Acquisition of Shoal Creek Mine

On December 3, 2018, the Company completed the acquisition of the Shoal Creek metallurgical coal mine, preparation plant and supporting assets located in Alabama (Shoal Creek Mine) for a purchase price of $387.4 million. In January 2019, the Company agreed to pay an additional $2.4 million to settle a working capital adjustment. The purchase price was funded with available cash on hand and reflected customary purchase price adjustments. The acquisition expands the Company’s seaborne metallurgical mining platform.

The acquisition excluded all liabilities other than reclamation and the Company is not responsible for other liabilities arising out of or relating to the operation of the Shoal Creek Mine prior to the acquisition date, including with respect to employee benefit plans and post-employment benefits. In connection with completing the acquisition, a new collective bargaining agreement was reached with the union-represented workforce that eliminates participation in the multi-employer pension plan and replaces it with a 401(k) retirement plan.

The preliminary purchase accounting allocations have been recorded in the accompanying unaudited condensed consolidated financial statements as of, and for the period subsequent to the acquisition date. The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed that were recognized at the acquisition and control date (in millions):



Inventories	$	39.7
Property, plant, equipment and mine development	364.7
Current liabilities	(4.1		)
Asset retirement obligations	(10.5		)
Total purchase price	$	389.8

Determining the fair value of assets acquired and liabilities assumed required judgment and the utilization of independent valuation experts, and included the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items. Due to the unobservable inputs to the valuation, the fair value would be considered Level 3 in the fair value hierarchy.

The changes to the purchase price allocation during the three months ended March 31, 2019 were all contained within the amounts allocated to property, plant, equipment and mine development. Those changes did not have an impact on the amount of depletion, depreciation or amortization that would have been recorded during the year ended December 31, 2018 had the update purchase price allocation been known at that time. The Company is evaluating the mine plan, assessing the equipment and inventories, and reviewing coal reserve studies on the Shoal Creek Mine, the outcome of which will determine the fair value allocated to the asset retirement obligation, coal reserve assets and equipment. The valuation of the net assets acquired is expected to be finalized once those assessments and third-party valuation appraisals are completed. In connection with the acquisition, the Company recorded a contract based intangible liability of $3.5 million to reflect the fair value of a coal supply agreement. The liability was amortized to income in January 2019 and the related contract was renegotiated on market terms.

The results of Shoal Creek Mine for the three months ended March 31, 2019 are included in the unaudited condensed consolidated statement of operations and are reported in the Seaborne Metallurgical Mining segment.

The following unaudited pro forma financial information presents the estimated combined results of operations of the Company and Shoal Creek Mine, on a pro forma basis, as though the operations of the Shoal Creek Mine had been combined with the Company’s operations as of January 1, 2018. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had the operations of the Company and Shoal Creek Mine been combined during those periods or that may be attained in the future.



	Three Months Ended March, 31, 2018
	(Dollars in millions, except per share data)
Revenues	$	1,567.7
Income from continuing operations, net of income taxes	251.2
Basic earnings per share from continuing operations	$	1.17
Diluted earnings per share from continuing operations	$	1.15

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, a reduction in postretirement benefit costs resulting from the new collective bargaining agreement described above, and the estimated impact on depreciation, depletion and amortization for the fair value adjustment for property, plant and equipment (including coal reserve assets). On a pro forma basis, the acquisition would have had no impact on taxable income due to the Company’s federal net operating losses.