriots stand-alone estimate for areas such as
    government relations, information systems development, office
    space, executive incentive compensation and support departments
    such as accounting, law, engineering and human resources. In
    addition, the Peabody allocation included costs for major
    strategy and growth initiatives, most of which did not directly
    impact the Patriot operations.(f)
    
    Reflects higher costs for surety bonds and letters of credit
    based on anticipated rates for these instruments and on
    Patriots requirements to secure financial obligations for
    reclamation, workers compensation and post retirement
    benefits. The historical financial statements reflect an
    allocation of Peabodys fees related to these guarantees.(g)
    
    Reflects the reversal of the interest expense related to the
    intercompany note payable to Peabody.(h)
    
    Reflects tax impact of pro forma adjustments based on the
    statutory rate adjusted for tax accounting as follows:  Expected tax statutory

$
30,877State income tax


2,719Percentage depletion


(11,845
)Valuation allowance


(15,784
)Pro forma tax impact

$
5,967   Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Summary
       48




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##### Table of Contents



Tons
    Sold and Revenues
  Increase (Decrease)Year Ended December 31,


2006 from 20052006


2005


Tons/$


%(Dollars and tons in thousands,except per ton amounts)Appalachia


15,292



14,066



1,226



8.7
%Illinois Basin


8,998



9,719



(721
)


(7.4
)%Total Tons Sold


24,290



23,785



505



2.1
%Appalachia

$
890,198


$
742,753


$
147,445



19.9
%Illinois Basin


257,721



235,524



22,197



9.4
%Total Revenues

$
1,147,919


$
978,277


$
169,642



17.3
%Average sales price per ton sold:Appalachia

$
58.21


$
52.80


$
5.41



10.2
%Illinois Basin


28.64



24.23



4.41



18.2
%     Segment
    Adjusted EBITDA
  Increase (Decrease) toSegment Adjusted EBITDAYear Ended December 31,


2006 from 20052006


2005


$


%Appalachia

$
204,827


$
227,100


$
(22,273
)


(9.8
)%Illinois Basin


(1,900
)


1,645



(3,545
)


(215.5
)%Segment Adjusted EBITDA

$
202,927


$
228,745


$
(25,818
)


(11.3
)%      49




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##### Table of Contents



Net
    Income (Loss)
  Increase(Decrease)to Net Income (Loss)Year Ended December 31,


2006 from 20052006


2005


$


%Segment Adjusted EBITDA

$
202,927


$
228,745


$
(25,818
)


(11.3
)%Corporate and Other:Past mining obligation expense


(106,880
)


(104,053
)


(2,827
)


(2.7
)%Net gain on disposal or exchange of assets


78,631



57,042



21,589



37.8
%Selling and administrative expenses


(47,909
)


(57,123
)


9,214



16.1
%Total Corporate and Other


(76,158
)


(104,134
)


27,976



26.9
%Depreciation, depletion and amortization


(86,458
)


(65,972
)


(20,486
)


(31.1
)%Asset retirement obligation expense


(24,282
)


(15,572
)


(8,710
)


(55.9
)%Interest expense:Peabody


(5,778
)


(4,960
)


(818
)


(16.5
)%Third-Party


(5,641
)


(4,873
)


(768
)


(15.8
)%Interest income


1,417



1,553



(136
)


(8.8
)%Income before income taxes and minority interests


6,027



34,787



(28,760
)


n/aIncome tax provision


(8,350
)






(8,350
)


n/aMinority interests


(11,169
)






(11,169
)


n/aNet income (loss)

$
(13,492
)

$
34,787


$
(48,279
)


n/a     Past
    Mining Obligation Expense
    Net
    Gain on Disposal or Exchange of Assets
    Selling
    and Administrative Expenses
    Depreciation,
    Depletion and Amortization
   50




---



##### Table of Contents



Asset
    Retirement Obligation Expense
    Interest
    Expense
    Income
    Tax Provision
    Minority
    Interests
    Outlook
       51




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    Employee-Related
    Liabilities
       52




---



##### Table of Contents



+1.0%


−1.0%(Dollars in thousands)Effect on total service and interest cost components

$
8,163


$
(7,494
)Effect on (gain)/loss amortization component


15,102



(13,860
)Effect on total postretirement benefit obligation


66,450



(60,983
)     +0.5%


−0.5%(Dollars in thousands)Effect on total service and interest cost components

$
1,583


$
(1,990
)Effect on (gain)/loss amortization component


(6,656
)


7,025Effect on total postretirement benefit obligation


(28,934
)


31,758   Asset
    Retirement Obligations
    Income
    Taxes
     53




---



##### Table of Contents



Revenue
    Recognition
      Share-Based
    Compensation
    Impairment
    of Long-Lived Assets
    Liquidity
    and Capital Resources
       54




---



##### Table of Contents



Promissory
    Notes
    December 31,2007


2006(Dollars in thousands)Promissory Notes

$
12,365


$
12,365Notes Payable






8,357Total

$
12,365


$
20,722     Credit
    Facility
      Other
   55




---



##### Table of Contents



Contractual
    Obligations
  Payments Due by Year as of December 31, 2007Within


2-3


4-5


After1 Year


Years


Years


5 Years(Dollars in thousands)Long-term debt obligations (principal and interest)

$
1,700


$
3,400


$
3,400


$
8,500Operating lease obligations


24,117



41,958



22,349



6,500Unconditional purchase
    obligations(1)


6,306











Coal reserve lease and royalty obligations


12,059



17,513



9,380



6,676Other long-term liabilities(2)


50,618



111,686



128,374



614,942Total contractual cash obligations

$
94,800


$
174,557


$
163,503


$
636,618     (1)
    
    We have purchase agreements with approved vendors for most types
    of operating expenses. However, our specific open purchase
    orders (which have not been recognized as a liability) under
    these purchase agreements, combined with any other open purchase
    orders, are not material. The commitments in the table above
    relate to significant capital purchases.(2)
    
    Represents long-term liabilities relating to our postretirement
    benefit plans, work-related injuries and illnesses and mine
    reclamation and end-of-mine closure costs.    Off-Balance
    Sheet Arrangements
      WorkersReclamation


Lease


CompensationObligations


Obligations


Obligations


Other(1)


Total(Dollars in thousands)Surety bonds

$
84,109


$



$
12,961


$
12,030


$
109,100Letters of credit


61,883



16,949



170,844



3,871



253,547$
145,992


$
16,949


$
183,805


$
15,901


$
362,647     (1)
    
    Includes collateral for surety companies and bank guarantees,
    road maintenance and performance guarantees.     56




---



##### Table of Contents



Newly
    Adopted Accounting Pronouncements
  Financial
    Interpretation No. 48
         
  Item 7A
    Quantitative
    and Qualitative Disclosures About Market Risk.  Commodity
    Price Risk
     57




---



##### Table of Contents



Credit
    Risk
   
  Item 8.
    Financial
    Statements and Supplementary Data.   
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.   
  Item 9A.
    Controls
    and Procedures.  Form 10-K,
 
  Item 9B.
    Other
    Information.   58




---



##### Table of Contents



PART III
 
  Item 10.
    Directors,
    Executive Officers and Corporate Governance.  Regulation S-K Regulation S-K
 
  Item 11.
    Executive
    Compensation.  Regulation S-K
 
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  Regulation S-K
  Regulation S-K,
  Equity
    Compensation Plan Information
  (a)





Number of SecuritiesNumber of Securities





Remaining Availableto be Issued


Weighted-Average


for Future IssuanceUpon Exercise of


Exercise Price of


Under Equity CompensationOutstanding Options,


Outstanding Options,


Plans (Excluding SecuritiesPlan Category

Warrants and Rights


Warrants and Rights


Reflected in Column (a))Equity compensation plans approved by security holders


1,351,302


$
37.50



1,248,698Equity compensation plans not approved by security holders


N/A



N/A



N/ATotal


1,351,302


$
37.50



1,248,698  
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.  Regulation S-K S-K
 
  Item 14.
    Principal
    Accounting Fees and Services.   59




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##### Table of Contents



PART IV
 
  Item 15.
    Exhibits
    and Financial Statement Schedules.    Financial Statements.
    PageReports of Independent Registered Public Accounting Firms


F-1Consolidated Statements of Operations  Years Ended
    December 31, 2007, 2006 and 2005


F-3Consolidated Balance Sheets  December 31, 2007
    and December 31, 2006


F-4Consolidated Statements of Cash Flows  Years Ended
    December 31, 2007, 2006 and 2005


F-5Consolidated Statements of Changes in Stockholders Equity
    (Deficit)  Years Ended December 31, 2007, 2006
    and 2005


F-6Notes to Consolidated Financial Statements


F-7    Financial Statement Schedule.
    PageValuation and Qualifying Accounts


F-36      Exhibits.
   60




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##### Table of Contents



SIGNATURES
      
   President, Chief Executive Officer and Director
      Signature

Title

Date/s/  RICHARD
    M. WHITINGRichard
    M. Whiting

President, Chief Executive Officer and Director (principal
    executive officer)

March 14, 2008/s/  MARK
    N. SCHROEDERMark
    N. Schroeder

Senior Vice President and
    Chief Financial Officer
    (principal financial and accounting officer)

March 14, 2008/s/  IRL
    F. ENGELHARDTIrl
    F. Engelhardt

Chairman and Director

March 14, 2008/s/  J.
    JOE ADORJANJ.
    Joe Adorjan

Director

March 14, 2008/s/  B.R.
    BROWNB.R.
    Brown

Director

March 14, 2008/s/  JOHN
    E. LUSHEFSKIJohn
    E. Lushefski

Director

March 14, 2008/s/  MICHAEL
    M. SCHARFMichael
    M. Scharf

Director

March 14, 2008/s/  ROBERT
    O. VIETSRobert
    O. Viets

Director

March 14, 2008  61




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##### Table of Contents



ExhibitNo.

Description of Exhibit2
.1

Separation Agreement, Plan of Reorganization and Distribution,
    dated October 22, 2007, between Peabody Energy Corporation and
    Patriot Coal Corporation (Incorporated by reference to Exhibit
    2.1 of the Registrants Current Report on Form 8-K, filed
    on October 25, 2007).3
.1

Amended and Restated Certificate of Incorporation (Incorporated
    by reference to Exhibit 3.1 of the Registrants Current
    Report on Form 8-K, filed on October 25, 2007).3
.2

Amended and Restated By-Laws (Incorporated by reference to
    Exhibit 3.2 of the Registrants Current Report on Form 8-K,
    filed on October 25, 2007).4
.1

Rights Agreement, dated October 22, 2007, between Patriot Coal
    Corporation and American Stock Transfer & Trust Company
    (Incorporated by reference to Exhibit 4.1 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).4
.2

Certificate of Designations of Series A Junior Participating
    Preferred Stock (Incorporated by reference to Exhibit 4.1 of the
    Registrants Current Report on Form 8-K, filed on November
    6, 2007).10
.1

Transition Services Agreement, dated October 22, 2007, between
    Peabody Energy Corporation and Patriot Coal Corporation
    (Incorporated by reference to Exhibit 10.1 of the
    Registrants Current Report on
    Form 8-K,
    filed on October 25, 2007).10
.2

Tax Separation Agreement, dated October 22, 2007, between
    Peabody Energy Corporation and Patriot Coal Corporation
    (Incorporated by reference to Exhibit 10.2 of the
    Registrants Current Report on
    Form 8-K,
    filed on October 25, 2007).10
.3

Employee Matters Agreement, dated October 22, 2007, between
    Peabody Energy Corporation and Patriot Coal Corporation
    (Incorporated by reference to Exhibit 10.3 of the
    Registrants Current Report on
    Form 8-K,
    filed on October 25, 2007).10
.4

Coal Supply Agreement, dated October 22, 2007, between Patriot
    Coal Sales LLC and COALSALES II, LLC (Incorporated by reference
    to Exhibit 10.4 of the Registrants Current Report on Form
    8-K, filed on October 25, 2007).10
.5

Coal Supply Agreement, dated October 22, 2007, between Patriot
    Coal Sales LLC and COALSALES LLC (Incorporated by reference to
    Exhibit 10.5 of the Registrants Current Report on Form
    8-K, filed on October 25, 2007).10
.6

Master Coal Supply Agreement, dated October 22, 2007, between
    Patriot Coal Sales LLC and COALSALES LLC (Incorporated by
    reference to Exhibit 10.6 of the Registrants Current
    Report on Form 8-K, filed on October 25, 2007).10
.7

Master Coal Supply Agreement, dated October 22, 2007, between
    Patriot Coal Sales LLC and COALSALES II LLC (Incorporated by
    reference to Exhibit 10.7 of the Registrants Current
    Report on Form 8-K, filed on October 25, 2007).10
.8

Master Coal Supply Agreement, dated October 22, 2007, between
    Patriot Coal Sales LLC and COALTRADE INTERNATIONAL, LLC
    (Incorporated by reference to Exhibit 10.8 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).10
.9

Coal Act Liabilities Assumption Agreement, dated October 22,
    2007, among Patriot Coal Corporation, Peabody Holding Company,
    LLC and Peabody Energy Corporation (Incorporated by reference to
    Exhibit 10.9 of the Registrants Current Report on Form
    8-K, filed on October 25, 2007).10
.10

NBCWA Liabilities Assumption Agreement, dated October 22, 2007,
    among Patriot Coal Corporation, Peabody Holding Company, LLC,
    Peabody Coal Company, LLC and Peabody Energy Corporation
    (Incorporated by reference to Exhibit 10.10 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).10
.11

Salaried Employee Liabilities Assumption Agreement, dated
    October 22, 2007, among Patriot Coal Corporation, Peabody
    Holding Company, LLC, Peabody Coal Company, LLC and Peabody
    Energy Corporation (Incorporated by reference to Exhibit 10.11
    of the Registrants Current Report on Form 8-K, filed on
    October 25, 2007).10
.12

Administrative Services Agreement, dated October 22, 2007,
    between Patriot Coal Corporation, Peabody Holding Company, LLC
    and Peabody Energy Corporation  (Incorporated by reference to
    Exhibit 10.12 of the Registrants Current Report on Form
    8-K, filed on October 25, 2007).10
.13

Master Equipment Sublease Agreement, dated October 22, 2007,
    between Patriot Leasing Company LLC and PEC Equipment Company,
    LLC (Incorporated by reference to Exhibit 10.13 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).




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##### Table of Contents



ExhibitNo.

Description of Exhibit10
.14

Software License Agreement, dated October 22, 2007, between
    Patriot Coal Corporation and Peabody Energy Corporation
    (Incorporated by reference to Exhibit 10.14 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).10
.15

Throughput and Storage Agreement, dated October 22, 2007, among
    Peabody Terminals, LLC, James River Coal Terminal, LLC and
    Patriot Coal Sales LLC (Incorporated by reference to Exhibit
    10.15 of the Registrants Current Report on Form 8-K, filed
    on October 25, 2007).10
.16

Conveyance and Assumption Agreement, dated October 22, 2007,
    among PEC Equipment Company, LLC, Central States Coal Reserves
    of Indiana, LLC, Central States Coal Reserves of Illinois, LLC,
    Cyprus Creek Land Company and Peabody Coal Company, LLC
    (Incorporated by reference to Exhibit 10.16 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).10
.17

Patriot Coal Corporation 2007 Long-Term Equity Incentive Plan
    (Incorporated by reference to Exhibit 10.17 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).10
.18

Patriot Coal Corporation Employee Stock Purchase Plan
    (Incorporated by reference to Exhibit 10.18 of the
    Registrants Current Report on Form 8-K, filed on October
    25, 2007).10
.19

Patriot Coal Corporation Management Annual Incentive
    Compensation Plan (Incorporated by reference to Exhibit 10.19 of
    the Registrants Current Report on Form 8-K, filed on
    October 25, 2007).10
.20

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and Richard M. Whiting (Incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.21

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and Irl F. Engelhardt (Incorporated by
    reference to Exhibit 10.2 of the Registrants Current
    Report on
    Form 8-K,
    filed on November 6, 2007).10
.22

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and J. Joe Adorjan (Incorporated by
    reference to Exhibit 10.3 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.23

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and B. R. Brown (Incorporated by
    reference to Exhibit 10.4 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.24

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and John E. Lushefski (Incorporated by
    reference to Exhibit 10.5 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.25

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and Michael M. Scharf (Incorporated by
    reference to Exhibit 10.6 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.26

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and Robert O. Viets (Incorporated by
    reference to Exhibit 10.7 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.27

Indemnification Agreement, dated November 1, 2007, between
    Patriot Coal Corporation and Mark N. Schroeder (Incorporated by
    reference to Exhibit 10.8 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.28

Employment Agreement, dated October 31, 2007, between Patriot
    Coal Corporation and Richard M. Whiting (Incorporated by
    reference to Exhibit 10.9 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.29

Employment Agreement, dated October 31, 2007, between Patriot
    Coal Corporation and Mark N. Schroeder (Incorporated by
    reference to Exhibit 10.10 of the Registrants Current
    Report on
    Form 8-K,
    filed on November 6, 2007).10
.30

Employment Agreement, dated October 31, 2007, between Patriot
    Coal Corporation and Jiri Nemec (Incorporated by reference to
    Exhibit 10.11 of the Registrants Current Report on Form
    8-K, filed on November 6, 2007).10
.31

Employment Agreement, dated October 31, 2007, between Patriot
    Coal Corporation and Charles A. Ebetino, Jr. (Incorporated by
    reference to Exhibit 10.12 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).




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##### Table of Contents



ExhibitNo.

Description of Exhibit10
.32

Employment Agreement, dated October 31, 2007, between Patriot
    Coal Corporation and Joseph W. Bean (Incorporated by reference
    to Exhibit 10.13 of the Registrants Current Report on Form
    8-K, filed on November 6, 2007).10
.33

Employment Agreement, dated October 31, 2007, between Patriot
    Coal Corporation and Irl F. Engelhardt (Incorporated by
    reference to Exhibit 10.14 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.34

Form of Non-Qualified Stock Option Agreement under the Patriot
    Coal Corporation 2007 Long-Term Equity Incentive Plan
    (Incorporated by reference to Exhibit 10.2 of the
    Registrants Current Report on Form 8-K, filed on October
    29, 2007).10
.35

Form of Restricted Stock Unit Agreement under the Patriot Coal
    Corporation 2007 Long-Term Equity Incentive Plan (Incorporated
    by reference to Exhibit 10.1 of the Registrants Current
    Report on Form 8-K, filed on October 29, 2007).10
.36

Form of Restricted Stock Award Agreement under the Patriot Coal
    Corporation 2007 Long-Term Equity Incentive Plan (Incorporated
    by reference to Exhibit 10.3 of the Registrants Current
    Report on Form 8-K, filed on October 29, 2007).10
.37

Form of Deferred Stock Unit Award Agreement under the Patriot
    Coal Corporation 2007 Long-Term Equity Incentive Plan
    (Incorporated by reference to Exhibit 10.4 of the
    Registrants Current Report on Form 8-K, filed on October
    29, 2007).10
.38

Patriot Coal Corporation 401(k) Retirement Plan (Incorporated by
    reference to Exhibit 10.15 of the Registrants Current
    Report on Form 8-K, filed on November 6, 2007).10
.39

Patriot Coal Corporation Supplemental 401(k) Retirement Plan
    (Incorporated by reference to Exhibit 10.16 of the
    Registrants Current Report on Form 8-K, filed on November
    6, 2007).10
.40

Patriot Coal Corporation Credit Agreement, dated October 31,
    2007, among Patriot Coal Corporation, Bank of America, N.A., as
    administrative agent, L/C Issuer and Swing Line Lender and the
    lenders from time to time party thereto (Incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on Form 8-K, filed on October 31, 2007).10
.41

Patriot Coal Corporation Pledge and Security Agreement, dated
    October 31, 2007, among Patriot Coal Corporation, certain
    subsidiaries of Patriot Coal Corporation and Bank of America,
    N.A. (Incorporated by reference to Exhibit 10.2 of the
    Registrants Current Report on Form 8-K, filed on October
    31, 2007).10
.42*

Amendment No. 1 to the Separation Agreement, Plan of
    Reorganization and Distribution, dated November 1, 2007,
    between Peabody Energy Corporation and Patriot Coal Corporation10
.43*

Amendment 1 to Master Coal Supply Agreement between Patriot Coal
    Sales LLC and COALSALES LLC, dated February 26, 2008.10
.44*

Amendment 1 to Master Coal Supply Agreement between Patriot Coal
    Sales LLC and COALSALES II LLC, dated February 26, 2008.10
.45*

Amendment 1 to Master Coal Supply Agreement between Patriot Coal
    Sales LLC and COALTRADE INTERNATIONAL LLC, dated
    February 26, 2008.21
.1*

List of Subsidiaries23
.1*

Consent of Independent Registered Accounting Firm23
.2*

Consent of Independent Registered Accounting Firm31
.1*

Certification of periodic financial report by Patriot Coal
    Corporations Chief Executive Officer pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934, as amended
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31
.2*

Certification of periodic financial report by Patriot Coal
    Corporations Chief Financial Officer pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934, as amended
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
.1*

Certification of periodic financial report pursuant to
    18 U.S.C. Section 1350, adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002, by Patriot Coal
    Corporations Chief Executive Officer.32
.2*

Certification of periodic financial report pursuant to
    18 U.S.C. Section 1350, adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002, by Patriot Coal
    Corporations Chief Financial Officer.




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  
          
    F-1




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  
    
    F-2




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##### Table of Contents



PATRIOT
    COAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2007


2006


2005(Dollars in thousands, exceptshare and per share data)RevenuesSales

$
1,069,316


$
1,142,521


$
960,901Other revenues


4,046



5,398



17,376Total revenues


1,073,362



1,147,919



978,277Costs and expensesOperating costs and expenses


1,109,315



1,051,932



869,163Depreciation, depletion and amortization


85,640



86,458



65,972Asset retirement obligation expense


20,144



24,282



15,572Selling and administrative expenses


45,137



47,909



57,123Other operating income:Net gain on disposal or exchange of assets


(81,458
)


(78,631
)


(57,042
)Income from equity affiliates


(63
)


(60
)


(15,578
)Operating profit (loss)


(105,353
)


16,029



43,067Interest expense


8,337



11,419



9,833Interest income


(11,543
)


(1,417
)


(1,553
)Income (loss) before income taxes and minority interests


(102,147
)


6,027



34,787Income tax provision






8,350



Minority interests


4,721



11,169



Net income (loss)


(106,868
)


(13,492
)


34,787Effect of minority purchase arrangement


(15,667
)






Net income (loss) attributable to common stockholders

$
(122,535
)

$
(13,492
)

$
34,787Weighted average shares outstanding, basic and diluted


26,570,940



N/A



N/AEarnings per share, basic and diluted:Net loss

$
(4.02
)


N/A



N/AEffect of minority purchase arrangement


(0.59
)


N/A



N/ANet loss attributable to common stockholders

$
(4.61
)


N/A



N/A    F-3




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##### Table of Contents



PATRIOT
    COAL CORPORATION
  CONSOLIDATED BALANCE SHEETS
  December 31,2007


2006(Dollars in thousands, except share data)ASSETSCurrent assetsCash and cash equivalents

$
5,983


$
398Accounts receivable and other, net of allowance for doubtful
    accounts of $251 and $252 as of December 31, 2007 and 2006,
    respectively


125,985



31,583Net receivable from former affiliates






141,021Inventories


31,037



34,692Prepaid expenses and other current assets


6,214



7,004Total current assets


169,219



214,698Property, plant, equipment and mine developmentLand and coal interests


689,338



628,569Buildings and improvements


282,703



270,990Machinery and equipment


330,338



377,693Less accumulated depreciation, depletion and amortization


(426,090
)


(434,565
)Property, plant, equipment and mine development, net


876,289



842,687Notes receivable


126,381



52,975Investments and other assets


27,948



67,821Total assets

$
1,199,837


$
1,178,181LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilitiesCurrent maturities of long-term debt

$
927


$
Trade accounts payable


66,811



53,573Accrued expenses


116,781



162,871Total current liabilities


184,519



216,444Long-term debt


11,438



20,722Note payable to former affiliate






62,000Asset retirement obligations


134,364



139,703Workers compensation obligations


192,730



207,860Accrued postretirement benefit costs


527,315



1,139,017Obligation to industry fund


31,064



25,626Other noncurrent liabilities


36,091



40,483Total liabilities


1,117,521



1,851,855Minority interests






16,153Stockholders equity (deficit):Common stock ($0.01 par value; 100,000,000 shares
    authorized; 26,758,768 shares issued and outstanding at
    December 31, 2007)


268



Additional paid-in capital


189,451



Retained earnings (deficit)


(33,363
)


Accumulated other comprehensive loss


(74,040
)


(322,121
)Former Parents equity (deficit)






(367,706
)Total stockholders equity (deficit)


82,316



(689,827
)Total liabilities and stockholders equity (deficit)

$
1,199,837


$
1,178,181    F-4




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##### Table of Contents



PATRIOT
    COAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(Dollars in thousands)Cash Flows From Operating ActivitiesNet income (loss)

$
(106,868
)

$
(13,492
)

$
34,787Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:Depreciation, depletion and amortization


85,640



86,458



65,972Net gain on disposal or exchange of assets


(81,458
)


(78,631
)


(57,042
)Stock-based compensation expense


1,299







Income from equity affiliates


(63
)


(60
)


(15,578
)Dividends received from equity investments






9,935



7,552Minority interest


4,721



11,169



Changes in current assets and liabilities, net of acquisitions:Accounts receivable


(19,058
)


2,043



4,844Inventories


3,655



(7,998
)


(4,497
)Other current assets


790



(3,769
)


1,247Accounts payable and accrued expenses


10,828



(10,932
)


(6,596
)Interest on notes receivable


(10,013
)


(876
)


Asset retirement obligations


4,473



3,006



(13,465
)Workers compensation obligations


6,654



(3,163
)


3,011Accrued postretirement benefit costs


22,264



4,677



11,273Obligation to industry fund


7,286



(2,253
)


(3,033
)Other, net


(9,849
)


(16,855
)


(10,652
)Net cash provided by (used in) operating activities


(79,699
)


(20,741
)


17,823Cash Flows From Investing ActivitiesAdditions to property, plant, equipment and mine development


(55,594
)


(80,224
)


(75,151
)Acquisitions, net


(47,733
)


(44,538
)


Additions to advance mining royalties


(3,964
)


(6,065
)


(6,094
)Proceeds from disposal of assets, net of notes receivable


29,426



48,168



13,496Net change in receivables from/payables to former affiliates


132,586



84,652



38,220Net cash provided by (used in) investing activities


54,721



1,993



(29,529
)Cash Flows From Financing ActivitiesContribution from former Parent


43,647



44,538



Long-term debt payments


(8,358
)


(23,792
)


Issuance of notes payable










11,459Credit facility origination fees


(4,726
)






Distribution to minority interests






(2,119
)


Net cash provided by financing activities


30,563



18,627



11,459Net increase (decrease) in cash and cash equivalents


5,585



(121
)


(247
)Cash and cash equivalents at beginning of year


398



519



766Cash and cash equivalents at end of year

$
5,983


$
398


$
519    F-5




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##### Table of Contents



PATRIOT
    COAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    (DEFICIT)
  AccumulatedAdditional


Retained


Other


FormerCommon


Paid-in


Earnings


Comprehensive


ParentsStock


Capital


(Deficit)


Loss


Equity


Total(Dollars in thousands)December 31, 2004

$



$



$



$



$
(1,200,284
)

$
(1,200,284
)Net income


















34,787



34,787Dividend from subsidiary of former Parent


















766,745



766,745December 31, 2005


















(398,752
)


(398,752
)Net loss


















(13,492
)


(13,492
)SFAS No. 158 adoption impact of postretirement plans and
    workers compensation obligations (net of taxes of $0):Accumulated actuarial loss














(318,614
)






(318,614
)Prior service cost














(3,507
)






(3,507
)Contribution from former Parent


















44,538



44,538December 31, 2006














(322,121
)


(367,706
)


(689,827
)Net loss










(33,363
)






(73,505
)


(106,868
)Postretirement plans and workers compensation obligations
    (net of taxes of $0):Changes in accumulated actuarial loss














70,278







70,278Changes in prior service cost














12,469







12,469Total comprehensive loss






















(24,121
)Contributions from former Parent


















13,647



13,647Consummation of spin-off transaction on October 31, 2007


266



188,152







165,334



427,564



781,316Stock based compensation






1,299















1,299Stock grants to employees


2



















2December 31, 2007

$
268


$
189,451


$
(33,363
)

$
(74,040
)

$



$
82,316    F-6




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##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December
    31, 2007
  (1)
    Consummation
    of Spin-off Transaction and Basis of Presentation  Consummation
    of Spin-off Transaction
    
    retention by Peabody of certain retiree healthcare liabilities
    of $615.8 million;
    the forgiveness of the outstanding intercompany payables to
    Peabody on October 31, 2007 of $81.5 million;
    the retention by Patriot of trade accounts receivable at
    October 31, 2007, previously recorded through intercompany
    receivables, of $68.6 million;
    a $30.0 million cash contribution;
    the retention by Peabody of assets and asset retirement
    obligations related to certain Midwest mining operations of a
    net $8.1 million;
    less the transfer of intangible assets of $22.7 million
    related to purchased contract rights for a supply contract
    retained by Peabody.  Basis
    of Presentation
        (2)
    Summary
    of Significant Accounting Policies  Description
    of Business
    Sales
   F-7




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Revenues
    Cash
    and Cash Equivalents
    Inventories
    Property,
    Plant, Equipment and Mine Development
    and/or
   F-8




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      YearsBuilding and improvements


10 to 20Machinery and equipment


1 to 30Leasehold improvements


Shorter of life of asset, mine or lease     Intangible
    Assets
    Joint
    Ventures
    Asset
    Retirement Obligations
   F-9




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Environmental
    Liabilities
    Income
    Taxes
        Postretirement
    Healthcare Benefits
   F-10




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Multi-Employer
    Benefit Plans
  No. 92-13,
  Pension
    Plans
      Postemployment
    Benefits
    Use of
    Estimates in the Preparation of the Consolidated Financial
    Statements
     F-11




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Impairment
    of Long-Lived Assets
    Fair
    Value of Financial Instruments
    
    Cash and cash equivalents, accounts receivable, accounts payable
    and accrued expenses have carrying values which approximate fair
    value due to the short maturity or the financial nature of these
    instruments.
    The fair value of notes receivable approximates the carrying
    value as of December 31, 2007 and 2006.
    The fair value of net payables to former affiliates approximated
    the carrying value as of December 31, 2006.  New
    Accounting Pronouncements
  FASB
    Statement No. 157
    FASB
    Statement No. 159
   F-12




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    FASB
    Statement No. 160
    FASB
    Statement No. 141(R)
    (3)
    Risk
    Management and Financial Instruments    Credit
    Risk
     F-13




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employees
    (4)
    Net Gain
    on Disposal or Exchange of Assets and Other Commercial
    Events          (5)
    Earnings
    per Share   F-14




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (6)
    Acquisition  KE
    Ventures, LLC
      Redeemable
    Preferred Stock
  (7)
    Inventories    December 31,


December 31,2007


2006(Dollars in thousands)Saleable coal

$
13,519


$
16,651Materials and supplies


13,385



13,343Raw coal


4,133



4,698Total

$
31,037


$
34,692     (8)
    Leases   F-15




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Operating


CoalLeases


Reserves(Dollars in thousands)2008

$
24,117


$
12,0592009


21,589



10,4002010


20,369



7,1132011


15,070



4,9142012


7,278



4,4662013 and thereafter


6,500



6,676Total minimum lease and royalty payments

$
94,923


$
45,628      F-16




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (9)
    Accrued
    Expenses    December 31,2007


2006(Dollars in thousands)Accrued healthcare, including post-retirement

$
30,120


$
78,174Workers compensation obligations


23,778



24,456Accrued payroll and related benefits


21,565



20,803Accrued taxes other than income


13,339



15,257Other accrued benefits


9,487



8,272Accrued royalties


5,281



4,381Accrued lease payments


1,692



1,745Other accrued expenses


11,519



9,783Total accrued expenses

$
116,781


$
162,871   (10)
    Income
    Taxes      Year Ended December 31,2007


2006


2005(Dollars in thousands)Federal statutory rate

$
(35,751
)

$
2,110


$
12,176Depletion


(11,281
)


(15,006
)


(15,184
)State income taxes, net of U.S. federal tax benefit


(6,911
)


(2,183
)


(10,180
)Minority interest


(1,652
)


(3,909
)


Changes in valuation allowance


55,183



26,864



81,213Changes in tax reserves


107



172



224Deemed liquidation of subsidiary










(68,397
)Other, net


305



302



148Total

$



$
8,350


$
  F-17




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(Dollars in thousands)Deferred tax assets:Postretirement benefit obligations

$
233,881


$
486,847Tax credits and loss carryforwards


20,346



6,032Accrued workers compensation liabilities


91,925



92,610Accrued reclamation and mine closing liabilities


53,483



54,855Obligation to industry fund


12,672



10,251Other


20,387



6,772Total gross deferred tax assets


432,694



657,367Deferred tax liabilities:Property, plant, equipment and mine development, leased coal
    interests and advance royalties, principally due to differences
    in depreciation, depletion and asset writedowns


162,092



159,284Total gross deferred tax liabilities


162,092



159,284Valuation allowance


(270,602
)


(498,083
)Net deferred tax liability

$



$
Deferred taxes consisted of the following:Current deferred income taxes

$



$
Noncurrent deferred income taxes






Net deferred tax liability

$



$
          F-18




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        (11)
    Long-Term
    Debt    December 31,2007


2006(Dollars in thousands)Promissory Notes

$
12,365


$
12,365Notes Payable






8,357Total

$
12,365


$
20,722   Promissory
    Notes
    Notes
    Payable
    (12)
    Credit
    Facility   F-19




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (13)
    Asset
    Retirement Obligations    December 31,2007


2006(Dollars in thousands)Balance at beginning of year

$
139,703


$
134,447Liabilities incurred


1,427



10,441Liabilities settled or disposed


(17,249
)


(22,414
)Accretion expense


14,237



15,917Revisions to estimate


4,961



1,312Liabilities conveyed to Peabody (upon spin-off)


(8,715
)


Balance at end of year

$
134,364


$
139,703        F-20




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (14)
    Workers
    Compensation Obligations        Year Ended December 31,2007


2006


2005(Dollars in thousands)Service cost

$
2,971


$
2,807


$
4,137Interest cost


9,124



9,568



10,244Net amortization of actuarial gains


(1,607
)


(1,369
)


(1,352
)Total occupational disease


10,488



11,006



13,029Traumatic injury claims


13,160



10,984



17,505State assessment taxes


4,373



10,388



16,315Total provision

$
28,021


$
32,378


$
46,849       Year Ended December 31,2007

2006

2005Discount rate


6.00
%


5.90
%


6.10
%Inflation rate


3.50
%


3.50
%


3.50
%    F-21




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(Dollars in thousands)Occupational disease costs

$
155,829


$
173,924Traumatic injury claims


60,679



58,392Total obligations


216,508



232,316Less current portion (included in Accrued expenses)


(23,778
)


(24,456
)Noncurrent obligations (included in Workers compensation
    obligations)

$
192,730


$
207,860     AccumulatedActuarial Gain(Dollars in thousands)December 31, 2006 (Initial adoption of SFAS No. 158)

$
9,006Net amortization


825Change to actuarial gain arising during period


11,953December 31, 2007

$
21,784       December 31,2007


2006(Dollars in thousands)Change in benefit obligation:Beginning of year obligation

$
173,924


$
165,954Service cost


2,971



2,807Interest cost


9,124



9,568Net change in actuarial loss (gain)


(21,653
)


4,311Benefit and administrative payments


(8,537
)


(8,716
)Net obligation at end of year


155,829



173,924Change in plan assets:Fair value of plan assets at beginning of period






Employer contributions


8,537



8,716Benefits paid


(8,537
)


(8,716
)Fair value of plan assets at end of period






Funded status at end of period

$
(155,829
)

$
(173,924
)    F-22




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Federal
    Black Lung Excise Tax Refund Claims
    (15)
    Pension
    and Savings Plans  Multi-Employer
    Pension Plans
  per-hour
  Defined
    Contribution Plans
    (16)
    Postretirement
    Healthcare Benefits   F-23




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005(Dollars in thousands)Service cost for benefits earned

$
981


$
599


$
538Interest cost on accumulated postretirement benefit obligation


65,964



62,385



62,615Amortization of prior service cost


(1,306
)


(2,545
)


(2,685
)Amortization of actuarial losses


34,260



26,866



22,896Net periodic postretirement benefit costs

$
99,899


$
87,305


$
83,364     December 31,2007


2006(Dollars in thousands)Change in benefit obligation:Accumulated postretirement benefit obligation at beginning of
    period

$
1,214,032


$
1,088,507Service cost


981



599Interest cost


65,964



62,385Participant contributions


840



956Plan amendments


11,687



10,166Retention by Peabody of certain liabilities


(615,837
)


Benefits paid


(74,948
)


(81,984
)Change in actuarial (gain) or loss


(47,971
)


133,403Accumulated postretirement benefit obligation at end of period


554,748



1,214,032Change in plan assets:Fair value of plan assets at beginning of period






Employer contributions


74,108



81,028Participant contributions


840



956Benefits paid and administrative fees (net of Medicare
    Part D reimbursements)


(74,948
)


(81,984
)Fair value of plan assets at end of period






Accrued postretirement benefit obligation


(554,748
)


(1,214,032
)Less current portion (included in Accrued expenses)


27,433



75,015Noncurrent obligation (included in Accrued postretirement
    benefit costs)

$
(527,315
)

$
(1,139,017
)    F-24




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Accumulated


PriorActuarial Loss


Service Cost(Dollars in thousands)December 31, 2006 (Initial adoption of SFAS No. 158)

$
(327,587
)

$
(3,507
)Amortization


34,260



(1,306
)Retention by Peabody of certain liabilities


165,334



Change to actuarial loss arising during period


44,024



(7,656
)December 31, 2007

$
(83,969
)

$
(12,469
)     Year Ended December 31,2007

2006Discount rate

6.80%

6.00%Rate of compensation increase

3.50%

3.50%Measurement date

December 31, 2007

December 31, 2006     Year Ended December 31,2007

2006

2005Discount rate

6.00%

5.90%

6.10%Rate of compensation increase

3.50%

3.50%

3.50%Measurement date

December 31, 2006

December 31, 2005

December 31, 2004     Year Ended December 31,2007


2006Healthcare cost trend rate assumed for next year


7.50
%


7.50
%Rate to which the cost trend is assumed to decline (the ultimate
    trend rate)


4.75
%


4.75
%Year that the rate reaches that ultimate trend rate


2013



2012  F-25




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    +1.0%


−1.0%(Dollars in thousands)Effect on total service and interest cost components for 2007

$
8,163


$
(7,494
)Effect on year-end 2007 postretirement benefit obligation


66,450



(60,983
)   Plan
    Assets
    Estimated
    Future Benefits Payments
    PostretirementBenefits(Dollars in thousands)2008

$
27,4332009


30,6852010


34,2752011


37,9502012


43,721Years
    2013-2017


245,715   Medicare
    and Other Plan Changes
      Multi-Employer
    Benefit Plans
     F-26




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            (17)
    Related
    Party Transactions  Pre-spin-off
    relationship with Peabody
   F-27




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Spin-off
    and subsequent periods
    
    retention by Peabody of certain retiree healthcare liabilities
    of $615.8 million;
    the forgiveness of the outstanding intercompany payables to
    Peabody on October 31, 2007 of $81.5 million;
    the retention by Patriot of trade accounts receivable at
    October 31, 2007, previously recorded through intercompany
    receivables, of $68.6 million;
    a $30.0 million cash contribution;
    the retention by Peabody of assets and asset retirement
    obligations related to certain Midwest mining operations of a
    net $8.1 million; F-28




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    less the transfer of intangible assets of $22.7 million to
    Peabody from Patriot related to purchased contract rights for a
    supply contract retained by Peabody.        (18)
    Guarantees    Letters
    of Credit and Bonding
    WorkersReclamation


Lease


CompensationObligations


Obligations


Obligations


Other(1)


Total(Dollars in thousands)Surety Bonds

$
84,109


$



$
12,961


$
12,030


$
109,100Letters of Credit


61,883



16,949



170,844



3,871



253,547$
145,992


$
16,949


$
183,805


$
15,901


$
362,647     (1)
    
    Other includes letters of credit and surety bonds related to
    collateral for surety companies and bank guarantees, road
    maintenance and performance guarantees.    Other
    Guarantees
   F-29




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (19)
    Commitments
    and Contingencies  Commitments
    Other
    (20)
    Segment
    Information     F-30




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    CorporateAppalachia


Illinois Basin


and Other(1)


Consolidated(Dollars in thousands)Revenues

$
821,116


$
252,246


$



$
1,073,362Adjusted EBITDA


89,850



11,862



(101,281
)


431Additions to property, plant, equipment and mine development


48,955



6,639







55,594Income from equity affiliates


63











63     CorporateAppalachia


Illinois Basin


and Other(1)


Consolidated(Dollars in thousands)Revenues

$
890,198


$
257,721


$



$
1,147,919Adjusted EBITDA


204,827



(1,900
)


(76,158
)


126,769Additions to property, plant, equipment and mine development


72,236



7,988







80,224Income from equity affiliates


60











60     CorporateAppalachia


Illinois Basin


and Other(1)


Consolidated(Dollars in thousands)Revenues

$
742,753


$
235,524


$



$
978,277Adjusted EBITDA


227,100



1,645



(104,134
)


124,611Additions to property, plant, equipment and mine development


67,775



7,376







75,151Income from equity affiliates


15,578











15,578     (1)
    
    Corporate and Other results include the gains on disposal of
    assets discussed in Note 4.    Year Ended December 31,2007


2006


2005(Dollars in thousands)Total Adjusted EBITDA

$
431


$
126,769


$
124,611Depreciation, depletion and amortization


(85,640
)


(86,458
)


(65,972
)Asset retirement obligation expense


(20,144
)


(24,282
)


(15,572
)Interest expense


(8,337
)


(11,419
)


(9,833
)Interest income


11,543



1,417



1,553Income tax provision






(8,350
)


Minority interests


(4,721
)


(11,169
)


Net income (loss)

$
(106,868
)

$
(13,492
)

$
34,787  F-31




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (21)
    Stockholders
    Equity  Common
    Stock
        SharesOutstandingOctober 31, 2007(shares outstanding at spin-off)


26,570,940Stock grants to employees


187,828December 31, 2007


26,758,768   Preferred
    Stock
    Preferred
    Share Purchase Rights Plan and Series A Junior
    Participating Preferred Stock
   F-32




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (22)
    Stock-Based
    Compensation    Restricted
    Stock
    Extended
    Long-Term Incentive Restricted Stock Units
   F-33




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Extended
    Long-Term Incentive Non-Qualified Stock Option
      December 31, 2007Weighted-average fair value

$15.34Risk-free interest rate

4.22%Expected option life

6.69 yearsExpected volatility

30.64%Dividend yield

0%       Deferred
    Stock Units
   F-34




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee
    Stock Purchase Plan
    (23)
    Summary
    Quarterly Financial Information (Unaudited)    Year Ended December 31, 2007First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Dollars in thousands except per share and stock price
    data)Revenues

$
269,663


$
256,221


$
293,301


$
254,177Operating profit


(10,698
)


(4,392
)


(39,823
)


(50,440
)Net loss


(11,951
)


(5,814
)


(39,451
)


(49,652
)Basic and diluted loss attributable to common stockholders per
    share


N/A



N/A



N/A


$
(2.17
)Weighted average shares used in calculating basic earnings per
    share


N/A



N/A



N/A



26,570,940Stock price  high and low prices


N/A



N/A



N/A


$
43.00-$27.16   Year Ended December 31, 2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Dollars in thousands)Revenues

$
289,107


$
312,495


$
285,038


$
261,279Operating profit


21,530



2,648



9,290



(17,439
)Net income (loss)


13,921



(1,774
)


(2,954
)


(22,685
)  F-35




---



##### Table of Contents



PATRIOT
    COAL CORPORATION
  SCHEDULE
    II  VALUATION AND QUALIFYING ACCOUNTS
 December
    31, 2007
  Balance


Charged to








BalanceBeginning


Costs and








at End ofDescription

of Period


Expenses


Deductions(1)


Other


Period(Dollars in thousands)Year Ended December 31, 2007Reserves deducted from asset accounts:Advance royalty recoupment reserve

$
4,716


$



$



$
(1,985
)(2)

$
2,731Reserve for materials and supplies


1,458



74







(1,252
)(2)


280Allowance for doubtful accounts


252







(1
)






251Year Ended December 31, 2006Reserves deducted from asset accounts:Advance royalty recoupment reserve

$
4,836


$



$



$
(120
)(3)

$
4,716Reserve for materials and supplies


1,519







(61
)






1,458Allowance for doubtful accounts


92



160











252Year Ended December 31, 2005Reserves deducted from asset accounts:Advance royalty recoupment reserve

$
6,975


$



$
(2,551
)

$
412
(3)

$
4,836Reserve for materials and supplies


1,816







(297
)






1,519Allowance for doubtful accounts






92











92     (1)
    
    Reserves utilized, unless otherwise indicated.(2)
    
    Balance transferred to Peabody as part of Patriot spin-off.(3)
    
    Peabody restructured entities which resulted in the
    reclassification of advances and related reserves. F-36