Attached files
file | filename |
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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 ICGs 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 ICGs 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 ICGs historical balance sheets and statements of
income have been conformed to Arch Coals presentation.
ARCH COAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2010
(In thousands)
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)
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)
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)
(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
ICGs 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 ICGs 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 ICGs historical balance sheet and statements of income have been conformed
to Arch Coals 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 ICGs 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 ICGs 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 ICGs 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 ICGs 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 ICGs 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 ICGs 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. |
6