Acquisition of Macarthur Coal Limited

12 Months Ended

Dec. 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 (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 acquiree'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.

Preliminary purchase price allocations were recorded in the accompanying consolidated financial statements as of the acquisition and control date. The Company finalized the fair value determination of the assets acquired and liabilities assumed upon the completion of third-party valuation appraisals during the year ended December 31, 2012. 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 year ended December 31, 2012:

	Preliminary Purchase Price Allocations			Provisional Adjustments			Final Purchase Price Allocations
	(Dollars in Millions)
Accounts receivable, net	$	106.6		$	7.8		$	114.4
Inventories	67.1			(11.4		)	55.7
Other current assets	137.5			(3.9		)	133.6
Property, plant, equipment and mine development	3,457.0			442.0			3,899.0
Investments and other assets	1,275.1			(394.0		)	881.1
Current maturities of long-term debt	(11.0		)	—			(11.0		)
Accounts payable and accrued expenses	(133.8		)	(21.9		)	(155.7		)
Long-term debt, less current maturities	(59.2		)	—			(59.2		)
Asset retirement obligations	(39.3		)	(9.5		)	(48.8		)
Other noncurrent liabilities	(31.4		)	(9.1		)	(40.5		)
Noncontrolling interests	(2,011.9		)	—			(2,011.9		)
Total purchase price, net of cash acquired of $261.2	$	2,756.7		$	—		$	2,756.7

Adjustments to the provisional fair values result from additional information obtained about facts in existence at the acquisition date. Adjustments between “Property, plant, equipment and mine development” and “Investments and other assets” were related to fair value adjustment allocations among various operating and exploration coal assets, including those associated with equity affiliate investments and an outstanding loan receivable, all of which are reflected as noncurrent assets on the Company's consolidated balance sheets. As such, prior financial statements have not been retroactively adjusted. The retroactive impact to the consolidated statement of operations from these provisional adjustments was recorded in the year ended December 31, 2012, which resulted in a $9.2 million decrease to "Depreciation, depletion and amortization," a $10.1 million decrease to "Operating costs and expenses" and a $5.6 million increase to "Loss from equity affiliates" during that period. These provisional adjustments were not material to the annual or quarterly periods affected.

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 estimated unutilized capacity of $67.7 million which is being amortized based on that estimated unutilized capacity over the terms of the applicable agreements which extend to 2018. Unutilized capacity and the period of amortization were determined based on best estimates of forecasted usage at the acquisition date and may differ from actual capacity use. As of December 31, 2012, the carrying value of the liability was $50.0 million. The associated amortization (which is classified as a reduction to “Operating costs and expenses” in the consolidated statements of operations) recorded during the years ended December 31, 2012 and 2011 was $14.8 million and $2.9 million, respectively. Future amortization of the remaining carrying value of the liability as of December 31, 2012 is $18.1 million, $15.6 million, $11.6 million, $4.1 million and $0.6 million for the years ending December 31, 2013, 2014, 2015, 2016 and 2017, respectively.

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 the periods presented or that may be attained in the future.

	Year Ended December 31,
	2011		2010
	(Dollars in millions, except earnings per share)
Revenue	$	8,618.0	$	7,387.7
Income from continuing operations, net of income taxes	1,305.7		1,002.4
Basic earnings per share	$	3.55	$	2.65
Diluted earnings per share	3.55		2.65

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.

Included in "Investments and other assets" as of December 31, 2011 was a $368.9 million loan receivable from MCG Coal Holdings Pty Ltd (MCGH) that was initially measured based on the amount PEA-PCI loaned to MCGH. PEA-PCI had previously agreed to convert its receivable for a 90% equity interest in MCGH. The transaction was initially expected to be completed in May 2011. However, non-performance by a third party to the transaction resulted in PEA-PCI commencing litigation. The original loan balance was classified as a receivable pending the outcome of the legal proceedings. The loan receivable was subsequently adjusted downward during the measurement period based on the completion of a third-party valuation appraisal on the underlying net assets of MCGH, which were substantially comprised of mineral rights. In January 2012, the court ruled that the outstanding loan balance be converted to a 90% equity interest in MCGH, resulting in consolidation of MCGH and recognition of noncontrolling interests of $39.0 million at conversion. In June 2012, the Company acquired the remaining noncontrolling interests 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 a decrease to additional paid-in capital of $10.8 million related to this transaction, representing the difference between the consideration paid and the carrying value.