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Acquisition of Macarthur Coal Limited
 9 Months Ended
Sep. 30, 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 (PEA-PCI or the acquiree) through an all cash off-market takeover offer. On October 26, 2011 (the acquisition and control date), the Company appointed its nominees to the acquiree's Board of Directors and executive management team. The acquisition was completed on December 20, 2011 as PEAMCoal acquired all of the acquirees'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 (PEA-PCI acquisition). 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 PEA-PCI.

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 nine months of 2012:
 
Preliminary
 
 
 
Updated
 
Allocations
 
Adjustments
 
Allocations
 
(Dollars in millions)
Accounts receivable, net
$
106.6

 
$
8.8

 
$
115.4

Inventories
67.1

 
(10.5
)
 
56.6

Other current assets
137.5

 
(3.9
)
 
133.6

Property, plant, equipment and mine development
3,457.0

 
258.6

 
3,715.6

Investments and other assets
1,275.1

 
(184.3
)
 
1,090.8

Current maturities of long-term debt
(11.0
)
 
—

 
(11.0
)
Accounts payable and accrued expenses
(133.8
)
 
(26.1
)
 
(159.9
)
Long-term debt, less current maturities
(59.2
)
 
—

 
(59.2
)
Asset retirement obligations
(39.3
)
 
(15.2
)
 
(54.5
)
Other noncurrent liabilities
(31.4
)
 
(27.4
)
 
(58.8
)
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. Cumulative adjustments to provisional fair values recorded in the current period are assumed to have been made as of the acquisition and control date. Prior financial statements have not been retroactively adjusted due to immateriality. Accordingly, "Depreciation, depletion and amortization" was decreased by $4.7 million and $12.2 million for the three and nine months ended September 30, 2012, respectively. "Asset retirement obligation expenses” were increased by $3.7 million for the three and nine months ended September 30, 2012. "Operating costs and expenses" were decreased by $10.1 million for the nine months ended September 30, 2012, with the entire impact recognized during the first quarter of 2012.

In connection with the PEA-PCI acquisition, the Company acquired contract-based obligations consisting of port, rail and water take-or-pay obligations and recorded a liability for unutilized capacity of $58.5 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 September 30, 2012, the carrying value of the liability was $47.4 million and the associated amortization (which is classified as a reduction to “Operating costs and expenses” in the unaudited condensed consolidated statements of income) recorded during the three and nine months ended September 30, 2012 was $3.8 million and $11.1 million, respectively. Estimated future amortization of the remaining carrying value of the liability as of September 30, 2012 is expected to be $3.7 million, $18.1 million, $15.6 million and $10.0 million for the years ending December 31, 2012, 2013, 2014 and 2015, respectively. Unutilized capacity is not expected in years 2016 through 2018.

During the three and nine months ended September 30, 2012, PEA-PCI contributed revenues of $182.5 million and $479.5 million, respectively, and income before income taxes of $4.4 million and loss before income taxes of $98.7 million, respectively, which includes results from our equity affiliate investment in the Middlemount Mine. Due to the restructuring of the Company's Australian tax entities during the second quarter of 2012 described in Note 10, it is no longer practicable to calculate the net income of PEA-PCI on a standalone basis. The results of PEA-PCI for the three and nine months ended September 30, 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 affiliates 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 PEA-PCI, on a pro forma basis, as though the companies had been combined as of January 1, 2010. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and PEA-PCI constituted a single entity during those periods or that may be attained in the future.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2011
 
(Dollars in millions, except per share amounts)
Revenue
$
2,194.1

 
$
6,154.7

Income from continuing operations, net of income taxes
256.0

 
727.6

Basic earnings per share
$
0.88

 
$
2.48

Diluted earnings per share
0.87

 
2.48



Pro forma income from continuing operations, net of income taxes, includes adjustments to operating costs and depreciation, depletion and amortization to reflect the additional expense for the estimated impact of fair value adjustments to coal inventory and property, plant and equipment (including mineral rights), respectively, as well as additional expense associated with the estimated impact of reflecting the equity affiliate interest at 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, a then-outstanding loan receivable balance of $384.6 million was converted to a 90% equity interest in MCG Coal Holdings Pty Ltd. (MCGH) in January 2012, resulting in consolidation of MCGH and recognition of noncontrolling interests of $53.4 million at conversion. In June 2012, the Company acquired the remaining noncontrolling interest in MCGH for total consideration of $49.8 million. This acquisition was accounted for as an equity transaction as the Company previously maintained control of MCGH. Accordingly, the Company recorded an increase to additional paid-in capital of $3.6 million in the second quarter 2012 related to this transaction, representing the difference in the price paid and the carrying value.