e424b5
Prospectus Supplement
(To Prospectus dated August 2, 2010)
Filed Pursuant to Rule 424(b)(5)
Registration
No. 333-157880
CALCULATION
OF REGISTRATION FEE
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Title of Each Class of
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Amount to be
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Maximum Offering
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Maximum Aggregate
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Amount of
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Securities to be
Registered
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Registered(1)
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Price per Share
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Offering Price(1)
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Registered Fee(2)
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Common Stock, par value $0.01 per share
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55,200,000
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$27.00
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$1,490,400,000
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$173,035.44
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(1)
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Assuming exercise in full of the underwriters option to
purchase additional shares of common stock, par value $0.01 per
share.
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(2)
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Calculated in accordance with Rule 457(r) promulgated under
the Securities Act of 1933, as amended.
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48,000,000 Shares
COMMON STOCK
Arch Coal, Inc. is offering 48,000,000 shares of its
common stock.
Our common stock is listed on the New York Stock Exchange
under the symbol ACI. On June 2, 2011, the
reported last sale price of our common stock on the New York
Stock Exchange was $27.43 per share.
Investing in our common stock involves risks. See
Risk Factors beginning on
page S-20
of this prospectus supplement.
PRICE $27.00 A
SHARE
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Underwriting
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Price to
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Discounts and
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Proceeds to
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Public
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Commissions
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Arch Coal, Inc.
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Per share
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$27.00
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$0.945
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$26.055
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Total
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$1,296,000,000
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$45,360,000
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$1,250,640,000
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We have granted the underwriters the right to purchase up to
an additional 7,200,000 shares to cover over-allotments.
The underwriters are offering the common stock as set forth
under Underwriting.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers
on or about June 8, 2011.
Joint Book-Running Managers
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Morgan Stanley
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PNC Capital Markets LLC
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BofA Merrill Lynch
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Citi
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Senior Co-Managers
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BMO Capital Markets
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Credit Suisse
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RBS
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Wells Fargo Securities
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Mitsubishi UFJ Securities
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Co-Managers
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Santander
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Credit Agricole CIB
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Natixis
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Piper Jaffray
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FBR Capital Markets
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ING
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Stifel Nicolaus Weisel
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BB&T Capital Markets
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Howard Weil Incorporated
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Macquarie Capital
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Simmons & Company
International
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June 2, 2011
TABLE OF
CONTENTS
Prospectus
Supplement
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Page
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S-ii
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S-ii
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S-iii
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S-1
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S-20
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S-51
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S-52
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S-54
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S-58
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S-58
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S-59
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S-61
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S-63
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S-70
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S-94
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S-128
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S-140
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S-143
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S-145
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S-146
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S-149
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S-150
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S-155
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S-155
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S-156
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F-1
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Prospectus
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About this Prospectus
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1
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Where You Can Find More Information
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1
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Risk Factors
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3
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Forward-Looking Statements
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3
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Use of Proceeds
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3
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Description of Debt Securities
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3
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Description of Other Securities
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12
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Description of Capital Securities
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12
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Plan of Distribution
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15
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Legal Matters
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17
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Experts
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17
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S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part consists of this
prospectus supplement, which describes the specific terms of
this offering. The second part consists of the accompanying
prospectus, which gives more general information about
securities that we may offer from time to time, some of which
may not be applicable to the shares of common stock offered by
this prospectus supplement and the accompanying prospectus. For
more information about our common stock offered in this
offering, see Description of Common Stock in this
prospectus supplement and Description of Capital
Securities Common Stock in the accompanying
prospectus.
Before you invest in our common stock, you should read the
registration statement of which this prospectus supplement and
the accompanying prospectus form a part. You also should read
the exhibits to that registration statement, as well as this
prospectus supplement, the accompanying prospectus, any free
writing prospectus we may file and the documents incorporated by
reference into this prospectus supplement and the accompanying
prospectus. The documents incorporated by reference are
described in this prospectus supplement under Where You
Can Find More Information.
If the information set forth in this prospectus supplement
varies in any way from the information set forth in the
accompanying prospectus, you should rely on the information
contained in this prospectus supplement. If the information set
forth in this prospectus supplement varies in any way from the
information set forth in a document that we have incorporated by
reference into this prospectus supplement, you should rely on
the information in the more recent document.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement, the
accompanying prospectus and any free writing prospectus we may
file. We have not, and the underwriters have not, authorized any
other person to provide you with different information. We are
not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus, any
free writing prospectus we may file and the documents
incorporated by reference is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
In this prospectus supplement, unless otherwise specified or the
context requires otherwise, we use the terms Arch
Coal, the company, we,
us and our to refer to Arch Coal, Inc.
and its subsidiaries and the terms International Coal
Group, Inc. and ICG to refer to International
Coal Group, Inc. and its subsidiaries.
The term merger refers to our acquisition of the
outstanding common shares of ICG and the term
transactions refers to the merger and the related
financing transactions as described in Prospectus
Supplement Summary The Transactions in this
prospectus supplement. The term combined company
refers to Arch Coal and its subsidiaries (including ICG and its
subsidiaries) after the completion of the transactions,
including the merger.
The term ton refers to short or net tons, equal to
2,000 pounds (907.18 kilograms) and tonne refers to
metric tons, equal to 2,294.62 pounds (1,000 kilograms).
MARKET
AND INDUSTRY DATA
This prospectus supplement includes market and industry data and
forecasts that we have derived from a variety of sources,
including independent reports, publicly available information,
various industry publications, other published industry sources
and internal data and estimates. Third-party publications and
surveys and forecasts generally state that the information
contained therein has been obtained from sources believed to be
reliable, but there can be no assurance as to the accuracy or
completeness of included information. Although we believe that
such information is reliable, we have not had this information
verified by any independent sources.
S-ii
FORWARD-LOOKING
STATEMENTS
Information we have included or incorporated by reference in
this prospectus supplement and the accompanying prospectus
contains or may contain forward-looking statements. These
forward-looking statements include, among others, statements of
our plans, objectives, expectations (financial or otherwise) or
intentions. Words such as anticipates,
believes, could, estimates,
expects, intends, may,
plans, predicts, projects,
seeks, should, will or other
comparable words and phrases are intended to identify such
forward-looking statements. All statements included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus that we expect or anticipate will,
should or may occur in the future, including, without
limitation, statements in this prospectus supplement under the
captions Prospectus Supplement Summary,
Managements Discussion and Analysis of Financial
Condition and Results of Operations of Arch Coal,
Managements Discussion and Analysis of Financial
Condition of Operations of ICG, Business
Overview, and Industry Overview, and located
elsewhere in this prospectus supplement regarding our financial
position, business strategy and measures to implement that
strategy, including changes to operations, competitive
strengths, goals, expansion and growth of our business and
operations, plans, references to future success and other
similar matters are forward-looking statements.
Our forward-looking statements involve risks and uncertainties.
Our actual results may differ significantly from those projected
or suggested in any forward-looking statements. We do not
undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Factors that might cause
such a difference to occur include, but are not limited to:
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our ability to successfully integrate the Arch Coal and ICG
businesses;
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delay or failure to realize the expected benefits, including
anticipated cost savings, we expect to realize in the merger;
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market demand for coal and electricity;
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geologic conditions, weather, including flooding, and other
inherent risks of coal mining that are beyond our control;
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competition within our industry and with producers of competing
energy sources;
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excess production and production capacity;
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our ability to acquire or develop coal reserves in an
economically feasible manner;
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inaccuracies in our estimates of our coal reserves;
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availability and price of mining and other industrial supplies;
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availability of skilled employees and other workforce factors;
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disruptions in the quantities of coal produced by our contract
mine operators;
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our ability to collect payments from our customers;
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defects in title or the loss of a leasehold interest;
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railroad, barge, truck and other transportation performance and
costs;
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our ability to successfully integrate the operations that we
acquire;
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our ability to secure new coal supply arrangements or to renew
existing coal supply arrangements;
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our relationships with, and other conditions affecting, our
customers;
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the deferral of contracted shipments of coal by our customers;
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our ability to service our outstanding indebtedness;
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our ability to comply with the restrictions imposed by our
credit facility and other financing arrangements;
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S-iii
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the availability and cost of surety bonds;
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failure by Magnum Coal Company, which we refer to as Magnum, a
subsidiary of Patriot Coal Corporation, to satisfy certain
below-market contracts that we guarantee;
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our ability to manage the market and other risks associated with
certain trading and other asset optimization strategies;
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terrorist attacks, military action or war;
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our ability to obtain and renew various permits, including
permits authorizing the disposition of certain mining waste;
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existing and future legislation and regulations affecting both
our coal mining operations and our customers coal usage,
governmental policies and taxes, including those aimed at
reducing emissions of elements such as mercury, sulfur dioxides,
nitrogen oxides, particulate matter or greenhouse gases;
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the accuracy of our estimates of reclamation and other mine
closure obligations;
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the existence of hazardous substances or other environmental
contamination on property owned or used by us; and
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other factors, including those discussed in Risk
Factors.
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These and other relevant factors, including those risk factors
identified in our Annual Report on
Form 10-K
for the year ended December 31, 2010, our Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2011 and our other filings
with the Securities and Exchange Commission (the
SEC) under the Securities Exchange Act of 1934, as
amended (the Exchange Act), which are incorporated
by reference in this prospectus supplement, should be carefully
considered when reviewing any forward-looking statement. See
Where You Can Find More Information.
S-iv
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights selected information about us and
this offering. This summary is not complete and does not contain
all of the information that may be important to you. You should
read carefully this entire prospectus supplement and the
accompanying prospectus, including the Risk Factors
section, and the other documents that we refer to and
incorporate by reference in this prospectus supplement and the
accompanying prospectus for a more complete understanding of us
and this offering. In particular, we incorporate by reference
important business and financial information into this
prospectus supplement and the accompanying prospectus. This
summary contains forward-looking statements that involve risks
and uncertainties. Except as otherwise noted, all information in
this prospectus supplement assumes no exercise of the
underwriters option to purchase additional shares of our
common stock.
Our
Combined Company
We are one of the worlds largest private sector coal
producers. We produce, process and sell steam and metallurgical
coal. Our combined company will have operations in all major
U.S. coal basins, providing us with important geographical
diversity and operational flexibility. The diversity of our
operations enables us to source coal from multiple locations to
meet the needs of our customers, including U.S. and
international power producers and steel manufacturers.
The high quality of our coal, our access to key infrastructure
hubs and the availability of multiple transportation options
(including rail, truck and barge) equip us to compete both in
the domestic coal market as well as the growing global seaborne
coal markets. For the year ended December 31, 2010, on a
pro forma basis giving effect to our acquisition of ICG, we
would have sold 179 million tons of coal, including eight
million tons of metallurgical coal, and generated net sales of
$4.3 billion.
Prior to the ICG acquisition, our principal assets as of
December 31, 2010 included:
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Powder River Basin operations, including two mining complexes;
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Western Bituminous operations, including five mining complexes;
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Central Appalachian operations, including four mining complexes;
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transportation and logistics holdings, including a 22%
partnership interest in Dominion Terminal Associates which
operates a coal export facility on the East Coast and a shipping
terminal with a six million ton annual capacity with access to
the Ohio River for shipment on inland waterways; and
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approximately 4,700 full and part-time employees.
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In addition, during the first quarter of 2011, we expanded our
access to the seaborne coal markets by purchasing a 38%
ownership interest in Millennium Bulk Terminals-Longview LLC
which is developing coal export capacity on the West Coast and
by entering into a throughput agreement with Canadian Crown
Corporation Ridley Terminals Inc. in British Columbia, Canada.
As a result of the ICG acquisition, we will acquire a number of
new assets, including:
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Central Appalachian operations, including eight mining complexes;
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Northern Appalachian operations, including four mining complexes;
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an Illinois Basin operation, including one mining complex;
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three development properties, including the Tygart
Valley #1 mine complex which is designed to have up to
3.5 million tons of capacity per year of high quality
metallurgical and steam coal; and
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approximately 2,800 employees.
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S-1
Supplemental
Pro Forma Combined Reserve and Production Data
The supplemental pro forma combined reserve and production data
set forth in the tables below has been prepared for illustrative
purposes only and is not necessarily indicative of the reserve
data of Arch Coal had the merger occurred on December 31,
2010. Additionally, we have not yet completed all of the due
diligence to fully assess ICGs proven and probable reserve
data. Upon completion of this detailed due diligence, there may
be increases or decreases to the reserve data presented below
for ICG and for Arch Coal on a pro forma basis.
The following table presents Arch Coal historical data by region
for proven and probable reserves as of December 31, 2010.
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Arch Coal Historical
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Proven and
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Region
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Probable
Reserves
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Assigned
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Unassigned
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Owned
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Leased
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(tons in millions)
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Powder River Basin
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3,258
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1,591
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1,667
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3,258
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Western Bituminous
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455
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162
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293
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108
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347
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Illinois
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364
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364
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307
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57
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Central Appalachia
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368
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175
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193
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63
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305
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Northern Appalachia
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Total
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4,445
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1,928
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2,517
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478
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3,967
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The following table presents ICG historical data by region for
proven and probable reserves as of December 31, 2010.
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ICG Historical
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Proven and
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Region
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Probable
Reserves
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Assigned
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Unassigned
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Owned
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Leased
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(tons in millions)
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Illinois
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372
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48
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324
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332
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40
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Central Appalachia
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265
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177
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88
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35
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230
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Northern Appalachia
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451
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87
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364
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356
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95
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Total
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1,088
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312
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776
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723
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365
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The following table presents Arch Coal pro forma data by region
for proven and probable reserves as of December 31, 2010.
The table assumes the merger was completed on that date.
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Arch Coal Pro
Forma(1)
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Proven and
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Region
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Probable
Reserves
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Assigned
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Unassigned
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Owned
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Leased
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(tons in millions)
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Powder River Basin
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3,258
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1,591
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1,667
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3,258
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Western Bituminous
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455
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162
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293
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108
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347
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Illinois
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736
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48
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688
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639
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97
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Central Appalachia
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633
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352
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281
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98
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535
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Northern Appalachia
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451
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87
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364
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356
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95
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Total
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5,533
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2,240
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3,293
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1,201
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4,332
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(1)
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The Arch Coal pro forma data has
been calculated by adding the Arch Coal historical data and ICG
historical data.
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S-2
The following tables present Arch Coal historical, ICG
historical and Arch Coal pro forma data by region for production
of saleable tons for the year ended December 31, 2010. The
table assumes the acquisition was completed on January 1,
2010. This supplemental pro forma combined production data has
been prepared for illustrative purposes only and is not
necessarily indicative of the production data of Arch Coal had
the merger occurred on January 1, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Production
|
Region
|
|
Arch Coal
Historical
|
|
ICG
Historical
|
|
Arch Pro
Forma(1)
|
|
|
(tons in millions)
|
|
Powder River Basin
|
|
|
128
|
|
|
|
|
|
|
|
128
|
|
Western Bituminous
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Illinois
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Central Appalachia
|
|
|
12
|
|
|
|
9
|
|
|
|
21
|
|
Northern Appalachia
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
156
|
|
|
|
16
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Arch Coal pro forma data has
been calculated by adding the Arch Coal historical data and the
ICG historical data.
|
Pro Forma
Reserve Base
5.5
Billion Ton Reserve Base (pro forma reserves at
December 31, 2010)
S-3
Strategic
Rationale
We believe that the acquisition offers numerous strategic
benefits, including:
|
|
|
|
|
Creating a Leading Global Metallurgical Coal
Producer. On a pro forma basis, we expect the
combined company to be the second largest
U.S. metallurgical coal producer based on 2010 production
and 2011 production guidance and a top 10 global metallurgical
coal producer based on 2010 production. The merger increases our
product diversity and provides significant blending
opportunities between ICGs low-volatile and rank A
high-volatile metallurgical coals and Archs existing rank
B high-volatile metallurgical products.
|
|
|
|
Strengthening Our Growth Profile. The combined
company will have the industrys second largest
U.S. reserve position, with 5.5 billion tons,
providing significant opportunities for future coal volume
growth. In particular, the combined companys existing and
planned development projects are expected to increase annual
metallurgical coal production capacity to approximately
14 million tons by 2015, while creating opportunities for
further expansion thereafter.
|
|
|
|
Increasing Our Presence in Global Seaborne Thermal and
Metallurgical Coal Markets. We expect to expand
our participation in global markets via the offering of a
greatly expanded metallurgical and steam coal product slate, and
through the increased utilization of our extensive
transportation and logistics network.
|
|
|
|
Creating One of the Industrys Most Balanced Operating
Portfolios. The acquisition extends our
geographic diversity, greatly strengthening our position in
Central Appalachia while creating the only U.S. coal
producer with assets in every major U.S. coal supply basin.
|
|
|
|
Driving Significant Synergies. We expect to
generate annual synergies of $70-$80 million beginning in
2012 across a wide range of marketing, operational and
administrative activities and functions.
|
We believe that these strategic benefits enhance our scale,
competitive profile, and ability to respond to economic,
regulatory, legislative and other developments that affect the
coal industry in general and our combined business in particular.
Business
Strategy
Our objective is to increase shareholder value through sustained
earnings growth and free cash flow generation. Our key
strategies to achieve this objective are described below:
|
|
|
|
|
Increasing Metallurgical Coal Production. We
expect 2011 pro forma metallurgical coal sales to reach
approximately 11 million tons. Over the next four years, we
anticipate metallurgical coal production capacity to increase to
approximately 14 million tons by 2015 from the combined
operations primarily from ICGs growth asset in Tygart
Valley. The Tygart Valley #1 mine is currently scheduled to
begin development production in late 2011. At full output,
currently projected for early 2014, Tygart Valley #1 is
designed to have 3.5 million tons of capacity per year of
high quality coal that is well suited to both the high-volatile
metallurgical market and the steam market.
|
|
|
|
Establishing a Preeminent Position in All Major
U.S. Coal Producing Basins. We maintain one
of the industrys most geographically balanced operating
portfolios and upon completion of the merger we expect to be the
only U.S. coal producer with assets in every major
U.S. coal producing basin. In particular, we believe that
ICGs Central and Northern Appalachian assets, in
conjunction with our existing Central Appalachian operations,
provide a strong growth platform in the high quality thermal and
metallurgical coal market. We expect that the acquisition, which
will add approximately 1.1 billion tons of proven and
probable reserves, will create attractive new opportunities and
increase our flexibility in evaluating potential future growth
opportunities.
|
S-4
|
|
|
|
|
Expanding Our Product Offerings. By operating
and owning reserves in all major U.S. coal producing
regions, we will be able to source and blend coal from multiple
mines to meet the needs of our domestic and international
customers. For example, blending ICGs low-volatile and
rank A high-volatile metallurgical coals with our existing rank
B high-volatile metallurgical products will allow us to create
new synthetic mid-volatile metallurgical coals that command a
premium in the global market. We anticipate that marketing
synergies, including these expanded blending opportunities, will
allow us to generate approximately an additional
$27 million annually as a result of increased sales prices.
Additionally, we believe the robust product offerings of the
combined company will enhance our value proposition to
customers, which will allow us to grow our customer base and
customer loyalty.
|
|
|
|
Continuing to Position Our Business to Take Advantage of
Favorable Long-Term Trends for Global Coal Consumption and
Associated Export of Domestic Coal Production. We
expect that international demand for U.S. coal will
increase in the future, driven by favorable projected global
growth trends and the high quality of U.S. coal compared to
many other producing regions around the world. We have actively
strengthened our logistical positioning through our recent
investment in the development of port capacity at Millennium
Bulk Terminal and our throughput agreement with Ridley Terminals
in Canada.
|
|
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|
Upholding Our Commitment to Excellence in Safety and
Environmental Stewardship. In 2010 we were
honored with a national Sentinels of Safety certificate from the
U.S. Department of Labor and eight state awards for
outstanding safety practices. We intend to maintain our
recognized leadership in operating some of the safest mines in
the United States and in achieving environmental excellence. We
intend to integrate ICGs already strong safety and
environmental processes with our own. Our ability to minimize
workplace incidents and environmental violations improves our
operating efficiency, which directly improves our cost structure
and financial performance.
|
Competitive
Strengths
|
|
|
|
|
Second Largest Publicly Traded Coal Producer in
U.S. The combined company will represent the
second largest publicly traded coal producer in the
U.S. based on pro forma 2010 sales of approximately
179 million tons. As of December 31, 2010, on a pro
forma basis giving effect to the merger, we would have had
approximately 5.5 billion tons of coal reserves. We will
also represent the second largest producer of domestic
metallurgical coal based on our combined pro forma 2010
production and 2011 production guidance.
|
|
|
|
Diversity of Production and Reserves with Operations in Every
Major U.S. Coal Basin. Upon completion of
the merger, we will be a leading producer in each of the five
major coal producing regions in the United States, which
provides important geographical diversity in terms of markets,
transportation and labor. Our combined company will operate or
contract out the operation of 46 mines, which we believe gives
us substantial operational flexibility and makes us less reliant
on any single mine for a significant portion of our earnings or
cash flow. We believe the diversity of our operations and
reserves also provides us with a significant advantage over
those competitors with operations located primarily in a single
coal producing region, as it allows us to source coal from
multiple operations to meet the needs of our customers. In
addition, we believe our operations are well positioned to take
advantage of the growing global seaborne coal markets in Asia,
Europe and South America.
|
|
|
|
Low Cost Producer. We seek to maintain our
operational excellence with an emphasis on investing selectively
in new equipment and advanced technologies. We will continue to
focus on profitability and efficiency by leveraging our
significant economies of scale, large fleet of mining equipment,
information technology and logistics systems and coordinated
purchasing and land management functions. In addition, we intend
to continue to focus on productivity through our culture of
workforce involvement by leveraging our strong base of
experienced, well-trained employees.
|
|
|
|
Significant Leverage to Coal Prices Given Uncommitted
Position. As of March 31, 2011, the combined
company would have had 85 million tons committed and priced
for 2012 delivery. Based on planned pro forma 2011 sales
volumes, the 2012 committed and priced volume would represent
49% of total company sales for 2012. We believe our uncommitted
position provides us with substantial leverage in a stronger
coal
|
S-5
|
|
|
|
|
price environment and allows us to take advantage of the growing
seaborne coal markets. In addition, we believe we are
well-positioned to increase our export volumes through strategic
infrastructure investments that guarantee us throughput, such as
our 22% partnership interest in Dominion Terminal located in
Newport News, Virginia, our 38% ownership interest in the
Millennium Bulk Terminals located near Longview, Washington and
our agreement with Ridley Terminals in Canada.
|
|
|
|
|
|
Low Amount of Legacy Liabilities. Compared to
other publicly traded U.S. coal producers, we believe we
have among the lowest legacy liabilities. As of
December 31, 2010, we had pro forma total legacy
liabilities of $640 million (including accrued
workers compensation, pension, post-retirement medical and
reclamation liabilities). Approximately two-thirds of our pro
forma legacy liabilities relate to reclamation liabilities,
which we consider an ordinary course liability. In addition,
substantially all of our workforce is non-unionized, which
minimizes employee-related liabilities commonly associated with
union-represented mines.
|
|
|
|
Experienced and Skilled Management Team. Our
top nine senior officers have an average of more than
25 years of industry experience. Our management team has
demonstrated a history of increasing productivity, effectively
managing mining costs, maintaining strong customer
relationships, enhancing work safety practices, and improving
environmental compliance. In addition, our management team has
demonstrated its ability to successfully integrate large
acquisitions in the past such as our North Rochelle and Jacobs
Ranch acquisitions.
|
The
Transactions
Acquisition
of ICG
Merger
Agreement
On May 2, 2011, Arch Coal, Atlas Acquisition Corp., a
wholly-owned subsidiary of Arch Coal (Merger Sub),
and ICG entered into a definitive Agreement and Plan of Merger
(as amended on May 26, 2011, the Merger
Agreement), pursuant to which Arch Coal, through Merger
Sub, agreed to commence a tender offer to acquire all of the
outstanding shares of ICGs common stock, par value $0.01
per share (the ICG Shares), for $14.60 per share in
cash, without interest (the Offer Price). The tender
offer was commenced on May 16, 2011 and is scheduled to
expire on June 14, 2011, unless extended.
Completion of the tender offer is subject to several conditions,
including:
|
|
|
|
|
a majority of the ICG Shares outstanding (generally determined
on a fully diluted basis) must be validly tendered and not
validly withdrawn prior to the expiration of the tender offer;
|
|
|
|
the expiration or termination of the applicable waiting period
under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (HSR);
|
|
|
|
the absence of a material adverse effect on ICG; and
|
|
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|
certain other customary conditions.
|
The tender offer is not subject to a financing condition and
this common stock offering is not conditioned on the tender
offer, the completion of the New Senior Notes offering (as
discussed below) or the consummation of the proposed acquisition
of ICG.
The Merger Agreement also provides that following consummation
of the tender offer and satisfaction of certain customary
conditions, Merger Sub will be merged with and into ICG, with
ICG surviving as a wholly-owned subsidiary of Arch Coal. Upon
completion of the merger, each ICG Share outstanding immediately
prior to the effective time of the merger (excluding those ICG
Shares that are held by (1) Arch Coal, Merger Sub, ICG or
their respective subsidiaries and (2) stockholders of ICG
who properly exercised their appraisal rights under the Delaware
General Corporation Law) will be converted into the right to
receive the Offer Price.
S-6
If Merger Sub holds 90% or more of the outstanding ICG Shares
following the completion of the tender offer (the
Short-Form Threshold), the parties will effect
the merger as a short-form merger without the need for approval
by ICGs stockholders. In addition, subject to the terms of
the Merger Agreement and applicable law, ICG has granted Merger
Sub an irrevocable option, exercisable after completion of the
tender offer and Arch Coals purchase of a majority of the
ICG Shares, to purchase additional ICG Shares from ICG as
necessary so that Arch Coal, Merger Sub or their subsidiaries
own one ICG Share more than the Short-Form Threshold. If
for whatever reason Merger Sub does not attain the
Short-Form Threshold, ICG will hold a special
stockholders meeting to obtain stockholder approval of the
merger. In this event, ICG will call and convene a stockholders
meeting to obtain such approval, and Merger Sub will vote all
ICG Shares it acquires pursuant to the tender offer in favor of
the adoption of the Merger Agreement, thereby assuring approval.
The Merger Agreement can be terminated by Arch Coal or ICG under
certain circumstances, and ICG will be required to pay Arch Coal
a termination fee of $105.0 million in connection with
certain termination events.
Tender
and Voting Agreements
In connection with the parties entry into the Merger
Agreement, (1) certain affiliates of WL Ross &
Co. LLC who collectively own approximately 6% of the outstanding
stock of ICG have entered into a tender and voting agreement
with Arch Coal and Merger Sub and (2) certain affiliates of
Fairfax Financial Holdings Limited who collectively own
approximately 11% of the outstanding stock of ICG have entered
into a tender and voting agreement with Arch and Merger Sub
pursuant to which they have agreed to, among other things,
tender their shares of ICGs common stock into the tender
offer and vote their shares of ICGs common stock in favor
of adopting the Merger Agreement, if applicable.
Financing
Transactions
Concurrent Arch Coal Notes
Offering. Concurrently with this offering of
common stock, we are separately offering $2,000.0 million
aggregate principal amount of senior notes due 2019 and senior
notes due 2021, which we collectively refer to as the New Senior
Notes, in accordance with Rule 144A under the Securities
Act of 1933, as amended (the Securities Act). All of
our subsidiaries that guarantee indebtedness under our existing
senior secured credit facility will be guarantors of the New
Senior Notes on a senior basis. Neither the completion of the
New Senior Notes offering nor the completion of this offering is
contingent on the completion of the other; however, the
completion of the New Senior Notes offering is contingent on the
concurrent consummation of the proposed acquisition of ICG. We
anticipate closing this offering of common stock prior to
closing our concurrent offering of New Senior Notes. We plan to
use the net proceeds from the New Senior Notes offering,
together with the net proceeds of this offering as described
under Use of Proceeds. We estimate that the net
proceeds of the New Senior Notes offering, after deducting the
initial purchasers discounts and estimated fees and
expenses, will be approximately $1,958.2 million.
The concurrent offering of New Senior Notes will not be
registered under the Securities Act, or the securities laws of
any other jurisdiction, and the New Senior Notes may not be
offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The New
Senior Notes will be offered only to qualified institutional
buyers in the United States pursuant to Rule 144A under the
Securities Act and outside the United States pursuant to
Regulation S under the Securities Act. This description and
other information in this prospectus supplement regarding our
concurrent offering of New Senior Notes is included in this
prospectus supplement solely for informational purposes. Nothing
in this prospectus supplement should be construed as an offer to
sell, or the solicitation of an offer to buy, any New Senior
Notes.
Amended and Restated Senior Secured Credit
Facility. In connection with the closing of the
merger, we expect to enter into an amended and restated senior
secured credit facility on substantially similar terms as the
existing senior secured credit facility which will increase
commitments available under the facility from
$860.0 million to $1.75 billion.
S-7
Redemption, Conversion or Other Retirement of ICG
Indebtedness. In connection with the merger, we
expect to redeem, pay cash in connection with the conversion of,
or otherwise retire certain outstanding ICG indebtedness,
including:
|
|
|
|
|
$200.0 million aggregate principal amount of ICGs
9.125% senior secured second-priority notes due 2018;
|
|
|
|
$115.0 million aggregate principal amount of ICGs
4.00% convertible senior notes due 2017;
|
|
|
|
$0.7 million aggregate principal amount of ICGs 9.00%
convertible senior notes due 2012; and
|
|
|
|
$50.1 million aggregate principal amount of other ICG
indebtedness, including equipment notes and capital leases.
|
Total cash required to complete the merger and the financing
transactions is estimated to be $3.8 billion, which
includes $238.3 million in debt premiums and approximately
$193.6 million of fees and expenses (including
$79.8 million of merger expenses but excluding accrued and
unpaid interest which must be paid to debtholders on the
applicable redemption dates). These cash requirements are
expected to be financed with proceeds from the common stock
offered hereby, proceeds from the concurrent Arch Coal New
Senior Notes offering and borrowings under our amended and
restated senior secured credit facility. In addition, the
existing ICG asset-based loan facility (the ABL loan
facility) will be terminated in connection with the
financing transactions.
Sources
and Uses
We will receive net proceeds from the common stock offering of
approximately $1,249.8 million after deducting
underwriters discounts and estimated fees and expenses
(assuming no exercise by the underwriters of their
over-allotment option). If the underwriters exercise their
over-allotment option in full, we estimate that the net proceeds
of this offering will be approximately $1,437.4 million,
after deducting underwriters discounts and estimated fees
and expenses. Concurrently with this offering of common stock,
we are separately offering $2,000.0 million aggregate principal
amount of New Senior Notes. We intend to use the net proceeds of
this offering and our concurrent offering of New Senior Notes,
together with borrowings under our amended and restated senior
secured credit facility, to fund the transactions and to pay
fees and expenses in connection with the transactions.
The following table illustrates the estimated sources of funds
and uses of funds relating to the transactions, as if the
transactions were completed on March 31, 2011. The actual
amounts may differ at the time of the consummation of the
transactions.
|
|
|
|
|
|
|
|
|
|
|
Sources of
Funds
|
|
Amount
|
|
|
Uses of
Funds
|
|
Amount
|
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
|
Common Stock offered hereby
|
|
$
|
1,296.0
|
|
|
Tender offer for ICG
equity(2)
|
|
$
|
3,044.6
|
|
Concurrent New Senior Notes offering
|
|
|
2,000.0
|
|
|
Redeem ICG 9.125% senior secured second-priority notes due
2018(3)
|
|
|
256.9
|
|
Amended and restated senior secured credit
facility(1)
|
|
|
551.6
|
|
|
Cash conversion of ICG 4.00% convertible senior notes due
2017(4)
|
|
|
300.7
|
|
|
|
|
|
|
|
Cash conversion of ICG 9.00% convertible senior notes due
2012(5)
|
|
|
1.7
|
|
|
|
|
|
|
|
Repay other ICG
debt(6)
|
|
|
50.1
|
|
|
|
|
|
|
|
Estimated fees and
expenses(7)
|
|
|
193.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sources
|
|
$
|
3,847.6
|
|
|
Total uses
|
|
$
|
3,847.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In connection with the closing of
the merger, we expect to enter into an amended and restated
senior secured credit facility on substantially similar terms as
the existing senior secured credit facility which will increase
commitments available under the facility from
$860.0 million to $1.75 billion. Any shortfall from
the proceeds of the shares offered hereby or the concurrent New
Senior Notes offering will be financed with borrowings under our
amended and restated senior secured credit facility.
|
(footnotes continued on next
page)
S-8
|
|
|
(2)
|
|
Assumes all outstanding shares of
common stock are validly tendered and acquired by Merger Sub in
the tender offer.
|
(3)
|
|
Assumes all of the
9.125% senior secured second-priority notes are redeemed at
a price equal to 100% of the principal amount plus an applicable
make-whole premium of $51.6 million and accrued
and unpaid interest to the redemption date.
|
(4)
|
|
Assumes holders elect to convert
all of the 4.00% convertible senior notes due 2017 for cash
after the closing of the merger at an increased conversion rate
applicable as a result of the merger.
|
(5)
|
|
Assumes holders elect to convert
all of the 9.00% convertible senior notes due 2012 for cash
after the closing of the merger at an increased conversion rate
applicable as a result of the merger.
|
(6)
|
|
Consists of other ICG indebtedness,
including equipment notes and capital leases.
|
(7)
|
|
Consists of estimated fees and
expenses related to the transactions, including legal,
accounting and advisory fees, fees associated with the financing
transactions and other transaction costs.
|
Additional
Information
We were organized in Delaware in 1969. Our principal executive
offices are located at One CityPlace Drive, Suite 300,
St. Louis, Missouri 63141, and our telephone number at that
address is
(314) 994-2700.
Our website address is www.archcoal.com. The information on or
accessible through our website is not part of this prospectus
supplement or the accompanying prospectus and should not be
relied upon in connection with making any investment decision
with respect to the securities offered by this prospectus
supplement and the accompanying prospectus.
S-9
THE
OFFERING
The following is a brief summary of some of the terms of this
offering and is not intended to be complete. For a more complete
description of our common stock, please refer to
Description of Common Stock in this prospectus
supplement and Description of Capital Stock
Common Stock in the accompanying prospectus.
|
|
|
Issuer |
|
Arch Coal, Inc. |
|
Shares of our common stock offered |
|
48,000,000 shares(1) |
|
Option to purchase additional shares |
|
We have granted the underwriters an option exercisable for a
period of 30 days from the date of this prospectus
supplement to purchase up to an additional 7,200,000 shares
of our common stock at the public offering price, less the
underwriting discount, to cover over-allotments, if any. |
|
Common stock to be outstanding after this offering |
|
210,834,773 shares(2) |
|
Use of proceeds |
|
We will receive net proceeds from this offering of approximately
$1,249.8 million (or approximately $1,437.4 million if
the underwriters over-allotment option is exercised in
full), after deducting underwriting discounts and estimated fees
and expenses. We expect to use the net proceeds of this
offering, the concurrent New Senior Notes offering, together
with borrowings under our amended and restated senior secured
credit facility, to finance the cost of the transactions and pay
related fees and expenses. If our acquisition of ICG is not
completed, we intend to use the net proceeds from this offering
for general corporate purposes, which may include the financing
of future acquisitions, including
lease-by-applications,
or strategic combinations, capital expenditures, additions to
working capital, repurchases, repayment or refinancing of debt
or stock repurchases. See Use of Proceeds. |
|
Risk factors |
|
You should carefully consider the information set forth in the
Risk Factors section of this prospectus supplement
as well as all other information included in or incorporated by
reference in this prospectus supplement and the accompanying
prospectus before deciding whether to invest in our common stock. |
|
NYSE symbol |
|
ACI |
(1) If the underwriters exercise their option to purchase
such additional shares in full, the total number of shares of
common stock offered will be 55,200,000.
(2) The number of shares of common stock that will be
outstanding after this offering is based on the number of shares
outstanding on May 27, 2011 and assumes no exercise of the
underwriters over-allotment option.
162,834,773 shares of our common stock were outstanding at
May 27, 2011. The number of issued shares of our common
stock as of May 27, 2011 excludes an aggregate of
approximately 5.2 million shares of our common stock
issuable upon the exercise of stock options outstanding as of
May 27, 2011 at a weighted average exercise price of $26.31
per share and an aggregate of approximately 27,000 shares
of our common stock issuable upon vesting of certain restricted
stock units that we have issued to our executive officers.
S-10
Summary
Consolidated Historical Financial Data for Arch Coal
The historical statement of operations data, the cash flow data
and the other data for the years ended December 31, 2010,
2009 and 2008, and the historical balance sheet data as of
December 31, 2010 and 2009, presented below have been
derived from Arch Coals audited consolidated financial
statements included and incorporated by reference into this
prospectus supplement. The historical statement of operations
data, the cash flow data and the other data for the three months
ended March 31, 2011 and 2010, and the historical balance
sheet data as of March 31, 2011 and 2010, have been derived
from Arch Coals unaudited condensed consolidated financial
statements included and incorporated by reference into this
prospectus supplement. In the opinion of Arch Coals
management, the interim financial information provided herein
reflects all adjustments (consisting of normal and recurring
adjustments) necessary for a fair statement of the data for the
periods presented. Interim results are not necessarily
indicative of the results to be expected for the entire fiscal
year.
The historical results presented below are not necessarily
indicative of results that you can expect for any future period.
You should read this table in conjunction with the sections
entitled Capitalization, Unaudited Pro Forma
Condensed Combined Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations of Arch Coal and the
consolidated financial statements of Arch Coal and the related
notes included and incorporated by reference into this
prospectus supplement.
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Three Months
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Year Ended
December 31,
|
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Ended March 31,
|
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2010(2)(3)
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2009(4)
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2008
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2011
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2010
|
|
|
|
(in millions, except per share
data)
|
|
|
(unaudited)
|
|
|
Statement of Operations
Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenue
|
|
$
|
3,186.3
|
|
|
$
|
2,576.1
|
|
|
$
|
2,983.8
|
|
|
$
|
872.9
|
|
|
$
|
711.9
|
|
Cost of coal sales
|
|
|
2,395.8
|
|
|
|
2,070.7
|
|
|
|
2,183.9
|
|
|
|
653.7
|
|
|
|
550.8
|
|
Depreciation, depletion and amortization, including amortization
of acquired sales contracts, net
|
|
|
400.7
|
|
|
|
321.2
|
|
|
|
292.8
|
|
|
|
89.5
|
|
|
|
99.3
|
|
Selling, general and administrative expenses
|
|
|
118.2
|
|
|
|
97.8
|
|
|
|
107.1
|
|
|
|
30.4
|
|
|
|
27.2
|
|
Change in fair value of coal derivatives and coal trading
activities, net
|
|
|
8.9
|
|
|
|
(12.1
|
)
|
|
|
(55.1
|
)
|
|
|
(1.8
|
)
|
|
|
5.9
|
|
Gain on Knight Hawk transaction
|
|
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to acquisition of Jacobs Ranch
|
|
|
|
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income, net
|
|
|
(19.7
|
)
|
|
|
(39.0
|
)
|
|
|
(6.3
|
)
|
|
|
(1.1
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
324.0
|
|
|
|
123.7
|
|
|
|
461.3
|
|
|
|
102.2
|
|
|
|
32.2
|
|
Interest expense, net
|
|
|
(140.1
|
)
|
|
|
(98.3
|
)
|
|
|
(64.3
|
)
|
|
|
(33.8
|
)
|
|
|
(34.7
|
)
|
Other non-operating expenses, net
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
177.1
|
|
|
|
25.4
|
|
|
|
397.0
|
|
|
|
68.4
|
|
|
|
(2.5
|
)
|
(Provision for) benefit from income taxes
|
|
|
(17.7
|
)
|
|
|
16.8
|
|
|
|
(41.8
|
)
|
|
|
(12.5
|
)
|
|
|
0.8
|
|
Income attributable to noncontrolling interest
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arch Coal, Inc.
|
|
$
|
158.9
|
|
|
$
|
42.2
|
|
|
$
|
354.3
|
|
|
$
|
55.6
|
|
|
$
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
93.6
|
|
|
$
|
61.1
|
|
|
$
|
70.6
|
|
|
$
|
69.2
|
|
|
$
|
50.4
|
|
Total assets
|
|
|
4,880.8
|
|
|
|
4,840.6
|
|
|
|
3,979.0
|
|
|
|
4,900.0
|
|
|
|
4,813.3
|
|
Working capital
|
|
|
207.6
|
|
|
|
55.1
|
|
|
|
46.6
|
|
|
|
313.2
|
|
|
|
138.8
|
|
Total debt
|
|
|
1,609.7
|
|
|
|
1,807.7
|
|
|
|
1,312.4
|
|
|
|
1,608.5
|
|
|
|
1,783.7
|
|
Other long-term obligations
|
|
|
566.7
|
|
|
|
544.6
|
|
|
|
482.7
|
|
|
|
572.9
|
|
|
|
567.2
|
|
Arch Coal, Inc. stockholders equity
|
|
|
2,237.5
|
|
|
|
2,115.1
|
|
|
|
1,728.7
|
|
|
|
2,291.6
|
|
|
|
2,105.1
|
|
S-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended
December 31,
|
|
|
Ended March 31,
|
|
|
|
2010(2)(3)
|
|
|
2009(4)
|
|
|
2008
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions, except per share
data)
|
|
|
(unaudited)
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
697.1
|
|
|
$
|
383.0
|
|
|
$
|
679.1
|
|
|
$
|
86.1
|
|
|
$
|
93.3
|
|
Capital expenditures
|
|
|
314.7
|
|
|
|
323.2
|
|
|
|
497.3
|
|
|
|
38.7
|
|
|
|
32.0
|
|
Common Stock Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
162.4
|
|
|
|
151.0
|
|
|
|
143.6
|
|
|
|
162.6
|
|
|
|
162.4
|
|
Diluted
|
|
|
163.2
|
|
|
|
151.3
|
|
|
|
144.4
|
|
|
|
163.8
|
|
|
|
162.4
|
|
Basic earnings (loss) per common share
|
|
$
|
0.98
|
|
|
$
|
0.28
|
|
|
$
|
2.47
|
|
|
$
|
0.34
|
|
|
$
|
(0.01
|
)
|
Diluted earnings (loss) per common share
|
|
|
0.97
|
|
|
|
0.28
|
|
|
|
2.45
|
|
|
|
0.34
|
|
|
|
(0.01
|
)
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(unaudited)(5)
|
|
|
724.2
|
|
|
|
458.7
|
|
|
|
753.2
|
|
|
|
191.4
|
|
|
|
131.4
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold
|
|
|
162.8
|
|
|
|
126.1
|
|
|
|
139.6
|
|
|
|
36.6
|
|
|
|
37.8
|
|
Tons produced
|
|
|
156.3
|
|
|
|
119.6
|
|
|
|
133.1
|
|
|
|
36.6
|
|
|
|
38.2
|
|
Tons purchased from third parties
|
|
|
6.8
|
|
|
|
7.5
|
|
|
|
6.0
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
|
(1)
|
|
Figures shown as totals in this
table may not be the arithmetic aggregation of the figures that
precede them due to rounding adjustments made to certain of the
figures in this table.
|
(2)
|
|
In the second quarter of 2010, we
exchanged 68.4 million tons of coal reserves in the
Illinois Basin for an additional 9% ownership interest in Knight
Hawk Holdings, LLC (Knight Hawk), increasing our
ownership to 42%. We recognized a pre-tax gain of
$41.6 million on the transaction, representing the
difference between the fair value and net book value of the coal
reserves, adjusted for our retained ownership interest in the
reserves through the investment in Knight Hawk.
|
(3)
|
|
On August 9, 2010, we issued
$500.0 million in aggregate principal amount of
71/4% senior
unsecured notes due 2020 at par. We used the net proceeds from
the offering and cash on hand to fund the redemption on
September 8, 2010 of $500.0 million aggregate
principal amount of our outstanding
63/4% senior
notes due 2013 at a redemption price of 101.125%. We recognized
a loss on the redemption of $6.8 million.
|
(4)
|
|
On October 1, 2009, we
purchased the Jacobs Ranch mining complex in the Powder River
Basin from Rio Tinto Energy America for a purchase price of
$768.8 million. To finance the acquisition, the Company
sold 19.55 million shares of its common stock and
$600.0 million in aggregate principal amount of senior
unsecured notes. The net proceeds received from the issuance of
common stock were $326.5 million and the net proceeds
received from the issuance of the
83/4% senior
unsecured notes were $570.3 million.
|
(5)
|
|
Adjusted EBITDA is not a measure of
financial performance in accordance with GAAP, and items
excluded to calculate Adjusted EBITDA are significant in
understanding and assessing our financial condition. Therefore,
Adjusted EBITDA should not be considered in isolation nor as an
alternative to net income, income from operations, cash flows
from operations or as a measure of our profitability, liquidity
or performance under GAAP. We believe that Adjusted EBITDA
presents a useful measure of our ability to service and incur
debt based on ongoing operations. Furthermore, analogous
measures are used by industry analysts to evaluate operating
performance. In addition, acquisition related expenses are
excluded to make results more comparable between periods.
Investors should be aware that our presentation of Adjusted
EBITDA may not be comparable to similarly titled measures used
by other companies.
|
S-12
|
|
|
|
|
The table below shows how we
calculate Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
Adjusted EBITDA
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Net income (loss) attributable to Arch Coal, Inc.
|
|
$
|
158.9
|
|
|
$
|
42.2
|
|
|
$
|
354.3
|
|
|
$
|
55.6
|
|
|
$
|
(1.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
140.1
|
|
|
|
98.3
|
|
|
|
64.3
|
|
|
|
33.8
|
|
|
|
34.7
|
|
Provision for (benefit from) income taxes
|
|
|
17.7
|
|
|
|
(16.8
|
)
|
|
|
41.8
|
|
|
|
12.5
|
|
|
|
(0.8
|
)
|
Depreciation, depletion and amortization, including amortization
of sales contracts, net
|
|
|
400.7
|
|
|
|
321.2
|
|
|
|
292.8
|
|
|
|
89.5
|
|
|
|
99.3
|
|
Costs related to acquisition of Jacobs Ranch
|
|
|
|
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expenses
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
724.2
|
|
|
$
|
458.7
|
|
|
$
|
753.2
|
|
|
$
|
191.4
|
|
|
$
|
131.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-13
Summary
Consolidated Historical Financial Data for ICG
The historical statement of operations data, the cash flow data
and the other data for the years ended December 31, 2010,
2009 and 2008, and the historical balance sheet data as of
December 31, 2010 and 2009, presented below have been
derived from ICGs audited consolidated financial
statements included and incorporated by reference into this
prospectus supplement. The historical statement of operations
data, the cash flow data and the other data for the three months
ended March 31, 2011 and 2010, and the historical balance
sheet data as of March 31, 2011 and 2010, have been derived
from ICGs unaudited condensed consolidated financial
statements included and incorporated by reference into this
prospectus supplement. In the opinion of ICGs management,
the interim financial information provided herein reflects all
adjustments (consisting of normal and recurring adjustments)
necessary for a fair statement of the data for the periods
presented. Interim results are not necessarily indicative of the
results to be expected for the entire fiscal year.
The historical results presented below are not necessarily
indicative of results that you can expect for any future period.
You should read this table in conjunction with the sections
entitled Capitalization, Unaudited Pro Forma
Condensed Combined Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations of ICG and the
consolidated financial statements of ICG and the related notes
included and incorporated by reference into this prospectus
supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended
December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions, except per share
data)
|
|
|
(unaudited)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenues
|
|
$
|
1,078.2
|
|
|
$
|
1,006.6
|
|
|
$
|
998.2
|
|
|
$
|
283.7
|
|
|
$
|
270.5
|
|
Freight and handling revenues
|
|
|
35.4
|
|
|
|
26.3
|
|
|
|
45.2
|
|
|
|
7.2
|
|
|
|
9.4
|
|
Other revenues
|
|
|
52.8
|
|
|
|
92.4
|
|
|
|
53.3
|
|
|
|
11.1
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,166.4
|
|
|
|
1,125.3
|
|
|
|
1,096.7
|
|
|
|
302.0
|
|
|
|
288.6
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales
|
|
|
850.3
|
|
|
|
832.2
|
|
|
|
883.0
|
|
|
|
218.0
|
|
|
|
220.1
|
|
Freight and handling costs
|
|
|
35.4
|
|
|
|
26.3
|
|
|
|
45.2
|
|
|
|
7.2
|
|
|
|
9.4
|
|
Cost of other revenues
|
|
|
48.3
|
|
|
|
36.1
|
|
|
|
35.7
|
|
|
|
7.3
|
|
|
|
7.2
|
|
Depreciation, depletion and amortization
|
|
|
104.6
|
|
|
|
106.1
|
|
|
|
96.0
|
|
|
|
25.6
|
|
|
|
26.4
|
|
Selling, general and administrative
|
|
|
35.6
|
|
|
|
32.7
|
|
|
|
38.1
|
|
|
|
51.2
|
|
|
|
8.6
|
|
Gain on sale of assets
|
|
|
(4.2
|
)
|
|
|
(3.6
|
)
|
|
|
(32.5
|
)
|
|
|
(6.7
|
)
|
|
|
(3.5
|
)
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
37.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,070.0
|
|
|
|
1,029.8
|
|
|
|
1,102.9
|
|
|
|
302.6
|
|
|
|
268.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
96.4
|
|
|
|
95.5
|
|
|
|
(6.2
|
)
|
|
|
(0.6
|
)
|
|
|
20.4
|
|
Interest and other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(29.4
|
)
|
|
|
(13.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(22.0
|
)
|
Interest expense net
|
|
|
(40.7
|
)
|
|
|
(53.0
|
)
|
|
|
(43.6
|
)
|
|
|
(8.1
|
)
|
|
|
(13.3
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income (expense)
|
|
|
(70.1
|
)
|
|
|
(66.3
|
)
|
|
|
(43.6
|
)
|
|
|
(8.1
|
)
|
|
|
(35.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
26.3
|
|
|
|
29.2
|
|
|
|
(49.8
|
)
|
|
|
(8.7
|
)
|
|
|
(14.8
|
)
|
Income tax benefit (expense)
|
|
|
3.8
|
|
|
|
(7.7
|
)
|
|
|
23.6
|
|
|
|
2.4
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
30.1
|
|
|
|
21.5
|
|
|
|
(26.2
|
)
|
|
|
(6.3
|
)
|
|
|
(8.9
|
)
|
Net (income) loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to International Coal Group,
Inc.
|
|
$
|
30.1
|
|
|
$
|
21.5
|
|
|
$
|
(26.2
|
)
|
|
$
|
(6.3
|
)
|
|
$
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended
December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions, except per share
data)
|
|
|
(unaudited)
|
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
215.3
|
|
|
$
|
92.6
|
|
|
$
|
63.9
|
|
|
$
|
186.6
|
|
|
$
|
301.7
|
|
Total assets
|
|
|
1,479.7
|
|
|
|
1,368.0
|
|
|
|
1,350.6
|
|
|
|
1,495.0
|
|
|
|
1,584.6
|
|
Long-term debt and capital leases
|
|
|
326.4
|
|
|
|
384.3
|
|
|
|
432.9
|
|
|
|
332.0
|
|
|
|
471.9
|
|
Total liabilities
|
|
|
725.4
|
|
|
|
758.8
|
|
|
|
841.5
|
|
|
|
745.7
|
|
|
|
834.3
|
|
Total stockholders equity
|
|
|
754.3
|
|
|
|
609.2
|
|
|
|
509.1
|
|
|
|
749.3
|
|
|
|
750.3
|
|
Total liabilities and stockholders equity
|
|
|
1,479.7
|
|
|
|
1,368.0
|
|
|
|
1,350.6
|
|
|
|
1,495.0
|
|
|
|
1,584.6
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
187.4
|
|
|
$
|
115.8
|
|
|
$
|
78.7
|
|
|
$
|
7.9
|
|
|
$
|
5.4
|
|
Investing activities
|
|
|
(89.3
|
)
|
|
|
(73.2
|
)
|
|
|
(124.0
|
)
|
|
|
(30.5
|
)
|
|
|
(10.8
|
)
|
Financing activities
|
|
|
24.5
|
|
|
|
(13.9
|
)
|
|
|
2.1
|
|
|
|
(6.1
|
)
|
|
|
214.4
|
|
Capital expenditures
|
|
|
102.9
|
|
|
|
66.3
|
|
|
|
132.8
|
|
|
|
31.1
|
|
|
|
20.6
|
|
Common Stock Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
197.3
|
|
|
|
153.6
|
|
|
|
152.6
|
|
|
|
202.6
|
|
|
|
181.3
|
|
Diluted
|
|
|
205.2
|
|
|
|
155.3
|
|
|
|
152.6
|
|
|
|
202.6
|
|
|
|
181.3
|
|
Basic earnings (loss) per common share
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
Diluted earnings (loss) per common share
|
|
|
0.15
|
|
|
|
0.14
|
|
|
|
(0.17
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(1)
|
|
$
|
201.0
|
|
|
$
|
201.6
|
|
|
$
|
127.2
|
|
|
$
|
65.0
|
|
|
$
|
46.8
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold
|
|
|
16.3
|
|
|
|
16.8
|
|
|
|
18.9
|
|
|
|
3.9
|
|
|
|
4.3
|
|
Tons produced
|
|
|
15.5
|
|
|
|
16.3
|
|
|
|
17.8
|
|
|
|
4.0
|
|
|
|
3.9
|
|
Tons purchased from third parties
|
|
|
0.5
|
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
(1)
|
|
Adjusted EBITDA is a non-GAAP
financial measure used by ICG management to gauge operating
performance. ICG defines Adjusted EBITDA as net income or loss
attributable to ICG before deducting interest, income taxes,
depreciation, depletion and amortization, loss on extinguishment
of debt, certain legal reserves, impairment charges and
noncontrolling interest. Adjusted EBITDA is not, and should not
be used as, a substitute for operating income, net income and
cash flow as determined in accordance with GAAP. ICG presents
Adjusted EBITDA because its management considers it an important
supplemental measure of ICGs performance and believes it
is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in ICGs
industry, substantially all of which present EBITDA or Adjusted
EBITDA when reporting their results. ICG also uses Adjusted
EBITDA as its executive compensation plan bases incentive
compensation payments on ICGs Adjusted EBITDA performance
measured against budgets. ICGs ABL loan facility uses
Adjusted EBITDA (with additional adjustments) to measure
ICGs compliance with covenants, such as fixed charge
coverage. EBITDA or Adjusted EBITDA is also widely used by ICG
and others in the industry to evaluate and price potential
acquisition candidates. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or
as a substitute for analysis of ICGs results as reported
under GAAP. Some of these limitations are that Adjusted EBITDA
does not reflect all of ICGs cash expenditures or any of
ICGs future requirements for capital expenditures or
contractual commitments; changes in, or cash requirements for,
our working capital needs; or interest expense, or the cash
requirements necessary to service interest or principal
payments, on ICGs debt. Although depreciation, depletion
and amortization are non-cash charges, the assets being
depreciated, depleted and amortized will often have to be
replaced in the future. Adjusted EBITDA does not reflect any
cash requirements for such replacements. Other companies in the
industry may calculate EBITDA or Adjusted EBITDA differently
than ICG does, limiting its usefulness as a comparative measure.
|
S-15
The table below shows how we calculated Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Year Ended
December 31,
|
|
|
Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Net income (loss) attributable to ICG
|
|
$
|
30.1
|
|
|
$
|
21.5
|
|
|
$
|
(26.2
|
)
|
|
$
|
(6.3
|
)
|
|
$
|
(8.9
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
104.6
|
|
|
|
106.1
|
|
|
|
96.0
|
|
|
|
25.6
|
|
|
|
26.4
|
|
Interest expense, net
|
|
|
40.7
|
|
|
|
53.0
|
|
|
|
43.6
|
|
|
|
8.1
|
|
|
|
13.3
|
|
Income tax (benefit) expense
|
|
|
(3.8
|
)
|
|
|
7.7
|
|
|
|
(23.6
|
)
|
|
|
(2.4
|
)
|
|
|
(6.0
|
)
|
Legal reserve for Allegheny lawsuit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.0
|
|
|
|
|
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
37.4
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
29.4
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
22.0
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
201.0
|
|
|
$
|
201.6
|
|
|
$
|
127.2
|
|
|
$
|
65.0
|
|
|
$
|
46.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-16
Summary
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 and ICG included and incorporated by reference into
this prospectus supplement 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.
The unaudited pro forma condensed combined financial information
should be read in conjunction with the Unaudited Pro Forma
Condensed Combined Financial Information, including the
notes thereto, beginning on page S-63 and 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. See The Transactions.
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.
Certain amounts in ICGs historical balance sheets and
statements of income have been conformed to Arch Coals
presentation.
S-17
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(In millions, except per share
data)
|
|
|
Pro Forma Condensed Combined Income Statement Data:
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,299.9
|
|
|
$
|
1,163.8
|
|
Cost of coal sales
|
|
|
3,281.6
|
|
|
|
878.8
|
|
Depreciation, depletion and amortization
|
|
|
510.6
|
|
|
|
122.2
|
|
Amortization of acquired sales contracts, net
|
|
|
21.5
|
|
|
|
2.4
|
|
Selling, general and administrative expenses
|
|
|
153.7
|
|
|
|
81.6
|
|
Change in fair value of coal derivatives and coal trading
activities, net
|
|
|
8.9
|
|
|
|
(1.8
|
)
|
Gain on Knight Hawk transaction
|
|
|
(41.6
|
)
|
|
|
|
|
Other operating income, net
|
|
|
(28.5
|
)
|
|
|
(11.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,906.2
|
|
|
|
1,071.6
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
393.7
|
|
|
|
92.2
|
|
Interest expense, net:
|
|
|
(304.9
|
)
|
|
|
(75.0
|
)
|
Other non-operating expense
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
(36.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
52.6
|
|
|
|
17.2
|
|
Provision for (benefit from) income taxes
|
|
|
(42.6
|
)
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
95.2
|
|
|
$
|
23.0
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to Arch Coal, Inc.
|
|
$
|
94.7
|
|
|
$
|
22.7
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.46
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.46
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1)
|
|
$
|
925.2
|
|
|
$
|
256.5
|
|
|
|
|
|
|
|
|
|
|
|
|
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As of
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March 31,
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2011
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(In millions)
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Pro Forma Condensed Combined Balance Sheet Data:
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|
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Total assets
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$
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10,431.5
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Total liabilities and redeemable noncontrolling interest
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$
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6,978.7
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Total stockholders equity
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$
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3,452.7
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|
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|
(1) |
|
Adjusted EBITDA is defined as net income attributable to the
combined company before the effect of net interest expense,
income taxes, depreciation, depletion and amortization and the
amortization of acquired sales contracts. Adjusted EBITDA may
also be adjusted for items that may not reflect the trend of
future results. |
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|
Adjusted EBITDA is not a measure of financial performance in
accordance with generally accepted accounting principles, and
items excluded to calculate Adjusted EBITDA are significant in
understanding and assessing our financial condition. Therefore,
Adjusted EBITDA should not be considered in isolation nor as an
alternative to net income, income from operations, cash flows
from operations or as a measure of our profitability, liquidity
or performance under generally accepted accounting principles.
We believe that Adjusted EBITDA presents a useful measure of our
ability to service and incur debt |
S-18
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|
based on ongoing operations. Furthermore, analogous measures are
used by industry analysts to evaluate operating performance. In
addition, acquisition related expenses are excluded to make
results more comparable between periods. Investors should be
aware that our presentation of Adjusted EBITDA may not be
comparable to similarly titled measures used by other companies.
The table below shows how we calculate Adjusted EBITDA. |
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Year Ended
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|
|
Three Months Ended
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December 31,
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March 31,
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2010
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|
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2011
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|
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(In millions)
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|
|
Net income
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$
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94.7
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$
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22.7
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Income tax expense (benefit)
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|
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(42.6
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)
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(5.8
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)
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Interest expense, net
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|
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304.9
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|
|
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75.0
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Depreciation, depletion and amortization
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|
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510.6
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|
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122.2
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Legal reserve for ICGs Allegheny lawsuit
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|
|
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40.0
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Amortization of acquired sales contracts, net
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21.5
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2.4
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Other non-operating expense
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|
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36.2
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|
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Adjusted
EBITDA(a)
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$
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925.2
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$
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256.5
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(a) |
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Figures shown as totals in this table may not be the arithmetic
aggregation of the figures that precede them due to rounding
adjustments made to certain of the figures in the table. |
Other Pro
Forma Data
The following table presents certain Arch Coal pro forma
operating data, calculated by adding the Arch Coal historical
operating data and the ICG historical operating data.
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Year Ended
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Three Months Ended
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December 31,
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March 31,
|
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2010
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|
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2011
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|
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(In millions of tons)
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Pro Forma Operating Data:
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|
|
|
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Tons sold
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|
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179.1
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|
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40.5
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Tons produced
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171.8
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40.6
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Tons purchased from third parties
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|
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7.3
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|
|
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1.4
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|
S-19
RISK
FACTORS
An investment in our common stock involves certain risks. You
should carefully consider the risks described below, as well as
the Risk Factors contained in our Annual Report on
Form 10-K
for our fiscal year ended December 31, 2010, our Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011 and the other
information included or incorporated by reference in this
prospectus supplement and the accompanying prospectus before
making an investment decision. Our business, financial condition
or results of operations could be materially adversely affected
by any of these risks. The market or trading price of our common
stock could decline due to any of these risks, and you may lose
all or part of your investment. In addition, please read
Forward-Looking Statements in this prospectus
supplement and the accompanying prospectus where we describe
additional uncertainties associated with our business and the
forward-looking statements included or incorporated by reference
in this prospectus supplement and the accompanying prospectus.
In addition, you should consider that the risks related to each
of the businesses of Arch Coal and ICG may also affect the
operations and financial results reported by the combined
company. The risks and uncertainties described below and in the
incorporated documents are not the only risks and uncertainties
that we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair
our business operations. If any of those risks actually occurs,
our business, financial condition and results of operations
would suffer.
Risks
Related to the Offering
This
offering is expected to be dilutive, and there may be future
dilution of our common stock.
Except as described under the heading Underwriting,
we are not restricted from issuing additional shares of our
common stock, including securities that are convertible into or
exchangeable for, or that represent the right to receive shares
of our common stock. In this offering, we expect to issue
48,000,000 shares of common stock (or
55,200,000 shares of common stock if the underwriters
exercise their over-allotment option in full). Giving effect to
the issuance of common stock in this offering, the receipt of
the expected net proceeds and the use of those net proceeds as
described under Use of Proceeds, we expect that this
offering will have a dilutive effect on our expected earnings
per share for the year ending December 31, 2011 and
possibly future years. The actual amount of such dilution cannot
be determined at this time and will be based on numerous factors.
The
market price of our common stock may be volatile, which could
cause the value of your investment to decline.
Any of the following factors could affect the market price of
our common stock:
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general market, political and economic conditions;
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changes in earnings estimates and recommendations by financial
analysts;
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our failure to meet financial analysts performance
expectations; and
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changes in market valuations of other coal companies.
|
In addition, many of the risks that are described elsewhere in
this Risk Factors section and under Risk
Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2010 and our Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011 (which are
incorporated by reference into this prospectus supplement and
the accompanying prospectus) could materially and adversely
affect our stock price. Stock markets recently have experienced
price and volume volatility that has affected many
companies stock prices. Stock prices for many companies
recently have experienced wide fluctuations that have often been
unrelated to the operating performance of those companies.
Fluctuations such as these may affect the market price of our
common stock materially.
S-20
Other
companies may have difficulty acquiring us due to provisions in
our certificate of incorporation and bylaws.
Provisions in our certificate of incorporation and our bylaws
could make it more difficult for other companies to acquire us,
even if that acquisition would benefit our stockholders. Our
certificate of incorporation and bylaws contain the following
provisions, among others, which may inhibit an acquisition of
our company by a third party:
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our board of directors is classified into three classes;
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subject to the rights of holders of our preferred stock, if any,
the affirmative vote of the holders of not less than two-thirds
of the shares of common stock voting thereon is required in
order to:
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adopt an agreement or plan of merger or consolidation;
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authorize the sale, lease or exchange of all or substantially
all of our property or assets; or
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authorize the disposition of Arch Coal or the distribution of
all or substantially all of our assets to our stockholders;
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subject to the rights of holders of our preferred stock, if any,
certain provisions of the restated certificate may be amended
only by the affirmative vote of the holders of at least
two-thirds of the shares of common stock voting on the proposed
amendment;
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subject to the rights of holders of our preferred stock, if any,
all actions required to be taken or which may be taken at any
annual or special meeting of our stockholders must be taken at a
duly called annual or special meeting of stockholders and cannot
be taken by a consent in writing without a meeting; and
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special meetings of the stockholders may be called at any time
by our board of directors and may not be called by any other
person or persons or in any other manner.
|
Any of these restrictions could have the effect of delaying or
preventing a change of control of us.
Risks
Related to the Combined Company and the Merger
If
completed, the merger may not achieve its intended results, and
Arch Coal and ICG may be unable to successfully integrate their
operations.
Arch Coal and ICG entered into the Merger Agreement with the
expectation that the merger will result in various benefits or
synergies, including, among other things, cost savings and
operating efficiencies. Achieving the anticipated benefits of
the merger is subject to a number of uncertainties, including
whether the businesses of Arch Coal and ICG can be integrated in
an efficient and effective manner. In addition, the combined
company may experience unanticipated issues, expenses and
liabilities.
It is possible that the integration process could take longer
than anticipated or cost more than anticipated and could result
in the loss of valuable employees, the disruption of each
companys ongoing businesses, processes and systems or
inconsistencies in standards, controls, procedures, practices,
policies and compensation arrangements, any of which could
adversely affect our ability to achieve the anticipated benefits
and synergies of the merger. Our results of operations could
also be adversely affected by any issues attributable to either
companys operations that arise or are based on events or
actions that occur prior to the closing of the merger. The
companies may have difficulty addressing possible differences in
corporate cultures and management philosophies. The integration
process is subject to a number of uncertainties, and no
assurance can be given that the anticipated benefits will be
realized or, if realized, the timing or cost of their
realization. Failure to achieve these anticipated benefits could
result in increased costs or decreases in the amount of expected
revenues and could adversely affect our future business,
financial condition, operating results and prospects, and may
cause the combined companys stock price to decline.
Arch Coal and ICG will be subject to various uncertainties and
ICG will be subject to certain contractual restrictions while
the merger is pending that could adversely affect their
respective financial results and the financial results of the
combined company.
S-21
Uncertainty about the effect of the merger on employees,
suppliers and customers may have an adverse effect on Arch Coal
and/or ICG.
These uncertainties may impair Arch Coals
and/or
ICGs ability to attract, retain and motivate key personnel
until the merger is completed and for a period of time
thereafter, and could cause customers, suppliers and others who
deal with Arch Coal or ICG to seek to change their existing
business relationships with Arch Coal or ICG. Employee retention
and recruitment may be particularly challenging prior to
completion of the merger, as employees and prospective employees
may experience uncertainty about their future roles with the
combined company.
The pursuit of the merger and the preparation for the
integration may place a significant burden on management and
internal resources. Any significant diversion of management
attention away from ongoing business and new business
opportunities and any difficulties encountered in the transition
and integration process could affect Arch Coals
and/or
ICGs financial results.
In addition, the Merger Agreement restricts ICG, without Arch
Coals consent, from making certain acquisitions and
dispositions and taking other specified actions while the merger
is pending. These restrictions may prevent ICG from pursuing
attractive business opportunities and making other changes to
its business prior to completion of the merger or termination of
the Merger Agreement.
The
pro forma financial statements included in this prospectus
supplement are presented for illustrative purposes only and may
not be an indication of our financial condition or results of
operations following the merger.
The pro forma financial statements included in this prospectus
supplement are presented for illustrative purposes only, are
based on various adjustments, assumptions and preliminary
estimates, and may not be an indication of our financial
condition or results of operations following the merger for
several reasons. See Unaudited Pro Forma Condensed
Combined Financial Information. Our actual financial
condition and results of operations following the merger may not
be consistent with, or evident from, these pro forma financial
statements. In addition, the assumptions used in preparing the
pro forma financial information may not prove to be accurate,
and other factors may affect our financial condition or results
of operations following the merger. Any potential decline in our
financial condition or results of operations may cause
significant variations in our stock price.
A
lowering or withdrawal of the ratings assigned to our debt
securities, including the notes offered in the New Senior Notes
offering, by rating agencies may increase our future borrowing
costs and reduce our access to capital.
Depending on the sources of financing used to fund our
acquisition of ICG, and on our final pro forma capital structure
after giving effect to the transactions, rating agencies may
lower or withdraw ratings assigned to our debt securities,
including the notes offered in the New Senior Notes offering.
Our debt, including the notes offered in the New Senior Notes
offering, currently has a non-investment grade rating, and there
can be no assurance that any rating assigned will remain for any
given period of time or that a rating will not be lowered or
withdrawn entirely by a rating agency if, in that rating
agencys judgment, future circumstances relating to the
basis of the rating, such as adverse changes, so warrant. A
lowering or withdrawal of the ratings assigned to our debt
securities by rating agencies may increase our future borrowing
costs and reduce our access to capital, which could have a
material adverse impact on our financial condition, cash flows
and results of operations.
Risks
Related to Arch Coals Business
Coal
prices are subject to change and a substantial or extended
decline in prices could materially and adversely affect our
profitability and the value of our coal reserves.
Our profitability and the value of our coal reserves depend upon
the prices we receive for our coal. The contract prices we may
receive in the future for coal depend upon factors beyond our
control, including the following:
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|
the domestic and foreign supply and demand for coal;
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|
the quantity and quality of coal available from competitors;
|
S-22
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|
competition for production of electricity from non-coal sources,
including the price and availability of alternative fuels;
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|
domestic air emission standards for coal-fueled power plants and
the ability of coal-fueled power plants to meet these standards
by installing scrubbers or other means;
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|
adverse weather, climatic or other natural conditions, including
natural disasters;
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|
domestic and foreign economic conditions, including economic
slowdowns;
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legislative, regulatory and judicial developments, environmental
regulatory changes or changes in energy policy and energy
conservation measures that would adversely affect the coal
industry, such as legislation limiting carbon emissions or
providing for increased funding and incentives for alternative
energy sources;
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|
the proximity to, capacity of and cost of transportation and
port facilities; and
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|
market price fluctuations for sulfur dioxide emission allowances.
|
A substantial or extended decline in the prices we receive for
our future coal sales contracts could materially and adversely
affect us by decreasing our profitability and the value of our
coal reserves.
Our
coal mining operations are subject to operating risks that are
beyond our control, which could result in materially increased
operating expenses and decreased production levels and could
materially and adversely affect our profitability.
We mine coal at underground and surface mining operations.
Certain factors beyond our control, including those listed
below, could disrupt our coal mining operations, adversely
affect production and shipments and increase our operating costs:
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|
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|
poor mining conditions resulting from geological, hydrologic or
other conditions that may cause instability of highwalls or
spoil piles or cause damage to nearby infrastructure or mine
personnel;
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|
a major incident at the mine site that causes all or part of the
operations of the mine to cease for some period of time;
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|
mining, processing and plant equipment failures and unexpected
maintenance problems;
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|
adverse weather and natural disasters, such as heavy rains or
snow, flooding and other natural events affecting operations,
transportation or customers;
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|
unexpected or accidental surface subsidence from underground
mining;
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accidental mine water discharges, fires, explosions or similar
mining accidents; and
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|
competition
and/or
conflicts with other natural resource extraction activities and
production within our operating areas, such as coalbed methane
extraction or oil and gas development.
|
If any of these conditions or events occurs, particularly at our
Black Thunder mining complex, which accounted for approximately
75% of the coal volume we sold in 2010, our coal mining
operations may be disrupted, we could experience a delay or halt
of production or shipments or our operating costs could increase
significantly. In addition, if our insurance coverage is limited
or excludes certain of these conditions or events, then we may
not be able to recover any of the losses we may incur as a
result of such conditions or events, some of which may be
substantial.
Competition
within the coal industry could put downward pressure on coal
prices and, as a result, materially and adversely affect our
revenues and profitability.
We compete with numerous other coal producers in various regions
of the United States for domestic sales. International demand
for U.S. coal also affects competition within our industry.
The demand for U.S. coal exports depends upon a number of
factors outside our control, including the overall demand for
electricity in foreign markets, currency exchange rates, ocean
freight rates, port and shipping capacity, the demand for
foreign-priced steel, both in foreign markets and in the
U.S. market, general economic conditions in foreign
countries,
S-23
technological developments and environmental and other
governmental regulations. Foreign demand for Central Appalachian
coal has increased in recent periods. If foreign demand for
U.S. coal were to decline, this decline could cause
competition among coal producers for the sale of coal in the
United States to intensify, potentially resulting in significant
downward pressure on domestic coal prices.
In addition, during the mid-1970s and early 1980s, increased
demand for coal attracted new investors to the coal industry,
spurred the development of new mines and resulted in additional
production capacity throughout the industry, all of which led to
increased competition and lower coal prices. Increases in coal
prices over the past several years have encouraged the
development of expanded capacity by coal producers and may
continue to do so. Any resulting overcapacity and increased
production could materially reduce coal prices and therefore
materially reduce our revenues and profitability.
Decreases
in demand for electricity resulting from economic, weather
changes or other conditions could adversely affect coal prices
and materially and adversely affect our results of
operations.
Our coal is primarily used as fuel for electricity generation.
Overall economic activity and the associated demand for power by
industrial users can have significant effects on overall
electricity demand. An economic slowdown can significantly slow
the growth of electrical demand and could result in contraction
of demand for coal. Declines in international prices for coal
generally will impact U.S. prices for coal. During the past
several years, international demand for coal has been driven, in
significant part, by fluctuations in demand due to economic
growth in China and India as well as other developing countries.
Significant declines in the rates of economic growth in these
regions could materially affect international demand for
U.S. coal, which may have an adverse effect on
U.S. coal prices.
Weather patterns can also greatly affect electricity demand.
Extreme temperatures, both hot and cold, cause increased power
usage and, therefore, increased generating requirements from all
sources. Mild temperatures, on the other hand, result in lower
electrical demand, which allows generators to choose the sources
of power generation when deciding which generation sources to
dispatch. Any downward pressure on coal prices, due to decreases
in overall demand or otherwise, including changes in weather
patterns, would materially and adversely affect our results of
operations.
The
use of alternative energy sources for power generation could
reduce coal consumption by U.S. electric power generators, which
could result in lower prices for our coal. Declines in the
prices at which we sell our coal could reduce our revenues and
materially and adversely affect our business and results of
operations.
In 2010, approximately 76% of the tons we sold were to domestic
electric power generators. The amount of coal consumed for
U.S. electric power generation is affected by, among other
things:
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|
the location, availability, quality and price of alternative
energy sources for power generation, such as natural gas, fuel
oil, nuclear, hydroelectric, wind, biomass and solar
power; and
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|
technological developments, including those related to
alternative energy sources.
|
Gas-fueled generation has the potential to displace coal-fueled
generation, particularly from older, less efficient coal-powered
generators. We expect that many of the new power plants needed
to meet increasing demand for electricity generation will be
fueled by natural gas because gas-fired plants are cheaper to
construct and permits to construct these plants are easier to
obtain as natural gas is seen as having a lower environmental
impact than coal-fueled generators. In addition, state and
federal mandates for increased use of electricity from renewable
energy sources could have an impact on the market for our coal.
Several states have enacted legislative mandates requiring
electricity suppliers to use renewable energy sources to
generate a certain percentage of power. There have been numerous
proposals to establish a similar uniform, national standard
although none of these proposals have been enacted to date.
Possible advances in technologies and incentives, such as tax
credits, to enhance the economics of renewable energy sources
could make these sources more competitive with coal. Any
reduction in the amount of coal consumed by domestic electric
power generators could reduce the price of coal that we mine and
sell, thereby reducing our revenues and materially and adversely
affecting our business and results of operations.
S-24
Our
inability to acquire additional coal reserves or our inability
to develop coal reserves in an economically feasible manner may
adversely affect our business.
Our profitability depends substantially on our ability to mine
and process, in a cost-effective manner, coal reserves that
possess the quality characteristics desired by our customers. As
we mine, our coal reserves decline. As a result, our future
success depends upon our ability to acquire additional coal that
is economically recoverable. If we fail to acquire or develop
additional coal reserves, our existing reserves will eventually
be depleted. We may not be able to obtain replacement reserves
when we require them. If available, replacement reserves may not
be available at favorable prices, or we may not be capable of
mining those reserves at costs that are comparable with our
existing coal reserves. Our ability to obtain coal reserves in
the future could also be limited by the availability of cash we
generate from our operations or available financing,
restrictions under our existing or future financing
arrangements, and competition from other coal producers, the
lack of suitable acquisition or
lease-by-application,
or LBA, opportunities or the inability to acquire coal
properties or LBAs on commercially reasonable terms. If we are
unable to acquire replacement reserves, our future production
may decrease significantly and our operating results may be
negatively affected. In addition, we may not be able to mine
future reserves as profitably as we do at our current operations.
Inaccuracies
in our estimates of our coal reserves could result in decreased
profitability from lower than expected revenues or higher than
expected costs.
Our future performance depends on, among other things, the
accuracy of our estimates of our proven and probable coal
reserves. We base our estimates of reserves on engineering,
economic and geological data assembled, analyzed and reviewed by
internal and third-party engineers and consultants. We update
our estimates of the quantity and quality of proven and probable
coal reserves annually to reflect the production of coal from
the reserves, updated geological models and mining recovery
data, the tonnage contained in new lease areas acquired and
estimated costs of production and sales prices. There are
numerous factors and assumptions inherent in estimating the
quantities and qualities of, and costs to mine, coal reserves,
including many factors beyond our control, including the
following:
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|
quality of the coal;
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|
geological and mining conditions, which may not be fully
identified by available exploration data
and/or may
differ from our experiences in areas where we currently mine;
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|
the percentage of coal ultimately recoverable;
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|
|
|
the assumed effects of regulation, including the issuance of
required permits, taxes, including severance and excise taxes
and royalties, and other payments to governmental agencies;
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|
assumptions concerning the timing for the development of the
reserves; and
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|
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|
assumptions concerning equipment and productivity, future coal
prices, operating costs, including for critical supplies such as
fuel, tires and explosives, capital expenditures and development
and reclamation costs.
|
As a result, estimates of the quantities and qualities of
economically recoverable coal attributable to any particular
group of properties, classifications of reserves based on risk
of recovery, estimated cost of production, and estimates of
future net cash flows expected from these properties as prepared
by different engineers, or by the same engineers at different
times, may vary materially due to changes in the above factors
and assumptions. Actual production recovered from identified
reserve areas and properties, and revenues and expenditures
associated with our mining operations, may vary materially from
estimates. Any inaccuracy in our estimates related to our
reserves could result in decreased profitability from lower than
expected revenues
and/or
higher than expected costs.
Increases
in the costs of mining and other industrial supplies, including
steel-based supplies, diesel fuel and rubber tires, or the
inability to obtain a sufficient quantity of those supplies,
could negatively affect our operating costs or disrupt or delay
our production.
Our coal mining operations use significant amounts of steel,
diesel fuel, explosives, rubber tires and other mining and
industrial supplies. The cost of roof bolts we use in our
underground mining operations depend on the
S-25
price of scrap steel. We also use significant amounts of diesel
fuel and tires for the trucks and other heavy machinery we use,
particularly at our Black Thunder mining complex. If the prices
of mining and other industrial supplies, particularly
steel-based supplies, diesel fuel and rubber tires, increase,
our operating costs could be negatively affected. In addition,
if we are unable to procure these supplies, our coal mining
operations may be disrupted or we could experience a delay or
halt in our production.
Disruptions
in the quantities of coal produced by our contract mine
operators or purchased from other third parties could
temporarily impair our ability to fill customer orders or
increase our operating costs.
We use independent contractors to mine coal at certain of our
mining complexes, including select operations at our Coal-Mac
and Cumberland River mining complexes. In addition, we purchase
coal from third parties that we sell to our customers.
Operational difficulties at contractor-operated mines or mines
operated by third parties from whom we purchase coal, changes in
demand for contract miners from other coal producers and other
factors beyond our control could affect the availability,
pricing, and quality of coal produced for or purchased by us.
Disruptions in the quantities of coal produced for or purchased
by us could impair our ability to fill our customer orders or
require us to purchase coal from other sources in order to
satisfy those orders. If we are unable to fill a customer order
or if we are required to purchase coal from other sources in
order to satisfy a customer order, we could lose existing
customers and our operating costs could increase.
Our
ability to collect payments from our customers could be impaired
if their creditworthiness deteriorates.
We have contracts to supply coal to energy trading and brokering
companies under which they purchase the coal for their own
account or resell the coal to end users. Our ability to receive
payment for coal sold and delivered depends on the continued
creditworthiness of our customers. If we determine that a
customer is not creditworthy, we may not be required to deliver
coal under the customers coal sales contract. If this
occurs, we may decide to sell the customers coal on the
spot market, which may be at prices lower than the contracted
price, or we may be unable to sell the coal at all. Furthermore,
the bankruptcy of any of our customers could materially and
adversely affect our financial position. In addition, our
customer base may change with deregulation as utilities sell
their power plants to their non-regulated affiliates or third
parties that may be less creditworthy, thereby increasing the
risk we bear for customer payment default. These new power plant
owners may have credit ratings that are below investment grade
or may become below investment grade after we enter into
contracts with them. In addition, competition with other coal
suppliers could force us to extend credit to customers and on
terms that could increase the risk of payment default.
A
defect in title or the loss of a leasehold interest in certain
property could limit our ability to mine our coal reserves or
result in significant unanticipated costs.
We conduct a significant part of our coal mining operations on
properties that we lease. A title defect or the loss of a lease
could adversely affect our ability to mine the associated coal
reserves. We may not verify title to our leased properties or
associated coal reserves until we have committed to developing
those properties or coal reserves. We may not commit to develop
property or coal reserves until we have obtained necessary
permits and completed exploration. As such, the title to
property that we intend to lease or coal reserves that we intend
to mine may contain defects prohibiting our ability to conduct
mining operations. Similarly, our leasehold interests may be
subject to superior property rights of other third parties. In
order to conduct our mining operations on properties where these
defects exist, we may incur unanticipated costs. In addition,
some leases require us to produce a minimum quantity of coal and
require us to pay minimum production royalties. Our inability to
satisfy those requirements may cause the leasehold interest to
terminate.
The
availability and reliability of transportation facilities and
fluctuations in transportation costs could affect the demand for
our coal or impair our ability to supply coal to our
customers.
We depend upon barge, ship, rail, truck and belt transportation
systems to deliver coal to our customers. Disruptions in
transportation services due to weather-related problems,
mechanical difficulties, strikes, lockouts,
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bottlenecks, and other events could impair our ability to supply
coal to our customers. As we do not have long-term contracts
with transportation providers to ensure consistent and reliable
service, decreased performance levels over longer periods of
time could cause our customers to look to other sources for
their coal needs. In addition, increases in transportation
costs, including the price of gasoline and diesel fuel, could
make coal a less competitive source of energy when compared to
alternative fuels or could make coal produced in one region of
the United States less competitive than coal produced in other
regions of the United States or abroad. If we experience
disruptions in our transportation services or if transportation
costs increase significantly and we are unable to find
alternative transportation providers, our coal mining operations
may be disrupted, we could experience a delay or halt of
production or our profitability could decrease significantly.
Our
profitability depends upon the long-term coal supply agreements
we have with our customers. Changes in purchasing patterns in
the coal industry could make it difficult for us to extend our
existing long-term coal supply agreements or to enter into new
agreements in the future.
We sell a portion of our coal under long-term coal supply
agreements, which we define as contracts with terms greater than
one year. Under these arrangements, we fix the prices of coal
shipped during the initial year and may adjust the prices in
later years. As a result, at any given time the market prices
for similar-quality coal may exceed the prices for coal shipped
under these arrangements. Changes in the coal industry may cause
some of our customers not to renew, extend or enter into new
long-term coal supply agreements with us or to enter into
agreements to purchase fewer tons of coal than in the past or on
different terms or prices. In addition, uncertainty caused by
federal and state regulations, including the Clean Air Act,
could deter our customers from entering into long-term coal
supply agreements.
Because we sell a portion of our coal production under long-term
coal supply agreements, our ability to capitalize on more
favorable market prices may be limited. Conversely, at any given
time we are subject to fluctuations in market prices for the
quantities of coal that we have produced but which we have not
committed to sell. As described above under
Coal prices are subject to change and a
substantial or extended decline in prices could materially or
adversely affect our profitability and the value of our coal
reserves, the market prices for coal may be volatile and
may depend upon factors beyond our control. Our profitability
may be adversely affected if we are unable to sell uncommitted
production at favorable prices or at all. For more information
about our long-term coal supply agreements, you should see the
section entitled Item 1. Business
Long-Term Coal Supply Arrangements in our
Form 10-K
for the year ended December 31, 2010, which is incorporated
by reference into this prospectus supplement.
The
loss of, or significant reduction in, purchases by our largest
customers could adversely affect our
profitability.
For the year ended December 31, 2010, we derived
approximately 20% of our total coal revenues from sales to our
three largest customers and approximately 40% of our total coal
revenues from sales to our ten largest customers. We expect to
renew, extend or enter into new long-term coal supply agreements
with those and other customers. However, we may be unsuccessful
in obtaining long-term coal supply agreements with those
customers, and those customers may discontinue purchasing coal
from us. If any of those customers, particularly any of our
three largest customers, was to significantly reduce the
quantities of coal it purchases from us, or if we are unable to
sell coal to those customers on terms as favorable to us as the
terms under our current long-term coal supply agreements, our
profitability could suffer significantly. We have limited
protection during adverse economic conditions and may face
economic penalties if we are unable to satisfy certain quality
specifications under our long-term coal supply agreements.
Our long-term coal supply agreements typically contain force
majeure provisions allowing the parties to temporarily suspend
performance during specified events beyond their control. Most
of our long-term coal supply agreements also contain provisions
requiring us to deliver coal that satisfies certain quality
specifications, such as heat value, sulfur content, ash content,
hardness and ash fusion temperature. These provisions in our
long-term coal supply agreements could result in negative
economic consequences to us, including price adjustments,
purchasing replacement coal in a higher-priced open market, the
rejection of deliveries or, in the extreme, contract
termination. Our profitability may be negatively affected if we
are unable to seek protection during adverse economic conditions
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or if we incur financial or other economic penalties as a result
of these provisions of our long-term supply agreements.
We
have a substantial amount of debt, which limits our flexibility
and imposes restrictions on us, and a downturn in economic or
industry conditions may materially affect our ability to meet
our future financial commitments and liquidity
needs.
We have, and after this offering and our concurrent New Senior
Notes offering will continue to have, a significant amount of
indebtedness. As of March 31, 2011, on a pro forma basis
giving effect to the transactions, we would have had
consolidated indebtedness of approximately $4.2 billion
outstanding, representing approximately 55% of our total pro
forma capitalization. Our ability to satisfy our debt, lease and
royalty obligations, and our ability to refinance our
indebtedness, will depend upon our future operating performance,
which will be affected by prevailing economic conditions in the
markets that we serve and financial, business and other factors,
many of which are beyond our control. We may be unable to
generate sufficient cash flow from operations and future
borrowings or other financing may be unavailable in an amount
sufficient to enable us to fund our future financial obligations
or our other liquidity needs.
The amount and terms of our debt could have material
consequences to our business, including, but not limited to:
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limiting our ability to obtain additional financing to fund
growth, such as new
lease-by-application
acquisitions or other mergers and acquisitions, working capital,
capital expenditures, debt service requirements or other cash
requirements;
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exposing us to the risk of increased interest costs if the
underlying interest rates rise;
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limiting our ability to invest operating cash flow in our
business due to existing debt service requirements;
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making it more difficult to obtain surety bonds, letters of
credit or other financing, particularly during periods in which
credit markets are weak;
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causing a decline in our credit ratings;
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limiting our ability to compete with companies that are not as
leveraged and that may be better positioned to withstand
economic downturns;
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limiting our ability to acquire new coal reserves
and/or plant
and equipment needed to conduct operations; and
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limiting our flexibility in planning for, or reacting to, and
increasing our vulnerability to, changes in our business, the
industry in which we compete and general economic and market
conditions.
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If we further increase our indebtedness, the related risks that
we now face, including those described above, could intensify.
In addition to the principal repayments on our outstanding debt,
we have other demands on our cash resources, including capital
expenditures and operating expenses. Our ability to pay our debt
depends upon our operating performance. In particular, economic
conditions could cause our revenues to decline, and hamper our
ability to repay our indebtedness. If we do not have enough cash
to satisfy our debt service obligations, we may be required to
refinance all or part of our debt, sell assets or reduce our
spending. We may not be able to, at any given time, refinance
our debt or sell assets on terms acceptable to us or at all.
We may
be unable to comply with restrictions imposed by our credit
facilities and other financing arrangements.
The agreements governing our outstanding financing arrangements
impose a number of restrictions on us. For example, the terms of
our credit facilities, leases and other financing arrangements
contain financial and other covenants that create limitations on
our ability to borrow the full amount under our credit
facilities, effect acquisitions or dispositions and incur
additional debt and require us to maintain various financial
ratios and comply with various other financial covenants. Our
ability to comply with these restrictions may be affected by
events beyond our control. A failure to comply with these
restrictions could adversely affect our ability to borrow under
our
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credit facilities or result in an event of default under these
agreements. In the event of a default, our lenders and the
counterparties to our other financing arrangements could
terminate their commitments to us and declare all amounts
borrowed, together with accrued interest and fees, immediately
due and payable. If this were to occur, we might not be able to
pay these amounts, or we might be forced to seek an amendment to
our financing arrangements which could make the terms of these
arrangements more onerous for us. As a result, a default under
one or more of our existing or future financing arrangements
could have significant consequences for us. For more information
about some of the restrictions contained in our credit
facilities, leases and other financial arrangements, you should
see the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations of
Arch Coal Liquidity and Capital Resources.
Failure
to obtain or renew surety bonds on acceptable terms could affect
our ability to secure reclamation and coal lease obligations
and, therefore, our ability to mine or lease coal.
Federal and state laws require us to obtain surety bonds to
secure performance or payment of certain long-term obligations,
such as mine closure or reclamation costs, federal and state
workers compensation costs, coal leases and other
obligations. We may have difficulty procuring or maintaining our
surety bonds. Our bond issuers may demand higher fees,
additional collateral, including letters of credit or other
terms less favorable to us upon those renewals. Because we are
required by state and federal law to have these bonds in place
before mining can commence or continue, or failure to maintain
surety bonds, letters of credit or other guarantees or security
arrangements would materially and adversely affect our ability
to mine or lease coal. That failure could result from a variety
of factors, including lack of availability, higher expense or
unfavorable market terms, the exercise by third party surety
bond issuers of their right to refuse to renew the surety and
restrictions on availability on collateral for current and
future third-party surety bond issuers under the terms of our
financing arrangements.
Our
profitability may be adversely affected if we must satisfy
certain below-market contracts with coal we purchase on the open
market or with coal we produce at our remaining
operations.
We have agreed to guarantee Magnums obligations to supply
coal under certain coal sales contracts that we sold to Magnum.
In addition, we have agreed to purchase coal from Magnum in
order to satisfy our obligations under certain other contracts
that have not yet been transferred to Magnum, the longest of
which extends to the year 2017. If Magnum cannot supply the coal
required under these coal sales contracts, we would be required
to purchase coal on the open market or supply coal from our
existing operations in order to satisfy our obligations under
these contracts. At March 31, 2011, if we had purchased the
12.4 million tons of coal required under these contracts
over their duration at market prices then in effect, we would
have incurred a loss of approximately $457.4 million.
We may
incur losses as a result of certain marketing, trading and asset
optimization strategies.
We seek to optimize our coal production and leverage our
knowledge of the coal industry through a variety of marketing,
trading and other asset optimization strategies. We maintain a
system of complementary processes and controls designed to
monitor and control our exposure to market and other risks as a
consequence of these strategies. These processes and controls
seek to balance our ability to profit from certain marketing,
trading and asset optimization strategies with our exposure to
potential losses. While we employ a variety of risk monitoring
and mitigation techniques, those techniques and accompanying
judgments cannot anticipate every potential outcome or the
timing of such outcomes. In addition, the processes and controls
that we use to manage our exposure to market and other risks
resulting from these strategies involve assumptions about the
degrees of correlation or lack thereof among prices of various
assets or other market indicators. These correlations may change
significantly in times of market turbulence or other unforeseen
circumstances. As a result, we may experience volatility in our
earnings as a result of our marketing, trading and asset
optimization strategies.
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Risks to
Arch Coal Related to Environmental, Other Regulations and
Legislation
Extensive
environmental regulations, including existing and potential
future regulatory requirements relating to air emissions, affect
our customers and could reduce the demand for coal as a fuel
source and cause coal prices and sales of our coal to materially
decline.
Coal contains impurities, including but not limited to sulfur,
mercury, chlorine, carbon and other elements or compounds, many
of which are released into the air when coal is burned. The
operations of our customers are subject to extensive
environmental regulation particularly with respect to air
emissions. For example, the federal Clean Air Act and similar
state and local laws extensively regulate the amount of sulfur
dioxide, particulate matter, nitrogen oxides, and other
compounds emitted into the air from electric power plants, which
are the largest end-users of our coal. A series of more
stringent requirements relating to particulate matter, ozone,
haze, mercury, sulfur dioxide, nitrogen oxide and other air
pollutants are expected to be proposed or become effective in
coming years. In addition, concerted conservation efforts that
result in reduced electricity consumption could cause coal
prices and sales of our coal to materially decline.
Considerable uncertainty is associated with these air emissions
initiatives. The content of regulatory requirements in the
U.S. is in the process of being developed, and many new
regulatory initiatives remain subject to review by federal or
state agencies or the courts. Stringent air emissions
limitations are either in place or are likely to be imposed in
the short to medium term, and these limitations will likely
require significant emissions control expenditures for many
coal-fueled power plants. As a result, these power plants may
switch to other fuels that generate fewer of these emissions or
may install more effective pollution control equipment that
reduces the need for low-sulfur coal, possibly reducing future
demand for coal and a reduced need to construct new coal-fueled
power plants. The expectations of the Energy Information
Administration (the EIA) for the coal industry
assume there will be a significant number of as yet unplanned
coal-fired plants built in the future which may not occur. Any
switching of fuel sources away from coal, closure of existing
coal-fired plants, or reduced construction of new plants could
have a material adverse effect on demand for and prices received
for our coal. Alternatively, less stringent air emissions
limitations, particularly related to sulfur, to the extent
enacted, could make low-sulfur coal less attractive, which could
also have a material adverse effect on the demand for and prices
received for our coal.
You should see Item 1. Business
Environmental and Other Regulatory Matters in our
Form 10-K
for the year ended December 31, 2010 which is incorporated
by reference in this prospectus supplement for more information
about the various governmental regulations affecting us.
Our
failure to obtain and renew permits necessary for our mining
operations could negatively affect our business.
Mining companies must obtain numerous permits that impose strict
regulations on various environmental and operational matters in
connection with coal mining. These include permits issued by
various federal, state and local agencies and regulatory bodies.
The permitting rules, and the interpretations of these rules,
are complex, change frequently and are often subject to
discretionary interpretations by the regulators, all of which
may make compliance more difficult or impractical, and may
possibly preclude the continuance of ongoing operations or the
development of future mining operations. The public, including
non-governmental organizations, anti-mining groups and
individuals, have certain statutory rights to comment upon and
submit objections to requested permits and environmental impact
statements prepared in connection with applicable regulatory
processes, and otherwise engage in the permitting process,
including bringing citizens lawsuits to challenge the
issuance of permits, the validity of environmental impact
statements or performance of mining activities. Accordingly,
required permits may not be issued or renewed in a timely
fashion or at all, or permits issued or renewed may be
conditioned in a manner that may restrict our ability to
efficiently and economically conduct our mining activities, any
of which would materially reduce our production, cash flow and
profitability.
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Federal
or state regulatory agencies have the authority to order certain
of our mines to be temporarily or permanently closed under
certain circumstances, which could materially and adversely
affect our ability to meet our customers
demands.
Federal or state regulatory agencies have the authority under
certain circumstances following significant health and safety
incidents, such as fatalities, to order a mine to be temporarily
or permanently closed. If this occurred, we may be required to
incur capital expenditures to re-open the mine. In the event
that these agencies order the closing of our mines, our coal
sales contracts generally permit us to issue force majeure
notices which suspend our obligations to deliver coal under
these contracts. However, our customers may challenge our
issuances of force majeure notices. If these challenges are
successful, we may have to purchase coal from third-party
sources, if it is available, to fulfill these obligations, incur
capital expenditures to re-open the mines
and/or
negotiate settlements with the customers, which may include
price reductions, the reduction of commitments or the extension
of time for delivery or terminate customers contracts. Any
of these actions could have a material adverse effect on our
business and results of operations.
Extensive
environmental regulations impose significant costs on our mining
operations, and future regulations could materially increase
those costs or limit our ability to produce and sell
coal.
The coal mining industry is subject to increasingly strict
regulation by federal, state and local authorities with respect
to environmental matters such as:
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limitations on land use;
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mine permitting and licensing requirements;
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reclamation and restoration of mining properties after mining is
completed;
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management of materials generated by mining operations;
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the storage, treatment and disposal of wastes;
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remediation of contaminated soil and groundwater;
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air quality standards; water pollution;
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protection of human health, plant-life and wildlife, including
endangered or threatened species;
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protection of wetlands;
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the discharge of materials into the environment;
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the effects of mining on surface water and groundwater quality
and availability; and
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the management of electrical equipment containing
polychlorinated biphenyls.
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The costs, liabilities and requirements associated with the laws
and regulations related to these and other environmental matters
may be costly and time-consuming and may delay commencement or
continuation of exploration or production operations. We cannot
assure you that we have been or will be at all times in
compliance with the applicable laws and regulations. Failure to
comply with these laws and regulations may result in the
assessment of administrative, civil and criminal penalties, the
imposition of cleanup and site restoration costs and liens, the
issuance of injunctions to limit or cease operations, the
suspension or revocation of permits and other enforcement
measures that could have the effect of limiting production from
our operations. We may incur material costs and liabilities
resulting from claims for damages to property or injury to
persons arising from our operations. If we are pursued for
sanctions, costs and liabilities in respect of these matters,
our mining operations and, as a result, our profitability could
be materially and adversely affected.
New legislation or administrative regulations or new judicial
interpretations or administrative enforcement of existing laws
and regulations, including proposals related to the protection
of the environment that would further regulate and tax the coal
industry, may also require us to change operations significantly
or incur increased costs. Such changes could have a material
adverse effect on our financial condition and results of
operations. You should see Item 1.
Business Environmental and Other Regulatory
Matters in our
Form 10-K
for the year ended
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December 31, 2010 which is incorporated by reference in
this prospectus supplement for more information about the
various governmental regulations affecting us.
If the
assumptions underlying our estimates of reclamation and mine
closure obligations are inaccurate, our costs could be greater
than anticipated.
The Surface Mining Control and Reclamation Act (the
SMCRA) and counterpart state laws and regulations
establish operational, reclamation and closure standards for all
aspects of surface mining, as well as most aspects of
underground mining. We base our estimates of reclamation and
mine closure liabilities on permit requirements, engineering
studies and our engineering expertise related to these
requirements. Our management and engineers periodically review
these estimates. The estimates can change significantly if
actual costs vary from our original assumptions or if
governmental regulations change significantly. We are required
to record new obligations as liabilities at fair value under
generally accepted accounting principles. In estimating fair
value, we considered the estimated current costs of reclamation
and mine closure and applied inflation rates and a third-party
profit, as required. The third-party profit is an estimate of
the approximate markup that would be charged by contractors for
work performed on our behalf. The resulting estimated
reclamation and mine closure obligations could change
significantly if actual amounts change significantly from our
assumptions, which could have a material adverse effect on our
results of operations and financial condition.
Our
operations may impact the environment or cause exposure to
hazardous substances, and our properties may have environmental
contamination, which could result in material liabilities to
us.
Our operations currently use hazardous materials and generate
limited quantities of hazardous wastes from time to time. We
could become subject to claims for toxic torts, natural resource
damages and other damages as well as for the investigation and
clean up of soil, surface water, groundwater, and other media.
Such claims may arise, for example, out of conditions at sites
that we currently own or operate, as well as at sites that we
previously owned or operated, or may acquire. Our liability for
such claims may be joint and several, so that we may be held
responsible for more than our share of the contamination or
other damages, or even for the entire share.
We maintain extensive coal refuse areas and slurry impoundments
at a number of our mining complexes. Such areas and impoundments
are subject to extensive regulation. Slurry impoundments have
been known to fail, releasing large volumes of coal slurry into
the surrounding environment. Structural failure of an
impoundment can result in extensive damage to the environment
and natural resources, such as bodies of water that the coal
slurry reaches, as well as liability for related personal
injuries and property damages, and injuries to wildlife. Some of
our impoundments overlie mined-out areas, which can pose a
heightened risk of failure and of damages arising out of
failure. If one of our impoundments were to fail, we could be
subject to substantial claims for the resulting environmental
contamination and associated liability, as well as for fines and
penalties.
Drainage flowing from or caused by mining activities can be
acidic with elevated levels of dissolved metals, a condition
referred to as acid mine drainage, which we refer to
as AMD. The treating of AMD can be costly. Although we do not
currently face material costs associated with AMD, it is
possible that we could incur significant costs in the future.
These and other similar unforeseen impacts that our operations
may have on the environment, as well as exposures to hazardous
substances or wastes associated with our operations, could
result in costs and liabilities that could materially and
adversely affect us.
Judicial
rulings that restrict how we may dispose of mining wastes could
significantly increase our operating costs, discourage customers
from purchasing our coal and materially harm our financial
condition and operating results.
To dispose of mining overburden generated by our surface mining
operations, we often need to obtain permits to construct and
operate valley fills and surface impoundments. Some of these
permits are Clean Water Act Section 404 permits issued by
the Army Corps of Engineers (the ACOE). Two of our
operating subsidiaries were identified in an existing lawsuit,
which challenged the issuance of such permits and asked that the
Corps be ordered to rescind them. Two of our operating
subsidiaries intervened in the suit to protect their interests
in being allowed to
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operate under the issued permits, and one of them thereafter was
dismissed. On January 13, 2011, the EPA issued its
Final Determination to withdraw the specification of
two of the three watersheds as a disposal site for dredged or
fill material approved under the current Section 404
permit. The court has been notified of the Final Determination.
Changes
in the legal and regulatory environment, particularly in light
of developments in 2010, could complicate or limit our business
activities, increase our operating costs or result in
litigation.
The conduct of our businesses is subject to various laws and
regulations administered by federal, state and local
governmental agencies in the United States. These laws and
regulations may change, sometimes dramatically, as a result of
political, economic or social events or in response to
significant events. Certain recent developments particularly may
cause changes in the legal and regulatory environment in which
we operate and may impact our results or increase our costs or
liabilities. Such legal and regulatory environment changes may
include changes in: the processes for obtaining or renewing
permits; costs associated with providing healthcare benefits to
employees; health and safety standards; accounting standards;
taxation requirements; and competition laws.
For example, in April 2010, the EPA issued comprehensive
guidance regarding the water quality standards that EPA believes
should apply to certain new and renewed Clean Water Act permit
applications for Appalachian surface coal mining operations.
Under the EPAs guidance, applicants seeking to obtain
state and federal Clean Water Act permits for surface coal
mining in Appalachia must perform an evaluation to determine if
a reasonable potential exists that the proposed mining would
cause a violation of water quality standards. According to the
EPA Administrator, the water quality standards set forth in the
EPAs guidance may be difficult for most surface mining
operations to meet. Additionally, the EPAs guidance
contains requirements for the avoidance and minimization of
environmental and mining impacts, consideration of the full
range of potential impacts on the environment, human health and
local communities, including low-income or minority populations,
and provision of meaningful opportunities for public
participation in the permit process. EPAs guidance is
subject to several pending legal challenges related to its legal
effect and sufficiency including consolidated challenges pending
in Federal District Court in the District of Columbia led by the
National Mining Association. We may be required to meet these
requirements in the future in order to obtain and maintain
permits that are important to our Appalachian operations. We
cannot give any assurance that we will be able to meet these or
any other new standards.
In response to the April 2010 explosion at Massey Energy
Companys Upper Big Branch Mine and the ensuing tragedy, we
expect that safety matters pertaining to underground coal mining
operations will be the topic of new legislation and regulation,
as well as the subject of heightened enforcement efforts. For
example, federal and West Virginia state authorities have
announced special inspections of coal mines to evaluate several
safety concerns, including the accumulation of coal dust and the
proper ventilation of gases such as methane. In addition, both
federal and West Virginia state authorities have announced that
they are considering changes to mine safety rules and
regulations which could potentially result in additional or
enhanced required safety equipment, more frequent mine
inspections, stricter and more thorough enforcement practices
and enhanced reporting requirements. Any new environmental,
health and safety requirements may increase the costs associated
with obtaining or maintain permits necessary to perform our
mining operations or otherwise may prevent, delay or reduce our
planned production, any of which could adversely affect our
financial condition, results of operations and cash flows.
Further, mining companies are entitled a tax deduction for
percentage depletion, which may allow for depletion deductions
in excess of the basis in the mineral reserves. The deduction is
currently being reviewed by the federal government for repeal.
If repealed, the inability to take a tax deduction for
percentage depletion could have a material impact on our
financial condition, results of operations, cash flows and
future tax payments.
S-33
Risks
Related to ICGs Business
A
decline in coal prices could reduce ICGs revenues and the
value of its coal reserves.
ICGs results of operations are dependent upon the prices
it receives for its coal, as well as its ability to improve
productivity and control costs. Any decreased demand would cause
spot prices to decline and require ICG to increase productivity
and decrease costs in order to maintain its margins. A decrease
in the price ICG receives for coal could adversely affect its
operating results and its ability to generate the cash flows
required to meet its bank loan requirements, improve its
productivity and invest in its operations. The prices ICG
receive for coal depends upon factors beyond its control,
including:
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supply of and demand for domestic and foreign coal;
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demand for electricity;
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domestic and foreign demand for steel and the continued
financial viability of the domestic
and/or
foreign steel industry;
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proximity to, capacity of and cost of transportation facilities;
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domestic and foreign governmental legislation, regulations and
taxes;
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the imposition of regulatory requirements which restrict the
ability of electric power companies to use coal to generate
electricity;
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regulatory, administrative and judicial decisions;
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price and availability of alternative fuels, including the
effects of technological developments; and
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effect of worldwide energy conservation measures.
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ICGs
coal mining operations are subject to operating risks that could
result in decreased coal production, which could reduce its
revenues.
ICGs revenues depend on its level of coal mining
production. The level of its production is subject to operating
conditions and events beyond its control that could disrupt
operations and affect production at particular mines for varying
lengths of time. These conditions and events include:
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unavailability of qualified labor;
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ICGs inability to acquire, maintain or renew necessary
permits or mining or surface rights in a timely manner, if at
all;
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unfavorable geologic conditions, such as the thickness of the
coal deposits and the amount of rock embedded in or overlying
the coal deposits;
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failure of reserve estimates to prove correct;
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changes in governmental regulation of the coal industry,
including the imposition of additional taxes, fees or actions to
suspend or revoke ICGs permits or changes in the manner of
enforcement of existing regulations, or changes in governmental
regulation affecting the use of coal by ICGs customers;
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mining and processing equipment failures and unexpected
maintenance problems;
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adverse weather and natural disasters, such as heavy rains and
flooding;
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increased water entering mining areas and increased or
accidental mine water discharges;
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increased or unexpected reclamation costs;
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interruptions due to transportation delays;
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unavailability of required equipment of the type and size needed
to meet production expectations; and
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unexpected mine safety accidents, including fires and explosions.
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S-34
These conditions and events may increase ICGs cost of
mining and delay or halt production at particular mines either
permanently or for varying lengths of time.
Reduced
coal consumption by North American electric power generators
could result in lower prices for ICGs coal, which could
reduce its revenues and adversely impact its earnings and the
value of its coal reserves.
Restrictions on the emission of greenhouse gases, including
carbon dioxide, continue to be proposed and adopted by various
legislative and regulatory bodies at federal, state and local
levels of government and at the international level. The
intended effect of these restrictions is to discourage the
combustion of fossil fuels in general, and the generation of
electricity by coal in particular, in favor of alternative
sources of energy which do not involve the combustion of
fossil fuels. The enactment of federal legislation designed to
restrict greenhouse gas emissions is uncertain. Federal
legislation has been proposed and may continue to be proposed
that would create or expand a myriad of federal programs
designed to reduce energy produced by burning fossil fuels and
increase alternative energy sources. One such program proposed
to reduce greenhouse gas emissions via a cap and trade system
for larger emitters, including coal-fired power plants. The
imposition of such programs, or the effect of negative public
perceptions of coal due to climate change issues, may result in
more electric power generators shifting from coal to natural
gas-fired plants or alternative energy sources. Any reduction in
the amount of coal consumed by North American electric power
generators could reduce the price of steam coal that ICG mines
and sells, thereby reducing its revenues and adversely impacting
its earnings and the value of its coal reserves.
The United States is participating in international discussions
to develop a treaty or other agreement to require reductions in
greenhouse gas emissions after 2012 and has signed the
Copenhagen Accord, which includes a non-binding commitment to
reduce greenhouse gas emissions. The outcome of these
discussions is also uncertain.
Restrictions on greenhouse gas emissions under the Clean Air Act
are being adopted by the EPA. In its Endangerment
Finding, the EPA found that the emission of six greenhouse
gases, including carbon dioxide (which is emitted from coal
combustion) and methane (which is emitted from coal beds) may
reasonably be anticipated to endanger public health and welfare.
Based on this finding, the EPA determined these six greenhouse
gases to be air pollutants subject to regulation under the Clean
Air Act. Although the EPA has stated a preference that
greenhouse gas regulation be based on new federal legislation
rather than the existing Clean Air Act, the EPA has already
adopted regulations that impact major stationary sources of
greenhouse gas emissions, including coal-fired power plants and
has announced plans to propose additional regulations
restricting greenhouse gas emissions.
States have adopted a variety of greenhouse gas control programs
which impact electric utilities in particular. In addition to
programs that would cap or otherwise control greenhouse gas
emissions, various programs require electric utilities to
generate a percentage of their electricity using alternative
energy sources. There have also been public nuisance lawsuits
brought against power, coal, oil and gas companies, alleging
that their operations are contributing to climate change.
Weather patterns also can greatly affect electricity generation.
Extreme temperatures, both hot and cold, cause increased power
usage and, therefore, increased generating requirements from all
sources. Mild temperatures, on the other hand, result in lower
electrical demand, which allows generators to choose the
lowest-cost sources of power generation when deciding which
generation sources to dispatch. Accordingly, significant changes
in weather patterns could reduce the demand for ICG coal.
Overall economic activity and the associated demands for power
by industrial users can have significant effects on overall
electricity demand. Robust economic activity can cause much
heavier demands for power, particularly if such activity results
in increased utilization of industrial assets during evening and
nighttime periods. An economic slowdown can significantly slow
the growth of electrical demand and, in some locations, result
in contraction of demand. The economy suffered a significant
slowdown in the fourth quarter of 2008 that resulted in lower
demand. Any downward pressure on coal prices, whether due to
increased use of alternative energy sources, changes in weather
patterns, decreases in overall demand or otherwise, would likely
cause ICGs profitability to decline.
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The
capability and profitability of ICGs operations may be
adversely affected by the status of its
long-term
coal supply agreements and changes in purchasing patterns in the
coal industry.
ICG sells a significant portion of its coal under long-term coal
supply agreements, which ICG defines as contracts with a term
greater than 12 months. For the year ended
December 31, 2010, approximately 72% of its coal sales
revenues were derived from coal sales that were made under
long-term coal supply agreements. As of that date, ICG had 25
long-term sales agreements with a volume-weighted average term
of approximately 4.2 years. The prices for coal shipped
under these agreements are typically fixed for at least the
initial year of the contract, subject to certain adjustments in
later years and thus may be below the current market price for
similar type coal at any given time, depending on the timeframe
of contract execution or initiation. As a consequence of the
substantial volume of its sales that are subject to these
long-term agreements, ICG has less coal available with which to
capitalize on higher coal prices, if and when they arise. In
addition, in some cases, ICGs ability to realize the
higher prices that may be available in the spot market may be
restricted when customers elect to purchase higher volumes
allowable under some contracts. When ICGs current
contracts with customers expire or are otherwise renegotiated,
its customers may decide not to extend or enter into new
long-term contracts or, in the absence of long-term contracts,
its customers may decide to purchase fewer tons of coal than in
the past or on different terms, including under different
pricing terms.
Furthermore, as electric utilities seek to adjust to
requirements of the Clean Air Act, and the potential for more
stringent requirements, they could become increasingly less
willing to enter into long-term coal supply agreements and
instead may purchase higher percentages of coal under short-term
supply agreements. To the extent the electric utility industry
shifts away from long-term supply agreements, it could adversely
affect ICG and the level of its revenues. For example, fewer
electric utilities will have a contractual obligation to
purchase coal from ICG, thereby increasing the risk that ICG
will not have a market for its production. Furthermore, spot
market prices tend to be more volatile than contractual prices,
which could result in decreased revenues.
Certain
provisions in ICGs long-term supply agreements may provide
limited protection during periods of adverse economic
conditions. For example, the customer may be forced to reduce
electricity output due to weak demand. If the low demand were to
persist for an extended period, the customer might be forced to
delay its contract shipments thereby reducing ICGs
revenue.
Price adjustment, price reopener and other similar provisions in
long-term supply agreements may reduce the protection from
short-term coal price volatility traditionally provided by such
contracts. Most of ICGs coal supply agreements contain
provisions that allow for the purchase price to be renegotiated
at periodic intervals. These price reopener provisions may
automatically set a new price based on the prevailing market
price or, in some instances, require the parties to agree on a
new price, sometimes between a specified range of prices. In
some circumstances, failure of the parties to agree on a price
under a price reopener provision can lead to termination of the
contract. Any adjustment or renegotiations leading to a
significantly lower contract price would result in decreased
revenues. Accordingly, supply contracts with terms of one year
or more may provide only limited protection during adverse
market conditions.
Coal supply agreements also typically contain force majeure
provisions allowing temporary suspension of performance by ICG
or its customers during the duration of specified events beyond
the control of the affected party. Additionally, most of its
coal supply agreements contain provisions requiring ICG to
deliver coal meeting quality thresholds for certain
characteristics such as heat value (measured in Btus), sulfur
content, ash content, hardness and ash fusion temperature.
Failure to meet these specifications could result in economic
penalties, including price adjustments, the rejection of
deliveries or, in the extreme, termination of the contracts.
Consequently, due to the risks mentioned above, ICG may not
achieve the revenue or profit it expects to achieve from its
long-term supply agreements.
A
decline in demand for metallurgical coal would limit ICGs
ability to sell its high quality steam coal as higher-priced
metallurgical coal.
Portions of ICGs coal reserves possess quality
characteristics that enable it to mine, process and market them
as either metallurgical coal or high quality steam coal,
depending on the prevailing conditions in the metallurgical
S-36
and steam coal markets. A decline in the metallurgical market
relative to the steam market could cause ICG to shift coal from
the metallurgical market to the steam market, thereby reducing
its revenues and profitability. However, some of ICGs
mines operate profitably only if all or a portion of their
production is sold as metallurgical coal to the steel market. If
demand for metallurgical coal declined to the point where ICG
could earn a more attractive return marketing the coal as steam
coal, these mines may not be economically viable and may be
subject to closure. Such closures would lead to accelerated
reclamation costs, as well as reduced revenue and profitability.
Inaccuracies
in ICGs estimates of economically recoverable coal
reserves could result in lower than expected revenues, higher
than expected costs or decreased profitability.
ICG bases its reserves information on engineering, economic and
geological data assembled and analyzed by its staff, which
includes various engineers and geologists, and which is
periodically reviewed by outside firms. The reserves estimates
as to both quantity and quality are updated quarterly to reflect
production of coal from the reserves, acquisitions,
dispositions, depleted reserves and new drilling or other data
received. There are numerous uncertainties inherent in
estimating quantities and qualities of and costs to mine
recoverable reserves, including many factors beyond ICGs
control. Estimates of economically recoverable coal reserves and
net cash flows necessarily depend upon a number of variable
factors and assumptions, all of which may vary considerably from
actual results such as:
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geological and mining conditions which may not be fully
identified by available exploration data or which may differ
from experience in current operations;
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historical production from the area compared with production
from other similar producing areas; and
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assumed effects of regulation and taxes by governmental agencies
and assumptions concerning coal prices, operating costs, mining
technology improvements, severance and excise taxes, development
costs and reclamation costs.
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For these reasons, estimates of the economically recoverable
quantities and qualities attributable to any particular group of
properties, classifications of reserves based on risk of
recovery and estimates of net cash flows expected from
particular reserves prepared by different engineers or by the
same engineers at different times may vary substantially. Actual
coal tonnage recovered from identified reserve areas or
properties, and revenues and expenditures with respect to its
reserves, may vary materially from estimates. These estimates,
thus, may not accurately reflect ICGs actual reserves. Any
inaccuracy in ICGs estimates related to its reserves could
result in lower than expected revenues, higher than expected
costs or decreased profitability.
Disruptions
in transportation services could limit ICGs ability to
deliver coal to its customers, which could cause revenues to
decline.
ICG depends primarily upon railroads, trucks and barges to
deliver coal to its customers. Disruption of railroad service
due to weather-related problems, strikes, lockouts and other
events could temporarily impair its ability to supply coal to
its customers, resulting in decreased shipments and related
sales revenues. Decreased performance levels over longer periods
of time could cause its customers to look elsewhere for their
fuel needs, negatively affecting ICGs revenues and
profitability.
Several of ICGs mines depend on a single transportation
carrier or a single mode of transportation. Disruption of any of
these transportation services due to weather-related problems,
mechanical difficulties, strikes, lockouts, bottlenecks and
other events could temporarily impair ICGs ability to
supply coal to its customers. ICGs transportation
providers may face difficulties in the future that may impair
its ability to supply coal to its customers, resulting in
decreased revenues.
If there are disruptions of the transportation services provided
by its primary rail carriers that transport its produced coal
and ICG is unable to find alternative transportation providers
to ship its coal, its business could be adversely affected.
S-37
Fluctuations
in transportation costs could impair ICGs ability to
supply coal to its customers.
Transportation costs represent a significant portion of the
total cost of coal for its customers and, as a result, the cost
of transportation is a critical factor in a customers
purchasing decision. Increases in transportation costs could
make coal a less competitive source of energy or could make its
coal production less competitive than coal produced from other
sources.
Conversely, significant decreases in transportation costs could
result in increased competition from coal producers in other
parts of the country. For instance, coordination of the many
eastern loading facilities, the large number of small shipments,
the steeper average grades of the terrain and a more unionized
workforce are all issues that combine to make shipments
originating in the eastern United States inherently more
expensive on a
per-mile
basis than shipments originating in the western United States.
The increased competition could have a material adverse effect
on ICGs business, financial condition and results of
operations.
The
unavailability of an adequate supply of coal reserves that can
be mined at competitive costs could cause ICGs
profitability to decline.
ICGs profitability depends substantially on its ability to
mine coal reserves that have the geological characteristics that
enable them to be mined at competitive costs and to meet the
quality needed by its customers. Because ICGs reserves
decline as ICG mines its coal, its future success and growth
depend, in part, upon its ability to acquire additional coal
reserves that are economically recoverable. Replacement reserves
may not be available when required or, if available, may not be
capable of being mined at costs comparable to those
characteristic of the depleting mines. ICG may not be able to
accurately assess the geological characteristics of any reserves
that it acquires, which may adversely affect its profitability
and financial condition. Exhaustion of reserves at particular
mines also may have an adverse effect on ICGs operating
results that is disproportionate to the percentage of overall
production represented by such mines. ICGs ability to
obtain other reserves in the future could be limited by
restrictions under its existing or future debt agreements,
competition from other coal companies for attractive properties,
the lack of suitable acquisition candidates or the inability to
acquire coal properties on commercially reasonable terms.
Unexpected
increases in raw material costs or decreases in availability
could significantly impair ICGs operating
profitability.
ICGs coal mining operations use significant amounts of
steel, rubber, petroleum products and other raw materials in
various pieces of mining equipment, supplies and materials.
Scrap steel prices have risen significantly and, historically,
the prices of scrap steel and petroleum have fluctuated. There
may be other acts of nature, terrorist attacks or threats or
other conditions that could also increase the costs of raw
materials. If the price of steel, rubber, petroleum products or
other of these materials increase, its operational expenses will
increase, which could have a significant negative impact on its
profitability. Additionally, shortages in raw materials used in
the manufacturing of supplies and mining equipment could limit
its ability to obtain such items which could have an adverse
effect on ICGs ability to carry out its business plan.
A
shortage of skilled labor in the mining industry could pose a
risk to achieving optimal labor productivity and competitive
costs, which could adversely affect ICGs
profitability.
Efficient coal mining using modern techniques and equipment
requires skilled laborers, preferably with at least a year of
experience and proficiency in multiple mining tasks. In order to
support its planned expansion opportunities, ICG intends to
continue sponsoring both in-house and vocational coal mining
programs at the local level in order to train additional skilled
laborers. Competitive labor markets require competitive
compensation packages. As a result, $16.50 of ICGs cost of
coal sales per ton in 2010 was attributable to labor and
benefits, compared to $15.48 for 2009. In the event that a
shortage of experienced labor were to arise or ICG is unable to
train the necessary amount of skilled laborers, there could be
an adverse impact on ICGs labor productivity and costs and
ICGs ability to expand production, which could have a
material adverse effect on ICGs earnings.
S-38
ICGs
ability to operate its company effectively could be impaired if
they fail to attract and retain key personnel.
ICGs senior management team averages 27 years of
experience in the coal industry, which includes developing
innovative, low-cost mining operations, maintaining strong
customer relationships and making strategic, opportunistic
acquisitions. The loss of any of its senior executives could
have a material adverse effect on its business. There may be a
limited number of persons with the requisite experience and
skills to serve in its senior management positions. ICG may not
be able to locate or employ qualified executives on acceptable
terms. In addition, as its business develops and expands, ICG
believes that its future success will depend greatly on its
continued ability to attract and retain highly skilled personnel
with coal industry experience. Competition for these persons in
the coal industry is intense and ICG may not be able to
successfully recruit, train or retain qualified personnel. ICG
may not be able to continue to employ key personnel or attract
and retain qualified personnel in the future. ICGs failure
to retain or attract key personnel could have a material adverse
effect on their ability to effectively operate its business.
Acquisitions
that ICG may undertake involve a number of inherent risks, any
of which could cause it not to realize the anticipated
benefits.
ICG continually seeks to expand its operations and coal reserves
through selective acquisitions. If it is unable to successfully
integrate the companies, businesses or properties acquired, its
profitability may decline and ICG could experience a material
adverse effect on its business, financial condition or results
of operations. Acquisition transactions involve various inherent
risks, including:
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uncertainties in assessing the value, strengths and potential
profitability of, and identifying the extent of all weaknesses,
risks, contingent and other liabilities (including environmental
or mine safety liabilities) of, acquisition candidates;
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potential loss of key customers, management and employees of an
acquired business;
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ability to achieve identified operating and financial synergies
anticipated to result from an acquisition;
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discrepancies between the estimated and actual reserves of the
acquired business;
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problems that could arise from the integration of the acquired
business; and
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unanticipated changes in business, industry or general economic
conditions that affect the assumptions underlying ICGs
rationale for pursuing the acquisition.
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Any one or more of these factors could cause ICG not to realize
the benefits anticipated to result from an acquisition. Any
acquisition opportunities ICG pursues could materially affect
its liquidity and capital resources and may require ICG to incur
indebtedness, seek equity capital or both. In addition, future
acquisitions could result in ICG assuming more long-term
liabilities relative to the value of the acquired assets than it
has assumed in its previous acquisitions.
Risks
inherent to mining could increase the cost of operating its
business.
ICGs mining operations is subject to conditions that can
impact the safety of its workforce or delay coal deliveries or
increase the cost of mining at particular mines for varying
lengths of time. These conditions include:
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fires and explosions from methane gas or coal dust;
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accidental minewater discharges;
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weather, flooding and natural disasters;
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unexpected maintenance problems;
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key equipment failures;
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variations in coal seam thickness;
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S-39
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variations in the amount of rock and soil overlying the coal
deposit; and
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variations in rock and other natural materials and variations in
geologic conditions.
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ICG maintains insurance policies that provide limited coverage
for some of these risks, although there can be no assurance that
these risks would be fully covered by its insurance policies.
Despite its efforts, significant mine accidents could occur and
have a substantial impact.
Inability
of contract miner or brokerage sources to fulfill the delivery
terms of their contracts with ICG could reduce its
profitability.
In conducting its mining operations, ICG utilizes third-party
sources of coal production, including contract miners and
brokerage sources, to fulfill deliveries under its coal supply
agreements. ICGs profitability or exposure to loss on
transactions or relationships such as these is dependent upon
the reliability (including financial viability) and price of the
third-party supply, its obligation to supply coal to customers
in the event that adverse geologic mining conditions restrict
deliveries from its suppliers, its willingness to participate in
temporary cost increases experienced by its third-party coal
suppliers, its ability to pass on temporary cost increases to
its customers, the ability to substitute, when economical,
third-party coal sources with internal production or coal
purchased in the market and other factors. Brokerage sources and
contract miners may experience adverse geologic mining
and/or
financial difficulties that make their delivery of coal to ICG
at the contractual price difficult or uncertain, which could
temporarily impair its ability to fill ICGs
customers orders or require ICG to pay higher prices in
order to obtain the required coal from other sources. If ICG has
difficulty with its third-party sources of coal, ICGs
profitability could decrease.
ICG
may be unable to generate sufficient taxable income from future
operations to fully utilize its significant tax net operating
loss carryforwards or maintain its deferred tax
assets.
As a result of ICGs acquisition of Anker and of historical
financial results, ICG has recorded deferred tax assets. If ICG
fails to generate profits in the foreseeable future, its
deferred tax assets may not be fully utilized. ICG evaluates its
ability to utilize its net operating loss (NOL) and
tax credit carryforwards each period and, in compliance with the
Financial Accounting Standards Board Accounting Standards
Codification (ASC) Topic 740, Income Taxes
(ASC 740), record any resulting adjustments that may
be required to deferred income tax expense. In addition, ICG
will reduce the deferred income tax asset for the benefits of
NOL and tax credit carryforwards used in future periods and will
recognize and record federal and state income tax expense at
statutory rates in future periods. If, in the future, ICG
determines that it is more likely than not that it will not
realize all or a portion of the deferred tax assets, ICG will
record a valuation allowance against deferred tax assets which
would result in a charge to income tax expense.
Failure
to obtain or renew surety bonds in a timely manner and on
acceptable terms could affect ICGs ability to secure
reclamation and coal lease obligations, which could adversely
affect its ability to mine or lease coal.
Federal and state laws require ICG to obtain surety bonds to
secure payment of certain long-term obligations, such as mine
closure or reclamation costs and federal and state workers
compensation costs. Certain business transactions, such as coal
leases and other obligations, may also require bonding. These
bonds are typically renewable annually. Surety bond issuers and
holders may not continue to renew the bonds or may demand
additional collateral or other less favorable terms upon those
renewals. The ability of surety bond issuers and holders to
demand additional collateral or other less favorable terms has
increased as the number of companies willing to issue these
bonds has decreased over time. ICGs failure to maintain,
or its inability to acquire, surety bonds that are required by
state and federal law would affect its ability to secure
reclamation and coal lease obligations, which could adversely
affect its ability to mine or lease coal. That failure could
result from a variety of factors including, without limitation:
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lack of availability, higher expense or unfavorable market terms
of new bonds;
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S-40
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restrictions on availability of collateral for current and
future third-party surety bond issuers under the terms of
ICGs amended and restated credit facility; and
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exercise by third-party surety bond issuers of their right to
refuse to renew the surety.
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Failure
to maintain capacity for required letters of credit could limit
ICGs ability to obtain or renew surety
bonds.
At December 31, 2010, ICG had $86.3 million of letters
of credit in place, of which $65.8 million serve as
collateral for reclamation surety bonds and $20.5 million
secured miscellaneous obligations. ICGs ABL loan facility
provides for a revolving credit facility of $125.0 million,
all of which may be used for letters of credit. If ICG does not
maintain sufficient borrowing capacity under its ABL loan
facility for additional letters of credit, it may be unable to
obtain or renew surety bonds required for its mining operations.
ICGs
business requires continued capital investment, which it may be
unable to provide.
ICGs business strategy requires continued capital
investment for, among other purposes, managing acquired assets,
acquiring new equipment, maintaining the condition of its
existing equipment and maintaining compliance with environmental
laws and regulations. To the extent that cash generated
internally and cash available under its credit facilities are
not sufficient to fund capital requirements, ICG will require
additional debt
and/or
equity financing. However, this type of financing may not be
available, or if available, may not be on satisfactory terms.
Future debt financings, if available, may result in increased
interest and amortization expense, increased leverage and
decreased income available to fund further acquisitions and
expansion. In addition, future debt financings may limit
ICGs ability to withstand competitive pressures and render
it more vulnerable to economic downturns. If ICG fails to
generate sufficient earnings or to obtain sufficient additional
capital in the future or fail to manage its capital investments
effectively, it could be forced to reduce or delay capital
expenditures, sell assets or restructure or refinance its
indebtedness.
In addition, the ABL loan facility contains covenants that, in
the event ICGs liquidity falls below a specified amount,
limits the amount of capital expenditures and requires ICG to
maintain a minimum ratio of EBITDA to fixed charges.
The ABL loan facility also contains customary events of default,
including, but not limited to, failure to pay principal or
interest, breach of covenants or representations and warranties,
cross-default to other indebtedness, judgment default and
insolvency. If an event of default occurs under the ABL loan
facility, the lenders under the ABL loan facility will be
entitled to take various actions, including demanding payment
for all amounts outstanding thereunder and foreclosing on any
collateral. If the lenders were to do so, ICGs other debt
obligations including the senior notes and the convertible
notes, would also have the right to accelerate those obligations
which it would be unable to satisfy.
Increased
consolidation and competition in the U.S. coal industry may
adversely affect its ability to retain or attract customers and
may reduce domestic coal prices.
During the last several years, the U.S. coal industry has
experienced increased consolidation, which has contributed to
the industry becoming more competitive. According to the EIA, in
1995, the top ten coal producers accounted for approximately 50%
of total domestic coal production. By 2009, however, the top ten
coal producers share had increased to approximately 67% of
total domestic coal production. Consequently, many of its
competitors in the domestic coal industry are major coal
producers who have significantly greater financial resources
than ICG. The intense competition among coal producers may
impact ICGs ability to retain or attract customers and may
therefore adversely affect its future revenues and profitability.
The demand for U.S. coal exports is dependent upon a number
of factors outside of ICGs control, including the overall
demand for electricity in foreign markets, currency exchange
rates, ocean freight rates, the demand for foreign-produced
steel both in foreign markets and in the U.S. market (which
is dependent in part on tariff rates on steel), general economic
conditions in foreign countries, technological developments and
environmental and other governmental regulations and any other
pressures placed on companies that are connected to the emission
of
S-41
greenhouse gases. If foreign demand for U.S. coal were to
decline, this decline could cause competition among coal
producers in the United States to intensify, potentially
resulting in additional downward pressure on domestic coal
prices.
ICGs
ability to collect payments from its customers could be impaired
if their creditworthiness deteriorates.
ICGs ability to receive payment for coal sold and
delivered depends on the continued creditworthiness of its
customers. Its customer base is changing with an increasing
focus on metallurgical sales to domestic and export steel
customers. Despite the recent improvement in steel output, the
steel industry experienced a dramatic downturn in late 2008 that
continued for most of 2009, with most of the industry
experiencing steep losses. If the current recovery does not
continue, ICGs ability to collect from some of its
customers could be impaired.
Continued deregulation by its utility customers that sell their
power plants to their non-regulated affiliates or third parties
that may be less creditworthy, thereby increasing the risk ICG
bears on payment default. These new power plant owners may have
credit ratings that are below investment grade. Further,
competition with other coal suppliers could force us to extend
credit to customers and on terms that could increase the risk
ICG bears on payment default.
In the current economic climate certain of ICGs customers
and their customers may be affected by cash flow problems, which
can increase the time it takes to collect accounts receivable.
Defects
in title or loss of any leasehold interests in its properties
could limit ICGs ability to conduct mining operations on
these properties or result in significant unanticipated
costs.
ICG conducted a significant part of its mining operations on
properties that it leases. A title defect or the loss of any
lease upon expiration of its term, upon a default or otherwise,
could adversely affect its ability to mine the associated
reserves
and/or
process the coal that it mines. Title to most of ICGs
owned or leased properties and mineral rights is not usually
verified until it makes a commitment to develop a property,
which may not occur until after it has obtained necessary
permits and completed exploration of the property. In some
cases, ICG relies on title information or representations and
warranties provided by its lessors or grantors. ICGs right
to mine some of its reserves has in the past been, and may again
in the future be, adversely affected if defects in title or
boundaries exist or if a lease expires. Any challenge to its
title or leasehold interests could delay the exploration and
development of the property and could ultimately result in the
loss of some or all of its interest in the property. Mining
operations from time to time may rely on an expired lease that
ICG is unable to renew. From time to time ICG also may be in
default with respect to leases for properties on which it has
mining operations. In such events, ICG may have to close down or
significantly alter the sequence of such mining operations which
may adversely affect its future coal production and future
revenues. If ICG mines on property that it does not own or
lease, it could incur liability for such mining. Also, in any
such case, the investigation and resolution of title issues
would divert managements time from ICGs business and
its results of operations could be adversely affected.
Additionally, if ICG loses any leasehold interests relating to
any of its preparation plants, ICG may need to find an
alternative location to process its coal and load it for
delivery to customers, which could result in significant
unanticipated costs.
In order to obtain leases or mining contracts to conduct its
mining operations on property where these defects exist, ICG may
in the future have to incur unanticipated costs. In addition,
ICG may not be able to successfully negotiate new leases or
mining contracts for properties containing additional reserves,
or maintain its leasehold interests in properties where ICG has
not commenced mining operations during the term of the lease.
Some leases have minimum production requirements. Failure to
meet those requirements could result in losses of prepaid
royalties and, in some rare cases, could result in a loss of the
lease itself.
ICGs
work force could become unionized in the future, which could
adversely affect the stability of its production and reduce its
profitability.
All of ICGs coal production is from mines operated by
union-free employees. However, its subsidiaries employees
have the right at any time under the National Labor Relations
Act to form or affiliate with a union. If the terms of a union
collective bargaining agreement are significantly different from
its current compensation
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arrangements with its employees, any unionization of its
subsidiaries employees could adversely affect the
stability of its production and reduce its profitability.
If the
coal industry experiences overcapacity in the future, ICGs
profitability could be impaired.
During the mid-1970s and early 1980s, a growing coal market and
increased demand for coal attracted new investors to the coal
industry, spurred the development of new mines and resulted in
production capacity in excess of market demand throughout the
industry. Similarly, increases in future coal prices could
encourage the development of expanded capacity by new or
existing coal producers.
ICG is
subject to various legal and governmental proceedings which may
have a material adverse effect on its business.
ICG is party to a number of legal proceedings incidental to
normal business activities, including several complaints related
to an accident at its Sago mine in January 2006, a breach of
contract complaint by one of its customers related to the idling
of its Sycamore No. 2 mine and a class action lawsuit that
alleges that the registration statements filed in connection
with its initial public offering contained false and misleading
statements, and that investors relied upon those securities
filings and suffered damages as a result. Some actions brought
against ICG from time to time may have merit and, in addition,
there may be claims asserted against ICG that are not covered,
in whole or in part, by its insurance policies. There is always
the potential that an individual matter or the aggregation of
many matters could have an adverse effect on its financial
condition, results of operations or cash flows. See note 16
to ICGs audited consolidated financial statements for the
year ended December 31, 2010 and note 13 to ICGs
unaudited consolidated financial statements for the three month
period ended March 31, 2011, included and incorporated by
reference in this prospectus supplement for additional
information.
Although ICG strives to maintain compliance with all applicable
laws at all times, from time to time it receives citations,
orders and notices of violation from applicable governmental
authorities, particularly those governing health, safety and the
environment. When this occurs, ICG attempts to abate immediately
the condition cited, whether or not it agrees as to whether it
constitutes a violation. When ICG receive citations, orders or
notices of violation, it either pays the assessed penalties, or
if ICG disputes the fact of such alleged violation or the amount
of the penalty relative to such violation, ICG contests such
matter. While such matters typically would not be expected to
have a material adverse effect, they could in the future have a
material adverse effect on its business. None of ICGs
mines has ever received a notice of a potential pattern of
violations. If one or more of ICGs operations, however,
were placed on a pattern of violations by the regulatory
authorities, such designation and the enhanced enforcement
regime that such designation entails, could have a material
adverse effect on its business.
Risks to
ICG Relating to Governmental Regulation
Extensive
government regulations impose significant costs on ICGs
mining operations, and future regulations could increase those
costs or limit its ability to produce and sell
coal.
The coal mining industry is subject to increasingly strict
regulation by federal, state and local authorities with respect
to matters such as:
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limitations on land use;
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employee health and safety;
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mandated benefits for retired coal miners;
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mine permitting and licensing requirements;
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reclamation and restoration of mining properties after mining is
completed;
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air quality standards;
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water pollution;
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construction and permitting of facilities required for mining
operations, including valley fills and other structures,
including those constructed in natural water courses and
wetlands;
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protection of human health, plant life and wildlife;
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discharge of materials into the environment;
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surface subsidence from underground mining; and
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effects of mining on groundwater quality and availability.
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In particular, federal and state statutes require ICG to restore
mine property in accordance with specific standards and an
approved reclamation plan, and require that ICG obtain and
periodically renew permits for mining operations. If ICG does
not make adequate provisions for all expected reclamation and
other costs associated with mine closures, it could harm
ICGs future operating results.
Federal and state safety and health regulation in the coal
mining industry may be the most comprehensive and pervasive
system for protection of employee safety and health affecting
any segment of the U.S. industry. It is costly and
time-consuming to comply with these requirements and new
regulations or orders may materially adversely affect ICGs
mining operations or cost structure, any of which could harm its
future results.
Under federal law, each coal mine operator must secure payment
of federal black lung benefits to claimants who are current and
former employees and contribute to a trust fund for the payment
of benefits and medical expenses to claimants who last worked in
the coal industry before July 1973. The trust fund is funded by
an excise tax on coal production. If this tax increases, or if
ICG could no longer pass it on to the purchaser of its coal
under many of its long-term sales contracts, it could increase
operating costs and harm ICGs results. Recently, there has
been a renewed focus on rates of black lung disease among coal
workers. As a result, there may be greater federal scrutiny of
the industry that could lead to new and more costly regulation
which may increase ICGs cost of contributions to the trust
fund.
The costs, liabilities and requirements associated with existing
and future regulations may be costly and time-consuming and may
delay commencement or continuation of exploration or production
operations. Failure to comply with these regulations may result
in the assessment of administrative, civil and criminal
penalties, the imposition of cleanup and site restoration costs
and liens, the issuance of injunctions to limit or cease
operations, the suspension or revocation of permits and other
enforcement measures that could have the effect of limiting
production from ICGs operations. ICG may also incur costs
and liabilities resulting from claims for damages to property or
injury to persons arising from its operations. ICG must
compensate employees for work-related injuries. If ICG does not
make adequate provisions for its workers compensation
liabilities, it could harm its future operating results. If ICG
is pursued for these sanctions, costs and liabilities, its
mining operations and, as a result, its profitability could be
adversely affected.
The possibility exists that new legislation
and/or
regulations and orders may be adopted that may materially
adversely affect ICGs mining operations, its cost
structure
and/or its
customers ability to use coal. New legislation or
administrative regulations (or new judicial interpretations or
administrative enforcement of existing laws and regulations),
including proposals related to the protection of the environment
that would further regulate and tax the coal industry, may also
require ICG or its customers to change operations significantly
or incur increased costs. These regulations, if proposed and
enacted in the future, could have a material adverse effect on
ICGs financial condition and results of operations.
Restrictions
on the disposal of mining spoil material could significantly
increase ICGs operating costs, discourage customers from
purchasing its coal and materially harm its financial condition
and operating results.
Mining in the mountainous terrain of Appalachia typically
requires the use of valley fills for the disposal of excess
spoil (rock and soil material) generated by construction and
mining activities. In ICGs surface mining operations, it
selects the mining method that allows it to recover more tons of
coal per acre and facilitates the permitting of larger projects,
which enables mining to continue over a longer period of time.
All methods of surface mining in Appalachia depend on valley
fills to dispose of excess mining spoil material. Construction
of roads,
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underground mine portal sites, coal processing and handling
facilities and coal refuse embankments or impoundments related
to both surface and underground mining also require the
development of valley fills. ICG obtains permits to construct
and operate valley fills and surface impoundments from the ACOE
under the auspices of Section 404 of the federal Clean
Water Act (the CWA). Regulations that govern the
issuance of such permits are under agency review and may become
more stringent in the future. Lawsuits challenging the
ACOEs authority to authorize surface mining activities
under comprehensive individual permits have been instituted by
environmental groups, which also advocate for changes in federal
and state laws that would prevent or further restrict the
issuance of such permits.
Litigation of this type, which is designed to prevent or delay
the issuance of permits needed for mining or to make permitting
or regulatory standards more stringent, whether brought directly
against ICG or against governmental agencies that establish
environmental standards and issue permits, could greatly
lengthen the time needed to permit the mining of reserves,
significantly increase ICGs operating costs, make it more
difficult to economically recover a significant portion of its
reserves and lead to a material adverse effect on its financial
condition and results of operation. ICG may not be able to
increase the price of its coal to cover higher production costs
without reducing customer demand for its coal.
New
government regulations as a result of recent mining accidents
could continue increasing ICGs costs.
Both the federal and state governments impose stringent health
and safety standards on the mining industry. Regulations are
comprehensive and affect nearly every aspect of mining
operations, including training of mine personnel, mining
procedures, blasting, the equipment used in mining operations
and other matters. As a result of past mining accidents,
including the explosion at ICGs Sago mine in January 2006,
additional federal and state health and safety regulations have
been adopted that have increased operating costs and affect its
mining operations. State and federal legislation has been
adopted that, among other things, requires additional oxygen
supplies, communication and tracking devices, refuge chambers,
stronger seal construction and monitoring standards and mine
rescue teams. As a result of the April 5, 2010 explosion
that caused fatal injuries to 29 workers at a competitors
mine, both the federal government and the state of West Virginia
have announced that they are considering additional changes to
mine safety rules and regulations which may require changes to
ICGs mining practices that could further increase its
capital and operating costs and decrease its productivity, which
would adversely affect its results of operations. ICG expects
that increased efforts to expand investigations and types of
violations, as well as increased penalties for non-compliance
will increase its costs related to worker health and safety.
Additionally, it could be subject to civil penalties and other
penalties if it violates mining regulations.
Mining
in Northern and Central Appalachia is more complex and involves
more regulatory constraints than mining in the other areas,
which could affect productivity and cost structures of these
areas.
The geological characteristics of Northern and Central
Appalachian coal reserves, such as depth of overburden and coal
seam thickness, make them complex and costly to mine. As mines
become depleted, replacement reserves may not be available when
required or, if available, may not be capable of being mined at
costs comparable to those characteristic of the depleting mines.
In addition, as compared to mines in the Powder River Basin in
northeastern Wyoming and southeastern Montana, permitting,
licensing and other environmental and regulatory requirements
are more dynamic and thus more costly and time-consuming to
satisfy. These factors could materially adversely affect the
mining operations and cost structures of, and customers
ability to use coal produced by, ICGs mines in Northern
and Central Appalachia.
ICG
must obtain governmental permits and approvals for mining
operations, which can be a costly and time-consuming process,
can result in restrictions on its operations and is subject to
litigation that may delay or prevent it from obtaining necessary
permits.
ICGs operations are principally regulated under surface
mining permits issued pursuant to the Surface Mining Control and
Reclamation Act and state counterpart laws. Such permits, which
are issued for terms of five years with the right of successive
renewal, grant approval for surface mining or the surface
effects of underground mining. Separately, the CWA requires
permits for operations that discharge water or place fill
material into waters of the
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United States. Water discharges are authorized under CWA
Section 402 permits typically issued by state regulatory
agencies under EPA oversight while valley fills, refuse
impoundments and other types of disturbances in streams are
authorized under CWA Section 404 permits issued by the
ACOE. The EPA has the authority, which it has rarely exercised
until recently, to object to permits issued by the ACOE. While
the ACOE is authorized to issue permits even when the EPA has
objections, the EPA does have the ability to override the ACOE
decision and veto the permits.
A Memorandum of Understanding executed on June 11, 2009
between the EPA, the ACOE and the Department of the Interior
provided a blueprint for proposed changes to the regulation of
coal mining activities in the Appalachian region of Kentucky,
Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. The
Department of Interiors Office of Surface Mining
Reclamation and Enforcement (OSMRE) stated that it
intended to revise certain rules to afford greater protections
to streams and to revisit its regulation of surface mine
restoration. The EPA announced an enhanced coordination
procedure for the review of all pending CWA Section 404
permit applications for mining in Appalachia.
In September 2009, the EPA announced 79 pending CWA
Section 404 permit applications for Appalachian coal mining
warranted further review because of continuing concerns about
water quality
and/or
regulatory compliance issues. The list included four of
ICGs permit applications. Three of its four permit
applications were withdrawn following its evaluation of other
spoil disposal options, which are less economical than the
proposed projects. ICGs application for a coarse refuse
fill at its Knott County mine remains pending. While the EPA has
stated that its identification of these 79 permits does not
constitute a determination that the mining involved cannot be
permitted under the CWA and does not constitute a final
recommendation from the EPA to the ACOE on these projects, it is
unclear how long the further review will take for its permits or
what the final outcome will be. Excessive delays in permitting
may require adjustments of ICGs production budget and
mining plans.
On April 1, 2010, the EPA released a guidance document
entitled Improving EPA Review of Appalachian Surface Coal
Mining Operations under the Clean Water Act, National
Environmental Policy Act, and the Environmental Justice
Executive Order. This guidance, if applied by states
within this six-state region (KY, OH, PA, TN, VA and WV), will
result in the imposition of exceedingly stringent water
quality-based limitations in CWA Section 402 wastewater
discharge permits and CWA Section 404 dredge and fill
permits. Specifically, a maximum conductivity limitation of 500
microSiemens per centimeter is not considered attainable for
water discharges from most mining operations, including
underground mines. This guidance may cause delays in ICGs
ability to obtain permits, may increase its operating and
capital costs to comply with permits or may prevent its ability
to obtain permits that will allow it to conduct certain
operations. The issuance of this guidance is being appealed by
the National Mining Association, Kentucky Coal Association, the
State of West Virginia and the Commonwealth of Kentucky.
Additionally, certain operations (particularly preparation
plants) have permits issued pursuant to the Clean Air Act and
state counterpart laws allowing and controlling the discharge of
air pollutants. Regulatory authorities exercise considerable
discretion in the timing of permit issuance. Requirements
imposed by these authorities may be costly and time consuming
and may result in delays in, or in some instances preclude, the
commencement or continuation of development or production
operations. Adverse outcomes in lawsuits challenging permits or
failure to comply with applicable regulations could result in
the suspension, denial or revocation of required permits, which
could have a material adverse impact on ICGs financial
condition, results of operations or cash flows.
The
Mine Safety and Health Administration or other federal or state
regulatory agencies may order certain of ICGs mines to be
temporarily or permanently closed, which could adversely affect
its ability to meet customers demands.
The Mine Safety and Health Administration (MSHA) or
other federal or state regulatory agencies may order certain of
ICGs mines to be temporarily or permanently closed. Its
customers may challenge its issuance of force majeure notices in
connection with such closures. If these challenges are
successful, ICG may have to purchase coal from third-party
sources to satisfy those challenges, incur capital expenditures
to re-open the mines and negotiate settlements with the
customers, which may include price reductions, the reduction of
commitments or the extension of time for delivery, terminate
customers contracts or face claims initiated by its
customers against ICG. The
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resolution of these challenges could have an adverse impact on
its financial position, results of operations or cash flows.
Federal
or state legislation that restricts disposal of mining spoil
material or coal refuse material could eliminate certain mining
methods, significantly increase ICGs operating costs and
materially harm its financial condition and operating
results.
The U.S. Congress and state legislatures have in the past
and are currently considering proposals that would effectively
prohibit the placement of materials generated by coal mining
into waters of the United States, which practice is essential to
surface mining in central Appalachia. A prohibition against
excess spoil placement in streams would essentially eliminate
surface mining in steep terrain, thus rendering much of
ICGs coal reserves unmineable. Restrictions on the
placement of coal refuse material in streams or in abandoned
underground coal mines could limit the life of existing coal
processing operations, potentially block new coal preparation
plants and at minimum significantly increase ICGs
operating costs. Public concerns regarding the environmental,
health and aesthetic impacts of surface mining could,
independent of regulation, affect ICGs reputation and
reduce demand for its coal.
Promulgation
of a federal stream protection plan regulation that would
restrict disposal of mining spoil material or place stringent
restrictions on mining in, near or beneath streams could
eliminate certain mining methods, significantly increase
ICGs operating costs and materially harm its financial
condition and operating results.
The OSMRE published an Advance Notice of Proposed Rulemaking
(ANPRM) in November 2009 regarding the alternatives
under consideration for revision of its 2008 Stream Buffer Zone
Rule which solicits public comment on changes to mining
regulatory programs that are more restrictive than indicated by
the ANPRM. The OSMRE, after receiving over 30,000 comments
during a brief public comment period, decided to expand its
formal rulemaking to encompass issues beyond the Stream Buffer
Zone Rule. The OSMRE, in April and June 2010, published Notices
of Intent to conduct an Environmental Impact Statement for a
Stream Protection Rule, which would replace the Stream Buffer
Zone Rule. The notice included a list of concepts under
consideration for the proposed rule, such as requirements for
coal mining companies to gather more specific baseline data on a
proposed mine sites hydrology, geology and aquatic
biology; a proposal to establish a definition of the term
material damage to the hydrologic balance of
watersheds outside the permit area; revising regulations for
mining activities in, near or beneath streams; and development
of revised and expanded requirements for mine operators seeking
a variance from the requirement that mined areas be reclaimed to
their approximate original contour. A proposed revised rule has
not yet been released for public review and comment. However,
internal draft OSMRE documents indicate that consideration has
been given to proposing a rule that is much broader in scope
than the Stream Buffer Zone Rule, which would prohibit widely
accepted mining techniques and destroy tens of thousands of coal
mining and related jobs nationwide. If any of these or other
more restrictive stream protection alternatives are adopted,
such added requirements could impact coal mining operations,
particularly in Appalachia, by reducing locations where coal
mining operations can be conducted. Such measures could impact
the cost and productivity of mining and may affect the economic
viability of mining certain reserves. Certain of the proposed
alternatives would effectively prohibit the placement of
materials generated by coal mining into intermittent or
perennial streams, which practice is essential to surface mining
in central Appalachia. A prohibition against excess spoil
placement in such streams would essentially eliminate surface
mining in steep terrain, thus rendering much of ICGs coal
reserves unmineable. A prohibition on impacts to streams due to
mining in, near or beneath such streams would adversely affect
certain mining methods, including longwall mining. The OSMRE had
announced that it intended to release a proposed revised rule
for public review and comment in early 2011, but the
OSMREs decision in March 2011 to terminate the contractor
that had been retained to conduct the environmental impact study
is expected to delay the proposed rulemaking.
ICG
may be unable to obtain and renew permits necessary for its
operations, which would reduce its production, cash flow and
profitability.
Mining companies must obtain numerous permits that impose strict
regulations on various environmental and safety matters in
connection with coal mining. These include permits issued by
various federal and state agencies
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and regulatory bodies. The permitting rules are complex and may
change over time or become more stringent, making ICGs
ability to comply with the applicable requirements more
difficult or even impossible, thereby precluding continuing or
future mining operations. The public has certain rights to
comment upon and otherwise engage in the permitting process,
including through court intervention. Furthermore, in the
current regulatory environment, with enhanced scrutiny by
regulators, increased opposition by environmental groups and
others and potential resultant delays and permit application
denials, ICG now anticipates that mining permit approvals will
take even longer than previously experienced, and some permits
may not be issued at all. Accordingly, the permits ICG needs may
not be issued, maintained or renewed, may not be issued or
renewed in a timely fashion and may involve requirements that
restrict ICGs ability to conduct its mining operations. An
inability to conduct its mining operations pursuant to
applicable permits would reduce its production, cash flows and
profitability.
If the
assumptions underlying its reclamation and mine closure
obligations are materially inaccurate, ICG could be required to
expend greater amounts than anticipated.
The SMCRA establishes operational, reclamation and closure
standards for all aspects of surface mining, as well as the
surface effects of deep mining. Estimates of ICGs total
reclamation and mine closure liabilities are based upon permit
requirements, engineering studies and its engineering expertise
related to these requirements. The estimate of ultimate
reclamation liability is updated annually by an independent
engineering consulting firm and reviewed periodically by
ICGs management and engineers. The estimated liability can
change significantly if actual costs vary from assumptions or if
governmental regulations change significantly. Asset retirement
obligations are recorded as a liability based on fair value,
which is calculated as the present value of the estimated future
cash flows. In estimating future cash flows, ICG considered the
estimated current cost of reclamation and applied inflation
rates and a third-party profit, as necessary. The third-party
profit is an estimate of the approximate markup that would be
charged by contractors for work performed on behalf of ICG. The
resulting estimated reclamation and mine closure obligations
could change significantly if actual amounts change
significantly from its assumptions.
ICGs
operations may substantially impact the environment or cause
exposure to hazardous materials, and its properties may have
significant environmental contamination, any of which could
result in material liabilities to it.
ICG uses, and in the past has used, hazardous materials and
generates, and in the past has generated, hazardous wastes. In
addition, many of the locations that ICG owns or operates were
used for coal mining
and/or
involved hazardous materials usage either before or after it was
involved with those locations. ICG may be subject to claims
under federal and state statutes
and/or
common law doctrines for personal injury, property damages,
natural resource damages and other damages, as well as the
investigation and clean up of soil, surface water, groundwater
and other media. Such claims may arise, for example, out of
current or former activities at sites that it owns or operates
currently, as well as at sites that it or predecessor entities
owned or operated in the past, and at contaminated sites that
have always been owned or operated by third parties. ICGs
liability for such claims may be joint and several, so that it
may be held responsible for more than its share of the
remediation costs or other damages, or even for the entire
share. ICG has from time to time been subject to claims arising
out of contamination at its own and other facilities and may
incur such liabilities in the future.
ICG uses, and in the past has used, alkaline coal combustion
byproducts (CCBs) during the reclamation process at
certain of its mines to aid in preventing the formation of acid
mine drainage and it has agreed to dispose of CCBs in some
instances. Use of CCBs on a mined area is subject to regulatory
approval and is allowed only after it is proved to be of
beneficial use. The EPA has issued a proposed regulation
discussing potential regulatory options for CCBs generated by
electricity generators under the Resource Conservation and
Recovery Act, one of which is the regulation of CCBs as
hazardous or special waste and the other as non-hazardous waste.
This proposed rule contains an exemption, the scope of which is
not completely clear, for the use of CCBs as minefills at coal
mines, and the EPA has stated that it will defer to the OSMRE to
undertake regulatory action. If in the future CCBs were to be
classified as a hazardous or special waste or if more stringent
disposal requirements were to be otherwise established for these
wastes, ICG may be required to cease using or disposing of CCBs
at certain of its mines and
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find a replacement alkaline material for this purpose, which may
add to the cost of mine reclamation or decrease its revenue
generated from disposal contracts with certain of its customers.
ICG maintains extensive coal slurry impoundments at a number of
its mines. Such impoundments are subject to stringent
regulation. Slurry impoundments maintained by other coal mining
operations have been known to fail, releasing large volumes of
coal slurry. Structural failure of an impoundment can result in
extensive damage to the environment and natural resources, such
as bodies of water that the coal slurry reaches, as well as
liability for related personal injuries and property damages and
injuries to wildlife. Some of ICGs impoundments overlie
mined-out areas, which can pose a heightened risk of failure and
of damages arising out of failure, unless preventive measures
are implemented in a timely manner. ICG has commenced such
measures to modify its method of operation at one surface
impoundment containing slurry wastes in order to reduce the risk
of releases to the environment from it, a process that has been
incorporated into the construction sequence of the impoundment
and thus will take several years to complete. If one of its
impoundments were to fail, ICG could be subject to substantial
claims for the resulting environmental contamination and
associated liability, as well as for fines and penalties.
These and other impacts that ICGs operations may have on
the environment, as well as exposures to hazardous substances or
wastes associated with its operations and environmental
conditions at its properties, could result in costs and
liabilities that would materially and adversely affect it.
Extensive
environmental regulations affect ICGs customers and could
reduce the demand for coal as a fuel source and cause its sales
to decline.
The Clean Air Act and similar state and local laws extensively
regulate the amount of sulfur dioxide, particulate matter,
nitrogen oxides and other compounds emitted into the air from
coke ovens and electric power plants, which are the largest end
users of ICGs coal. Such regulations will require
significant emissions control expenditures for many coal-fired
power plants to comply with applicable ambient air quality
standards. As a result, these generators may switch to other
fuels that generate less of these emissions, possibly reducing
future demand for coal and the construction of coal-fired power
plants.
The Federal Clean Air Act, including the Clean Air Act
Amendments of 1990, and corresponding state laws that regulate
emissions of materials into the air affect coal mining
operations both directly and indirectly. Measures intended to
improve air quality that reduce coals share of the
capacity for power generation could diminish ICGs revenues
and harm its business, financial condition and results of
operations. The price of lower sulfur coal may decrease as more
coal-fired utility power plants install additional pollution
control equipment to comply with stricter sulfur dioxide
emission limits, which may reduce ICGs revenues and harm
its results. In addition, regulatory initiatives including the
sulfur dioxide and nitrogen oxide rules, new ozone and
particulate matter standards, regional haze regulations, new
source review, new source performance standards, regulation of
mercury emissions and legislation or regulations that establish
restrictions on greenhouse gas emissions or provide for other
multiple pollutant reductions could make coal a less attractive
fuel to ICGs utility customers and substantially reduce
its sales.
Various new and proposed laws and regulations may require
further significant reductions in emissions from coal-fired
utilities. More stringent emissions standards may require many
coal-fired sources to install additional pollution control
equipment, such as wet scrubbers. Increasingly, the EPA has been
undertaking multi-pollutant rulemakings to reduce emissions from
coal-fired utilities. The EPA has issued a proposed rule to
regulate the disposal of CCBs under the Resource Conservation
and Recovery Act. These and other future standards could have
the effect of making the operation of coal-fired plants less
profitable, thereby decreasing demand for coal. The majority of
ICGs coal supply agreements contain provisions that allow
a purchaser to terminate its contract if legislation is passed
that either restricts the use or type of coal permissible at the
purchasers plant or results in specified increases in the
cost of coal or its use.
There have been several recent proposals in Congress that are
designed to further reduce emissions of sulfur dioxide, nitrogen
oxides and mercury from power plants, and certain ones could
regulate additional air pollutants. If such initiatives are
enacted into law, power plant operators could choose fuel
sources other than coal to meet their requirements, thereby
reducing the demand for coal.
S-49
A regional haze program initiated by the EPA to protect and to
improve visibility at and around national parks, national
wilderness areas and international parks restricts the
construction of new coal-fired power plants whose operation may
impair visibility at and around federally protected areas, and
may require some existing coal-fired power plants to install
additional control measures designed to limit haze-causing
emissions.
New
and pending laws regulating the environmental effects of
emissions of greenhouse gases could impose significant
additional costs to doing business for the coal industry and/or
a shift in consumption to non-fossil fuels.
Greenhouse gas emissions have increasingly become the subject of
a large amount of international, national, regional, state and
local attention. Future regulation of greenhouse gas could occur
pursuant to future U.S. treaty obligations, statutory or
regulatory changes under the Clean Air Act or new climate change
legislation. Increased efforts to control greenhouse gas
emissions could result in reduced demand for coal if electric
power generators switch to lower carbon sources of fuel.
Coal-fired power plants can generate large amounts of greenhouse
gas emissions, and, as a result, have become subject to
challenge, including the opposition to any new coal-fired power
plants or capacity expansions of existing plants, by
environmental groups seeking to curb the environmental effects
of emissions of greenhouse gases. Various legislation has been
and may continue to be introduced in Congress which reflects a
wide variety of strategies for reducing greenhouse gas emissions
in the United States. These strategies include mandating
decreases in greenhouse gas emissions from coal-fired power
plants, instituting a tax on greenhouse gas emissions, banning
the construction of new coal-fired power plants that are not
equipped with technology to capture and sequester carbon
dioxide, encouraging the growth of renewable energy sources
(such as wind or solar power) or nuclear for electricity
production, and financing the development of advanced coal
burning plants which have greatly reduced greenhouse gas
emissions. Most states in the United States have taken steps to
regulate greenhouse gas emissions. Under the Clean Air Act, the
EPA has published its finding that greenhouse gases pose a
threat to public health and declared that six greenhouse gases
constitute air pollutants. The EPA has adopted regulations that
would impact new or modified major stationary sources of
greenhouse gas emissions, including coal-fired power plants,
beginning January 2, 2011. Emissions of greenhouse gas
emissions from coal mining have come under increased regulatory
attention, as the EPA has extended its greenhouse gas emissions
reporting rules to underground coal mines and has received a
petition to adopt regulations to restrict greenhouse gas
emissions, including methane, and other pollutants from surface,
underground and abandoned coal mines.
These or additional state or federal laws or regulations
regarding greenhouse gas emissions or other actions to limit
greenhouse gas emissions could result in fuel switching, from
coal to other fuel sources, by electric generators. Political
and regulatory uncertainty over future emissions controls have
been cited as major factors in decisions by power companies to
postpone new coal-fired power plants. If measures such as these
or other similar measures, like controls on methane emissions
from coal mines, are ultimately imposed on the coal industry by
federal or state governments or pursuant to international
treaty, ICGs operating costs may be materially and
adversely affected. Similarly, alternative fuels (non-fossil
fuels) could become more attractive than coal in order to reduce
greenhouse gas emissions, which could result in a reduction in
the demand for coal and, therefore, ICGs revenues. Public
concerns regarding climate change could, independent of
regulatory developments, adversely affect ICGs reputation
and reduce demand for its coal.
S-50
USE OF
PROCEEDS
We will receive net proceeds from the common stock offering of
approximately $1,249.8 million, after deducting
underwriters discounts and estimated fees and expenses
(assuming no exercise by the underwriters of their
over-allotment option). If the underwriters exercise their
over-allotment option in full, we estimate that the net proceeds
of this offering will be approximately $1,437.4 million,
after deducting underwriters discounts and estimated fees
and expenses. Concurrently with this offering of common stock,
we are separately offering $2,000.0 million aggregate
principal amount of New Senior Notes. We intend to use the net
proceeds of this offering, our concurrent offering of New Senior
Notes and borrowings under our amended and restated senior
secured credit facility, to fund the transactions and to pay
fees and expenses in connection with the transactions.
The following table illustrates the estimated sources of funds
and uses of funds relating to the transactions, as if the
transactions were completed on March 31, 2011. The actual
amounts may differ at the time of the consummation of the
transactions.
|
|
|
|
|
|
|
|
|
|
|
Sources of
Funds
|
|
Amount
|
|
|
Uses of
Funds
|
|
Amount
|
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
|
Common Stock offered hereby
|
|
$
|
1,296.0
|
|
|
Tender offer for ICG
equity(2)
|
|
|
3,044.6
|
|
Concurrent New Senior Notes offering
|
|
|
2,000.0
|
|
|
Redeem ICG 9.125% senior secured second-priority notes due
2018(3)
|
|
|
256.9
|
|
Amended and restated senior secured credit
facility(1)
|
|
|
551.6
|
|
|
Cash conversion of ICG 4.00% convertible senior notes due
2017(4)
|
|
|
300.7
|
|
|
|
|
|
|
|
Cash conversion of ICG 9.00% convertible senior notes due
2012(5)
|
|
|
1.7
|
|
|
|
|
|
|
|
Repay other ICG
debt(6)
|
|
|
50.1
|
|
|
|
|
|
|
|
Estimated fees and
expenses(7)
|
|
|
193.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sources
|
|
$
|
3,847.6
|
|
|
Total uses
|
|
$
|
3,847.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In connection with the closing of
the merger, we expect to enter into an amended and restated
senior secured credit facility on substantially similar terms as
the existing senior secured credit facility which will increase
commitments available under the facility from
$860.0 million to $1.75 billion. Any shortfall from
the proceeds of the shares offered hereby or the concurrent New
Senior Notes offering will be financed with borrowings under our
amended and restated senior secured credit facility.
|
(2)
|
|
Assumes all outstanding shares of
common stock are validly tendered and acquired by Merger Sub in
the tender offer.
|
(3)
|
|
Assumes all of the
9.125% senior secured second-priority notes are redeemed at
a price equal to 100% of the principal amount plus an applicable
make-whole premium of $51.6 million and accrued and
unpaid interest to the redemption date.
|
(4)
|
|
Assumes holders elect to convert
all of the 4.00% convertible senior notes due 2017 for cash
after the closing of the merger at an increased conversion rate
applicable as a result of the merger.
|
(5)
|
|
Assumes holders elect to convert
all of the 9.00% convertible senior notes due 2012 for cash
after the closing of the merger at an increased conversion rate
applicable as a result of the merger.
|
(6)
|
|
Consists of other ICG indebtedness,
including equipment notes and capital leases.
|
(7)
|
|
Consists of estimated fees and
expenses related to the transactions, including legal,
accounting and advisory fees, fees associated with the financing
transactions and other transaction costs.
|
S-51
CAPITALIZATION
The following table sets forth Arch Coals consolidated
cash and cash equivalents and capitalization as of
March 31, 2011:
|
|
|
|
|
on an actual basis;
|
|
|
|
on an as adjusted basis to give effect to the issuance and sale
of 48,000,000 shares of our common stock in this offering
at a public offering price of $27.00 per share, assuming that we
temporarily invest the proceeds in short-term, interest-bearing
obligations; and
|
|
|
|
as further adjusted on a pro forma basis to give effect to the
transactions.
|
This table is unaudited and should be read in conjunction with
Use of Proceeds, Unaudited Pro Forma Condensed
Combined Financial Information, Selected Historical
Financial Data of Arch Coal, Selected Historical
Financial Data of ICG, Managements Discussion
and Analysis of Financial Condition and Results of Operations of
Arch Coal, Managements Discussion and Analysis
of Financial Condition and Results of Operations of ICG
and the financial statements and related notes of Arch Coal and
ICG, which are included and incorporated by reference into this
prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2011
|
|
|
|
|
|
|
|
|
|
As Further
|
|
|
|
Actual
|
|
|
As
Adjusted
|
|
|
Adjusted
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Cash and cash equivalents:
|
|
$
|
69.2
|
|
|
$
|
1,319.0
|
|
|
$
|
255.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing indebtedness of Arch Coal
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper(1)
|
|
$
|
60.6
|
|
|
$
|
60.6
|
|
|
$
|
60.6
|
|
Senior secured credit
facility(2)
|
|
|
|
|
|
|
|
|
|
|
551.6
|
|
Accounts receivable securitization
program(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
63/4% senior
notes due
2013(4)
|
|
|
451.5
|
|
|
|
451.5
|
|
|
|
451.5
|
|
83/4% senior
notes due
2016(5)
|
|
|
587.6
|
|
|
|
587.6
|
|
|
|
587.6
|
|
71/4% senior
notes due
2020(6)
|
|
|
500.0
|
|
|
|
500.0
|
|
|
|
500.0
|
|
Other
|
|
|
8.8
|
|
|
|
8.8
|
|
|
|
8.8
|
|
Existing indebtedness of ICG
|
|
|
|
|
|
|
|
|
|
|
|
|
ABL loan
facility(7)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
9.00% convertible senior notes due
2012(8)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
4.00% convertible senior notes due
2017(9)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
9.125% senior secured second-priority notes due
2018(10)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
Equipment notes
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
Capital leases and other
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
Notes offered concurrently
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2,000.0
|
|
Total debt
|
|
|
1,608.5
|
|
|
|
1,608.5
|
|
|
|
4,160.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Arch Coal stockholders
equity(11)
|
|
|
2,291.6
|
|
|
|
3,541.4
|
|
|
|
3,449.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
3,900.1
|
|
|
$
|
5,149.9
|
|
|
$
|
7,609.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(footnotes appear on following
page)
S-52
N/A: Not applicable to Arch
Coals actual capitalization as of March 31, 2011 or
as adjusted to solely give effect to this offering assuming that
we temporarily invest the proceeds in short-term,
interest-bearing obligations.
|
|
|
(1)
|
|
Arch Western Resources
commercial paper placement program is supported by a line of
credit that is subject to renewal annually and is next scheduled
to expire on January 30, 2012. As a result of the
transactions, we do not anticipate the renewal of the program.
The maximum aggregate principal amount available under our
commercial paper program is $75.0 million.
|
(2)
|
|
At March 31, 2011, we had no
outstanding borrowings and $860.0 million available for
borrowing under our senior secured credit facility. Our senior
secured credit facility expires on March 31, 2013. In
connection with the closing of the merger, we expect to enter
into an amended and restated senior secured credit facility on
substantially similar terms as the existing senior secured
credit facility which will increase commitments available under
the facility from $860.0 million to $1.75 billion.
|
(3)
|
|
We are party to a
$175.0 million accounts receivable securitization program
whereby eligible trade receivables are sold, without recourse,
to a multi-seller, asset-backed commercial paper conduit. The
entity through which these receivables are sold is consolidated
into our financial statements. The credit facility supporting
the borrowings under the program is subject to renewal annually
and expires on January 30, 2012. At March 31, 2011, we
had availability of $71.4 million under the accounts
receivable securitization program. We also had outstanding
letters of credit under the accounts receivable program of
$76.2 million as of March 31, 2011.
|
(4)
|
|
$450.0 million aggregate
principal amount of
63/4% senior
notes due 2013 of Arch Western Finance, LLC, guaranteed by Arch
Western Resources and certain of its subsidiaries.
|
(5)
|
|
$600.0 million aggregate
principal amount of
83/4% senior
notes due 2016 of Arch Coal, Inc., guaranteed by its
subsidiaries that guarantee indebtedness under its senior
secured credit facility.
|
(6)
|
|
$500.0 million aggregate
principal amount of
71/4% senior
notes due 2020 of Arch Coal, Inc., guaranteed by its
subsidiaries that guarantee indebtedness under its senior
secured credit facility.
|
(7)
|
|
ICGs ABL loan facility will
be terminated in connection with the transactions.
|
(8)
|
|
Assumes holders elect to convert
all of the 9.00% convertible senior notes due 2012 for cash
after the closing of the merger at an increased conversion rate
applicable as a result of the merger.
|
(9)
|
|
Assumes holders elect to convert
all of the 4.00% convertible senior notes due 2017 for cash
after the closing of the merger at an increased conversion rate
applicable as a result of the merger.
|
(10)
|
|
Assumes all of the 9.125% are
redeemed at a price equal to 100% of the principal amount plus
an applicable make-whole premium of $51.6 million
and accrued and unpaid interest to the redemption date.
|
(11)
|
|
Stockholders equity as
further adjusted has been reduced by $79.8 million to reflect
the impact of
merger-related
expenses and $11.8 million to reflect losses on extinguishment
of ICGs indebtedness.
|
S-53
THE
TRANSACTIONS
Acquisition
of ICG
Merger
Agreement
On May 2, 2011, Arch Coal, Merger Sub and ICG entered into
the Merger Agreement, pursuant to which Arch Coal, through
Merger Sub, agreed to commence a tender offer to acquire all of
the outstanding shares of ICGs common stock, par value
$0.01 per share, for the Offer Price of $14.60 per share in
cash, without interest. The tender offer was commenced on
May 16, 2011 and is scheduled to expire on June 14,
2011, unless extended.
Completion of the tender offer is subject to several conditions,
including:
|
|
|
|
|
a majority of the ICG Shares outstanding (generally determined
on a fully diluted basis) must be validly tendered and not
validly withdrawn prior to the expiration of the tender offer;
|
|
|
|
the expiration or termination of the applicable waiting period
under HSR;
|
|
|
|
the absence of a material adverse effect on ICG; and
|
|
|
|
certain other customary conditions.
|
The tender offer is not subject to a financing condition and
this common stock offering is not conditioned on the completion
of the tender offer, the completion of the New Senior Notes
offering or the consummation of the proposed acquisition of ICG.
The Merger Agreement also provides that following consummation
of the tender offer and satisfaction of certain customary
conditions, Merger Sub will be merged with and into ICG, with
ICG surviving as a wholly-owned subsidiary of Arch Coal. Upon
completion of the merger, each ICG Share outstanding immediately
prior to the effective time of the merger (excluding those ICG
Shares that are held by (1) Arch Coal, Merger Sub, ICG or
their respective subsidiaries and (2) stockholders of ICG
who properly exercised their appraisal rights under the Delaware
General Corporation Law) will be converted into the right to
receive the Offer Price.
If Merger Sub holds the Short-Form Threshold of outstanding
ICG Shares following the completion of the tender offer, the
parties will effect the merger as a short-form merger without
the need for approval by ICGs stockholders. In addition,
subject to the terms of the Merger Agreement and applicable law,
ICG has granted Merger Sub an irrevocable option, exercisable
after completion of the tender offer and Arch Coals
purchase of a majority of the ICG Shares, to purchase additional
ICG Shares from ICG as necessary so that Arch Coal, Merger Sub
or their subsidiaries own one ICG Share more than the
Short-Form Threshold. If for whatever reason Merger Sub
does not attain the Short-Form Threshold, ICG will hold a
special stockholders meeting to obtain stockholder
approval of the merger. In this event, ICG will call and convene
a stockholders meeting to obtain such approval, and Merger Sub
will vote all ICG Shares it acquires pursuant to the tender
offer in favor of the adoption of the Merger Agreement, thereby
assuring approval.
Arch Coal and ICG have made customary representations,
warranties and covenants in the Merger Agreement, including
covenants to promptly effect all registrations, filings and
submissions required pursuant to HSR and any other required
governmental approvals, the Exchange Act and other applicable
laws with respect to the tender offer and the merger; and to use
reasonable best efforts to do all things necessary, proper or
advisable to consummate and effectuate the transactions
contemplated by the Merger Agreement.
ICG has agreed prior to the consummation of the merger to
conduct its business in the ordinary course consistent with past
practice and to use commercially reasonable efforts to maintain
and preserve intact its business organization and preserve
intact certain business relationships and relationships with
applicable regulatory authorities. ICG has also agreed to comply
with certain specific operating covenants during the pendency of
the merger.
ICG has agreed not to solicit, initiate or knowingly encourage,
or engage in discussions concerning, alternative proposals for
the acquisition of ICG. However, subject to the satisfaction of
certain conditions and following receipt of an unsolicited
proposal or the occurrence of certain intervening events, ICG
and its board of directors, as
S-54
applicable, would be permitted to take certain actions, which
may, as more fully described in the Merger Agreement, include
terminating the Merger Agreement or changing the board of
directors recommendation, if the board of directors of ICG
has concluded in good faith after consultation with its advisors
that failure to do so could result in a breach of its fiduciary
duties.
The Merger Agreement can be terminated by Arch Coal or ICG under
certain circumstances, and ICG will be required to pay Arch Coal
a termination fee of $105.0 million in connection with
certain termination events.
The closing of this offering is conditioned upon the concurrent
closing of the merger.
Tender
and Voting Agreements
In connection with the parties entry into the Merger
Agreement, (1) certain affiliates of WL Ross &
Co. LLC who collectively own approximately 6% of the outstanding
stock of ICG have entered into a tender and voting agreement
with Arch Coal and Merger Sub and (2) certain affiliates of
Fairfax Financial Holdings Limited who collectively own
approximately 11% of the outstanding stock of ICG have entered
into a tender and voting agreement with Arch and Merger Sub
pursuant to each of which they have agreed to, among other
things, tender their shares of ICGs common stock into the
tender offer and vote their shares of ICGs common stock in
favor of adopting the Merger Agreement, if applicable.
Shareholder
Litigation
On May 9 and May 11, 2011, two putative class action
lawsuits were filed in the Court of Chancery of the State of
Delaware purportedly on behalf of a class of shareholders of
ICG, respectively docketed as Kirby v. International
Coal Group, Inc., et al., Case No. 6464 and
Kramer v. Wilbur L. Ross, Jr., et al., Case
No. 6470. On May 19, 2011, a putative class action
lawsuit was filed in the Court of Chancery of Delaware
purportedly on behalf of a class of shareholders of ICG,
docketed as Isakov v. International Coal Group, Inc., et
al., Case No. 6505 (collectively with the Kirby
and Kramer actions, the Delaware
Actions). Each of the complaints names as defendants ICG,
members of the ICG board, Arch Coal, and Merger Sub. Each of the
complaints alleges, inter alia, that the members of the
ICG board breached fiduciary duties owed to ICGs
shareholders by failing to take steps to maximize the value of
ICG to its shareholders or engage in an appropriate sales
process in connection with the proposed transaction and that
Arch Coal and Merger Sub aided and abetted the alleged breach.
The Isakov complaint further alleges that the members of
the ICG board breached their fiduciary duties by failing to
disclose material information in ICGs
14D-9 filed
on May 16, 2011. Plaintiffs seek relief that includes,
inter alia, an injunction prohibiting the proposed
transaction, an accounting, and costs and disbursements of the
action, including attorneys fees and experts fees.
In addition, on May 9, 2011, two putative class action
lawsuits were filed in the Circuit Court of Putnam County, West
Virginia purportedly on behalf of a class of shareholders of
ICG, docketed as Walker v. International Coal Group,
Inc., et al., Case
No. 11-C-123
and Huerta v. International Coal Group, Inc., et
al., Case
No. 11-C-124.
On May 11, 2011, a putative class action lawsuit was filed
in the Circuit Court of Kanawha County, West Virginia
purportedly on behalf of a class of shareholders of ICG,
docketed as Goe v. International Coal Group, Inc.,
et al., Case
No. 11-C-766.
On May 13, 2011, a putative class action complaint was
filed in the Circuit Court of Putnam County, West Virginia
purportedly on behalf of a class of shareholders of ICG,
docketed as Eyster v. International Coal Group,
Inc., et. al., Case
No. 11-C-131
(collectively with the Walker, Huerta, and Goe
actions, the West Virginia State Court Actions).
Each of the complaints names as defendants ICG, members of the
ICG Board, and Arch Coal. The Huerta and Eyster
complaints also name Merger Sub as a defendant. The Goe
complaint also names certain officers of ICG, Arch
Coals CEO and chairman of the board of directors, and
Merger Sub as defendants. Each of the complaints alleges,
inter alia, that ICG
and/or the
ICG directors
and/or
officers breached fiduciary duties owed to ICGs
shareholders by failing to take steps to maximize the value of
ICG to its shareholders or engage in an appropriate sales
process in connection with the proposed transaction and that
Arch Coal aided and abetted the alleged breach. The Huerta
and Eyster complaints also allege that ICG and Merger
Sub aided and abetted the alleged breach. The Goe
complaint additionally alleges that ICG is secondarily
liable for the alleged breach and that Merger Sub and Arch
Coals CEO and chairman of the board of directors aided and
abetted the alleged breach. Plaintiffs seek relief that
includes, inter alia, an injunction prohibiting the
proposed transaction, rescission, and costs and disbursements of
the action, including attorneys fees and experts
fees.
S-55
On May 12, 2011, a putative class action lawsuit was filed
in the United States District Court for the Southern District of
West Virginia purportedly on behalf of a class of shareholders
of ICG, docketed as Giles v. ICG, Inc., et al., Case
No. 3:11-0330
(the West Virginia Federal Court Action,
collectively with the West Virginia State Court Actions, the
West Virginia Actions). The complaint names as
defendants ICG, members of the ICG Board, Arch Coal, and Merger
Sub. The complaint alleges, inter alia, that the members
of the ICG board breached fiduciary duties owed to ICGs
shareholders by failing to take steps to maximize the value of
ICG to its shareholders or engage in an appropriate sales
process in connection with the proposed transaction and that
ICG, Arch Coal and Merger Sub aided and abetted the alleged
breach. Plaintiff seeks relief that includes, inter alia,
an injunction prohibiting the proposed transaction, an
accounting, and costs and disbursements of the action, including
attorneys fees and experts fees.
On May 13, 2011, defendants in the Delaware Actions and the
West Virginia Actions (collectively, the Actions)
filed motions in the Court of Chancery of the State of Delaware
and the United States District Court for the Southern District
of West Virginia seeking an order that the Actions proceed in a
single jurisdiction, and postmarked the same motion to the
Circuit Courts of Putnam and Kanawha Counties, West Virginia.
The defendants named in the Delaware Actions (the Delaware
Defendants) believe that the Delaware Actions are entirely
without merit, and that they have valid defenses to all claims
raised by the plaintiffs named in the Delaware Actions
(collectively, the Delaware Plaintiffs).
Nevertheless, and despite their belief that they ultimately
would have prevailed in the defense of the Delaware
Plaintiffs claims, to avoid the time and expense that
would be incurred by further litigation and the uncertainties
inherent in such litigation, on May 26, 2011, the parties
to the Delaware Actions entered into a memorandum of
understanding (the MOU) regarding a proposed
settlement of all claims asserted therein. In connection with
the MOU, Arch Coal and Merger Sub agreed to reduce the amount of
the proposed transactions termination fee by
$10 million, from $115 million to $105 million
and ICG agreed to make certain supplemental disclosures in its
Schedule 14D-9.
The settlement is contingent upon, among other things, the
execution of a formal stipulation of settlement and court
approval, as well as the consummation of the proposed
transaction.
Financing
Transactions
Concurrent
Arch Coal Notes Offering
Concurrently with this offering of common stock, we are
separately offering $2,000.0 million aggregate principal
amount of New Senior Notes, in accordance with Rule 144A
under the Securities Act. All of our subsidiaries that guarantee
indebtedness under our existing senior secured credit facility
will guarantee the New Senior Notes on a senior basis. Neither
the completion of the New Senior Notes offering nor the
completion of this offering is contingent on the completion of
the other. We anticipate closing this offering of common stock
prior to closing our concurrent offering of New Senior Notes. We
plan to use the net proceeds from the New Senior Notes offering,
together with the net proceeds of this offering as described
under Use of Proceeds. We estimate that the net
proceeds of the New Senior Notes offering, after deducting the
initial purchasers discounts and estimated fees and
expenses, will be approximately $1,958.2 million.
The concurrent offering of New Senior Notes will not be
registered under the Securities Act, or the securities laws of
any other jurisdiction, and the New Senior Notes may not be
offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The New
Senior Notes will be offered only to qualified institutional
buyers in the United States pursuant to Rule 144A under the
Securities Act and outside the United States pursuant to
Regulation S under the Securities Act. This description and
other information in this prospectus supplement regarding our
concurrent offering of New Senior Notes is included in this
prospectus supplement solely for informational purposes. Nothing
in this prospectus supplement should be construed as an offer to
sell, or the solicitation of an offer to buy, any New Senior
Notes.
Amended
and Restated Senior Secured Credit Facility
In connection with the closing of the merger, we expect to enter
into an amended and restated senior secured credit facility on
substantially similar terms as the existing senior secured
credit facility which will increase commitments available under
the facility from $860.0 million to $1.75 billion.
S-56
Redemption,
Conversion or Other Retirement of ICG Indebtedness
In connection with the merger, we expect to redeem, pay cash in
connection with the conversion of, or otherwise retire certain
outstanding ICG indebtedness, including:
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$200.0 million aggregate principal amount of ICGs
9.125% senior secured second-priority notes due 2018;
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$115.0 million aggregate principal amount of ICGs
4.00% convertible senior notes due 2017;
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$0.7 million aggregate principal amount of ICGs 9.00%
convertible senior notes due 2012; and
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$50.1 million aggregate principal amount of other ICG
indebtedness, including equipment notes and capital leases.
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Total cash required to complete the merger and the financing
transactions is estimated to be $3.8 billion, which
includes $238.3 million in debt premiums and approximately
$193.6 million of fees and expenses (including
$79.8 million of merger expenses but excluding accrued and
unpaid interest which must be paid to debtholders on the
applicable redemption dates). These cash requirements are
expected to be financed with proceeds from the common stock
offered hereby, proceeds from the concurrent New Senior Notes
offering and borrowings under our amended and restated senior
secured credit facility. In addition, the existing ICG ABL loan
facility will be terminated in connection with the financing
transactions.
S-57
PRICE
RANGE OF COMMON STOCK
Our common stock is listed on the NYSE under the symbol
ACI. The following table sets forth the high and low
sale prices of our common stock and the cash dividends per share
of common stock declared during the periods indicated.
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Dividends
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Price Range
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Declared
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High
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Low
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per
Share
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Year Ending December 31, 2011:
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First Quarter
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$
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36.99
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$
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30.70
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$
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0.10
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Second Quarter (through June 2, 2011)
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36.75
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27.32
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0.11
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Year Ended December 31, 2010:
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First Quarter
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$
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28.34
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$
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20.07
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$
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0.09
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Second Quarter
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28.52
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19.26
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0.10
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Third Quarter
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27.08
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19.09
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0.10
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Fourth Quarter
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35.52
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24.20
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0.10
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Year Ended December 31, 2009:
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First Quarter
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$
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20.63
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$
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11.77
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$
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0.09
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Second Quarter
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19.94
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12.52
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0.09
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Third Quarter
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24.10
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13.01
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0.09
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Fourth Quarter
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25.86
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19.41
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0.09
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Year Ended December 31, 2008:
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First Quarter
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$
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56.15
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$
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32.98
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$
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0.07
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Second Quarter
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77.40
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41.25
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0.09
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Third Quarter
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75.41
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27.90
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0.09
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Fourth Quarter
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32.58
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10.43
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0.09
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On June 2, 2011, the last reported sales price of our
common stock on the NYSE was $27.43 per share. On May 27,
2011, there were approximately 6,950 registered holders of our
common stock.
DIVIDEND
POLICY
Holders of our common stock are entitled to receive dividends
when they are declared by our board of directors. Historically,
we have paid quarterly dividends ranging from $0.03 per share in
2000 to $0.11 per share that was declared in April 2011. When
dividends are declared on our common stock, they are usually
paid in mid-March, mid-June, mid-September and mid-December.
There is no assurance as to the amount or payment of dividends
in the future because all future payments of dividends are at
the discretion of our board of directors and will depend on our
future earnings, capital requirements, financial condition,
operating conditions, contractual restrictions and such other
factors that our board of directors may deem relevant. You
should read Managements Discussion and Analysis of
Financial Condition and Results of Operations of Arch
Coal Liquidity and Capital Resources for more
information about restrictions on our ability to declare
dividends.
S-58
SELECTED
HISTORICAL FINANCIAL DATA OF ARCH COAL
The selected historical financial data is derived from Arch
Coals audited consolidated financial statements as of
December 31, 2010 and 2009 and for the years ended
December 31, 2010, 2009 and 2008, which are included and
incorporated by reference into this prospectus supplement. The
selected historical financial data of Arch Coal as of
December 31, 2008, 2007 and 2006 and for the years ended
December 31, 2007 and 2006 is derived from audited
consolidated financial statements which are not included or
incorporated by reference in this prospectus supplement. The
selected historical financial data for the three months ended
March 31, 2011 and 2010, and the historical balance sheet
data as of March 31, 2011 and 2010, have been derived from
Arch Coals unaudited condensed consolidated financial
statements included and incorporated by reference into this
prospectus supplement.
The historical results presented below are not necessarily
indicative of results that you can expect for any future period.
You should read this table in conjunction with the sections
entitled Unaudited Pro Forma Condensed Combined Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations of
Arch Coal and the consolidated financial statements of
Arch Coal and the related notes included and incorporated by
reference into this prospectus supplement.
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Three Months Ended
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Year Ended
December 31,
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March 31,
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2010(1)(2)
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2009(3)
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2008
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2007(4)
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2006(5)
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2011
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2010
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(Unaudited)
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(in millions, except per share
data)
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Statement of Operations Data:
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Coal sales revenue
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$
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3,186.3
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$
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2,576.1
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$
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2,983.8
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$
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2,413.6
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$
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2,500.4
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$
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872.9
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$
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711.9
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Change in fair value of coal derivatives and trading activities,
net
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(8.9
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)
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12.1
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55.1
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7.3
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(1.8
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)
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5.9
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Income from operations
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324.0
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123.7
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461.3
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230.6
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338.1
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102.2
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32.2
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Net income (loss) attributable to Arch Coal
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158.9
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42.2
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354.3
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175.0
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261.0
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55.6
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(1.8
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)
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Preferred stock dividends
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(0.2
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)
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(0.4
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Basic earnings (loss) per common share
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$
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0.98
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$
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0.28
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$
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2.47
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$
|
1.23
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$
|
1.83
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$
|
0.34
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$
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(0.01
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)
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Diluted earnings (loss) per common share
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$
|
0.97
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$
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0.28
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$
|
2.45
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$
|
1.21
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$
|
1.80
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$
|
0.34
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$
|
(0.01
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)
|
Balance Sheet Data:
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Total assets
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$
|
4,880.8
|
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$
|
4,840.6
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$
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3,979.0
|
|
|
$
|
3,594.6
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|
$
|
3,320.8
|
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$
|
4,900.0
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|
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$
|
4,813.3
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|
Working capital
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207.6
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|
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|
55.1
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|
|
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46.6
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|
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(35.4
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)
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46.5
|
|
|
|
313.2
|
|
|
|
138.8
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Long-term debt, less current maturities
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1,538.7
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|
|
|
1,540.2
|
|
|
|
1,098.9
|
|
|
|
1,085.6
|
|
|
|
1,122.6
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|
1,539.0
|
|
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|
1,540.3
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|
Other long-term obligations
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|
|
566.7
|
|
|
|
544.6
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|
|
|
482.7
|
|
|
|
412.5
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384.5
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572.9
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567.2
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Arch Coal stockholders equity
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2,237.5
|
|
|
|
2,115.1
|
|
|
|
1,728.7
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|
|
|
1,531.7
|
|
|
|
1,365.6
|
|
|
|
2,291.6
|
|
|
|
2,105.1
|
|
Common Stock Data:
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Dividends per share
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$
|
0.3900
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|
$
|
0.3600
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|
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$
|
0.3400
|
|
|
$
|
0.2700
|
|
|
$
|
0.2200
|
|
|
$
|
0.1000
|
|
|
$
|
0.9000
|
|
Shares outstanding at period-end
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|
|
162.6
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|
|
|
162.4
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|
|
|
142.8
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|
143.2
|
|
|
|
142.2
|
|
|
|
162.8
|
|
|
|
162.4
|
|
Cash Flow Data:
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|
|
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|
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|
|
|
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Cash provided by operating activities
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|
$
|
697.1
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|
|
$
|
383.0
|
|
|
$
|
679.1
|
|
|
$
|
330.8
|
|
|
$
|
308.1
|
|
|
$
|
86.1
|
|
|
$
|
93.3
|
|
Depreciation, depletion and amortization, including amortization
of acquired sales contracts, net
|
|
|
400.7
|
|
|
|
321.2
|
|
|
|
292.8
|
|
|
|
242.1
|
|
|
|
208.4
|
|
|
|
89.5
|
|
|
|
99.3
|
|
Capital expenditures
|
|
|
314.7
|
|
|
|
323.1
|
|
|
|
497.3
|
|
|
|
488.4
|
|
|
|
623.2
|
|
|
|
38.7
|
|
|
|
32.0
|
|
Net proceeds from the issuance of long term debt
|
|
|
500.0
|
|
|
|
570.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of common stock
|
|
|
|
|
|
|
326.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long term debt, including redemption premium
|
|
|
(505.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in borrowings under lines of credit and
commercial paper program
|
|
|
(196.5
|
)
|
|
|
(85.8
|
)
|
|
|
13.5
|
|
|
|
133.5
|
|
|
|
192.3
|
|
|
|
3.7
|
|
|
|
(19.3
|
)
|
S-59
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended
December 31,
|
|
|
March 31,
|
|
|
|
2010(1)(2)
|
|
|
2009(3)
|
|
|
2008
|
|
|
2007(4)
|
|
|
2006(5)
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(in millions, except per share
data)
|
|
|
Payments made to acquire Jacobs Ranch
|
|
|
|
|
|
|
(768.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments
|
|
|
63.4
|
|
|
|
55.0
|
|
|
|
48.8
|
|
|
|
38.9
|
|
|
|
31.8
|
|
|
|
16.3
|
|
|
|
14.6
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold
|
|
|
162.8
|
|
|
|
126.1
|
|
|
|
139.6
|
|
|
|
135.0
|
|
|
|
135.0
|
|
|
|
36.6
|
|
|
|
37.8
|
|
Tons produced
|
|
|
156.3
|
|
|
|
119.6
|
|
|
|
133.1
|
|
|
|
126.6
|
|
|
|
126.0
|
|
|
|
36.6
|
|
|
|
38.2
|
|
Tons purchased from third parties
|
|
|
6.8
|
|
|
|
7.5
|
|
|
|
6.0
|
|
|
|
8.5
|
|
|
|
10.1
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
|
(1)
|
|
In the second quarter of 2010, we
exchanged 68.4 million tons of coal reserves in the
Illinois Basin for an additional 9% ownership interest in Knight
Hawk, increasing our ownership to 42%. We recognized a pre-tax
gain of $41.6 million on the transaction, representing the
difference between the fair value and net book value of the coal
reserves, adjusted for our retained ownership interest in the
reserves through the investment in Knight Hawk.
|
(2)
|
|
On August 9, 2010, we issued
$500.0 million in aggregate principal amount of
71/4% senior
unsecured notes due 2020 at par. We used the net proceeds from
the offering and cash on hand to fund the redemption on
September 8, 2010 of $500.0 million aggregate
principal amount of our outstanding
63/4% senior
notes due 2013 at a redemption price of 101.125%. We recognized
a loss on the redemption of $6.8 million.
|
(3)
|
|
On October 1, 2009, we
purchased the Jacobs Ranch mining complex in the Powder River
Basin from Rio Tinto Energy America for a purchase price of
$768.8 million. To finance the acquisition, the Company
sold 19.55 million shares of its common stock and
$600.0 million in aggregate principal amount of senior
unsecured notes. The net proceeds received from the issuance of
common stock were $326.5 million and the net proceeds
received from the issuance of the
83/4% senior
unsecured notes were $570.3 million.
|
(4)
|
|
On June 29, 2007, we sold
select assets and related liabilities associated with our Mingo
Logan Ben Creek mining complex in West Virginia for
$43.5 million. We recognized a net gain of
$8.9 million in 2007 resulting from the sale.
|
(5)
|
|
On October 27, 2005, we
conducted a precautionary evacuation of our West Elk mine after
we detected elevated readings of combustion-related gases in an
area of the mine where we had completed mining activities but
had not yet removed final longwall equipment. We estimate that
the idling resulted in $30.0 million of lost profits during
the first quarter of 2006, in addition to the effect of the
idling and fire-fighting costs incurred during the fourth
quarter of 2005 of $33.3 million. We recognized insurance
recoveries related to the event of $41.9 million during the
year ended December 31, 2006.
|
S-60
SELECTED
HISTORICAL FINANCIAL DATA OF ICG
The selected historical financial data is derived from
ICGs audited consolidated financial statements as of
December 31, 2010 and 2009 and for the years ended
December 31, 2010, 2009 and 2008, which are included and
incorporated by reference into this prospectus supplement. The
selected historical financial data of ICG as of
December 31, 2008, 2007 and 2006 and for the years ended
December 31, 2007 and 2006 is derived from audited
consolidated financial statements which are not included or
incorporated by reference into this prospectus supplement. The
selected historical financial data for the three months ended
March 31, 2011 and 2010, and the historical balance sheet
data as of March 31, 2011 and 2010, have been derived from
ICGs unaudited condensed consolidated financial statements
included and incorporated by reference into this prospectus
supplement.
The historical results presented below are not necessarily
indicative of results that you can expect for any future period.
You should read this table in conjunction with the sections
entitled Unaudited Pro Forma Condensed Combined Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations of
ICG and the consolidated financial statements of ICG and
the related notes included and incorporated by reference into
this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended
December 31,
|
|
|
March 31,
|
|
|
|
2010(1)
|
|
|
2009(2)
|
|
|
2008(3)
|
|
|
2007(3)
|
|
|
2006
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions, except per share
data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenues
|
|
$
|
1,078.2
|
|
|
$
|
1,006.6
|
|
|
$
|
998.2
|
|
|
$
|
770.7
|
|
|
$
|
834.0
|
|
|
$
|
283.7
|
|
|
$
|
270.5
|
|
Freight and handling revenues
|
|
|
35.4
|
|
|
|
26.3
|
|
|
|
45.2
|
|
|
|
29.6
|
|
|
|
18.9
|
|
|
|
7.2
|
|
|
|
9.4
|
|
Other revenues
|
|
|
52.8
|
|
|
|
92.4
|
|
|
|
53.3
|
|
|
|
48.9
|
|
|
|
38.7
|
|
|
|
11.1
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,166.4
|
|
|
|
1,125.3
|
|
|
|
1,096.7
|
|
|
|
849.2
|
|
|
|
891.6
|
|
|
|
302.0
|
|
|
|
288.6
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales
|
|
|
850.3
|
|
|
|
832.2
|
|
|
|
883.0
|
|
|
|
732.1
|
|
|
|
739.9
|
|
|
|
218.0
|
|
|
|
220.1
|
|
Freight and handling costs
|
|
|
35.4
|
|
|
|
26.3
|
|
|
|
45.2
|
|
|
|
29.6
|
|
|
|
18.9
|
|
|
|
7.2
|
|
|
|
9.4
|
|
Cost of other revenues
|
|
|
48.3
|
|
|
|
36.1
|
|
|
|
35.7
|
|
|
|
34.0
|
|
|
|
29.4
|
|
|
|
7.3
|
|
|
|
7.2
|
|
Depreciation, depletion and amortization
|
|
|
104.6
|
|
|
|
106.1
|
|
|
|
96.0
|
|
|
|
86.5
|
|
|
|
72.2
|
|
|
|
25.6
|
|
|
|
26.4
|
|
Selling, general and administrative
|
|
|
35.6
|
|
|
|
32.7
|
|
|
|
38.1
|
|
|
|
33.3
|
|
|
|
34.6
|
|
|
|
51.2
|
|
|
|
8.6
|
|
Gain on sale of assets
|
|
|
(4.2
|
)
|
|
|
(3.6
|
)
|
|
|
(32.5
|
)
|
|
|
(38.6
|
)
|
|
|
(1.1
|
)
|
|
|
(6.7
|
)
|
|
|
(3.5
|
)
|
Goodwill impairment loss
|
|
|
|
|
|
|
|
|
|
|
30.2
|
|
|
|
170.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived asset impairment loss
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,070.0
|
|
|
|
1,029.8
|
|
|
|
1,102.9
|
|
|
|
1,047.3
|
|
|
|
893.9
|
|
|
|
302.6
|
|
|
|
268.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
96.4
|
|
|
|
95.5
|
|
|
|
(6.2
|
)
|
|
|
(198.1
|
)
|
|
|
(2.3
|
)
|
|
|
(0.6
|
)
|
|
|
20.4
|
|
Interest and Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(29.4
|
)
|
|
|
(13.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.0
|
)
|
Interest expense, net
|
|
|
(40.7
|
)
|
|
|
(53.0
|
)
|
|
|
(43.6
|
)
|
|
|
(36.0
|
)
|
|
|
(18.1
|
)
|
|
|
(8.1
|
)
|
|
|
(13.3
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other income (expense)
|
|
|
(70.1
|
)
|
|
|
(66.3
|
)
|
|
|
(43.6
|
)
|
|
|
(35.7
|
)
|
|
|
(16.0
|
)
|
|
|
(8.1
|
)
|
|
|
(35.3
|
)
|
Income (loss) before income taxes
|
|
|
26.3
|
|
|
|
29.3
|
|
|
|
(49.8
|
)
|
|
|
(233.8
|
)
|
|
|
(18.3
|
)
|
|
|
(8.7
|
)
|
|
|
(14.9
|
)
|
Income tax benefit (expense)
|
|
|
3.8
|
|
|
|
(7.7
|
)
|
|
|
23.6
|
|
|
|
85.9
|
|
|
|
9.0
|
|
|
|
2.4
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
30.1
|
|
|
|
21.5
|
|
|
|
(26.2
|
)
|
|
|
(147.9
|
)
|
|
|
(9.3
|
)
|
|
|
(6.3
|
)
|
|
|
(8.9
|
)
|
Net (income) loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to International Coal Group,
Inc.
|
|
$
|
30.1
|
|
|
$
|
21.5
|
|
|
$
|
(26.2
|
)
|
|
$
|
(147.6
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
(6.3
|
)
|
|
$
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended
December 31,
|
|
|
March 31,
|
|
|
|
2010(1)
|
|
|
2009(2)
|
|
|
2008(3)
|
|
|
2007(3)
|
|
|
2006
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions, except per share
data)
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
(0.17
|
)
|
|
$
|
(0.97
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
Diluted
|
|
|
0.15
|
|
|
|
0.14
|
|
|
|
(0.17
|
)
|
|
|
(0.97
|
)
|
|
|
(0.06
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
Weighted-Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
197.3
|
|
|
|
153.6
|
|
|
|
152.6
|
|
|
|
152.3
|
|
|
|
152.0
|
|
|
|
202.6
|
|
|
|
181.3
|
|
Diluted
|
|
|
205.2
|
|
|
|
155.3
|
|
|
|
152.6
|
|
|
|
152.3
|
|
|
|
152.0
|
|
|
|
202.6
|
|
|
|
181.3
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
215.3
|
|
|
$
|
92.6
|
|
|
$
|
63.9
|
|
|
$
|
107.1
|
|
|
$
|
18.7
|
|
|
$
|
186.6
|
|
|
$
|
301.7
|
|
Total assets
|
|
|
1,479.7
|
|
|
|
1,368.0
|
|
|
|
1,350.6
|
|
|
|
1,303.4
|
|
|
|
1,316.9
|
|
|
|
1,495.0
|
|
|
|
1,584.16
|
|
Long-term debt and capital leases
|
|
|
326.4
|
|
|
|
384.3
|
|
|
|
432.9
|
|
|
|
391.2
|
|
|
|
180.0
|
|
|
|
332.0
|
|
|
|
471.9
|
|
Total liabilities
|
|
|
725.4
|
|
|
|
758.7
|
|
|
|
841.5
|
|
|
|
771.6
|
|
|
|
655.3
|
|
|
|
745.7
|
|
|
|
834.3
|
|
Total stockholders equity
|
|
|
754.3
|
|
|
|
609.2
|
|
|
|
509.1
|
|
|
|
531.8
|
|
|
|
661.6
|
|
|
|
749.3
|
|
|
|
750.3
|
|
Total liabilities and stockholders equity
|
|
|
1,479.7
|
|
|
|
1,368.0
|
|
|
|
1,350.6
|
|
|
|
1,303.4
|
|
|
|
1,316.9
|
|
|
|
1,495.0
|
|
|
|
1,584.6
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
187.4
|
|
|
$
|
115.8
|
|
|
$
|
78.7
|
|
|
$
|
22.5
|
|
|
$
|
55.6
|
|
|
$
|
7.9
|
|
|
$
|
5.4
|
|
Investing activities
|
|
|
(89.3
|
)
|
|
|
(73.2
|
)
|
|
|
(124.0
|
)
|
|
|
(126.9
|
)
|
|
|
(160.8
|
)
|
|
|
(30.5
|
)
|
|
|
(10.8
|
)
|
Financing activities
|
|
|
24.5
|
|
|
|
(13.9
|
)
|
|
|
2.1
|
|
|
|
192.8
|
|
|
|
114.7
|
|
|
|
(6.1
|
)
|
|
|
(214.4
|
)
|
Capital expenditures
|
|
|
102.9
|
|
|
|
66.3
|
|
|
|
132.8
|
|
|
|
160.8
|
|
|
|
165.7
|
|
|
|
31.2
|
|
|
|
20.6
|
|
|
|
|
(1)
|
|
During the year ended
December 31, 2010, ICG completed public offerings of
24,444,365 shares of its common stock, par value $0.01 per
share, at a public offering price of $4.47 per share,
$115.0 million aggregate principal amount of
4.00% Convertible Senior Notes due 2017 and
$200.0 million aggregate principal amount of
9.125% Senior Secured Second-Priority Notes due 2018. ICG
used $169.5 million of the net proceeds from the common
stock and Convertible Notes due 2017 offerings to finance the
repurchase of $138.8 million aggregate principal amount of
its 9.00% Convertible Senior Notes due 2012. ICG used
$189.0 million of the net proceeds from the
9.125% Senior Secured Second-Priority Notes due 2018
offering to finance the repurchase of $175.0 million
aggregate principal amount of its 10.25% Senior Notes due
2014. As a result of the repurchases, ICG recognized losses on
extinguishment of the related debt totaling $24.0 million
for the year ended December 31, 2010. Additionally, ICG
entered into a series of exchange agreements in December 2009.
One exchange agreement, as amended, provided for closing of
additional exchanges on each of January 11, 2010 and
January 19, 2010 for exchange transactions occurring in
2010. Subsequent to December 31, 2009, the noteholder
exchanged $22.0 million aggregate principal amount of
9.00% Convertible Senior Notes due 2012 for
6,198,668 shares of ICGs common stock. As a result of
the exchanges settled in January 2010, ICG recognized a loss on
extinguishment of the related debt totaling $5.4 million
during the year ended December 31, 2010.
|
(2)
|
|
During the year ended
December 31, 2009, ICG entered into a series of privately
negotiated agreements pursuant to which it issued a total of
18,660,550 shares of our common stock in exchange for
$63.5 million aggregate principal amount of its
9.00% Convertible Senior Notes due 2012. As a result of the
exchanges, ICG recognized losses on extinguishment of the
related debt totaling $13.3 million for the year ended
December 31, 2009.
|
(3)
|
|
During the years ended
December 31, 2008 and 2007, ICG recognized impairment
losses of $37.4 million and $170.4 million,
respectively. For 2008, $30.2 million of the loss related
to impairment of goodwill at ICGs ADDCAR subsidiary and
$7.2 million related to impairment of long-lived assets.
For 2007, the impairment loss related to impairment of goodwill
at various of ICGs business units.
|
S-62
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 and ICG included and incorporated by reference into
this prospectus supplement 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.
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
included and incorporated by reference in this prospectus
supplement.
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.
S-63
ARCH
COAL, INC. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR
ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
|
|
|
|
Arch Coal
|
|
|
ICG
|
|
|
Related to
|
|
|
Related to
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Financing
|
|
|
Merger
|
|
|
Pro
Forma
|
|
|
|
(in thousands)
|
|
|
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.
S-64
ARCH
COAL, INC. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE
MONTHS ENDED MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
|
|
|
|
Arch Coal
|
|
|
ICG
|
|
|
Related to
|
|
|
Related to
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Financing
|
|
|
Merger
|
|
|
Pro
Forma
|
|
|
|
(in thousands)
|
|
|
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.
S-65
ARCH
COAL, INC. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH
31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
|
|
|
|
Arch Coal
|
|
|
ICG
|
|
|
Related to
|
|
|
Related to
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Financing(a)
|
|
|
Merger
|
|
|
Pro Forma
|
|
|
|
(in thousands)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|