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8-K - 8-K - ARCH RESOURCES, INC.c64914e8vk.htm
EX-23.2 - EX-23.2 - ARCH RESOURCES, INC.c64914exv23w2.htm
EX-23.3 - EX-23.3 - ARCH RESOURCES, INC.c64914exv23w3.htm
EX-99.1 - EX-99.1 - ARCH RESOURCES, INC.c64914exv99w1.htm
EX-99.2 - EX-99.2 - ARCH RESOURCES, INC.c64914exv99w2.htm
EX-23.1 - EX-23.1 - ARCH RESOURCES, INC.c64914exv23w1.htm
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
     The following unaudited pro forma condensed combined financial information is based on the historical financial information of Arch Coal, Inc. (“Arch Coal”) and International Coal Group, Inc. (“ICG”) and has been prepared to reflect the proposed merger of Atlas Acquisition Corp. (“Merger Sub”) with and into ICG and the related financing transactions. The pro forma data in the unaudited pro forma condensed combined balance sheet as of March 31, 2011 assume that the proposed merger of Merger Sub with and into ICG was completed on that date. The data in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2010 and the three months ended March 31, 2011 assume the proposed merger was completed at the beginning of each period.
     The unaudited pro forma condensed combined financial information should be read in conjunction with the historical financial statements and related notes thereto of Arch Coal and ICG.
     The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations of Arch Coal had the transactions actually occurred on the dates assumed in the unaudited pro forma condensed combined financial statements.
     The proposed merger of Merger Sub with and into ICG will be accounted for under the acquisition method of accounting under U.S. GAAP whereby the total purchase price is allocated to the assets acquired and liabilities assumed based on their respective fair values at the acquisition date. The cash purchase price will be determined based on the number of common shares of ICG tendered plus the fair value of liabilities incurred in conjunction with the merger. The estimated purchase price for this unaudited pro forma condensed combined financial information assumes that all shares of ICG common stock outstanding on March 31, 2011 were tendered. At this time, Arch Coal has not performed detailed valuation analyses to determine the fair values of ICG’s assets and liabilities; and accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates which, while considered reasonable under the circumstances, are subject to changes, which may be material. Additionally, Arch Coal has not yet performed all of the due diligence necessary to identify items that could significantly impact the purchase price allocation or the assumptions and adjustments made in preparation of this unaudited pro forma condensed combined financial information. Upon determination of the fair value of assets acquired and liabilities assumed, there may be additional increases or decreases to the recorded book values of ICG’s assets and liabilities, including, but not limited to, mineral reserves, property, plant and equipment, asset retirement obligations, coal supply agreements, commitments and contingencies and other intangible assets that will give rise to future amounts of depletion, depreciation and amortization expenses or credits that are not reflected in the information contained in this unaudited pro forma condensed combined financial information. Accordingly, once the necessary due diligence has been performed, the final purchase price has been determined and the purchase price allocation has been completed, actual results may differ materially from the information presented in this unaudited pro forma condensed combined financial information. Additionally, this unaudited pro forma condensed combined statement of operations does not reflect the cost of any integration activities or benefits from the merger and synergies that may be derived from any integration activities, both of which may have a material effect on the results of operations in periods following the completion of the merger.
     Certain amounts in ICG’s historical balance sheets and statements of income have been conformed to Arch Coal’s presentation.

 


 

ARCH COAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2010
(In thousands)
                                         
                    Pro Forma     Pro Forma        
                    Adjustments     Adjustments        
    Arch Coal     ICG     Related to     Related to        
    Historical     Historical     Financing     Merger     Pro Forma  
Revenues
                                       
Coal sales
  $ 3,186,268     $ 1,113,657     $     $     $ 4,299,925  
 
                                       
Costs, expenses and other
                                       
Cost of coal sales
    2,395,812       885,739                   3,281,551  
Depreciation, depletion and amortization
    365,066       107,682             37,802   (f)     510,550  
Amortization of acquired sales contracts, net
    35,606       (3,116 )           (11,015 )(g)     21,475  
Selling, general and administrative expenses
    118,177       35,569                   153,746  
Change in fair value of coal derivatives and coal trading activities, net
    8,924                         8,924  
Gain on Knight Hawk transaction
    (41,577 )                       (41,577 )
Other operating income, net
    (19,724 )     (8,726 )                   (28,450 )
 
                             
 
    2,862,284       1,017,148             26,787       3,906,219  
 
                             
 
                                       
Income from operations
    323,984       96,509             (26,787 )     393,706  
 
                                       
Interest expense, net:
    (140,100 )     (40,736 )     (164,836 )(h)     40,736   (h)     (304,936 )
 
                                       
Other non-operating expense
                                       
Loss on early extinguishment of debt
    (6,776 )     (29,409 )                 (36,185 )
 
                             
 
                                       
Income (loss) before income taxes
    177,108       26,364       (164,836 )     13,949       52,585  
Provision for (benefit from) income taxes
    17,714       (3,750 )     (61,814 )(i)     5,231   (i)     (42,619 )
 
                             
Net income
    159,394       30,114       (103,022 )     8,718       95,204  
Less: Net income attributable to noncontrolling interest
    (537 )     (3 )                 (540 )
 
                             
Net income attributable to Arch Coal, Inc.
  $ 158,857     $ 30,111     $ (103,022 )   $ 8,718     $ 94,664  
 
                             
 
                                       
Earnings per common share
                                       
Basic earnings per common share (j)
  $ 0.98                             $ 0.46  
 
                                   
Diluted earnings per common share (j)
  $ 0.97                             $ 0.46  
 
                                   
 
                                       
Weighted average shares outstanding
                                       
Basic
    162,398               44,000   (a)             206,398  
 
                                 
Diluted
    163,210               44,000   (a)             207,210  
 
                                 
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

2


 

ARCH COAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2011
(In thousands)
                                         
                    Pro Forma     Pro Forma        
                    Adjustments     Adjustments        
    Arch Coal     ICG     Related to     Related to        
    Historical     Historical     Financing     Merger     Pro Forma  
Revenues
                                       
Coal sales
  $ 872,938     $ 290,863     $     $     $ 1,163,801  
 
                                       
Costs, expenses and other
                                       
Cost of coal sales
    653,684       225,116                   878,800  
Depreciation, depletion and amortization
    83,537       26,545             12,107   (f)     122,189  
Amortization of acquired sales contracts, net
    5,944       (889 )           (2,644 )(g)     2,411  
Selling, general and administrative expenses
    30,435       51,152                   81,587  
Change in fair value of coal derivatives and coal trading activities, net
    (1,784 )                       (1,784 )
Gain on Knight Hawk transaction
                             
Other operating income, net
    (1,116 )     (10,507 )                 (11,623 )
 
                             
 
    770,700       291,417             9,463       1,071,580  
 
                             
 
                                       
Income from operations
    102,238       (554 )           (9,463 )     92,221  
 
                                       
Interest expense, net:
    (33,834 )     (8,110 )     (41,209 )(h)     8,110   (h)     (75,043 )
 
                             
 
                                       
Income (loss) before income taxes
    68,404       (8,664 )     (41,209 )     (1,353 )     17,178  
Provision for (benefit from) income taxes
    12,530       (2,357 )     (15,453 )(i)     (507 )(i)     (5,788 )
 
                             
Net income (loss)
    55,874       (6,307 )     (25,756 )     (846 )     22,966  
Less: Net income attributable to noncontrolling interest
    (273 )     (11 )                 (284 )
 
                             
Net income (loss) attributable to Arch Coal, Inc.
  $ 55,601     $ (6,318 )   $ (25,756 )   $ (846 )   $ 22,682  
 
                             
 
                                       
Earnings per common share
                                       
Basic earnings per common share (j)
  $ 0.34                             $ 0.11  
 
                                   
Diluted earnings per common share (j)
  $ 0.34                             $ 0.11  
 
                                   
 
                                       
Weighted average shares outstanding
                                       
Basic
    162,576               44,000   (a)             206,576  
 
                             
Diluted
    163,773               44,000   (a)             207,773  
 
                             
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

3


 

ARCH COAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH 31, 2011
(In thousands)
                                         
                    Pro Forma     Pro Forma        
                    Adjustments     Adjustments        
    Arch Coal     ICG     Related to     Related to        
    Historical     Historical     Financing(a)     Merger     Pro Forma  
Assets
                                       
Current assets
                                       
Cash and cash equivalents
  $ 69,220     $ 186,566     $ 3,680,538     $ (3,075,827 ) (b)        
 
                            (604,711 ) (c)   $ 255,786  
Accounts receivable
    303,317       111,210                   414,527  
Inventories
    247,908       80,724                   328,632  
Prepaid royalties
    42,719       6,737                   49,456  
Deferred income taxes
    18,673       1,420                   20,093  
Coal derivative assets
    15,952                         15,952  
Other
    101,153       14,704             (2,562 ) (b)     113,295  
 
                             
Total current assets
    798,942       401,361       3,680,538       (3,683,100 )     1,197,741  
 
                             
 
                                       
Property, plant and equipment, net
    3,263,555       1,051,064             3,563,977   (b)     7,878,596  
 
                                       
Other assets
                                       
Prepaid royalties
    69,737       21,639                   91,376  
Goodwill
    114,963                   425,000   (b)     539,963  
Deferred income taxes
    331,242                         331,242  
Equity investments
    204,424                         204,424  
Other
    117,115       20,945       61,800       (8,937 ) (b)        
 
                      (2,759 ) (b)     188,164  
 
                             
Total other assets
    837,481       42,584       61,800       413,304       1,355,169  
 
                             
Total assets
  $ 4,899,978     $ 1,495,009     $ 3,742,338       294,181     $ 10,431,506  
 
                             
 
                                       
Liabilities and Stockholders’ Equity
                                       
Current liabilities
                                       
Accounts payable
  $ 183,866     $ 80,294                 $ 264,160  
Coal derivative liabilities
    4,178                         4,178  
Accrued expenses and other current liabilities
    228,165       59,777             (582 ) (c)      
 
                      2,903   (b)     290,263  
Current maturities of debt and short-term borrowings
    69,518       105,125             (105,125 ) (c)     69,518  
 
                             
Total current liabilities
    485,727       245,196             (102,804 )     628,119  
 
                             
Long-term debt
    1,539,028       228,437       2,538,178       363,851   (b)        
 
                            (592,288 ) (c)     4,077,206  
Asset retirement obligations
    336,975       71,541                   408,516  
Accrued pension and postretirement benefits
    111,692       84,129                   195,821  
Deferred income taxes
          46,515             1,340,766   (b)     1,387,281  
Other noncurrent liabilities
    124,243       69,855             2,903   (b)        
 
                      74,066   (b)     271,067  
 
                             
Total liabilities
    2,597,665       745,673       2,538,178       1,086,494       6,968,010  
 
                             
 
                                       
Redeemable noncontrolling interest
    10,718                         10,718  
 
                                       
Stockholders’ equity
                                       
Common stock — Arch Coal
    1,647             440             2,087  
Common stock — ICG
          2,042               (2,042 ) (d)      
Paid-in capital
    1,740,765       852,812       1,253,120       (852,812 ) (d)     2,993,885  
Treasury stock, at cost
    (53,848 )     (309 )             309   (d)     (53,848 )
Retained earnings
    600,751       (101,920 )     (49,400 )       (d)      
 
                      (31,200 ) (e)      
 
                      (11,499 ) (b)      
 
                      (11,841 ) (c)      
 
                      113,419   (d)     508,310  
Accumulated other comprehensive income (loss)
    2,280       (3,353 )           3,353   (d)     2,280  
 
                             
Total stockholders’ equity attributable to controlling interest
    2,291,595       749,272       1,204,160       (792,313 )     3,452,714  
Noncontrolling interest
          64                   64  
 
                             
Total stockholders’ equity
    2,291,595       749,336       1,204,160       (792,313 )     3,452,778  
 
                             
Total liabilities and stockholders’ equity
  $ 4,899,978     $ 1,495,009     $ 3,742,338     $ 294,181     $ 10,431,506  
 
                             
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

4


 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Amounts in thousands, except per share data)
Note 1. Basis of Presentation
     The unaudited pro forma condensed combined financial information is based on the historical financial information of Arch Coal and ICG and has been prepared to reflect the proposed merger of Merger Sub with and into ICG and the related financing transactions. The pro forma data in the unaudited pro forma condensed combined balance sheet as of March 31, 2011 assume that the proposed merger of Merger Sub with and into ICG was completed on that date. The data in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2010 and the three months ended March 31, 2011 assume the proposed merger was completed at the beginning of each period.
     Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are directly attributable to the proposed merger and related financing transactions and are factually supportable. Pro forma adjustments reflected in the unaudited pro forma condensed combined statements of operations are based on items directly attributable to the proposed merger, factually supportable and expected to have a continuing impact on Arch Coal. As a result, the unaudited pro forma condensed combined statements of operations exclude acquisition costs and other costs that will not have a continuing impact on Arch Coal, although these items are reflected in the unaudited pro forma condensed combined balance sheet.
     At this time, Arch Coal has not performed a detailed valuation to determine the fair values of ICG’s assets and liabilities and accordingly, the unaudited pro forma condensed combined financial information was developed using a preliminary allocation of the estimated purchase price based on assumptions and estimates which are subject to changes that may be material. Additionally, Arch Coal has not yet performed all of the due diligence necessary to identify additional items that could significantly impact the purchase price allocation or the assumptions and adjustments made in preparation of this unaudited pro forma condensed combined financial information.
     Upon completion of a detailed valuation analysis, there may be additional increases or decreases to the recorded book values of ICG’s assets and liabilities, including, but not limited to, mineral reserves, property and equipment, coal supply agreements, asset retirement obligations, commitments and contingencies and other intangible assets that will give rise to future amounts of depletion, depreciation and amortization expenses or credits that are not reflected in this unaudited pro forma condensed combined financial information. Accordingly, once the necessary due diligence is performed, the final purchase price is determined and the purchase price allocation is completed actual results may differ materially from the information presented in this unaudited pro forma condensed combined financial information. Additionally, the unaudited pro forma condensed combined statement of operations does not reflect the cost of any integration activities or benefits from the merger and synergies that may be derived from any integration activities, both of which may have a material impact on the results of operations in periods following the completion of the merger.
     Certain amounts in ICG’s historical balance sheet and statements of income have been conformed to Arch Coal’s presentation.
Note 2. Preliminary Purchase Price
     Arch Coal is proposing to acquire all of the outstanding shares of ICG for cash at a price of $14.60 for each outstanding share of ICG Common Stock. Arch Coal intends to finance the cash portion of the purchase consideration by issuing additional debt and equity securities and by borrowing amounts under its amended and restated senior secured credit facility.

5


 

     The preliminary estimated purchase price of the proposed merger is as follows:
         
Estimated number of ICG outstanding shares to be acquired (in thousands)
    204,162  
Cash purchase price
  $ 14.6  
 
     
 
  $ 2,980,764  
Settlement of share-based payment awards
    63,863  
 
     
Cash merger consideration
    3,044,627  
Change of control payment
  $ 5,806  
 
     
Cash merger consideration
  $ 3,050,433  
 
     
Reflects the payment of the preliminary estimated purchase price of $3,044,627, including the settlement of employee stock options. The consideration for the merger also includes a liability incurred for a change in control payment to ICG’s current Chief Executive Officer per the terms of his employment contract, which are included in the consideration for the merger.
Note 3. Pro Forma Adjustments
(a)   Represents the pro forma adjustments to reflect the financing for the merger, consisting of: (1) the proceeds from the issuance of notes of $2,000,000, less financing costs of $41,800; (2) the concurrent offering of 44 million shares of our common stock at an assumed offering price of $29.60 per share, net of related costs of $48,840; and (3) $538,178 borrowed under our amended and restated senior secured credit facility to finance these transactions and pay estimated financing fees of $20,000.
 
(b)   Reflects allocation of purchase price to record amounts at their estimated fair value. Management has used certain estimates and assumptions in estimating fair value, however, a detailed analysis has not been performed on the individual assets and liabilities of ICG and actual results may differ materially from these estimates. The adjustment to property, plant and equipment was estimated using benchmark studies of similar acquisitions, and the adjustment to goodwill was estimated at the present value of forecasted synergies that may be realized in the merger. The fair value of long-term debt was estimated using market rates as of May 27, 2011. The adjustment to owned and leased mineral rights was estimated as the remaining amount of purchase price to be allocated after all other adjustments have been made. The detailed estimated preliminary purchase price allocation is as follows:
         
Book value of ICG’s net assets attributable to the controlling interest as of December 31, 2010
  $ 749,272  
Adjustment to fair value property, plant and equipment, including mineral rights
    3,563,977  
Adjustment to write-off value of ICG’s deferred financing fees
    (11,499 )
Adjustment to fair value of sales contracts
    (76,825 )
Adjustment to fair value long-term debt
    (258,726 )
Adjustment to accrued severance obligation
    (5,806 )
Adjustment to deferred income taxes to reflect the tax impact of fair value adjustments
    (1,340,766 )
 
     
Estimated fair value of net assets and liabilities to be acquired
    2,619,627  
Preliminary allocation to goodwill
    425,000  
 
     
Estimated purchase price
  $ 3,044,627  
 
     
(c)   Reflects the pro forma adjustment associated with the repayment of the outstanding principal, accrued interest and repayment premiums for ICG’s 9.125% senior secured notes and convertible senior notes and the related loss of $11,841. We assume that the 9.15% senior secured notes are redeemed at their principal amount of $200,000 plus a “make-whole” premium of $51,600, and that the convertible senior notes are all converted into shares of common stock at an increased conversion rate.
 
(d)   Reflects the elimination of ICG’s historical stockholders’ equity balances.
 
(e)   Reflects the payment and expensing of $31,200 million of acquisition-related costs.
 
(f)   Reflects the estimated impact on depreciation, depletion and amortization for the fair value adjustment for property, plant and equipment and owned and leased mineral rights using an estimated useful remaining life of five years for property, plant and equipment and an estimated depletion rate applied to the actual 2010 ICG production. Arch Coal has not performed a detailed analysis of the fair values of ICG’s property, plant and equipment or mineral reserves and therefore, the actual fair values assigned may differ materially and the impact on depreciation, depletion and amortization expense may also be materially different than the estimates provided herein.
(g)   Reflects the estimated impact on amortization for the fair value adjustment of acquired sales contracts. Arch Coal is still reviewing the contracts acquired, and therefore, the actual fair values assigned may differ materially and the impact on amortization expense may also be materially different than the estimates provided herein.
 
(h)   Reflects the impact of the refinancing of debt and the merger on interest expense. The interest rates used were estimates based on current prevailing interest rates. A 0.125% increase or decrease to the interest rates used would increase or decrease pro forma interest expense by approximately $3,200 on an annual basis and $790 on a quarterly basis. The adjustment also includes the amortization of deferred financing fees associated with our new senior notes and our amended and restated senior secured credit facility.
 
(i)   Reflects the income tax effect of pro forma adjustments calculated at an estimated rate of 37.5%.
 
(j)   Pro forma basic earnings per common share has been calculated based on the expected number of shares assumed to be outstanding, assuming such shares were outstanding for the full period presented.

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