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Acquisition of Macarthur Coal Limited
 3 Months Ended
Mar. 31, 2012
Business Combinations [Abstract]  
Acquisition of Macarthur Coal Limited
Acquisition of Macarthur Coal Limited
On October 23, 2011, PEAMCoal Pty Ltd (PEAMCoal), an Australian company that was then indirectly owned 60% by the Company and 40% by ArcelorMittal, acquired a majority interest in Macarthur Coal Limited (Macarthur) through an all cash off-market takeover offer. On October 26, 2011 (the acquisition and control date), the Company appointed its nominees to the Macarthur Board of Directors and executive management team. The acquisition was completed on December 20, 2011 as PEAMCoal acquired all of Macarthur's remaining outstanding shares of common stock for $4.8 billion, net of $261.2 million of acquired cash, of which the Company's share was $2.8 billion. PEAMCoal accounted for share acceptances under the takeover process as a single transaction occurring on October 26, 2011. On December 21, 2011, the Company acquired ArcelorMittal Mining Australasia B.V., an indirect subsidiary of ArcelorMittal that indirectly owned 40% of PEAMCoal, for $2.0 billion resulting in the Company's 100% ownership of Macarthur.

The preliminary purchase accounting allocations were recorded in the accompanying unaudited condensed consolidated financial statements as of, and for the periods subsequent to the acquisition and control date. The Company has not yet finalized the fair value determination of the assets acquired and liabilities assumed, which is expected once third-party valuation appraisals are completed. The Company is evaluating mine lives and reviewing coal reserve studies on the acquired properties, the outcome of which will determine the final fair value allocated to coal reserve assets. The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed that were recognized at the acquisition and control date as well as provisional fair value adjustments made during the first quarter of 2012:
 
Preliminary
 
 
 
Updated
 
Allocations
 
Adjustments
 
Allocations
 
(Dollars in millions)
Accounts receivable, net
$
106.6

 
$
7.7

 
$
114.3

Inventories
67.1

 
(10.1
)
 
57.0

Other current assets
137.5

 
(3.9
)
 
133.6

Property, plant, equipment and mine development
3,457.0

 
112.5

 
3,569.5

Investments and other assets
1,275.1

 
(78.7
)
 
1,196.4

Current maturities of long-term debt
(11.0
)
 
—

 
(11.0
)
Accounts payable and accrued expenses
(133.8
)
 
(25.0
)
 
(158.8
)
Long-term debt, less current maturities
(59.2
)
 
—

 
(59.2
)
Asset retirement obligations
(39.3
)
 
—

 
(39.3
)
Other noncurrent liabilities
(31.4
)
 
(2.5
)
 
(33.9
)
Noncontrolling interests
(2,011.9
)
 
—

 
(2,011.9
)
Total purchase price, net of cash acquired of $261.2
$
2,756.7

 
$
—

 
$
2,756.7



The adjustments to the provisional fair values result from additional information obtained about facts in existence at the acquisition and control date. Adjustments to provisional fair values are assumed to have been made as of the acquisition and control date. As a result, "Operating costs and expenses" and "Depreciation, depletion and amortization" for the fourth quarter of 2011 would have been lower by $10.1 million and $10.6 million, respectively, than was previously reported. The results in the unaudited condensed consolidated statements of income reflect these adjustments in the first quarter of 2012.

In connection with the acquisition, the Company acquired contract based intangibles consisting of port, rail and water take-or-pay obligations and recorded a liability for unutilized capacity of $33.3 million, net of tax, which is being amortized based on that unutilized capacity over the terms of the applicable agreements which extend to 2018. As of March 31, 2012, the carrying value of the liability was $30.2 million and the amortization (reduction to “Operating costs and expenses” in the unaudited condensed consolidated statement of income) recorded through March 31, 2012 was $3.1 million. Estimated amortization as of March 31, 2012 is $11.4 million, $17.1 million and $1.7 million for the years ending December 31, 2012, 2013 and 2014, respectively. Unutilized capacity is not expected in years 2015 through 2018.

Macarthur contributed revenues of $145.2 million and a net loss of $6.5 million during the three months ended March 31, 2012, which includes results from our equity affiliate investment in the Middlemount Mine which is ramping up operations. The results of Macarthur for the three months ended March 31, 2012 are included in the unaudited condensed consolidated statements of income and are reported in the Australian Mining segment, except for the activity associated with certain equity affiliate investments, which is reflected in the Corporate and Other segment.

The following unaudited pro forma financial information presents the combined results of operations of the Company and Macarthur, on a pro forma basis, as though the companies had been combined as of January 1, 2011. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and Macarthur constituted a single entity during those periods or that may be attained in the future.
 
Three Months Ended
 
March 31, 2011
 
(Dollars in millions, except earnings per share)
Revenue
$
1,807.8

Income from continuing operations, net of income taxes
113.1

Basic earnings per share
0.35

Diluted earnings per share
0.35



The pro forma income from continuing operations, net of income taxes, includes adjustments to operating costs to reflect the additional expense for the estimated impact of the fair value adjustment for coal inventory, the estimated impact on depreciation, depletion and amortization for the fair value adjustment for property, plant and equipment (including mineral rights) and additional expense for the estimated impact of reflecting the equity affiliate interest at its estimated fair value.

As disclosed in Note 23 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, an outstanding loan balance of $384.6 million was converted to a 90% equity interest in MCG Coal Holdings Pty Ltd. (MCGH), resulting in consolidation of MCGH and recognition of noncontrolling interests of $53.4 million at conversion.