Emergence from the Chapter 11 Cases and Fresh Start Reporting

12 Months Ended

Dec. 31, 2019

Reorganizations [Abstract]

Emergence from the Chapter 11 Cases and Fresh Start Reporting

Reorganization Items

The Company’s application of fresh start reporting resulted in recognition of the following reorganization items for the periods presented below:

	Successor			Predecessor
	Year Ended December 31, 2018			January 1 through April 1, 2017
	(Dollars in millions)
Gain on settlement of claims	$	(12.8	)	$	(3,031.2	)
Fresh start adjustments, net	—			3,363.1
Fresh start income tax adjustments, net	—			253.9
Professional fees	—			42.5
Accounts payable settlement gains	—			(0.7		)
Interest income	—			(0.4		)
Reorganization items, net	$	(12.8	)	$	627.2

Upon implementation of the Plan on the Effective Date, the Company recorded a gain on the settlement of liabilities subject to compromise through a combination of cash payments, the issuance of new common stock and warrants and the issuance of new debt. The following is the calculation of the total pre-tax gain on the settlement of the liabilities subject to compromise.

	(Dollars in millions)
Liabilities subject to compromise	$	8,416.7
Less amounts issued to settle claims:
Successor Common Stock (at par)	(0.7		)
Successor Series A Convertible Preferred Stock	(1,305.4		)
Successor Additional paid-in capital	(1,774.9		)
Issuance of Successor Notes	(1,000.0		)
Issuance of Successor Term Loan	(950.0		)
Cash payments and accruals for claims and professional fees	(336.4		)
Other:
Write-off of Predecessor debt issuance costs	(18.1		)
Gain on settlement of claims	$	3,031.2

At the Effective Date, 70.9 million shares of Common Stock were issued and outstanding at a par value of $0.01 per share. Convertible Preferred Stock was recorded at fair value and was based upon the $750.0 million cash raised upon emergence from bankruptcy through the Private Placement Agreement, plus a premium to account for the fair value of the Convertible Preferred Stocks’ conversion and dividend features. Each share of Convertible Preferred Stock was convertible, at the holder’s election or upon the occurrence of certain triggering events, into shares of Common Stock at a 35% discount relative to the initial per share purchase price of $25.00 and provided for three years of guaranteed paid-in-kind dividends, payable semiannually, at a rate of 8.5% per annum. The 46.2 million shares of Common Stock issuable upon conversion of the Convertible Preferred Stock issued under the Plan and an additional 13.1 million shares of Common Stock attributable to such Convertible Preferred Stocks’ guaranteed paid-in-kind dividend feature constituted approximately 42% ownership of the Plan Equity Value (as defined in the Plan) of $3,105.0 million in the reorganized Company, and thus had a fair value of $1,305.4 million. Successor Additional paid-in capital was recorded at the Plan Equity Value less the amounts recorded for par value of the Common Stock, the fair value of the Convertible Preferred Stock, and certain fees incurred associated with the Registration Rights Agreement.

During the year ended December 31, 2018, the Company recorded an additional gain on the settlement of claims for $12.8 million related to certain unsecured claims.

Upon implementation of the Plan on the Effective Date, the Company recorded fresh start adjustments, net, as follows:

		(Dollars in millions)
Inventories	(a)	$	70.1
Other current assets	(b)	(333.0		)
Property, plant, equipment and mine development, net	(c)	(3,461.4		)
Investments and other assets	(d)	238.0
Accounts payable and accrued expenses	(e)	(14.8		)
Deferred income taxes	(f)	177.8
Asset retirement obligations	(g)	73.9
Accrued postretirement benefit costs	(h)	6.9
Other noncurrent liabilities	(i)	(120.6		)
Total fresh start adjustments, net		$	(3,363.1	)

(a) Represents adjustment to increase the book value of coal inventories to their estimated fair value, less costs to sell the inventories.

(b) Represents adjustments comprising $228.5 million related to assets classified as held-for-sale at March 31, 2017 which were reclassified as held-for-use and considered in connection with the valuations described in (c) below,$89.5 million to write off certain existing short-term mine development costs, and $15.0 million of various prepaid assets deemed to have no future utility subsequent to the Effective Date.

(c) Represents a $3,461.4 million reduction in property, plant and equipment to estimated fair value as discussed below:

The fair value of land and coal interests, excluding the asset related to the Company’s asset retirement obligations described below, was established at $3,504.7 million utilizing a discounted cash flow (DCF) model and the market approach. The market approach was used to provide a starting value of the coal mineral reserves without consideration for economic obsolescence. The DCF model was based on assumptions market participants would use in the pricing of these assets as well as projections of revenues and expenditures that would be incurred to mine or maintain these coal reserves through the life of mine. The basis of the DCF analysis was the Company’s prepared projections which included a variety of estimates and assumptions, such as pricing and demand for coal. The Company’s pricing was based on its view of the market taking into account third-party forward pricing curves adjusted for the quality of products sold by the Company. The fair value of land and coal interests also includes $281.2 million corresponding to the asset retirement obligation discussed in item (g) below.

The fair value of buildings and improvements and machinery and equipment were set at $466.1 million and $940.5 million, respectively, utilizing both market and cost approaches. The market approach was used to estimate the value of assets where detailed information for the asset was available and an active market was identified with a sufficient number of sales of comparable property that could be independently verified through reliable sources. The cost approach was utilized where there were limitations in the secondary equipment market to derive values from. The first step in the cost approach is the estimation of the cost required to replace the asset via construction or purchasing a new asset with similar utility adjusting for depreciation due to physical deterioration, functional obsolescence due to technology changes and economic obsolescence due to external factors such as regulatory changes. Useful lives were assigned to all assets based on remaining future economic benefit of each asset.

(d) Primarily to recognize fair value of $314.9 million inherent in certain U.S. coal supply agreements as a result of favorable differences between contract terms and estimated market terms for the same coal products, partially offset by a reduction in the fair value of certain equity method investments. The intangible asset related to coal supply agreements will be amortized on a per ton shipped basis through 2025.

(e) Represents $32.6 million to account for the short-term portion of the value of certain contract-based intangibles primarily consisting of unutilized capacity of certain port and rail take-or-pay contracts, partially offset by $15.7 million related to liabilities classified as held-for-sale at March 31, 2017 which were reclassified as held-for-use and considered in connection with the valuations described in (c) above, and various other fair value adjustments. The intangible liabilities related to port and rail take-or-pay contracts will be amortized ratably over the terms of each contact, which vary in duration through 2043.

(f) Represents the tax impact of fresh start reporting.

(g) Represents the fair value adjustment related to the Company’s asset retirement obligations which was calculated using DCF models based on contemporary mine plans. The credit-adjusted, risk-free interest rates utilized to estimate the Company’s asset retirement obligations were 9.36% for its U.S. reclamation obligations and 4.36% for its Australia reclamation obligations.

(h) Represents the remeasurement of liabilities associated with the Company’s postretirement benefits obligations as of the Effective Date as the reorganization of the Company pursuant to the Plan represented a remeasurement event under ASC 715 “Compensation - Retirement Benefits.” The relevant discount rate was adjusted to 4.10% from 4.15% used in the Company’s remeasurement process for the year ended December 31, 2016.

(i)

Represents $83.6 million to account for the long-term portion of the value of contract-based intangibles related to unutilized capacity of port and rail take-or-pay contracts as described in (e) above and $58.7 million to account for the fair value inherent in certain U.S. coal supply agreements as a result of unfavorable differences between contract terms and estimated market terms for the same coal products as described in (d) above, partially offset by a remeasurement reduction of $9.2 million of the Company’s pension liabilities in accordance with ASC 715 as described in (h) above, as the relevant discount rate was adjusted to 4.10% from 4.15% used in the Company’s remeasurement process for the year ended December 31, 2016, and certain other valuation adjustments.