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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-K

( X )ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20152017 

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-13105


Arch Coal, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)

43-0921172
(I.R.S. Employer
Identification Number)

One CityPlace Drive, Ste. 300, St. Louis, Missouri
(Address of principal executive offices)

63141
(Zip code)

Registrant’s telephone number, including area code: (314) 994-2700


Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, $.01 par value

OTC Pink

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o¨


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o¨ No x


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filed). Yes x Noo¨


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ox




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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ox

Accelerated filer x¨

Non-accelerated filer o¨
(Do not check if a smaller reporting company)

Smaller reporting company o¨

Emerging growth company ¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ No x


The aggregate market value of the voting stock held by non-affiliates of the registrant (excluding outstanding shares beneficially owned by directors, officers, other affiliates and treasury shares) as of June 30, 20152017 was approximately $72.4 million.$1.7 billion.


Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

At February 12, 201616, 2018 there were 21,446,23320,986,812 shares of the registrant’s common stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the 2018 annual stockholders’ meeting are incorporated by reference into Part III of this Form 10-K.


























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If you are not familiar with any of the mining terms used in this report, we have provided explanations of many of them under the caption “Glossary of Selected Mining Terms” on page 3631 of this report. Unless the context otherwise requires, all references in this report to “Arch,” “we,” “us,” or “our” are to Arch Coal, Inc. and its subsidiaries.

CAUTIONARY STATEMENTS REGARDING FORWARD-FORWARD‑LOOKING INFORMATION

This report contains forward-lookingforward‑looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, such as our expected future business and financial performance, and are intended to come within the safe harbor protections provided by those sections. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “predicts,” “projects,” “seeks,” “should,” “will” or other comparable words and phrases identify forward-lookingforward‑looking statements, which speak only as of the date of this report. Forward-lookingForward‑looking statements by their nature address matters that are, to different degrees, uncertain. Actual results may vary significantly from those anticipated due to many factors, including:

·

our ability to continue as a going concern;

·                  our ability to successfully complete a reorganization underrecent emergence from Chapter 11 and emerge from bankruptcy;

·                  potential adverse effects of the Chapter 11 Cases (as defined below) on our liquidity and results of operations;

·                  our ability to obtain timely Bankruptcy Court approval with respect to motions filed in the Chapter 11 Cases;

·                  objections to the Company’s plan of reorganization that could protract the Chapter 11 Cases;

·                  employee attrition and our ability to retain senior management and key personnel due to the distractions and uncertainties, including our ability to provide adequate compensation and benefits during the Chapter 11 Cases;

·bankruptcy protection;

market demand for coal and electricity;

·

geologic conditions, weather and other inherent risks of coal mining that are beyond our control;

·

competition, both within our industry and with producers of competing energy sources;

·

excess production and production capacity;

·

our ability to acquire or develop coal reserves in an economically feasible manner;

·

inaccuracies in our estimates of our coal reserves;

·

availability and price of mining and other industrial supplies;

·

availability of skilled employees and other workforce factors;

·

disruptions in the quantities of coal produced by our contract mine operators;

·

our ability to collect payments from our customers;

·

defects in title or the loss of a leasehold interest;

·

railroad, barge, truck and other transportation performance and costs;

·

our ability to successfully integrate the operations that we acquire;

·

our ability to secure new coal supply arrangements or to renew existing coal supply arrangements;

·

our relationships with, and other conditions affecting our customers;

·

the deferral of contracted shipments of coal by our customers;

·

our ability to service our outstanding indebtedness;

·

our ability to comply with the restrictions imposed by our DIP CreditTerm Loan Agreement, our Securitization Facility, andInventory-Based Revolving Credit Facility, other financing arrangements;

·arrangements or any subsequent financing or credit facilities;

the availability and cost of surety bonds;

·

our ability to manage the market and other risks associated with certain trading and other asset optimization strategies;

·


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the effects of foreign and domestic trade policies, actions or disputes on the level of trade among the countries and regions in which we operate, the competitiveness of our exports, or our ability to export;
terrorist attacks, military action or war;

·

our ability to obtain and renew various permits, including permits authorizing the disposition of certain mining waste;

·

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;

·

the accuracy of our estimates of reclamation and other mine closure obligations;

·

the existence of hazardous substances or other environmental contamination on property owned or used by us;
our ability to continue as a going concern; and

·

other factors, including those discussed in “Legal Proceedings”, set forth in Item 3 of this report and “Risk Factors,” set forth in Item 1A of this report.

All forward-lookingforward‑looking statements in this report, as well as all other written and oral forward-lookingforward‑looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements contained in this section and elsewhere in this report. These factors are not necessarily all of the important factors that could affect us. These risks and uncertainties, as well as other risks of which we are not aware or which we currently do not believe to be material, may cause our actual future results to be materially different than those expressed in our forward-lookingforward‑looking statements. These forward-lookingforward‑looking statements speak only as of the date on which such statements were made, and we do not undertake to update our forward-lookingforward‑looking statements, whether as a result of new information, future events or otherwise, except as may be required by the federal securities laws.



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PART I

ITEM 1. BUSINESS

Introduction
Introduction

We are one of the world’s largest coal producers. For the year ended December 31, 2015,2017, we sold approximately 12898 million tons of coal, including approximately 1.41.5 million tons of coal we purchased from third parties. We sell substantially all of our coal to power plants, steel mills and industrial facilities. At December 31, 2015,2017, we operated or contracted out the operation of, 169 active mines located in each of the major coal-producing regions of the United States. The locations of our mines and access to export facilities enable us to ship coal worldwide.

We incorporate by reference the information about the geographical breakdown of our coal sales for the respective periods covered within this Form 10-K contained in Note 24 to the Consolidated Financial Statements.

Our History

We were organized in Delaware in 1969 as Arch Mineral Corporation. In July 1997, we merged with Ashland Coal, Inc., a subsidiary of Ashland Inc. that was formed in 1975. As a result of the merger, we became one of the largest producers of low-sulfurlow‑sulfur coal in the eastern United States.

In June 1998, we expanded into the western United States when we acquired the coal assets of Atlantic Richfield Company. This acquisition included the Black Thunder and Coal Creek mines in the Powder River Basin of Wyoming, the West Elk mine in Colorado and a 65% interest in Canyon Fuel Company, which operated three mines in Utah. In October 1998, we acquired a leasehold interest in the Thundercloud reserve, a 412-million-ton412‑million‑ton federal reserve tract adjacent to the Black Thunder mine.

In July 2004, we acquired the remaining 35% interest in Canyon Fuel Company. In August 2004, we acquired Triton Coal Company’s North Rochelle mine adjacent to our Black Thunder operation. In September 2004, we acquired a leasehold interest in the Little Thunder reserve, a 719-million-ton719‑million‑ton federal reserve tract adjacent to the Black Thunder mine.

In December 2005, we sold the stock of Hobet Mining, Inc., Apogee Coal Company and Catenary Coal Company and their four associated mining complexes (Hobet 21, Arch of West Virginia, Samples and Campbells Creek) and approximately 455 million tons of coal reserves in Central Appalachia to Magnum Coal Company, which was subsequently acquired by Patriot Coal Corporation.

In October 2009, we acquired Rio Tinto’s Jacobs Ranch mine complex in the Powder River Basin of Wyoming, which included 345 million tons of low-cost, low-sulfurlow‑cost, low‑sulfur coal reserves, and integrated it into the Black Thunder mine.

In June 2011, we acquired International Coal Group, Inc., which owned and operated mines primarily in the Appalachian Region of the United States.

In August 2013, we sold the equity interests of Canyon Fuel Company, LLC (“Canyon Fuel”), which owned and operated our Utah operations.

Filing

Restructuring Under Chapter 11 of the United States Bankruptcy Code

On January 11, 2016 (the “Petition Date”), Arch and substantially all of Arch’sits wholly owned domestic subsidiaries (the “Filing Subsidiaries” and, together with Arch, the “Debtors”) filed voluntary petitions for reorganization (collectively, the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Missouri (the “Court”). The Debtor’s Chapter 11 Cases (collectively, the “Chapter 11 Cases”) are beingwere jointly administered under the caption In re Arch Coal, Inc., et al. Case No. 16-40120 (lead case). EachDuring the bankruptcy proceedings, each Debtor will continue to operateoperated its business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court.

The filing


On September 13, 2016, the Bankruptcy Court entered an order, Docket No. 1324, confirming the Debtors’ Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Petitions constituted an eventCode dated as of default that accelerated Arch’s obligations underSeptember 11, 2016 (the “Plan”), which order was amended on September 15, 2016, Docket No. 1334.


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On October 5, 2016, Arch Coal emerged from Chapter 11 and the documents governing eachPlan became effective on such date (the “Effective Date”).

On the Plan Effective Date, we applied fresh start accounting which required us to allocate our reorganization value to the fair value of Arch’s 7.00% senior notes due 2019, 9.875% senior notes due 2019, 8.00% senior secured second lien notes due 2019, 7.25% senior notes due 2020, 7.25% senior notes due 2021 (together, the “senior notes”)assets and senior secured first lien term loan due 2018 (the “Existing Credit Agreement”) (collectivelyliabilities in conformity with the senior notes,guidance for the “Debt Instruments”),acquisition method of accounting for business combinations. In addition to fresh start accounting, our consolidated financial statements reflect all impacts of the transactions contemplated by the Plan. Under the provisions of fresh start accounting, a new entity has been created for financial reporting purposes. We selected an accounting convenience date of October 1, 2016 for purposes of applying fresh start accounting as further describedthe activity between the convenience date and the Effective Date does not result in Note 14, “Debta material difference in the results. References to “Successor” in the financial statements and Financing Arrangements”accompanying footnotes are in reference to reporting dates on or after October 2, 2016; references to “Predecessor” in the financial statements and accompanying footnotes are in reference to reporting dates through October 1, 2016 which includes the impact of the Plan provisions and the application of fresh start accounting. As such, our financial statements for the Successor will not be comparable in many respects to its financial statements for periods prior to the adoption of fresh start accounting and prior to the accounting for the effects of the Plan.

For additional information, see Note 1, “Basis of Presentation” and Note 3, “Emergence from Bankruptcy and Fresh Start Accounting” to our Consolidated Financial Statements included in thewithin this Form 10-K. Immediately after filing the Bankruptcy Petitions, Arch began notifying all known current or potential creditors of the Debtors of the bankruptcy filings.

Additionally, on the Petition Date, the New York Stock Exchange (the “NYSE”) determined that Arch was no longer suitable for listing pursuant to Section 8.02.01D of the NYSE continued listing standards, and trading in the Company’s common stock was suspended on January 11, 2016.  We expect that the existing common stock of the Company will be extinguished upon the Company’s emergence from Chapter 11 and existing equity holders will not receive consideration in respect of their equity interests.

On the Petition Date, the Debtors filed a number of motions with the Court generally designed to stabilize their operations and facilitate the Debtors’ transition into Chapter 11. Certain of these motions sought authority from the Court for the Debtors to make payments upon, or otherwise honor, certain pre-petition obligations (e.g., obligations related to certain employee wages, salaries and benefits and certain vendors and other providers essential to the Debtors’ businesses). The Court has entered orders approving the relief sought in these motions.

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against the Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases also automatically stayed the continuation of most legal proceedings, including certain of the third party litigation matters described under “Legal Proceedings,” or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

As required by the Bankruptcy Code, the U.S. Trustee for the Eastern District of Missouri appointed an official committee of unsecured creditors (the “Creditors’ Committee”) on January 25, 2016. The Creditors’ Committee represents all unsecured creditors of the Debtors and has a right to be heard on all matters that come before the Court.

As a result of extremely challenging current market conditions, Arch believes it will require a significant restructuring of its balance sheet in order to continue as a going concern in the long term. The Company’s ability to continue as a going concern is dependent upon, among other things, its ability to become profitable and maintain profitability and its ability to successfully implement its Chapter 11 plan strategy. As a result of the Bankruptcy Petitions, the realization of the Debtors’ assets and the satisfaction of liabilities are subject to significant uncertainty. While operating as a debtor-in-possession pursuant to the Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Court or as otherwise permitted in the ordinary course of business for amounts other than those reflected in the accompanying consolidated financial statements. Further, a Chapter 11 plan is likely to materially change the amounts and classifications of assets and liabilities reported in the Company’s Consolidated Financial Statements.

Restructuring Support Agreement

In connection with the filing of the Bankruptcy Petitions, Arch entered into a Restructuring Support Agreement, dated as of January 10, 2016 (the “Restructuring Support Agreement”), among the Debtors and holders of over 50% of Arch’s first lien term loans under Arch’s Existing Credit Agreement (the “Supporting First Lien Creditors”), providing that the Supporting First Lien Creditors will support a restructuring of the Debtors, subject to the following terms and conditions contemplated therein, among others:


·                  existing common stock of Arch would likely be extinguished upon the Company’s emergence from Chapter 11, and existing equity holders would likely not receive consideration in respect of their equity interests;

·                  claims against the Debtors arising under the DIP Facility (as defined below) would be paid in full in cash or receive such other treatment as may be consented to by the holders of such claims;

·                  claims against the Debtors of holders of first lien term loans would be exchanged for (a) a combination of cash and $326.5 million (principal amount) of new first lien debt that would be issued by the reorganized Company and (b) 100% of the common stock of the reorganized Company outstanding on the effective date of the plan, subject to dilution on account of a proposed new management incentive plan and the distribution to unsecured creditors of any new common stock and warrants (as described below);

·                  first lien term loan deficiency claims (subject to certain exceptions) as well as second lien notes, unsecured notes and general unsecured claims against the Debtors would be exchanged for either (1) common stock in the reorganized Company and warrants or (2) the value of the unencumbered assets of the Company, if any, after giving effect to certain other payments and claims;

·                  either the Company’s existing accounts receivable securitization facility would be reinstated or a new letter of credit facility would be entered into by the Company, in either case on terms acceptable to Supporting First Lien Creditors holding more than 66 2/3% of the aggregate amount of the first lien term loans held by Supporting First Lien Creditors; and

·                  the board of directors of the reorganized Company would consist of seven directors, at least one of whom would be independent, including the Company’s Chief Executive Officer and six directors selected by certain of the Company’s first-lien term lenders in consultation with the Company’s Chief Executive Officer.

The Restructuring Support Agreement, if utilized as the basis for a plan of reorganization, is expected to reduce Arch’s long-term debt by more than $4.5 billion.

We entered into an amendment to the Restructuring Support Agreement on February 25, 2016 (the “RSA Amendment”), which provides for the waiver of the termination event that would have occurred on February 25, 2016 as a result of the Debtors not having obtained Court approval of the assumption of the Restructuring Support Agreement within 45 days of the Petition Date. The Debtors had previously agreed, with the consent of the Majority Consenting Lenders under the Restructuring Support Agreement, to adjourn the Court hearing on the Restructuring Support Agreement at the request of the official committee of unsecured creditors appointed in the Debtors’ Chapter 11 cases. Pursuant to the RSA Amendment, unless otherwise agreed by the Majority Consenting Lenders, the Debtors are required to obtain Court approval of the assumption of the Restructuring Support Agreement on or before the date that is 90 days from the Petition Date.

The RSA Amendment also provides for a waiver of any termination event that otherwise would occur as a result of the dismissal of the Chapter 11 case of one of our subsidiaries following the sale of such subsidiary and a 45-day extension of the date after which the Debtors and the Majority Consenting Lenders may modify the proposed distributions to holders of unsecured claims if holders of more than $1.6125 billion of unsecured claims against the Debtors have not executed a restructuring support agreement substantially in the form of the Restructuring Support Agreement.

Securitization Agreement

On January 13, 2016, Arch and its securitization financing providers (the “Securitization Financing Providers”) agreed that, subject to certain amendments (the “Amendments”), they will continue the $200 million trade accounts receivable securitization facility provided to Arch Receivable Company, LLC, a non-debtor special-purpose entity that is a wholly owned subsidiary of the Company (“Arch Receivable”) (the “Securitization Facility”). See Item 7, “Management’s Discussion and Analysis—Liquidity and Capital Resources—Securitization Agreement” for more information.

Debtor-In-Possession Financing

On January 21, 2016, the Superpriority Secured Debtor-in-Possession Credit Agreement, as amended by the Waiver and Consent and Amendment No. 1, dated as of March 4, 2016, (the “DIP Credit Agreement”) was entered into by and among the Company, as borrower, certain of the Debtors, as guarantors (the “Guarantors” and, together with the Company, the “Loan Parties”), the lenders from time to time party thereto (the “DIP Lenders”) and Wilmington Trust, National Association, as administrative agent and collateral agent for the DIP Lenders (in such capacities, the “DIP Agent”).

The DIP Credit Agreement, which has been approved by the Court on a final basis, provides for a super-priority senior secured debtor-in-possession credit facility (the “DIP Facility”) consisting of term loans (collectively, the “DIP Term Loan”) in the aggregate principal amount of up to $275 million that may be funded in not more than two draws not later than six months after the effective date of the DIP Facility (such six month period, the “Availability Period”).  Any portion of the DIP Term Loan commitment that has not been funded on or prior to the end of the Availability Period will be permanently cancelled. The

DIP Facility includes a $75 million carve-out from the first priority lien granted in favor of the DIP Agent for the benefit of the DIP Lenders on all encumbered and unencumbered assets of the Loan Parties for super-priority claims relating to certain of the Debtors’ bonding obligations. See Item 7, “Management’s Discussion and Analysis—Liquidity and Capital Resources—Debtor-In-Possession Financing” for more information.

Coal Characteristics

End users generally characterize coal as steamthermal coal or metallurgical coal. Heat value, sulfur, ash, moisture content, and volatility, in the case of metallurgical coal, are important variables in the marketing and transportation of coal. These characteristics help producers determine the best end use of a particular type of coal. The following is a description of these general coal characteristics:

Heat Value. In general, the carbon content of coal supplies most of its heating value, but other factors also influence the amount of energy it contains per unit of weight. The heat value of coal is commonly measured in Btus. Coal is generally classified into four categories, lignite, subbituminous, bituminous and anthracite, reflecting the progressive response of individual deposits of coal to increasing heat and pressure. Anthracite is coal with the highest carbon content and, therefore, the highest heat value, nearing 15,000 Btus per pound. Bituminous coal, used primarily to generate electricity and to make coke for the steel industry, has a heat value ranging between 10,500 and 15,500 Btus per pound. Subbituminous coal ranges from 8,300 to 13,000 Btus per pound and is generally used for electric power generation. Lignite coal is a geologically young coal which has the lowest carbon content and a heat value ranging between 4,000 and 8,300 Btus per pound.

Sulfur Content. Federal and state environmental regulations, including regulations that limit the amount of sulfur dioxide that may be emitted as a result of combustion, have affected and may continue to affect the demand for certain types of coal. The sulfur content of coal can vary from seam to seam and within a single seam. The chemical composition and concentration of sulfur in coal affects the amount of sulfur dioxide produced in combustion. Coal-fueledCoal‑fueled power plants can comply with sulfur dioxide emission regulations by burning coal with low sulfur content, blending coals with various sulfur contents, purchasing emission allowances on the open market and/or using sulfur-dioxidesulfur dioxide emission reduction technology.

Ash. Ash is the inorganic residue remaining after the combustion of coal. As with sulfur, ash content varies from seam to seam. Ash content is an important characteristic of coal because it impacts boiler performance and electric generating plants must handle and dispose of ash following combustion. The composition of the ash, including the proportion of sodium oxide and fusion temperature, is also an important characteristic of coal, as it helps to determine the suitability of the coal to end users. The absence of ash is also important to the process by which metallurgical coal is transformed into coke for use in steel production.

Moisture. Moisture content of coal varies by the type of coal, the region where it is mined and the location of the coal within a seam. In general, high moisture content decreases the heat value and increases the weight of the coal, thereby making it more expensive to transport. Moisture content in coal, on an as-soldas‑sold basis, can range from approximately 2% to over 30% of the coal’s weight.

Other. Users of metallurgical coal measure certain other characteristics, including fluidity, swelling capacity and volatility to assess the strength of coke produced from a given coal or the amount of coke that certain types of coal will yield. These characteristics may be important elements in determining the value of the metallurgical coal we produce and market.


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The Coal Industry

Background.. Coal is mined globally using various methods of surface and underground recovery. Coal is used primarily for the production of electric power and steel but is also used for chemical, food and cement processing. Coal is traded globally and can be transported to demand centers by ship, rail, barge, truck or truck. conveyor belt.
Total world coal production reached 7.7exceeds 7.0 billion tonnesmetric tons in 2014,2017 according to the International Energy Agency (IEA). Total hard coal production decreased 0.5% to an estimated 6.9 billion tonnes in 2014 from 2013 levels, while global production of lignite coal declined roughly 3% to 810 million tonnes. Also according to IEA estimates, China remainedis the largest producer of coal in the world, producing over 3.5 billion tonnesmetric tons in 2014.2017 according to the Chinese Bureau of Statistics. The United States and India follow China with total coal production of over

900 650 million tonnes and 600 million tonnes, respectively,metric tons each in 2014.  Preliminary data for 2015 suggests further erosion in global coal demand, but the relative ranking of producer countries remained the same.

Cross-border trade of coal was close to 1.4 billion tonnes in 2014, according to the IEA. Despite a drop in coal imports, China remained the largest importer of globally traded coal in 2014, taking over 305 million tonnes. India and Japan followed China with total coal imports of over 239 million tonnes and 187 million tonnes, respectively. Imports in OECD Europe were slightly higher in 2014 at an estimated 280 million tonnes.

2017 based on preliminary data.


The primary nations that are supplying coal to the global power and steel markets are Australia and Indonesia, as well as Russia, the United States, Canada, Colombia and South Africa.

We produce coal used for electric power generation (thermal) and coal used in the production of steel (metallurgical). All of our thermal coal production occurs in the United States at mines located in Wyoming, Colorado, Illinois, and West Virginia. Subsequent to the sale of our Lone Mountain operation in the third quarter of 2017, our metallurgical coal is produced at operations in West Virginia. Heat value and sulfur content are the most important variables in the economic marketing and transportation of thermal coal. Carbon content, the composition of the non-carbon volatiles and other chemical constituents are critical characteristics for metallurgical coal.

The IEAmajority of our coal is sold at the mine where title and risk of loss transfer to the customer as coal is loaded into the railcar or truck. Customers are responsible for transportation - typically using third party carriers. There are some agreements where we retain responsibility for the coal during delivery to the customer site or intermediate terminal. Our international coal usually changes title and risk of loss as coal is loaded on an ocean vessel. We or our agent contracts for transportation services to the ocean loading port. On rare occasion, we might retain title to the coal to the ocean delivery port.

We seek to establish long-term relationships with customers through exemplary customer service while operating safe and environmentally responsible mines. We shipped to 35 states and 23 countries. During the year, we supplied coal to 93 domestic and 33 foreign customers. In 2017, approximately 93% of our coal sales volume was sold as a thermal product with the remaining 7% as metallurgical.

Coal was used to produce approximately 30% of the electric power generated in the U.S. in 2017 based on preliminary data from the Energy Information Administration (EIA.) The coal we produced fueled approximately 4% of the electricity produced in the U.S. in 2017. We also exported 8% of our production to customers outside the U.S. in 2017.

We rank among the largest metallurgical coal producers in the U.S. Based on internal estimates, that these key supply regions combined made up 86%we produced close to 10% of total global cross-border coal trade in 2014.

Global Coal Supply and Demand.  The supply and demand fundamentals in global coal markets were further challenged in 2015. In China, a slowing economy along with new environmental restrictions and protectionist policies aiming to support the domestic coal industry resulted in a significant decline in coal imports in 2015 according to preliminary reports.  China continues to add coal-based power generation capacity at a robust pace, but slower economic growth and/or additional regulations could continue to pressure demand in the near to intermediate term. Preliminary reports indicated that imports of metallurgical and thermal coal into China decreased by 11 and 43 million tonnes in 2015, respectively.  The decline was primarily caused by weak industrial production and protectionist measures favoring domestic supply. Conversely, India is estimated to have sustained strong demand for both thermal andU.S. metallurgical coal in 2015 due2017. Our metallurgical coal was sold to solid economic growth6 domestic customers and associated electric powershipped to 18 international destinations in 2017.


We operate in a very competitive environment. We compete with domestic and infrastructure projects. Europe’s weak economic growth combined with increased competition from other fuels and renewables resulted in further declines in importinternational coal demand there. Additionally, economic uncertaintiesproducers, traders or brokers as well as the low-cost external supplyproducers of steel have pressured Europe’s domestic steel producers which has translated into lower demand for metallurgical coal.

The IEA publishes a World Energy Outlook (“WEO”) in which it reports on multiple scenarios. For example, the “New Policies Scenario” incorporates policiesother energy sources including natural gas, renewables and measures affecting energy markets that have already been adopted,nuclear, as well as other relevant commitmentsnon-coal based forms of steel production. We compete with other coal producers and plans that have been announcedtraders/brokers using price, coal quality, transportation, optionality, customer administration, reputation and reliability.


Coal demand and coal prices are tied to coal consumption patterns which are influenced by countries, including national pledges to reduce emissions and plans to phase out fossil fuel subsidies, even ifmany uncontrollable factors. For power generation, the measures to implement these commitments have yet to be identified or announced. The “Current Policies Scenario” contemplates no changes in policies from the mid-pointprice of the year of publication, assuming that governments do not implement any commitments that have yet to be finalized by legislation and will not introduce any new policies affecting coal usage. Finally, the “450 Scenario” assumes implementation of a set of government policies consistent with a goal of limiting long-term increases in the average global temperature to two degrees Celsius, a limit determined by various governments and non-governmental organizations and recognized by nations of the world in the 2010 United Nations Climate Change Conference.

The IEA makes projections about world coal demand based on various future scenarios for energy development. The scenarios usedis affected by the IEA asrelative supply and demand of competitive coal, transportation, availability and price of other non-coal forms of power production (particularly, natural gas), regulatory limits on using coal, taxes, the bases for these projections varyweather and economic conditions. For metallurgical coal, the price of coal is affected by timethe supply, demand and publication. Further details are available toprice of competitive coal, transportation, the public directly from the IEA, including through the IEA’s website: http://www.iea.org/publications/scenariosandprojections/. Information contained on or accessible through the IEA’s website is not incorporated by reference into this Annual Report on Form 10-K.

The IEA estimates in its WEO 2015, Current Policies Scenario, that worldwide primary energy demand will grow 45%, whereas the New Policies Scenario projects 32% growth, between 2013 and 2040. Demand for coal during this time period is projected to rise 43% and 12% under the Current Policies Scenario and the New Policies Scenario, respectively.

The IEA expects coal to retain its prominent presence as a fuel for the power sector worldwide under the Current Policies Scenario. Coal’s shareprice of the power generation mix was 41% in 2013. By 2040, the IEA’s Current Policies Scenario estimates that coal’s fuel share of global power generation will be 38% as it continues to have the largest share of worldwide electric power production. Under the New Policies and 450 scenarios, coal’s fuel share of global power generation is projected to be 30% and 12%, respectively.

Most coal consumption growth is expected to occur in Asia, with China and India as the largest consumers going forward. In the metallurgical markets, we expect somewhat modest growth in near-term steel, demand based on slowerfor steel, as well as regulations, taxes, and economic growth. Moreover, we expect continued supply rationalization for global metallurgical coal.

The IEA also projects that global natural gas-fueled electricity generation will grow from 22% share in 2013conditions.


We have an experienced and knowledgeable sales and marketing group. This group is dedicated to 24% under the Current Policies scenario.  IEA’s New Policies Scenario shows gas share growing only slightly to 23% share by 2040.  However, under the 450 Scenario, natural gas share declines to 16% by 2040.  The 450 Scenario assumes the generation share from renewable sources will grown more than fivefold from 6% in 2013 to 32% by 2040.  Electricity generation from nuclear power is expected to fall from 11% to 9% under the Current Policies Scenario, while growing to 11% or 18% under the New Policiesmeeting customer needs, coordinating transportation, providing accounting services and 450 scenarios, respectively.

As noted above, projected coal usage is highest under the Current Policies Scenario. Future energy use consistent with the 450 Scenario would likely yield results materially lower than the projections noted above under the Current Policies Scenario or the New Policies Scenario.

U.S. Coal Consumption.  In the United States, coal is used primarily by power plants to generate electricity, by steel companies to produce coke for use in blast furnaces, and by a variety of industrial users to heat and power foundries, cement plants, paper mills, chemical plants and other manufacturing or processing facilities. Although final data are not yet available, coal consumption in the United States is estimated to be approximately 809 million tons in 2015, according to the Energy Information Administration’s (EIA) Short Term Energy Outlook. Coal consumption decreased in 2015 by 12%, or around 108 million tons.

According to the EIA, coal accounted for approximately 33% of U.S. electricity generation in 2015.  This is 5 percentage points lower than the same period in 2014 and represents the lowest share for coal fueled power generation in at least 60 years. This decline in domestic coal consumption was caused by a convergence of factors including record high natural gas production along with the lowest natural gas prices since 1999, coal unit retirements following the implementation of the Mercury and Air Toxics Standards regulations and growing power generation from wind and solar.

The following chart shows the breakdown of U.S. electricity generation by energy source for 2014 and 2015 according to the EIA:

Source:       EIA Electric Power Monthly (February 2016).

Historically, coal has been considerably less expensive than natural gas or oil. However, the growth of hydraulic fracturing (fracking) combined with less-than-projected electric power demand has resulted in oversupply. Natural gas inventories at the end of 2015 were 3.6 trillion cubic feet, which was 535 Bcf (17%) above the end of 2014 and 15% above the five-year average.

While demand for natural gas is expected to increase in the coming years from new industrial users and exports, the current oversupply has suppressed natural gas prices to levels where coal is less competitive. As drilling for new natural gas has dropped to at least a 28-year low, EIA expects natural gas prices to increase in the coming years which we expect to improve coal’s relative competitiveness.

While coal’s prospects with regard to natural gas should improve, the effects of new regulations on the use of coal, particularly regarding carbon dioxide emissions and climate change impacts, are evolving. EIA’s Annual Energy Outlook forecast does not reflect the impact of carbon regulations such as the Clean Power Plan on domestic coal consumption for power generation. However, EIA has published an analysis on the effects the Clean Power Plan would have on domestic coal consumption. EIA believes that even though the regulation targets coal use in power generation, coal will maintain a critical role for power generation in the U.S.

Although the proposed Clean Power Plan rule results in less coal-fired electricity generation, several factors contribute to projected increases in coal generation from 2024 through 2040. Demand for electricity increases, and a combination of rising natural gas prices and increased renewable capacity translates to increased utilization at existing coal plants, even after significant amounts of coal capacity are retired. Also, in the Base Policy case, the standards set by the Clean Power Plan are assumed to remain constant after 2030. - EIA “Today in Energy,” June 10, 2015

Even though the validity of the Clean Power Plan is being tested by the courts, we included EIA’s analysis of the originally proposed rule as a proxy for either the Clean Power Plan or other carbon regulations.  We expect EIA will incorporate their analysis of the effects of the Clean Power Plan, which has been promulgated in 2015, in their upcoming release of the Annual Energy Outlook in April 2016.  The 2020 and 2040 values are from EIA’s analysis for the proposed Clean Power Plan published on May 22, 2015:

 

 

Actual

 

Estimated

 

Forecast

 

Annual
Growth

 

Sector

 

2010

 

2015

 

2016

 

2020

 

2040

 

2013 - 2040

 

 

 

(Tons, in millions)

 

 

 

Electric power

 

975

 

747

 

746

 

694

 

677

 

(0.9

)%

Other industrial

 

49

 

40

 

41

 

46

 

49

 

0.5

%

Coke plants

 

21

 

19

 

17

 

21

 

18

 

(0.7

)%

Residential/commercial

 

3

 

3

 

2

 

2

 

2

 

0.5

%

*Total U.S. coal consumption

 

1,049

 

809

 

807

 

770

 

746

 

0.2

%

managing risk.


Source:       EIA “Analysis of the Impacts of the Clean Power Plan” (May 22, 2015)

EIA Short Term Energy Outlook (February 2016)

EIA Monthly Energy Review (February 2016)

*                                         Columns may not total due to rounding.

U.S. Coal Production. The United States is among the secondtop three largest coal producerproducers in the world, exceeded only by China.China and roughly equivalent to India based on preliminary data. According to the EIA, there are over 200250 billion short tons of recoverable coal in the United States. The U.S. Department of Energy estimates that current domestic recoverable coal reserves could supply enough electricity to satisfy domestic demand for over 150300 years.


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Table of Contents


Coal is mined from coal fields throughout the United States, with the major production centers located in the western United States, the Appalachian region and the Interior. According to the EIA and MSHA,Mine Safety and Health Administration (MSHA), U.S. coal production declinedincreased by an estimated 10945 million tons in 2015,2017, to 891773 million tons.


The EIA subdivides United States coal production into three major areas: Western, Appalachia and Interior.


The Western area includes the Powder River Basin and the Western Bituminous region. According to the EIA, coal produced in the western United States declinedincreased from an estimated 542404 million short tons in 20142016 to 494432 million short tons in 2015.2017. The Powder River Basin is located in northeastern Wyoming and southeastern Montana and is the largest producing region in the United States. Coal from this region is sub-bituminous coal with low sulfur content ranging from 0.2% to 0.9% and heating values ranging from 8,0008,300 to 9,500 Btu. The price of Powder River Basin coal is generally less than that of coal produced in other regions because Powder River Basin coal exists in greater abundance andhas a lower heat content, however it is easier to mine and,produced from thick seams using surface recovery methods thus, has a lower cost of production. The Western Bituminous region includes Colorado, Utah and southern Wyoming. Coal from this region typically has low sulfur content ranging from 0.4% to 0.8% and heating values ranging from 10,000 to 12,200 Btu.

Western bituminous coal has certain quality characteristics, especially its high heat content and low sulfur, that make this a desirable coal for domestic and international power producers.


The Appalachia region is further divided into north, central and southern regions. According to the EIA, coal produced in the Appalachian region fellincreased from 268180 million short tons in 20142016 to 228196 million short tons in 2015.2017. Appalachian coal is located near the prolific eastern shale-gas producing regions. Central AppalachiaAppalachian thermal coal is further disadvantaged for power generation because of the depletion of economically attractive reserves, permitting issues and increasing costs of production. However, virtually all U.S. metallurgical coal is produced in Appalachia and the relative scarcity and high-quality of this coal allows for a pricing premium over thermal coal. Appalachia, while still a major producer of thermal coal, is undergoing a shift towards heavier reliance on metallurgical coal production for both domestic and international use. This is especially the case in Central Appalachia includes eastern Kentucky, Tennessee, Virginia and southern West Virginia. Coal mined from this region generally has a high heat value ranging from 11,400 to 13,200 Btu and a sulfur content ranging from 0.2% to 2.0%. Appalachia.

Northern Appalachia includes Maryland, Ohio, Pennsylvania and northern West Virginia. Coal from this region generally has a high heat value ranging from 10,300 to 13,500 Btu and a sulfur content ranging from 0.8% to 4.0%. Central Appalachia includes eastern Kentucky, Tennessee, Virginia and Southern West Virginia. Coal mined from this region generally has a high heat value ranging from 11,400 to 13,200 Btu and low sulfur content ranging from 0.2% to 2.0%. Southern Appalachia primarily covers Alabama and generally has a heat content ranging from 11,300 to 12,300 Btu and a sulfur content ranging from 0.7% to 3.0%.


The Interior region includes the Illinois Basin, Gulf Lignite production in Texas and Louisiana, and a small producing area in Kansas, Oklahoma, Missouri and Arkansas. The Illinois Basin is the largest producing region in the Interior and consists of Illinois, Indiana and western Kentucky. According to the EIA, coal produced in the Interior region fellincreased from 189144 million short tons in 20142016 to approximately 169145 million short tons in 2015.2017. Coal from the Illinois Basin generally has a heat value ranging from 10,100 to 12,600 Btu and has a sulfur content ranging from 1.0% to 4.3%. Despite its high sulfur content, coal from the Illinois Basin can generally be used by electric power generation facilities that have installed emissions control devices, such as scrubbers.

U.S. Coal Exports and Imports.  Coal exports declined approximately 20 million tons to 77 million tons in 2015. The decline was primarily caused by growing global coal supply along with slowing demand growth which displaced some of the volume originating in the United States. Additionally, unfavorable foreign currency exchange disadvantaged some United States coal in certain markets. The seaborne market is cyclical, but in their New Policies Scenario the IEA projects seaborne coal trade to grow to 1.1 billion tonnes by 2020, an increase of 59 million tons from 2015 levels.

Historically, coal imported from abroad has represented a relatively small share of total domestic coal consumption, and this remained the case in 2015. Imports reached close to 36 million tons in 2007, but have fallen since then. According to the EIA, coal imports were 11.3 million tons in 2015. The decline is mostly attributable to more competitive pricing for domestic coal. The majority of the coal imported into the United States originates from Colombia.


Coal Mining Methods

The geological characteristics of our coal reserves largely determine the coal mining method we employ. We use two primary methods of mining coal: surface mining and underground mining.

Surface Mining. We use surface mining when coal is found close to the surface. We have included the identity and location of our surface mining operations below under “—Our“Our Mining Operations-General.” The majority of the coal we produce comes from surface mining operations.

Surface mining involves removing the topsoil then drilling and blasting the overburden (earth and rock covering the coal) with explosives. We then remove the overburden with heavy earth-movingearth‑moving equipment, such as draglines, power shovels, excavators and loaders. Once exposed, we drill, fracture and systematically remove the coal using haul trucks or conveyors to transport the coal to a preparation plant or to a loadout facility. We reclaim disturbed areas as part of our normal mining activities. After final coal removal, we use draglines, power shovels, excavators or loaders to backfill the remaining pits with the overburden removed at the beginning of the process. Once we have replaced the overburden and topsoil, we reestablish vegetation and plant life into the natural habitat and make other improvements that have local community and environmental benefits.


9

Table of Contents

The following diagram illustrates a typical dragline surface mining operation:



10

Table of Contents


Underground Mining. We use underground mining methods when coal is located deep beneath the surface. We have included the identity and location of our underground mining operations below under “Our Mining Operations-General.”

Our underground mines are typically operated using one or both of two different mining techniques: longwall mining and room-and-pillarroom‑and‑pillar mining.

Longwall Mining. Longwall mining involves using a mechanical shearer to extract coal from long rectangular blocks of medium to thick seams. Ultimate seam recovery using longwall mining techniques can exceed 75%. In longwall mining, continuous miners are used to develop access to these long rectangular coal blocks. Hydraulically powered supports temporarily hold up the roof of the mine while a rotating drum mechanically advances across the face of the coal seam, cutting the coal from the face. Chain conveyors then move the loosened coal to an underground mine conveyor system for delivery to the surface. Once coal is extracted from an area, the roof is allowed to collapse in a controlled fashion. The following diagram illustrates a typical underground mining operation using longwall mining techniques:

                        

Room-and-Room‑and‑Pillar Mining.  Room-and-pillar Room‑and‑pillar mining is effective for small blocks of thin coal seams. In room-and-pillarroom‑and‑pillar mining, a network of rooms is cut into the coal seam, leaving a series of pillars of coal to support the roof of the mine. Continuous miners are used to cut the coal and shuttle cars are used to transport the coal to a conveyor belt for further transportation to the surface. The pillars generated as part of this mining method can constitute up to 40% of the total coal in a seam. Higher seam recovery rates can be achieved if retreat mining is used. In retreat mining, coal is mined from the pillars as workers retreat. As retreat mining occurs, the roof is allowed to collapse in a controlled fashion.


11

Table of Contents


The following diagram illustrates our typical underground mining operation using room-and-pillarroom‑and‑pillar mining techniques:


Coal Preparation and Blending. We crush the coal mined from our Powder River Basin mining complexes and ship it directly from our mines to the customer. Typically, no additional preparation is required for a saleable product. Coal extracted from some of our underground mining operations contains impurities, such as rock, shale and clay occupying a wide range of particle sizes. The majorityAll of our mining operations in the Appalachia region use a coal preparation plant located near the mine or connected to the mine by a conveyor. These coal preparation plants allow us to treat the coal we extract from those mines to ensure a consistent quality and to enhance its suitability for particular end-users.end‑users. In addition, depending on coal quality and customer requirements, we may blend coal mined from different locations, including coal produced by third parties, in order to achieve a more suitable product.

The treatments we employ at our preparation plants depend on the size of the raw coal. For coarse material, the separation process relies on the difference in the density between coal and waste rock and, for the very fine fractions, the separation process relies on the difference in surface chemical properties between coal and the waste minerals. To remove impurities, we crush raw coal and classify it into various sizes. For the largest size fractions, we use dense media vessel separation techniques in which we float coal in a tank containing a liquid of a pre-determinedpre‑determined specific gravity. Since coal is lighter than its impurities, it floats, and we can separate it from rock and shale. We treat intermediate sized particles with dense medium cyclones, in which a liquid is spun at high speeds to separate coal from rock. Fine coal is treated in spirals, in which the differences in density between coal and rock allow them, when suspended in water, to be separated. Ultra fine coal is recovered in column flotation cells utilizing the differences in surface chemistry between coal and rock. By injecting stable air bubbles through a suspension of ultra fine coal and rock, the coal particles adhere to the bubbles and rise to the surface of the column where they are removed. To minimize the moisture content in coal, we process most coal sizes through centrifuges. A centrifuge spins coal very quickly, causing water accompanying the coal to separate.

For more information about the locations of our preparation plants, you should see the section entitled “—Our“Our Mining Operations” below.

.

12

Table of Contents

Our Mining Operations

General. At December 31, 2015,2017, we operated or contracted out the operation of, 139 active mines in the United States. OurThe Company’s reportable business segments are based on two distinct lines of business, metallurgical coal and thermal coal, and may include a number of mine complexes. The Company manages its coal sales by market, not by individual mining complex. Geology, coal transportation routes to customers, and regulatory environments also have a significant impact on our marketing and operations management. Our mining operations are evaluated based on Adjusted EBITDAR, per-ton cash operating costs (defined as including all mining costs except depreciation, depletion, amortization, accretion on asset retirements obligations, and pass-through transportation expenses), and on other non-financial measures, such as safety and environmental performance. Adjusted EBITDAR is defined as net income attributable to the major coal producing basinsCompany before the effect of net interest expense, income taxes, depreciation, depletion and amortization, the amortization of sales contracts, the accretion on asset retirement obligations, and reorganization items, net. Adjusted EBITDAR may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. We use Adjusted EBITDAR to measure the operating performance of our segments and allocate resources to our segments. Adjusted EBITDAR is not a measure of financial performance in which we operate. Ouraccordance with generally accepted accounting principles, and items excluded from Adjusted EBITDAR are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDAR 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. Furthermore, analogous measures are used by industry analysts to evaluate the Company’s operating performance. Investors should be aware that our presentation of Adjusted EBITDAR may not be comparable to similarly titled measures used by other companies. The Company’s reportable segments are the Powder River Basin (PRB) segment withcontaining the Company’s primary thermal operations in Wyoming; and the AppalachiaMetallurgical (MET) segment, withcontaining the Company’s metallurgical operations in West Virginia Kentucky, Maryland and Virginia.  We also sell coal fromthe Other Thermal segment containing the Company’s supplementary thermal operations in Colorado, Illinois, and Illinois. Geology, coal transportation routes to consumers, regulatory environments and coal quality can vary from segment to segment.  We incorporate by reference the Coal Mac thermal operation in West Virginia. For additional information about the operating results of each of our segments for the yearsyear ended December 31, 2017, the periods October 2 through December 31, 2016, January 1 through October 1, 2016 and the year ended December 31, 2015, 2014, and 2013  contained insee Note 27 beginning on page F-52.

of the Consolidated Financial Statements.

In general, we have developed our mining complexes and preparation plants at strategic locations in close proximity to rail or barge shipping facilities. Coal is transported from our mining complexes to customers by means of railroads, trucks, barge lines, and ocean-goingocean‑going vessels from terminal facilities. We currently own or lease under long-termlong‑term arrangements a substantial portionall of the equipment utilized in our mining operations. We employ sophisticated preventative maintenance and rebuild programs and upgrade our equipment to ensure that it is productive, well-maintainedwell‑maintained and cost-competitive.

The following map shows the locationscost‑competitive.


13

Table of our active mining operations:

Contents


The following table provides a summary of information regarding our active mining complexes as of December 31, 2015,2017, including the total sales associated with these complexes for the yearsyear ended December 31, 2013, 2014,2017, the periods October 2 through December 31, 2016, January 1 through October 1, 2016 and the year ended December 31, 2015 and the total reserves associated with these complexes at December 31, 2015.2017. The amount disclosed below for the total cost of property, plant and equipment of each mining complex does not include the costs of the coal reserves that we have assigned to an individual complex.

 

 

Captive

 

Contract

 

Mining

 

 

 

Tons Sold(2)(3)

 

Total Cost of
Property,
Plant and
Equipment at
December 31,

 

Assigned

 

Mining Complex

 

Mines(1)

 

Mines(1)

 

Equipment

 

Railroad

 

2013

 

2014

 

2015

 

2015

 

Reserves

 

 

 

 

 

 

 

 

 

 

 

(Million tons)

 

($ millions)

 

(Million tons)

 

Powder River Basin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Thunder

 

S

 

 

D, S

 

UP/BN

 

100.7

 

101.2

 

99.5

 

$

1,212.5

 

1,163.9

 

Coal Creek

 

S

 

 

D, S

 

UP/BN

 

8.5

 

9.4

 

7.8

 

146.6

 

153.7

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West Elk

 

U

 

 

LW, CM

 

UP

 

6.1

 

6.5

 

5.1

 

417.9

 

53.5

 

Viper

 

U

 

 

CM

 

 

2.2

 

2.2

 

2.1

 

99.8

 

37.2

 

Appalachia:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal-Mac

 

S

 

 

L, E

 

NS/CSX

 

3.1

 

2.8

 

2.4

 

205.4

 

24.6

 

Lone Mountain

 

U(3)

 

 

CM

 

NS/CSX

 

2.0

 

1.9

 

1.6

 

256.2

 

10.2

 

Mountain Laurel

 

U

 

 

L, LW, CM

 

CSX

 

2.9

 

2.6

 

2.3

 

4.1

 

 

Beckley

 

U

 

 

CM

 

CSX

 

1.1

 

1.0

 

0.9

 

 

 

Vindex

 

S

 

 

L, E

 

CSX

 

0.6

 

0.5

 

0.6

 

 

 

Sycamore No. 2

 

 

U

 

CM

 

 

0.4

 

0.5

 

0.2

 

 

 

Sentinel

 

U

 

 

CM

 

CSX

 

1.0

 

1.1

 

0.9

 

 

 

Leer

 

U

 

 

CM, LW

 

CSX

 

0

 

2.7

 

2.9

 

463.2

 

40.1

 

Totals

 

 

 

 

 

 

 

 

 

128.6

 

132.4

 

126.3

 

$

2,805.7

 

1,483.2

 

    
Tons Sold(1)
  
    Predecessor Successor  
Mining ComplexCaptive MinesMining EquipmentRailroad2015Jan1-Oct1, 2016Oct2-Dec31, 20162017Total Cost of Property, Plant and Equipment at December 31, 2017Total Assigned Recoverable Reserves
    (Million tons)($ millions)(Million tons)
Powder River Basin:         
Black ThunderSD, SUP/BN99.5
49.0
18.9
70.5
$266.7
896.4
Coal CreekSD, SUP/BN7.8
5.5
2.7
9.0
43.5
128.4
Metallurgical:         
Mountain LaurelULW, CMCSX2.0
1.2
0.4
1.5
25.2
21.1
BeckleyUCMCSX0.9
0.7
0.3
1.0
38.7
25.4
SentinelUCMCSX0.9
0.8
0.3
1.5
37.5
4.7
LeerULW, CMCSX2.9
3.1
1.0
3.2
217.0
30.8
Other Thermal:         
West ElkULW, CMUP5.1
2.4
1.6
4.9
38.6
53.1
ViperUCM2.1
1.3
0.3
1.7
25.0
34.6
Coal‑MacSL, ENS/CSX2.4
1.5
0.5
2.4
30.8
22.7
Totals   123.6
65.5
26.0
95.7
$723.0
1,217.2

S = Surface mine

D = Dragline

UP = Union Pacific Railroad

U = Underground mine

L = Loader/truck

CSX = CSX Transportation

S = Shovel/truck

BN = Burlington Northern-SantaNorthern‑Santa Fe Railway

E = Excavator/truck

NS = Norfolk Southern Railroad

LW = Longwall

CM = Continuous miner

HW = Highwall miner


(1)Tons of coal we purchased from third parties that were not processed through our loadout facilities are not included in the amounts shown in the table above.


14

(1)                                 Amounts in parentheses indicate the number

Table of captive and contract mines, if more than one, at the mining complex as of December 31, 2015. Captive mines are mines that we own and operate on land owned or leased by us. Contract mines are mines that other operators mine for us under contracts on land owned or leased by us.

(2)                                 Tons of coal we purchased from third parties that were not processed through our loadout facilities are not included in the amounts shown in the table above.

(3)                                 2013 tons sold numbers do not include tons of coal sold from the following mining complexes that were sold in the 2013 calendar year: Dugout Canyon, Skyline and Sufco. We sold 5.3 million tons of coal from these mining complexes in 2013. 2013 and 2014 tons sold numbers do not include tons of coal sold from the Hazard mining complex, which was sold in 2014, or tons of coal sold from the Cumberland River mining complex, which was idled

Contents

in 2014. We sold 2.7 million and 0.8 million tons of coal from these two mining complexes in 2013 and 2014, respectively.


Powder River Basin

Black Thunder. Black Thunder is a surface mining complex located on approximately 35,800 acres in Campbell County, Wyoming. The Black Thunder complex extracts steamthermal coal from the Upper Wyodak and Main Wyodak seams.

We control a significant portion of the coal reserves through federal and state leases. The Black Thunder mining complex had approximately 1.2 billion896.4 million tons of proven and probable reserves at December 31, 2015.2017. The air quality permit for the Black Thunder mine allows for the mining of coal at a rate of 190 million tons per year. Several large tracts of coal adjacent to the Black Thunder mining complex have been nominated for lease, and other potential large areas of unleased coal remain available for nomination by us or other mining operations. The U.S. Department of Interior Bureau of Land Management, which we refer to as the BLM, will determine if the tracts will be leased and, if so, the final boundaries of, and the coal tonnage for, these tracts.

The Black Thunder mining complex currently consists of four active pit areas and three loadout facilities. We ship all of the coal raw to our customers via the Burlington Northern Santa Fe and Union Pacific railroads. We do not process the coal mined at this complex. Each of the loadout facilities can load a 15,000-ton15,000‑ton train in less than two hours.

Coal Creek. Coal Creek is a surface mining complex located on approximately 7,400 acres in Campbell County, Wyoming. The Coal Creek mining complex extracts steamthermal coal from the Wyodak-R1Wyodak‑R1 and Wyodak-R3Wyodak‑R3 seams.

We control a significant portion of the coal reserves through federal and state leases. The Coal Creek mining complex had approximately 153.7128.4 million tons of proven and probable reserves at December 31, 2015.2017. The air quality permit for the Coal Creek mine allows for the mining of coal at a rate of 50 million tons per year.

The Coal Creek complex currently consists of one active pit areasarea and a loadout facility. We ship all of the coal raw to our customers via the Burlington Northern Santa Fe and Union Pacific railroads. We do not process the coal mined at this complex. The loadout facility can load a 15,000-ton15,000‑ton train in less than three hours.

Metallurgical
AppalachiaMountain Laurel.

Coal-Mac.  Coal-Mac Mountain Laurel is an underground mining complex located on approximately 38,200 acres in Logan County and Boone County, West Virginia. Underground mining operations at the Mountain Laurel mining complex extract High-vol B metallurgical coal from the Cedar Grove and Alma seams. The Mountain Laurel mining complex has approximately 21.1 million tons of proven and probable reserves at December 31, 2017.

We process all of the coal through a 1,400‑ton‑per‑hour preparation plant before shipping the coal to our customers via the CSX railroad. The loadout facility can load a 15,000‑ton train in less than four hours.
Beckley. The Beckley mining complex is located on approximately 19,700 acres in Raleigh County, West Virginia. Beckley is extracting high quality, low‑volatile metallurgical coal in the Pocahontas No. 3 seam. The Beckley mining complex had approximately 25.4 million tons of proven and probable reserves at December 31, 2017.
Coal is belted from the mine to a 600‑ton‑per‑hour preparation plant before shipping the coal via the CSX railroad. The loadout facility can load a 10,000‑ton train in less than four hours.
Sentinel. The Sentinel mining complex consists of one underground mine, a preparation plant and a loadout facility located on approximately 25,700 acres in Barbour County, West Virginia. Mining operations currently extract High-vol A metallurgical coal from the Clarion coal seam. Coal from the Sentinel mining complex is processed through the preparation plant and shipped by CSX rail to customers. The Sentinel mining complex had approximately 4.7 million tons of proven and probable reserves at December 31, 2017.
Leer. The Leer Complex, located in Taylor County, West Virginia, includes approximately 30.8 million tons of coal reserves as of December 31, 2017 and has primarily High-vol A metallurgical quality coal in the Lower Kittanning seam, and is part of approximately 82,300 acres that is considered our Tygart Valley area. Substantially all of the reserves at Leer are owned rather than leased from third parties.
All the production is processed through a 1,400 ton‑per‑hour preparation plant and loaded on the CSX railroad. A 15,000‑ton train can be loaded in less than four hours.

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Other Thermal
West Elk. West Elk is an underground mining complex located on approximately 19,500 acres in Gunnison County, Colorado. The West Elk mining complex extracts thermal coal from the E seam.
We control a significant portion of the coal reserves through federal and state leases. The West Elk mining complex had approximately 53.1 million tons of proven and probable reserves at December 31, 2017.
The West Elk complex currently consists of a longwall, continuous miner sections and a loadout facility. We ship most of the coal raw to our customers via the Union Pacific railroad. The loadout facility can load an 11,000‑ton train in less than three hours.
Viper. The Viper mining complex consists of one underground coal mine and a preparation plant located on approximately 39,700 acres in central Illinois near the city of Springfield. Mining operations extract thermal coal from the Illinois No. 5 seam, also referred to as the Springfield seam. All coal is processed through an 800 ton‑per‑hour preparation plant and shipped to customers by on‑highway trucks.
We control a significant portion of the coal reserves through private leases. As of December 31, 2017, we had approximately 34.6 million tons of proven and probable reserves.
Coal‑Mac. The surface mining complex is located on approximately 46,000 acres in Logan and Mingo Counties, West Virginia. Surface mining operations at the Coal-MacCoal‑Mac mining complex extract steamthermal coal primarily from the Coalburg and Stockton seams.

We control a significant portion of the coal reserves through private leases. The Coal-MacCoal‑Mac mining complex had approximately 24.622.7 million tons of proven and probable reserves at December 31, 2015.

2017.

The complex currently consists of one captive surface mine, a preparation plant and two loadout facilities, which we refer to as Holden 22 and Ragland. We ship coal trucked to the Ragland loadout facility directly to our customers via the Norfolk Southern railroad. The Ragland loadout facility can load a 10,000-ton10,000‑ton train in less than four hours. We ship coal trucked to the Holden 22 loadout facility directly to our customers via the CSX railroad. We wash all of the coal transported to the Holden 22 loadout facility at an adjacent 600-ton-per-hour600‑ton‑per‑hour preparation plant. The Holden 22 loadout facility can load a 10,000-ton10,000‑ton train in about four hours.

Lone Mountain.  Lone Mountain is an underground mining complex located on approximately 54,000 acres in Harlan County, Kentucky and Lee County, Virginia. The Lone Mountain mining complex extracts steam and metallurgical coal from the Kellioka, Darby and Owl seams.

We control a significant portion of the coal reserves through private leases. The Lone Mountain mining complex had approximately 10.2 million tons of proven and probable reserves at December 31, 2015.

The complex currently consists of three underground mines operating a total of six continuous miner sections. We process coal through a 1,200-ton-per-hour preparation plant. We then ship the coal to our customers via the Norfolk Southern or CSX railroad.

Mountain Laurel.  Mountain Laurel is an underground and surface mining complex located on approximately 38,200 acres in Logan County and Boone County, West Virginia. Underground mining operations at the Mountain Laurel mining complex extract steam and metallurgical coal from the Cedar Grove and Alma seams. Surface mining operations at the Mountain Laurel mining complex extract coal from a number of different splits of the Five Block, Stockton and Coalburg seams.

The complex currently consists of one underground mine operating a longwall and one continuous miner sections, a preparation plant and a loadout facility. We process most of the coal through a 2,100-ton-per-hour preparation plant before shipping the coal to our customers via the CSX railroad. The loadout facility can load a 15,000-ton train in less than four hours.

Beckley.  The Beckley mining complex is located on approximately 15,400 acres in Raleigh County, West Virginia. Beckley is extracting high quality, low-volatile metallurgical coal in the Pocahontas No. 3 seam.

Coal is belted from the mine to a 600-ton-per-hour preparation plant before shipping the coal via the CSX railroad. The loadout facility can load a 10,000-ton train in less than four hours.

Vindex.  The Vindex mining complex consists of a surface mine located on approximately 40,300 acres in Maryland and West Virginia. Mining operations extract coal from the Upper Freeport, Middle Kittanning, Pittsburgh, Little Pittsburgh and Redstone seams. Coal is sold on a raw basis and trucked directly to the customer.  This operation had been idled effective March 1, 2016 and is currently in reclamation.

Sentinel.  The Sentinel mining complex consists of one underground mine, a preparation plant and a loadout facility located on approximately 25,600 acres in Barbour County, West Virginia. Mining operations currently extract coal from the Clarion coal seam. Coal from the Sentinel mining complex is processed through the preparation plant and shipped by CSX rail to customers.

Leer.  The Leer Complex, located in Taylor County, West Virginia, includes approximately 40.1 million tons of coal reserves as of December 31, 2015 and has both steam and metallurgical quality coal in the Lower Kittanning seam, and is part of approximately 79,400 acres that is considered our Tygart Valley area. Substantially all of the reserves at Leer are owned rather than leased from third parties.

The Leer Complex 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 and utility markets. All the production is processed through a 1,400 ton-per-hour preparation plant and loaded on the CSX railroad. A 15,000-ton train can be loaded in less than four hours. Without the addition of more coal reserves, the current reserves could sustain the longwall mine at current production levels until about 2029 and support continuous miner production until 2035.

Other

West Elk.  West Elk is an underground mining complex located on approximately 17,800 acres in Gunnison County, Colorado. The West Elk mining complex extracts steam coal from the E seam.

We control a significant portion of the coal reserves through federal and state leases. The West Elk mining complex had approximately 53.5 million tons of proven and probable reserves at December 31, 2015.

The West Elk complex currently consists of a longwall, continuous miner sections and a loadout facility. We ship most of the coal raw to our customers via the Union Pacific railroad. The loadout facility can load an 11,000-ton train in less than three hours.

Viper.  The Viper mining complex consists of one underground coal mine and a preparation plant located on approximately 46,500 acres in central Illinois near the city of Springfield. Mining operations extract steam coal from the Illinois No. 5 seam, also referred to as the Springfield seam. All coal is processed through an 800 ton-per-hour preparation plant and shipped to customers by on-highway trucks.

We control a significant portion of the coal reserves through private leases. As of December 31, 2015, we had approximately 37.2 million tons of proven and probable reserves.

Sales, Marketing and Trading

Overview. Coal prices are influenced by a number of factors and can vary materially by region. The price of coal within a region is influenced by market conditions, coal quality, transportation costs involved in moving coal from the mine to the point of use and mine operating costs. For example, higher carbonheat and lower ash content generally result in higher prices, and higher sulfur and higher ash content generally result in lower prices within a given geographic region.

The cost of coal at the mine is also influenced by geologic characteristics such as seam thickness, overburden ratios and depth of underground reserves. It is generally less expensive to mine coal seams that are thick and located close to the surface than to mine thin underground seams. Within a particular geographic region, underground mining, which is the primary mining method we use in certain of our Appalachian mines, is generally more expensive than surface mining, which is the mining method we use in the Powder River Basin, and for certainone of our Appalachian mines. This is the case because of the higher capital costs, including costs for construction of extensive ventilation systems, and higher per unit labor costs due to lower productivity associated with underground mining.

Our sales, marketing and trading functions are principally based in St. Louis, Missouri and consist of sales and trading, transportation and distribution, quality control and contract administration personnel as well as revenue management. We also have smaller groups of sales personnelrepresentatives in our Singapore and London offices. In addition to selling coal produced infrom our mining complexes, from time to time we purchase and sell coal mined by others, some of which we blend with coal produced from our mines. We focus on meeting the needs and specifications of our customers rather than just selling our coal production.

Customers. The Company markets its steamthermal and metallurgical coal to steel producers, domestic and foreign utilities, steel producerspower generators, and other industrial facilities. For the year ended December 31, 2015,2017, we derived approximately 18%17% of our total coal revenues from sales to our three largest customers, U.S.United States Steel Corporation, ArcelorMittal and Southern Company and Tennessee Valley Authority - and approximately 39%41% of our total coal revenues from sales to our 10 largest customers.


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In 2015,2017, we sold coal to domestic customers located in 3635 different states. The locations of our mines enable us to ship coal to most of the major coal-fueled power plants in the United States.

In addition, in 20152017 we also exported coal to Europe, Asia, North America (outside the United States), Central and South America.America and Africa. Exports to foreign countries were $0.4$0.8 billion $0.6, $0.5 billion and $0.8$0.4 billion for the years ended December 31, 2015,  20142017, 2016 and 2013,2015, respectively. As of December 31, 20152017 and 2014,2016, trade receivables related to metallurgical-qualitymetallurgical‑quality coal sales totaled $32.8$99.4 million and $76.0$88.0 million, respectively, or 28%58% and 48% of total trade receivables.receivables, respectively. We do not have foreign currency exposure for our international sales as all sales are denominated and settled in U.S. dollars.

The Company’s foreign revenues by coal shipment destination for the year ended December 31, 2015,2017, were as follows:

(In thousands)

 

 

 

Europe

 

$

170,314

 

Asia

 

96,523

 

Central and South America

 

55,323

 

North America

 

40,315

 

Brokered Sales

 

32,848

 

Total

 

$

395,323

 

(In thousands) 
Europe$388,926
Asia264,503
North America88,145
Central and South America30,982
Africa14,901
Brokered Sales6,137
Total$793,594
Long-Term Coal Supply Arrangements

As is customary in the coal industry, we enter into fixed price, fixed volume long-term supply contracts, the terms of which are more than one year, with many of our customers. Multiple year contracts usually have specific and possibly different volume and pricing arrangements for each year of the contract. Long-term contracts allow customers to secure a supply for their future needs and provide us with greater predictability of sales volume and sales prices. In 2015,2017, we sold approximately 68%66% of our coal under long-term supply arrangements. The majority of our supply contracts include a fixed price for the term of the agreement or a pre-determined escalation in price for each year. Some of our long-term supply agreements may include a variable pricing system. While most of our sales contracts are for terms of one to five years, some are as short as one month and other contracts have terms exceeding five years. At December 31, 2015,2017, the average volume-weightedvolume‑weighted remaining term of our long-term contracts was approximately 2.122.3 years, with remaining terms ranging from one to P5Yfour years. At December 31, 2015,2017, remaining tons under long-term supply agreements, including those subject to price re-opener or extension provisions, were approximately 144108 million tons.

We typically sell coal to North American customers under long-termlong‑term arrangements through a “request-for-proposal”“request‑for‑proposal” process. The terms of our coal sales agreements result from competitive bidding and negotiations with customers. Consequently, the terms of these contracts vary by customer, including base price adjustment features, price re-openerre‑opener terms, coal quality requirements, quantity parameters, permitted sources of supply, future regulatory changes, extension options, force majeure, termination, damages and assignment provisions. Our long-termlong‑term supply contracts typically contain provisions to adjust the base price due to new statutes, ordinances or regulations. We typically sell our metallurgical coal to non-North American customers based on various indices or agreements to mutually negotiate the price. These agreements generally are for one year and can reset pricing with each shipment. Additionally, some of our contracts contain provisions that allow for the recovery of costs affected by modifications or changes in the interpretations or application of any applicable statute by local, state or federal government authorities. These provisions only apply to the base price of coal contained in these supply contracts. In some circumstances, a significant adjustment in base price can lead to termination of the contract.

Certain of our contracts contain index provisions that change the price based on changes in market based indices or changes in economic indices or both. Certain of our contracts contain price re-openerre‑opener provisions that may allow a party to commence a renegotiation of the contract price at a pre-determinedpre‑determined time. Price re-openerre‑opener provisions may automatically set a new price based on prevailing market price or, in some instances, require us to negotiate a new price, sometimes within a specified range of prices. In a limited number of agreements, if the parties do not agree on a new price, either party has an option to terminatesuspend the contract.agreement for the pricing period not agreed to. In addition, certain of our contracts contain clauses that may allow customers to terminate the contract in the event of certain changes in environmental laws and regulations that impact their operations.


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Coal quality and volumes are stipulated in coal sales agreements. In most cases, the annual pricing and volume obligations are fixed, although in some cases the volume specified may vary depending on the customer consumption requirements. Most of our coal sales agreements contain provisions requiring us to deliver coal within certain ranges for specific coal characteristics such as heat content (for thermal coal contracts), volatile matter (for metallurgical coal contracts), and for both types of contracts, sulfur, ash and moisture content. Failure to meet these specifications can result in economic penalties, suspension or cancellation of shipments or termination of the contracts.

Our coal sales agreements also typically contain force majeure provisions allowing temporary suspension of performance by us or our customers, during the duration of events beyond the control of the affected party, including events such as strikes, adverse mining conditions, mine closures or serious transportation problems that affect us or unanticipated plant outages that may affect the buyer. Our contracts also generally provide that in the event a force majeure circumstance exceeds a

certain time period, the unaffected party may have the option to terminate the purchase or sale in whole or in part. Some contracts stipulate that this tonnage can be made up by mutual agreement or at the discretion of the buyer. Agreements between our customers and the railroads servicing our mines may also contain force majeure provisions.

In most of our thermal coal contracts, we have a right of substitution (unilateral or subject to counterparty approval), allowing us to provide coal from different mines, including third-partythird‑party mines, as long as the replacement coal meets quality specifications and will be sold at the same equivalent delivered cost.

In some of our coal supply contracts, we agree to indemnify or reimburse our customers for damage to their or their rail carrier’s equipment while on our property, which result from our or our agents’ negligence, and for damage to our customer’s equipment due to non-coalnon‑coal materials being included with our coal while on our property.

Trading. In addition to marketing and selling coal to customers through traditional coal supply arrangements, we seek to optimize our coal production and leverage our knowledge of the coal industry through a variety of other marketing, trading and asset optimization strategies. From time to time, we may employ strategies to use coal and coal-relatedcoal‑related commodities and contracts for those commodities in order to manage and hedge volumes and/or prices associated with our coal sales or purchase commitments, reduce our exposure to the volatility of market prices or augment the value of our portfolio of traditional assets. These strategies may include physical coal contracts, as well as a variety of forward, futures or options contracts, swap agreements or other financial instruments.

We maintain a system of complementary processes and controls designed to monitor and manage our exposure to market and other risks that may arise as a consequence of these strategies. These processes and controls seek to preserve our ability to profit from certain marketing, trading and asset optimization strategies while mitigating our exposure to potential losses. You should see Item 7A, entitled “Quantitative and Qualitative Disclosures About Market Risk” for more information about the market risks associated with these strategies at December 31, 2015.

2017.

Transportation. We ship our coal to domestic customers by means of railcars, barges, vessels or trucks, or a combination of these means of transportation. We generally sell coal used for domestic consumption free on board (f.o.b.) at the mine or nearest loading facility. Our domestic customers normally bear the costs of transporting coal by rail, barge or vessel.

truck.

Historically, most domestic electricity generators have arranged long-termlong‑term shipping contracts with rail, trucking or barge companies to assure stable delivery costs. Transportation can be a large component of a purchaser’s total cost. Although the purchaser pays the freight, transportation costs still are important to coal mining companies because the purchaser may choose a supplier largely based on cost of transportation. Transportation costs borne by the customer vary greatly based on each customer’s proximity to the mine and our proximity to the loadout facilities. Trucks and overland conveyors haul coal over shorter distances, while barges, Great Lake carriers and ocean vessels move coal to export markets and domestic markets requiring shipment over the Great Lakes and several river systems.

Most coal mines are served by a single rail company, but much of the Powder River Basin is served by two rail carriers: the Burlington Northern-SantaNorthern‑Santa Fe railroad and the Union Pacific railroad.railroad; and our Coal Mac mine is served by both the CSX and Norfolk Souther railroads.. We generally transport coal produced at our Appalachian mining complexes via the CSX railroad or the Norfolk Southern railroad. Besides rail deliveries, some customers in the eastern United States rely on a river barge system.


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We generally sell coal to international customers at thean export terminal, and we are usually responsible for the cost of transporting coal to the export terminals. In some cases we may enter into long-term throughput agreements with export terminals that contain minimum throughput obligations. In the event we do not meet those minimum thresholds, we may be obligated to pay liquidated damage amounts to such terminals. We transport our coal to Atlantic coast terminals, Pacific cost terminals or terminals along the Gulf of Mexico for transportation to international customers. Our international customers are generally responsible for paying the cost of ocean freight. We may also sell coal to international customers delivered to an unloading facility at the destination country.

We own a 22%35% interest in Dominion Terminal Associates, a partnership that operates a ground storage-to-vesselstorage‑to‑vessel coal transloading facility in Newport News, Virginia. The facility has a rated throughput capacity of 20 million tons of coal per year and ground storage capacity of approximately 1.7 million tons. The facility primarily serves international customers, as well as domestic coal users located along the Atlantic coast of the United States.

We also own From time-to-time, we may lease a 38% interest in Millennium Bulk Terminals-Longview, LLC (MBT), the ownerportion of a bulk commodity terminal on the Columbia River near Longview, Washington. MBT is currently workingour port capacity to obtain the required approvals and necessary permits to complete upgrades to enable coal shipments through the brownfield terminal.

third parties.

Competition

The coal industry is intensely competitive. The most important factors on which we compete are coal quality, delivered costs to the customer and reliability of supply. Our principal domestic competitors include Alpha Natural Resources, Inc.Blackhawk Mining LLC, Blackjewel LLC, Contura Energy, Coronado Coal LLC, Corsa Coal Corp., Cloud Peak Energy, CONSOL Energy Inc. and Peabody Energy Corp. and Ramaco Resources. Some of these coal producers are larger than we are and have greater financial resources and larger reserve bases than we do. We also compete directly with a number of smaller producers in each of the geographic regions in which we operate, as well as companies that produce coal from one or more foreign countries, such as Australia, Colombia, Indonesia and South Africa.

Additionally, coal competes with other fuels, such as natural gas, nuclear energy, hydropower, wind, solar and petroleum, for steam and electrical power generation. Costs and other factors relating to these alternative fuels, such as safety and environmental considerations, affect the overall demand for coal as a fuel.

Suppliers

Principal supplies used in our business include petroleum-basedpetroleum‑based fuels, explosives, tires, steel and other raw materials as well as spare parts and other consumables used in the mining process. We use third-partythird‑party suppliers for a significant portion of our equipment rebuilds and repairs, drilling services and construction. We use sole source suppliers for certain parts of our business such as explosives and fuel, and preferred suppliers for other parts of our business such as dragline and shovel parts and related services. We believe adequate substitute suppliers are available. For more information about our suppliers, you should see Item 1A, “Risk Factors-Increases in the costs of mining and other industrial supplies, including steel-basedsteel‑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.”

Environmental and Other Regulatory Matters


Federal, state and local authorities regulate the U.S. coal mining industry with respect to matters such as employee health and safety and the environment, including the protection of air quality, water quality, wetlands, special status species of plants and animals, land uses, cultural and historic properties and other environmental resources identified during the permitting process. Reclamation is required during production and after mining has been completed. Materials used and generated by mining operations must also be managed according to applicable regulations and law. These laws have, and will continue to have, a significant effect on our production costs and our competitive position.

We endeavor to conduct our mining operations in compliance with applicable federal, state and local laws and regulations. However, due in part to the extensive, comprehensive and changing regulatory requirements, violations during mining operations occur from time to time. We cannot assure you that we have been or will be at all times in complete compliance with such laws and regulations. While it is not possible to accurately quantify the expendituresExpenditures we incur to maintain compliance with all applicable federal and state laws those costs have been and are expected to continue to be significant. Federal and state mining laws and regulations require us to obtain surety bonds to guarantee performance or payment of certain long-termlong‑term obligations, including mine closure and reclamation costs, federal and state workers’ compensation benefits, coal

leases and other miscellaneous obligations. Compliance with these laws has substantially increased the cost of coal mining for domestic coal producers.


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Future laws, regulations or orders, as well as future interpretations and more rigorous enforcement of existing laws, regulations or orders, may require substantial increases in equipment and operating costs and delays, interruptions or a termination of operations, the extent to which we cannot predict. Future laws, regulations or orders may also cause coal to become a less attractive fuel source, thereby reducing coal’s share of the market for fuels and other energy sources used to generate electricity. As a result, future laws, regulations or orders may adversely affect our mining operations, cost structure or our customers’ demand for coal.

The following is a summary of the various federal and state environmental and similar regulations that have a material impact on our business:

Mining Permits and Approvals. Numerous governmental permits or approvals are required for mining operations. When we apply for these permits and approvals, we may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed production or processing of coal may have upon the environment. For example, in order to obtain a federal coal lease, an environmental impact statement must be prepared to assist the BLM in determining the potential environmental impact of lease issuance, including any collateral effects from the mining, transportation and burning of coal, which may in some cases include a review of impacts on climate change. The authorization, permitting and implementation requirements imposed by federal, state and local authorities may be costly and time consuming and may delay commencement or continuation of mining operations. In the states where we operate, the applicable laws and regulations also provide that a mining permit or modification can be delayed, refused or revoked if officers, directors, shareholders with specified interests or certain other affiliated entities with specified interests in the applicant or permittee have, or are affiliated with another entity that has, outstanding permit violations. Thus, past or ongoing violations of applicable laws and regulations could provide a basis to revoke existing permits and to deny the issuance of additional permits.

In order to obtain mining permits and approvals from federal and state regulatory authorities, mine operators must submit a reclamation plan for restoring, upon the completion of mining operations, the mined property to its prior condition or other authorized use. Typically, we submit the necessary permit applications several months or even years before we plan to begin mining a new area. Some of our required permits are becoming increasingly more difficult and expensive to obtain, and the application review processes are taking longer to complete and becoming increasingly subject to challenge, even after a permit has been issued.

Under some circumstances, substantial fines and penalties, including revocation or suspension of mining permits, may be imposed under the laws described above. Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these laws.

Surface Mining Control and Reclamation Act. The Surface Mining Control and Reclamation Act, which we refer to as SMCRA, establishes mining, environmental protection, reclamation and closure standards for all aspects of surface mining as well as many aspects of underground mining. Mining operators must obtain SMCRA permits and permit renewals from the Office of Surface Mining, which we refer to as OSM, or from the applicable state agency if the state agency has obtained regulatory primacy. A state agency may achieve primacy if the state regulatory agency develops a mining regulatory program that is no less stringent than the federal mining regulatory program under SMCRA. All states in which we conduct mining operations have achieved primacy and issue permits in lieu of OSM.

In 1999, a federal court in West Virginia ruled that the stream buffer zone rule issued under SMCRA prohibited most excess spoil fills. While the decision was later reversed on jurisdictional grounds, the extent to which the rule applied to fills was left unaddressed. On December 12, 2008, OSM finalized a rulemaking regarding the interpretation of the stream buffer zone provisions of SMCRA which confirmed that excess spoil from mining and refuse from coal preparation could be placed in permitted areas of a mine site that constitute waters of the United States. That rule, however, was subject to a challenge in federal court. In addition, on November 30, 2009, OSM announced that it would re-examinere‑examine and reinterpret the regulations finalized eleven months earlier. On February 20, 2014, the federal court vacated the 2008 rule. On December 22, 2014, OSM

published the final revisions to the stream buffer zone rule in the Federal Register. The revisions reinstatereinstated the previous version of the rule, but dodid not announce a new interpretation of the rule regarding the ability to construct excess spoil fills. We cannot predict howOn December 19, 2016, OSM finalized the regulations will be applied or how they may affect coal production, though there are reports that any reinterpretation of the prior“Stream Protection Rule,” a re-written version of the stream buffer zone rule which would have required coal operators to restrict mining within 100 feet of waterways. The rule would behave also required states to restrict theimpose additional information gathering and monitoring at and around coal mining sties and would have mandated new financial assurance and reclamation requirements. This rule could have restricted coal producers’ ability to construct mining related structures in streams. Such an interpretationdevelop new mines, or could curtailhave required coal producers to modify existing operations, curtailing surface miningmine operations in and near streams-especiallystreams, especially in central Appalachia.

However, on February 2, 2017, Congress voted to repeal the stream protection rule under the Congressional Review Act. President Trump signed the bill repealing the rule on February 16, 2017.


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SMCRA permit provisions include a complex set of requirements which include, among other things, coal prospecting; mine plan development; topsoil or growth medium removal and replacement; selective handling of overburden materials; mine pit backfilling and grading; disposal of excess spoil; protection of the hydrologic balance; subsidence control for underground mines; surface runoff and drainage control; establishment of suitable post mining land uses; and revegetation. We begin the process of preparing a mining permit application by collecting baseline data to adequately characterize the pre-miningpre‑mining environmental conditions of the permit area. This work is typically conducted by third-partythird‑party consultants with specialized expertise and includes surveys and/or assessments of the following: cultural and historical resources; geology; soils; vegetation; aquatic organisms; wildlife; potential for threatened, endangered or other special status species; surface and ground water hydrology; climatology; riverine and riparian habitat; and wetlands. The geologic data and information derived from the other surveys and/or assessments are used to develop the mining and reclamation plans presented in the permit application. The mining and reclamation plans address the provisions and performance standards of the state’s equivalent SMCRA regulatory program, and are also used to support applications for other authorizations and/or permits required to conduct coal mining activities. Also included in the permit application is information used for documenting surface and mineral ownership, variance requests, access roads, bonding information, mining methods, mining phases, other agreements that may relate to coal, other minerals, oil and gas rights, water rights, permitted areas, and ownership and control information required to determine compliance with OSM’s Applicant Violator System, including the mining and compliance history of officers, directors and principal owners of the entity.

Once a permit application is prepared and submitted to the regulatory agency, it goes through an administrative completeness review and a thorough technical review. Also, before a SMCRA permit is issued, a mine operator must submit a bond or otherwise secure the performance of all reclamation obligations. After the application is submitted, a public notice or advertisement of the proposed permit is required to be given, which begins a notice period that is followed by a public comment period before a permit can be issued. It is not uncommon for a SMCRA mine permit application to take over a year to prepare, depending on the size and complexity of the mine, and anywhere from six months to two years or even longer for the permit to be issued. The variability in time frame required to prepare the application and issue the permit can be attributed primarily to the various regulatory authorities’ discretion in the handling of comments and objections relating to the project received from the general public and other agencies. Also, it is not uncommon for a permit to be delayed as a result of litigation related to the specific permit or another related company’s permit.

In addition to the bond requirement for an active or proposed permit, the Abandoned Mine Land Fund, which was created by SMCRA, requires a fee on all coal produced. The proceeds of the fee are used to restore mines closed or abandoned prior to SMCRA’s adoption in 1977. The current fee is $0.28 per ton of coal produced from surface mines and $0.12 per ton of coal produced from underground mines. In 2015,2017, we recorded $32.7$24.6 million of expense related to these reclamation fees.

Surety Bonds. Mine operators are often required by federal and/or state laws, including SMCRA, to assure, usually through the use of surety bonds, payment of certain long-termlong‑term obligations including mine closure or reclamation costs, federal and state workers’ compensation costs, coal leases and other miscellaneous obligations. Although surety bonds are usually noncancelable during their term, many of these bonds are renewable on an annual basis.  Please see “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, and a loss or reduction in our ability to self-bond could have a material adverse effect on our business and results of operations,” contained under the heading Risk Factors—Risks related to Our Operations for a discussion of certain risks associated with our surety bonds.

The costs of these bonds have widely fluctuated in recent years while the market terms of surety bonds have generally become more unfavorable tohardened for mine operators. These changes in the terms of the bonds have been accompanied at times by a

decrease in the number of companies willing to issue surety bonds. In order to address some of these uncertainties, we use self-bonding to secure performance of certain obligations in Wyoming. As of December 31, 2015,2017, we have self-bonded an aggregate of approximately $485.5 million, posted an aggregate of approximately $188.0$531.7 million in surety bonds for reclamation purposes and secured $49.2$10.0 million in letters of credit and cash for reclamation bonding obligations. In addition, we had approximately $212.0$161.6 million of surety bonds, cash and letters of credit outstanding at December 31, 20152017 to secure workers’ compensation, coal lease and other obligations.

For additional information, please see “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, and a loss or reduction in our ability to self-bond could have a material, adverse effect on our business and results of operations,” contained in Item 1A, “Risk Factors—Risk Related to Our Operations,” for a discussion of certain risks associated with our surety bonds.

Mine Safety and Health. Stringent safety and health standards have been imposed by federal legislation since Congress adopted the Mine Safety and Health Act of 1969. The Mine Safety and Health Act of 1977 significantly expanded the enforcement of safety and health standards and imposed comprehensive safety and health standards on all aspects of mining operations. In addition to federal regulatory programs, all of the states in which we operate also have programs aimed at improving mine safety and health. Collectively, federal and state safety and health regulation in the coal mining industry is among the most comprehensive and pervasive systems for the protection of employee health and safety affecting any segment of U.S. industry. In reaction to recent mine accidents, federal and state legislatures and regulatory authorities have increased scrutiny

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Table of mine safety matters and passed more stringent laws governing mining. For example, in 2006, Congress enacted the MINER Act. The MINER Act imposes additional obligations on coal operators including, among other things, the following:

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·                  development of new emergency response plans that address post-accident communications, tracking of miners, breathable air, lifelines, training and communication with local emergency response personnel;

·                  establishment of additional requirements for mine rescue teams;

·                  notification of federal authorities in the event of certain events;

·                  increased penalties for violations of the applicable federal laws and regulations; and

·                  requirement that standards be implemented regarding the manner in which closed areas of underground mines are sealed.

In 2008, the U.S. House of Representatives approved additional federal legislation which would have required new regulations on a variety of mine safety issues such as underground refuges, mine ventilation and communication systems. Although the U.S. Senate failed to pass that legislation, it is possible that similar legislation may be proposed in the future. Various states, including West Virginia, have also enacted laws to address many of the same subjects. The costs of implementing these safety and health regulations at the federal and state level have been, and will continue to be, substantial. In addition to the cost of implementation, there are increased penalties for violations which may also be substantial. Expanded enforcement has resulted in a proliferation of litigation regarding citations and orders issued as a result of the regulations.

Under the Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act of 1977, each coal mine operator must secure payment of federal black lung benefits to claimants who are current and former employees and to a trust fund for the payment of benefits and medical expenses to claimants who last worked in the coal industry prior to July 1, 1973. The trust fund is funded by an excise tax on production of up to $1.10 per ton for coal mined in underground operations and up to $0.55 per ton for coal mined in surface operations. These amounts may not exceed 4.4% of the gross sales price. This excise tax does not apply to coal shipped outside the United States. In 2015,2017, we recorded $66.1$48.7 million of expense related to this excise tax.

Clean Air Act. The federal Clean Air Act and similar state and local laws that regulate air emissions affect coal mining directly and indirectly. Direct impacts on coal mining and processing operations include Clean Air Act permitting requirements and emissions control requirements relating to particulate matter which may include controlling fugitive dust. The Clean Air Act also indirectly affects coal mining operations, for example, by extensively regulating the emissions of fine particulate matter measuring 2.5 micrometers in diameter or smaller, sulfur dioxide, nitrogen oxides, mercury and other compounds

emitted by coal-fueledcoal‑fueled power plants and industrial boilers, which are the largest end-usersend‑users of our coal. Continued tightening of the already stringent regulation of emissions is likely, such as the Mercury and Air Toxics Standard (MATS), finalized in 2011 and discussed in more detail below. In addition, the U.S. Environmental Protection Agency, which we refer to as the EPA, has issued regulations on additional emissions, such as greenhouse gases (GHG)(GHG’s), from new, modified, reconstructed and existing electric generating units, including coal-fired plants. Other GHG regulations apply to industrial boilers (see discussion of Climate Change, below). These regulations could eventually reduce the demand for coal.

Clean Air Act requirements that may directly or indirectly affect our operations include the following:

·Acid Rain. Title IV of the Clean Air Act, promulgated in 1990, imposed a two-phasetwo‑phase reduction of sulfur dioxide emissions by electric utilities. Phase II became effective in 2000 and applies to all coal-fueledcoal‑fueled power plants with a capacity of more than 25-megawatts.25‑megawatts. Generally, the affected power plants have sought to comply with these requirements by switching to lower sulfur fuels, installing pollution control devices, reducing electricity generating levels or purchasing or trading sulfur dioxide emissions allowances. Although we cannot accurately predict the future effect of this Clean Air Act provision on our operations, we believe that implementation of Phase II has been factored into the pricing of the coal market.


·Particulate Matter. The Clean Air Act requires the EPA to set national ambient air quality standards, which we refer to as NAAQS, for certain pollutants associated with the combustion of coal, including sulfur dioxide, particulate matter, nitrogen oxides and ozone. Areas that are not in compliance with these standards, referred to as non-attainmentnon‑attainment areas, must take steps to reduce emissions levels. For example, NAAQS currently exist for particulate matter measuring 10 micrometers in diameter or smaller (PM10) and for fine particulate matter measuring 2.5 micrometers in diameter or smaller (PM2.5), and the EPA revised the PM2.5 NAAQS on December 14, 2012, making it more stringent. The states were required to make recommendations on nonattainment designations for the new NAAQS in late 2013. The EPA issued final designations for most areas of the country in 2012 and made some revisions in 2015. Individual states must now identify the sources of emissions and develop emission reduction plans. These plans may be state-specificstate‑specific or regional in scope. Under the Clean Air Act, individual states have up to 12 years from the date of designation to secure emissions reductions from sources contributing to the problem. Future regulation and enforcement of the new PM2.5 standard, as well as future revisions of PM standards, will affect many power plants, especially coal-fueledcoal‑fueled power plants, and all plants in non-attainmentnon‑attainment areas.


·Ozone. On October 26, 2015, the EPA published a final rule revising the existing primary and secondary NAAQS for ozone, reducing them to 70ppb on an 8-hour average. On November 17, 2016, the EPA has yet to make attainment designations for statesissued a proposed implementation rule on this new standard, but significantnon-attainment area classification an state implementation plans (SIPS). Significant additional emission control expenditures will likely be required at certain coal-fueledcoal‑fueled power plants to meet the new stricter NAAQS. Nitrogen oxides, which are a byproduct of coal combustion, are classified as an ozone precursor. As a result, emissions control requirements for new and expanded coal-fueledcoal‑fueled power plants and industrial boilers will continue to become more demanding in the years ahead. A suit challenging the EPA’s 2015 Ozone NAAQS, Murray Energy Corp. v. EPA, is currently pending in the United States Court of Appeals for the District of Columbia, which we refer to as the D.C. Circuit. However, on April 11, 2017, the D.C. Circuit granted the EPA’s motion, which cites President Trump’s March 28, 2017 Energy Independence Executive Order, to indefinitely delay any decision on the challenges. The new standardEPA did not meet the October 1, 2017 deadline for designating non-attainment areas but, on November 6, 2017, issued final designations for areas in the United States representing approximately 85% of the U.S. counties that would take effect sixty days after the notice is subject

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published in the Federal Register. For the remaining areas of the United States, the EPA has not yet prepared final designations but plans to pending judicial challenge.

do so in a separate future action.


·NOx SIP Call. The Nitrogen Oxides State Implementation Plan (NOx SIP) Call program was established by the EPA in October 1998 to reduce the transport of ozone on prevailing winds from the Midwest and South to states in the Northeast, which said that they could not meet federal air quality standards because of migrating pollution. The program was designed to reduce nitrous oxide emissions by one million tons per year in 22 eastern states and the District of Columbia. Phase II reductions were required by May 2007. As a result of the program, many power plants were required to install additional emission control measures, such as selective catalytic reduction devices. Installation of additional emission control measures has made it more costly to operate coal-fueledcoal‑fueled power plants, which could make coal a less attractive fuel.


·Interstate Transport. The EPA finalized the Clean Air Interstate Rule, which we refer to as CAIR, in March 2005. CAIR called for power plants in 28 Eastern states and the District of Columbia to reduce emission levels of sulfur

dioxide and nitrous oxide, which could lead to non-attainment of PM2.5 and ozone NAAQS in downwind states (interstate transport), pursuant to a cap and trade program similar to the system now in effect for acid deposition control. In July 2008, in State of North Carolina v. EPA and consolidated cases, the U.S. Court of Appeals for the District of ColumbiaD.C. Circuit disagreed with the EPA’s reading of the Clean Air Act and vacated CAIR in its entirety. In December 2008, the U.S. Court of Appeals for the District of ColumbiaD.C. Circuit revised its remedy and remanded the rule to the EPA. The EPA proposed a revised transport rule on August 2, 2010 (75 Fed. Reg. 45209) to address attainment of the 1997 ozone NAAQS and the 2006 PM2.5 NAAQS. The rule was finalized as the Cross State Air Pollution Rule (CSAPR) on July 6, 2011, with compliance required for SO2 reductions beginning January 1, 2012 and compliance with NOx reductions required by May 1, 2012. Numerous appeals of the rule were filed and, on August 21, 2012, the Federal Court of Appeals for the District of ColumbiaD.C. Circuit vacated the rule, leaving the EPA to continue implementation of the CAIR. Controls required under the CAIR, especially in conjunction with other rules may have affected the market for coal inasmuch as multiple existing coal fired units were being retired rather than having required controls installed.


The U.S. Supreme Court agreed to hear the EPA’s appeal of the decision vacating CSAPR and on April 29, 2014, issued an opinion reversing the August 21, 2012 District of ColumbiaD.C. Circuit decision, remanding the case back to the District of ColumbiaD.C. Circuit. The EPA then requested that the court lift the CSAPR stay and toll the CSAPR compliance deadlines by three years. On October 23, 2014, the District of ColumbiaD.C. Circuit granted the EPA’s request, and that court later dismissed all pending challenges to the rule on July 28, 2015 but it remanded some state budgets to EPA for further consideration. CSAPR Phase 1 implementation began in 2015, with Phase 2 beginning in 2017. CSAPR generally requires greater reductions thatthan under CAIR. As a result, some coal-firedcoal‑fired power plants will be required to install costly pollution controls or shut down which may adversely affect the demand for coal. Finally, in November 2015,October 2016, the EPA proposedissued an update to the CSAPR to address interstate transport of air pollution under the more recent 2008 ozone NAAQS and the state budgets remanded by the D.C. Circuit. EPA received public comment onConsolidated judicial challenges to the rule in January 2016 and will issue a final ruleare now pending, but on August 10, 2017, the D.C. Circuit suspended briefing in the near future.  Itlitigation after industry petitioners challenging the rule requested to delay proceedings so EPA can determine whether to reconsider the revised CSAPR. If the rule is upheld, it is likely the final ruleCSAPR update will increase the pressure to install controls or shut down units, which may further adversely affect the demand for coal.


·Mercury. In February 2008, the U.S. Court of Appeals for the District of ColumbiaD.C. Circuit vacated the EPA’s Clean Air Mercury Rule (CAMR), which was promulgated to reduce mercury emissions from coal-fired power plants and remanded it to the EPA for reconsideration. In response, the EPA announced an Electric Generating Unit (EGU) Mercury and Air Toxics Standard (MATS) on December 16, 2011. The MATS was finalized April 16, 2012, and required compliance for most plants by 2015. In addition, before the court decision vacating the CAMR, some states had either adopted the CAMR or adopted state-specificstate‑specific rules to regulate mercury emissions from power plants that are more stringent than the CAMR. MATS compliance, coupled with state mercury and air toxics laws and other factors have required many plants to install costly controls, re-fire with natural gas or to retire, which may adversely affect the demand for coal.

MATS was challenged in the D.C. Circuit, which upheld the rule on April 15, 2013. Petitioners successfully obtained Supreme Court review, and on June 29, 2015, the Supreme Court issued a 5-4 decision striking down the final rule based on the EPA’s failure to consider economic costs in determining whether to regulate. The case was remanded to the D.C. Circuit. The EPA began reconsideration of costs, proposing to re-issue the final rule in April 2016 based on a finding that those costs still justified regulation, and successfully secured an order from the D.C. Circuit to keep the rule in effect while it completed its rulemaking.  Petitionerspetitioners unsuccessfully sought a stay of the rule in the Supreme Court in February 2016. In April 2016, the EPA issued a MATS 2016 Supplemental Finding, a final finding that it is appropriate and necessary to set standards for emissions of air toxics from coal- and oil-fired power plants. That finding is now being challenged in court. Therefore, the rule

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remains in effect until further order of the D.C. Circuit. The D.C. Circuit which will likely hear challengesdenied petitioners’ motion to EPA’s re-issuancetemporarily halt the pending litigation to allow the new administration to evaluate whether it can resolve any issues raised in the case. However, in April 2017, the EPA requested a delay in the D.C. Circuit proceedings while EPA is reviewing the determinations of the rule based on its new cost considerations.prior administration. Hence, while MATS will likely continue to impact coal-fueled generation as discussed above for at least the near term, and possibly well into the future.

future course of the Rule is unclear.


·Regional Haze. The EPA has initiated a regional haze program designed to protect and improve visibility at and around national parks, national wilderness areas and international parks, particularly those located in the southwest and southeast United States. Under the Regional Haze Rule, affected states were required to submit regional haze SIPs by December 17, 2007, that, among other things, were to identify facilities that would have to reduce emissions and comply with stricter emission limitations. The vast majority of states failed to submit their

plans by December 17, 2007, and the EPA issued a Finding of Failure to Submit plans on January 15, 2009 (74 Fed. Reg. 2392). The EPA had taken no enforcement action against states to finalize implementation plans and was slowly dealing with the state Regional Haze SIPs that were submitted, which resulted in the National Parks Conservation Association commencing litigation in the D.C. Circuit Court of Appeals on August 3, 2012, against the EPA for failure to enforce the rule (National Parks Conservation Act v. EPA, D.C. Cir). Industry groups, including the Utility Air Regulatory Group have intervened (Utility Air Regulatory Group v. EPA. D.C. Cir 12-12‑1342, 8/6/2012).


The EPA ultimately agreed in a consent decree with environmental groups to impose regional haze federal implementation plans (FIPs) or to take action on regional haze SIPs before the agency for 42 states and the District of Columbia. The EPA has completed those actions for all but several states in its first planning period (2008-2010). In many eastern states, the EPA has allowed states to meet “best available retrofit control technology” (BART) requirements for power plants through compliance with CAIR and CSAPR (a policy under pending litigation). Other states have had BART imposed on a case-by-case basis, and where the EPA found SIPs deficient, it disapproved them and issued FIPs. It is possible that the EPA may continue to increase the stringency of control requirements imposed under the ReginaRegional Haze Program as it moves toward the next planning period.  period, which could be delayed until 2021.

This program may result in additional emissions restrictions from new coal-fueledcoal‑fueled power plants whose operations may impair visibility at and around federally protected areas. This program may also require certain existing coal-fueledcoal‑fueled power plants to install additional control measures designed to limit haze-causinghaze‑causing emissions, such as sulfur dioxide, nitrogen oxides, volatile organic chemicals and particulate matter. These limitations could affect the future market for coal.

However, on January 18, 2018, EPA announced that it was revisiting the 2017 Regional Haze Rule revisions, and announced an intent to commence a new rulemaking. This proceeding may slow or even roll back certain Regional Haze requirements.


·New Source Review. A number of pending regulatory changes and court actions are affecting the scope of the EPA’s new source review program, which under certain circumstances requires existing coal-fueledcoal‑fueled power plants to install the more stringent air emissions control equipment required of new plants. The new source review program is continually revised and such revisions may impact demand for coal nationally, but we are unable to predict the magnitude of the impact.

nationally.


Climate Change. Carbon dioxide, which is considered to be a greenhouse gas, is a by-product of burning coal. Global climate issues, including with respect to greenhouse gases such as carbon dioxide and the relationship that greenhouse gases may have with perceived global warning,warming, continue to attract significant public and scientific attention. For example, the Fourth and Fifth Assessment Reports of the Intergovernmental Panel on Climate Change have expressed concern about the impacts of human activity, especially from fossil fuel combustion, on global climate issues. As a result of the public and scientific attention, several governmental bodies increasingly are focusing on global climate issues and, more specifically, levels of emissions of carbon dioxide from coal combustion by power plants. Future regulation of greenhouse gas emissions in the United States could occur pursuant to future U.S. treaty obligations, statutory or regulatory changes and the federal, state or local level or otherwise.

Demand for coal also may be impacted by international efforts to reduce emissions fromof greenhouse gases. For example, in December 2015, representatives of 195 nations reached a landmark climate accord that will, for the first time, commit participating countries to lowering greenhouse gas emissions. Further, the United States and a number of international development banks, such as the World Bank, the European Investment Bank and European Bank for Reconstruction and Development, have announced that they will no longer provide financing for the development of new coal-fueled power plants, subject to very narrow exceptions.


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Although the U.S. Congress has considered various legislative proposals that would address global climate issues and greenhouse gas emissions, no such federal proposals have been adopted into law to date. In the absence of U.S. federal legislation on these topics, the U.S. Environmental Protection Agency (the “EPA”) has been the primary source of federal oversight, although future regulation of greenhouse gases and global climate matters in the United States could occur pursuant to future U.S. treaty obligations, statutory or regulatory changes under the Clean Air Act, federal adoption of a greenhouse gas regulatory scheme or otherwise.

In 2007, the U.S. Supreme Court held that the EPA has authority under the Clean Air Act to regulate carbon dioxide emissions from automobiles and can decide against regulation only if the EPA determines that carbon dioxide does not significantly contribute to climate change and does not endanger public health or the environment. Although the Supreme Court’s holding did not expressly involve the EPA’s authority to regulate greenhouse gas emissions from stationary sources, such as coal-fueled power plants, the EPA since has determined on its own that it has the authority to regulate greenhouse gas emissions from power plants, and the EPA has published a formal determination that six greenhouse gases, including carbon dioxide, endanger both the public health and welfare of current and future generations.

In 2014, the EPA proposed a sweeping rule, known as the “Clean Power Plan,” to cut carbon emissions from existing electric generating units, including coal-fired power plants. A final version of the Clean Power Plan was adopted in August 2015. The final version of the Clean Power Plan aims to reduce carbon dioxide emissions from electrical power generation by 32% within 15 yearsby 2030 relative to 2005 levels through reduction of emissions from coal-burning power plants and increased use of renewable energy and energy conservation methods. Under the Clean Power Plan, states are free to reduce emissions by various means and must submit emissions reduction plans to the EPA by September 2016 or, with an approved extension, September 2018. If a state has not submitted a plan by then, the Clean Power Plan authorizes the EPA to impose its own plan on that state. In order to determine a state’s goal, the EPA has divided the country into three regions based on connected regional electricity grids. States are to implement their plans by focusing on (i) increasing the generation efficiency of existing fossil fuel plants, (ii) substituting lower carbon dioxide emitting natural gas generation for coal-powered generation and (iii) substituting generation from new zero carbon dioxide emitting renewable sources for fossil fuel powered generation. States are permitted to use regionally available low carbon generation sources when substituting for in-state coal generation and coordinate with other states to develop multi-state plans. Following the adoption, 27 states sued the EPA, claiming that the EPA overstepped its legal authority in adopting the Clean Power Plan. In February 2016, the U.S. Supreme Court ordered the EPA to halt enforcement of the Clean Power Plan until a lower court rules on the lawsuit and until the Supreme Court determines whether or not to hear the case. If the Supreme Court does decideIn October 2017, EPA commenced rulemaking proceedings to hear the case, then the stay would remain in effect until the Supreme Court rules.  Ifrescind the Clean Power Plan, ultimately is upheldand in its current form, it is projectedDecember 2017, EPA published an Advanced Notice of Proposed Rulemaking announcing an intent to significantly curtailcommence a new rulemaking to replace the construction ofClean Power Plan with an alternative framework for regulating carbon dioxide.
In a parallel litigation, 25 states and other parties filed lawsuits challenging the EPA’s final New Source Performance Standards rules, which we refer to as NSPS, for carbon dioxide emissions from new, coal-firedmodified, and reconstructed power plants under the Clean Air Act. One of the primary issues in these lawsuits is the EPA’s establishment of standards of performance based on technologies including carbon capture and sequestration, which we refer to as CCS. New coal plants cannot meet the new standards unless they implement CCS, which reportedly is not yet commercially available or technically feasible. In conjunction with EPA’s proposal to rescind the Clean Power Plan, EPA also requested a stay of the NSPS litigation. The D.C. Circuit granted the request, and the litigation has been held in abeyance since then.
In December 2015, 195 nations (including United States) signed the Paris Agreement, a long-term, international framework convention designed to address climate change over the next several decades. This agreement entered into force in November 2016 after more than 70 countries, including the United States, ratified or otherwise agreed to be bound by the agreement. The United States was among the countries that submitted its declaration of intended greenhouse gas reductions in early 2015, stating its intention to reduce U.S. greenhouse gas emissions by 26-28% by 2025 compared to 2005 levels. Whether and to what extent the United States meets its stated intention likely depends on several factors, including whether the presently-stayed Clean Power Plan (or a comparable alternative) is implemented. On June 1, 2017, The Trump Administration announced the United States was withdrawing from the Paris Agreement. Regardless of the extent to which the United States ultimately participates in these reductions, over the long term, international participation in the Paris Agreement framework could reduce overall demand for coal which could have a materiallymaterial adverse impact on us. These effects could be more adverse to the demand for coal nationally.

extent the United States ultimately participates in these reductions (whether via the Paris Agreement or otherwise).


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Several U.S. states have enacted legislation establishing greenhouse gas emissions reduction goals or requirements or joined regional greenhouse gas reduction initiatives. Some states also have enacted legislation or regulations requiring electricity suppliers to use renewable energy sources to generate a certain percentage of power or that provide financial incentives to electricity suppliers for using renewable energy sources. For example, nine northeastern states currently are members of the Regional Greenhouse Gas Initiative, which is a mandatory cap-and-trade program established in 2005 to cap regional carbon dioxide emissions from power plants. Six midwestern states and one Canadian province entered into the Midwestern Regional Greenhouse Gas Reduction Accord to establish voluntary regional greenhouse gas reduction targets and develop a voluntary multi-sector cap-and-trade system to help meet the targets, although it has been reported that the members no longer are actively pursuing the group’s activities. Lastly, California and Quebec remain members of the Western Climate Initiative, which was formed in 2008 to establish a voluntary regional greenhouse gas reduction goal and develop market-based strategies to achieve emissions reductions, and those two jurisdictions have adopted their own greenhouse gas cap-and-trade regulations. Several states and provinces that originally were members of these organizations, as well as some current members, have joined the new North America 2050 initiative, which seeks to reduce greenhouse gas emissions and create economic opportunities aside from cap-and-trade programs. Any particular state, or any of these or other regional group, may have or adopt in the future rules or policies that cause some users of coal to switch from coal to a lower carbon fuel. There can be no assurance at this time that a carbon dioxide cap-and-trade-program, a carbon tax or other regulatory or policy regime, if implemented by any one or more states or regions in which our customers operate or at the federal level, will not affect the future market for coal in those states or regions and lower the overall demand for coal.

Clean Water Act. The federal Clean Water Act (sometimes shortened to CWA) and corresponding state and local laws and regulations affect coal mining operations by restricting the discharge of pollutants, including dredged and fill materials, into waters of the United States. The Clean Water Act provisions and associated state and federal regulations are complex and subject to amendments, legal challenges and changes in implementation. Recent court decisions and regulatory actions have

created uncertainty over Clean Water Act jurisdiction and permitting requirements that could variously increase or decrease the cost and time we expend on Clean Water Act compliance.

The scope of waters that fall within the Clean Water Act’s jurisdiction is expansive and may include features not commonly understood to be a stream or wetland.  In June 2015, EPA issued a new rule defining the scope of "waters of the United States" (WOTUS) that are subject to regulation.  The WOTUS rule was challenged by a number of states and private parties in both district and circuit courts.  The actions in the circuit courts were consolidated in the United States Court of Appeals for the Sixth Circuit and in October 2015 that court stayed the WOTUS rule on a nationwide basis.  In January 2018, the Supreme Court ruled that challenges to the WOTUS rule must be made to the appropriate federal district courts rather than the Sixth Circuit.  The Supreme Court’s ruling will likely cause the nationwide stay to be lifted, which may result in piecemeal  litigation over stays of the rule by the various district courts in which challenges to the rule have been filed.  In December 2017, EPA and the Corps proposed a rule to repeal the WOTUS rule and are scheduled to propose a replacement to the WOTUS rule in May 2018.
Clean Water Act requirements that may directly or indirectly affect our operations include the following:

·Water Discharge. Section 402 of the Clean Water Act creates a process for establishing effluent limitations for discharges to streams that are protective of water quality standards through the National Pollutant Discharge Elimination System, which we refer to as the NPDES, or an equally stringent program delegated to a state regulatory agency. Regular monitoring, reporting and compliance with performance standards are preconditions for the issuance and renewal of NPDES permits that govern discharges into waters of the United States, especially on selenium, sulfate and specific conductance. Discharges that exceed the limits specified under NPDES permits can lead to the imposition of penalties, and persistent non-compliancenon‑compliance could lead to significant penalties, compliance costs and delays in coal production. In addition, the imposition of future restrictions on the discharge of certain pollutants into waters of the United States could increase the difficulty of obtaining and complying with NPDES permits, which could impose additional time and cost burdens on our operations. You should see Item 3, “Legal Proceedings,” for more information about certain regulatory actions pertaining to our operations.
Discharges of pollutants into waters that states have designated as impaired (i.e., as not meeting present water quality standards) are subject to Total Maximum Daily Load, which we refer to as TMDL, regulations. The TMDL regulations establish a process for calculating the maximum amount of a pollutant that a water body can receive while maintaining state water quality standards. Pollutant loads are allocated among the various sources that discharge pollutants into that water body. Mine operations that discharge into water bodies designated as impaired will be required to meet new TMDL allocations. The adoption of more stringent TMDL-relatedTMDL‑related allocations for our coal mines could require more costly water treatment and could adversely affect our coal production.


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The Clean Water Act also requires states to develop anti-degradationanti‑degradation policies to ensure that non-impairednon‑impaired water bodies continue to meet water quality standards. The issuance and renewal of permits for the discharge of pollutants to waters that have been designated as “high quality” are subject to anti-degradationanti‑degradation review that may increase the costs, time and difficulty associated with obtaining and complying with NPDES permits.

Under the Clean Water Act, citizens may sue to enforce NPDES permit requirements. Beginning in 2012, multiple citizens’ suits were filed in West Virginia against mine operators for alleged violations of NPDES permit conditions requiring compliance with West Virginia’s water quality standards. Some of the lawsuits alleged violations of water quality standards for selenium, whereas others alleged that discharges of conductivity and sulfate were causing violations of West Virginia water quality standards that prohibit adverse effects to aquatic life. The suits sought penalties as well as injunctive relief that would limit future discharges of selenium, conductivity or sulfate through the implementation of expensive treatment technologies. In 2012, theThe federal district court for the Southern District of West Virginia granted summary judgment to citizenshas ruled in one suchfavor of the citizen suit groups in multiple suits alleging violations of the water quality standard for selenium. In 2014,selenium and in two suits alleging violations of water quality standards due to discharge of conductivity (one of which was upheld on appeal by the same court foundUnited States Court of Appeals for the Fourth Circuit in another such suit thatJanuary 2017). Additional rulings requiring operators to reduce their discharges of selenium, conductivity from two West Virginia mines were causing violations of West Virginia’s narrative water quality standards. Both cases were resolved prior to any appeal and it is difficult to predict whether such suits will continue to be successful.

or sulfate could result in large treatment expenses for mine operators.

Citizens may also sue under the Clean Water Act when pollutants are being discharged without NPDES permits. Beginning in 2013, multiple citizens’ suits were filed in West Virginia against landowners alleging ongoing discharges of pollutants, including selenium and conductivity, from valley fills at reclaimed mining sites. In each case, the reclamation bond had been released and the mining and NPDES permits had been terminated following the completion of reclamation. While it is difficult to predict the outcome of such suits, any determination that discharges from valley fills require NPDES permits could result in increased compliance costs following the completion of mining at our operations.

·Dredge and Fill Permits. Many mining activities, such as the development of refuse impoundments, fresh water impoundments, refuse fills, valley fills, and other similar structures, may result in impacts to waters of the United States, including wetlands, streams and, in certain instances, man-mademan‑made conveyances that have a hydrologic connection to such streams or wetlands. Under the Clean Water Act, coal companies are required to obtain a Section 404 permit from the Army Corps of Engineers, which we refer to as the Corps, prior to conducting such mining activities. The Corps is authorized to issue general “nationwide” permits for specific categories of activities that are similar in nature and that are determined to have minimal adverse effects on the environment. Permits issued pursuant to Nationwide Permit 21, which we refer to as NWP 21, generally authorize the disposal of dredged and fill material from surface coal mining activities into waters of the United States, subject to certain restrictions. Since March 2007, permits under NWP 21 were reissued for a five-yearfive‑year period with new provisions intended to strengthen environmental protections. There must be appropriate mitigation in accordance with nationwide general permit conditions rather than less restricted state-requiredstate‑required mitigation requirements, and permit holders must receive explicit authorization from the Corps before proceeding with proposed mining activities.
Notwithstanding the additional environmental protections designed in the NWP 21, on July 15, 2009, the Corps proposed to immediately suspend the use of NWP 21 in six Appalachian states, including West Virginia, Kentucky and Virginia where the Company conducts operations. On June 17, 2010, the Corps announced that it had suspended the use of NWP 21 in the same six states although it remained for use elsewhere. In February 2012, the Corps proposed to reissue NWP 21, albeit with significant restrictions on the acreage and length of stream channel that can be filled in the course of mining operations. The Corps’ decisions regarding the use of NWP 21 does not prevent the Company’s operations from seeking an individual permit under § 404 of the CWA, nor does it restrict an operation from utilizing another version of the nationwide permit, NWP 50, authorized for small underground coal mines that must construct fills as part of their mining operations.

The use of nationwide permits to authorize stream impacts from mining activities has been the subject of significant litigation. Refer to Item 3, “Legal Proceedings,” for more information about certain litigation pertaining to our permits.

Resource Conservation and Recovery Act. The Resource Conservation and Recovery Act, which we refer to as RCRA, may affect coal mining operations through its requirements for the management, handling, transportation and disposal of hazardous wastes. Currently,. Many mining wastes are excluded from the regulatory definition of hazardous wastes, and coal mining operations covered by SMCRA permits are by statute exempted from RCRA permitting. RCRA also allows the EPA to require corrective action at sites where there is a release of hazardous substances. In addition, each state has its own laws regarding the proper management and disposal of waste material. In June 2010, the EPA released a proposed rule to regulate the disposal of certain coal mine wastes, suchcombustion residuals, which we refer to as overburden and coal cleaning wastes, are exempted from hazardous waste management. In addition, Subtitle CCCR. The proposed rule set forth two very different options for regulating CCR under RCRA. The first option called for regulation of RCRA exempted fossil fuel combustion wastes from hazardous waste regulation until the EPA completedCCR as a report to Congress and made a determination on whether the wastes should be regulated as hazardous. In its 1993 regulatory determination, the EPA addressed some high volume-low toxicity coal combustion products generated at electric utility and independent power producing facilities, such as coal ash, and left the exemption in place. In May 2000, the EPA concluded that coal combustion products do not warrant regulation as hazardous waste under Subtitle C, which creates a comprehensive program of federally enforceable requirements for waste management and disposal. The second option utilized Subtitle D, which would give the EPA authority to set performance standards for waste management facilities and

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would be enforced primarily through citizen suits. The proposal left intact the so-called Bevill exemption for beneficial uses of CCR. The EPA finalized the CCR rule on December 19, 2014, setting nationwide solid nonhazardous waste standards for CCR disposal. On April 17, 2015, the EPA finalized regulations under the solid waste provisions (Subtitle D) of RCRA and again retainednot the hazardous waste exemptionprovisions (Subtitle C) which became effective on October 19, 2015. The final rule establishes national minimum criteria for these wastes. The EPA also determined that national non-hazardous waste regulations under RCRA Subtitle D are needed for coal combustion products disposed inexisting and new CCR landfills, surface impoundments and landfillslateral expansions, and usedalso establishes structural integrity criteria for new and existing surface impoundments (including establishing requirements for owners and operators to conduct periodic structural integrity-related assessments). The criteria include location restrictions, design and operating criteria, groundwater monitoring and corrective action, closure requirements and post-closure care and recordkeeping, notification and internet posting requirements. While classification of CCR as mine-fill. In March of 2007 the Office of Surface Mining and the EPA proposed regulations regarding the management of coal combustion products. The EPA concluded that beneficial uses of these wastes, other than for mine-filling, pose no significant risk and no additional national regulations are needed. As long as this exemption remains in effect, it is not anticipated that regulation of coal combustion waste will have any material effect on the amount of coal used by electricity generators. A final rule has not been promulgated. Most statea hazardous waste laws also exempt coal combustion products,would have led to more stringent restrictions and instead treat it as either a solid waste or a special waste. Anyhigher costs, associated with handling or disposal of hazardous wastes wouldthis regulation may still increase our customers’customers' operating costs and potentially reduce their ability to purchase coal. In addition, contamination caused by the past disposal of CCR, including coal ash, cancould lead to material liability.citizen suit enforcement against our customers under RCRA or other federal or state laws and potentially reduce the demand for coal. In another development regarding coal combustion wastes, the EPA conducted an assessment of impoundments and other units that manage residuals from coal combustion and that contain free liquids following a massive coal ash spill in Tennessee in 2008, the EPA contractors conducted site assessments at many impoundments and is requiring appropriate remedial action at any facility that is found to have a unit posing a risk for potential failure. The EPA is posting utility responses to the assessment on its web site as the responses are received. After industry groups filed a suit in the D.C. Circuit, challenging the 2015 rule, EPA Administrator Pruitt issued a letter on September 13, 2017 indicating the agency’s decision to reconsider the rule in response to industry petitions. On September 27, 2017, oral arguments in the litigation were rescheduled for November 20, 2017. The court also ordered EPA file a status report by November 15, 2017 specifying which provisions of the final rule are or are likely to be subject to reconsideration and estimated timeline for reconsideration. The court also ordered the parties to file supplemental briefs addressing the relevance to and the implications for the Water Infrastructure Improvements for the Nation Act, Pub. L. No. 114-322. Future regulations resulting from the EPA coal combustion refuse assessments may impact the ability of the Company’s utility customers to continue to use coal in their power plants.

Comprehensive Environmental Response, Compensation and Liability Act. The Comprehensive Environmental Response, Compensation and Liability Act, which we refer to as CERCLA, and similar state laws affect coal mining operations by, among other things, imposing cleanup requirements for threatened or actual releases of hazardous substances that may endanger public health or welfare or the environment. Under CERCLA and similar state laws, joint and several liability may be imposed on waste generators, site owners and lessees and others regardless of fault or the legality of the original disposal activity. Although the EPA excludes most wastes generated by coal mining and processing operations from the hazardous waste laws, such wastes can, in certain circumstances, constitute hazardous substances for the purposes of CERCLA. In addition, the disposal, release or spilling of some products used by coal companies in operations, such as chemicals, could trigger the liability provisions of the statute. Thus, coal mines that we currently own or have previously owned or operated, and sites to which we sent waste materials, may be subject to liability under CERCLA and similar state laws. In particular, we may be liable under CERCLA or similar state laws for the cleanup of hazardous substance contamination at sites where we own surface rights.

Endangered Species. The Endangered Species Act and other related federal and state statutes protect species threatened or endangered with possible extinction. Protection of threatened, endangered and other special status species may have the effect of prohibiting or delaying us from obtaining mining permits and may include restrictions on timber harvesting, road building and other mining or agricultural activities in areas containing the affected species. A number of species indigenous to our properties are protected under the Endangered Species Act or other related laws or regulations. Based on the species that have been identified to date and the current application of applicable laws and regulations, however, we do not believe there are any species protected under the Endangered Species Act that would materially and adversely affect our ability to mine coal from our properties in accordance with current mining plans. We have been able to continue our operations within the existing spatial, temporal and other restrictions associated with special status species. Should more stringent protective measures be applied to threatened, endangered or other special status species or to their critical habitat, then we could experience increased operating costs or difficulty in obtaining future mining permits.

Use of Explosives. Our surface mining operations are subject to numerous regulations relating to blasting activities. Pursuant to these regulations, we incur costs to design and implement blast schedules and to conduct pre-blastpre‑blast surveys and blast monitoring. In addition, the storage of explosives is subject to strict regulatory requirements established by four different federal regulatory agencies. For example, pursuant to a rule issued by the Department of Homeland Security in 2007, facilities in possession of chemicals of interest, including ammonium nitrate at certain threshold levels, must complete a screening review in order to help determine whether there is a high level of security risk such that a security vulnerability assessment and site security plan will be required.


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Other Environmental Laws. We are required to comply with numerous other federal, state and local environmental laws in addition to those previously discussed. These additional laws include, for example, the Safe Drinking Water Act, the Toxic Substance Control Act and the Emergency Planning and Community Right-to-KnowRight‑to‑Know Act.

Employees

At December 31, 2015,2017, we employed approximately 4,6553,790 full and part-timepart‑time employees. We believe that our relations with all employees are good.



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Executive Officers

of the Registrant

The following is a list of our executive officers, their ages as of February 29, 201623, 2018 and their positions and offices during the last five years:

Name

Age

Position

NameAgePosition
Kenneth D. Cochran

57

55


Mr. Cochran has served as our Senior Vice President-Operations since August 2012. From May 2011 to August 2012, Mr. Cochran served as Group President of our western operations, which included Thunder Basin Coal Company, the Arch Western Bituminous Group, Arch of Wyoming and the Otter Creek development, and served as President and General Manager of Thunder Basin Coal Company from 2005 to April 2011. Prior to joining Arch Coal in 2005, Mr. Cochran spent 20 years with TXU Corporation. Mr. Cochran currently serves on the boardsboard of Millennium Bulk Terminals-Longview, LLC, Knight Hawk Holdings, LLC, and Tongue River Holding Company.

LLC.

John T. Drexler

48

46


Mr. Drexler has served as our Senior Vice President and Chief Financial Officer since 2008 and as our principal accounting officer since January 2016.2008. Mr. Drexler served as our Vice President-Finance and Accounting from 2006 to 2008. From 2005 to 2006, Mr. Drexler served as our Director of Planning and Forecasting. Prior to 2005, Mr. Drexler held several other positions within our finance and accounting department.

John W. Eaves

60

58


Mr. Eaves was electedhas served as our Chief Executive Officer since 2012. Mr. Eaves served as our Chairman of the Board in Aprilfrom 2015 to 2016 and currently serves as our Chairman and Chief Executive Officer. Mr. Eaves served as our President and Chief Operating Officer from 2006 until he was elected as our Chief Executive Officer in Aprilto 2012. From 2002 to 2006, Mr. Eaves served as our Executive Vice President and Chief Operating Officer. Mr. Eaves currently serves on the boards of COALOGIX,the National Association of Manufacturers, the National Mining Association the Business Roundtable, the American Coalition for Clean Coal Electricity and the Business Council.CF Industries Holdings, Inc. Mr. Eaves was previously a director of Advanced Emissions Solutions, Inc. and former chairman of the National Coal Council.

Robert G. Jones

61

59


Mr. Jones has served as our Senior Vice President-Law, General Counsel and Secretary since 2008. Mr. Jones served as Vice President-Law, General Counsel and Secretary from 2000 to 2008.

Allen R. Kelley

57

55


Mr. Kelley was appointed Vice President-Human Resources in March 2014. From 2008 to March 2014, Mr. Kelley served as our Vice President-Enterprise Risk Management. From 2005 to 2008, Mr. Kelley served as our Director of Internal Audit. Prior to 2005, Mr. Kelley held various finance and accounting positions within the corporate and operations functions of Arch Coal, Inc.

Paul A. Lang

57

55


Mr. Lang was elected our President and Chief Operating Officer in April 2015. He has served as our Executive Vice President and Chief Operating Officer since April 2012 and as our Executive Vice President-Operations from August 2011 to April 2012. Mr. Lang served as Senior Vice President-Operations from 2006 through August 2011, as President of Western Operations from 2005 through 2006 and President and General Manager of Thunder Basin Coal Company from 1998 to 2005. Mr. Lang is a director of Arch Coal, Inc., Advanced Emissions Solutions, Inc. and Knight Hawk Holdings, LLC. Mr. Lang also servesserved on the development board of the Mining Department of the Missouri University of Science & Technology, and is the former chairman of the University of Wyoming’s School of Energy Resources Council.

Deck S. Slone

54

52


Mr. Slone has served as our Senior Vice President-Strategy and Public Policy since June 2012. Mr. Slone served as our Vice President-Government, Investor and Public Affairs from 2008 to June 2012. Mr. Slone served as our Vice President-Investor Relations and Public Affairs from 2001 to 2008. Mr. Slone is a directorthe Vice Chair of Millennium Bulk Terminals-Longview and DKRW Advanced Fuels. In addition, Mr. Slone serves asthe National Coal Council, the immediate past co-chair of the CoalCarbon Utilization Research Council, as National Coal Council Policy Committee chair and as a memberthe Chair of the steering committee of the Consortium for Clean Coal Utilization at Washington University in St. Louis.

National Mining Association’s Energy Policy Task Force.

John A. Ziegler, Jr.

51

49


Mr. Ziegler was appointed Chief Commercial Officer in March 2014. Mr. Ziegler served as our Vice President-Human Resources from April 2012 to March 2014. From October 2011 to April 2012, Mr. Ziegler served as our Senior Director-Compensation and Benefits. From 2005 to October 2011 Mr. Ziegler served as Vice President-Contract Administration, President of Sales, then finally Senior Vice President, Sales and Marketing and Marketing Administration. Mr. Ziegler joined Arch Coal in 2002 as Director-Internal Audit. Prior to joining Arch Coal, Mr. Ziegler held various finance and accounting positions with bioMerieux and Ernst & Young.




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Available Information

We file annual, quarterly and current reports, and amendments to those reports, proxy statements and other information with the Securities and Exchange Commission. You may access and read our filings without charge through the SEC’s website, at sec.gov. You may also read and copy any document we file at the SEC’s Public Reference Room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-03301‑800‑SEC‑0330 for further information on the public reference room.

We also make the documents listed above available without charge through our website, archcoal.com, as soon as practicable after we file or furnish them with the SEC. You may also request copies of the documents, at no cost, by telephone at (314) 994-2700994‑2700 or by mail at Arch Coal, Inc., One CityPlace Drive, Suite 300, St. Louis, Missouri, 63141 Attention: Senior Vice President-Strategy and Public Policy. The information on our website is not part of this Annual Report on Form 10-K.



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GLOSSARY OF SELECTED MINING TERMS

Certain terms that we use in this document are specific to the coal mining industry and may be technical in nature. The following is a list of selected mining terms and the definitions we attribute to them.

Assigned reserves

Recoverable reserves designated for mining by a specific operation.

BrownBituminous coal

Coal of gross calorificused primarily to generate electricity and to make coke for the steel industry with a heat value of less than 5700 kilocaloriesranging between 10,500 and 15,500 Btus per kilogramme (kcal/kg), which includes lignite and sub-bituminous coal where lignite has a gross calorific value of less than 4165 kcal/kg and sub-bituminous coal has a gross calorific value between 4165 kcal/kg and 5700 kcal/kg.

pound.

Btu

A measure of the energy required to raise the temperature of one pound of water one degree of Fahrenheit.

Coking coal

Coal used to produce coke, the primary source of carbon used in steelmaking.
Compliance coal

Coal which, when burned, emits 1.2 pounds or less of sulfur dioxide per million Btus, requiring no blending or other sulfur dioxide reduction technologies in order to comply with the requirements of the Clean Air Act.

Continuous miner

A machine used in underground mining to cut coal from the seam and load it onto conveyors or into shuttle cars in a continuous operation.

Dragline

A large machine used in surface mining to remove the overburden, or layers of earth and rock, covering a coal seam. The dragline has a large bucket, suspended by cables from the end of a long boom, which is able to scoop up large amounts of overburden as it is dragged across the excavation area and redeposit the overburden in another area.

Hard coal

Coal of gross calorific value greater than 5700 kcal/kg on an ashfree but moist basis and further disaggregated into anthracite, coking coal and other bituminous coal.

Lignite Coal

Coal with the lowest carbon content and a heat value ranging between 4,000 and 8,300 Btus per pound.
Longwall mining

One of two major underground coal mining methods, generally employing two rotating drums pulled mechanically back and forth across a long face of coal.

Low-sulfurLow‑sulfur coal

Coal which, when burned, emits 1.6 pounds or less of sulfur dioxide per million Btus.

Metallurgical coal

Coal used in steel production either as coking coal or pulverized coal injection (PCI).
Preparation plant

A facility used for crushing, sizing and washing coal to remove impurities and to prepare it for use by a particular customer.

Probable reserves

Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced.

Proven reserves

Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.

Reclamation

Pulverized coal injection coal (PCI)

Coal that is introduced directly into the blast furnace as a source of energy and carbon in the steelmaking process.
Reclamation

The restoration of land and environmental values to a mining site after the coal is extracted. The process commonly includes “recontouring” or shaping the land to its approximate original appearance, restoring topsoil and planting native grass and ground covers.

Recoverable reserves

The amount of proven and probable reserves that can actually be recovered from the reserve base taking into account all mining and preparation losses involved in producing a saleable product using existing methods and under current law.

Reserves

That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.

Room-and-pillarSubbituminous coal

Coal used primarily to generate electricity with a heat value ranging between 8,300 and 13,000 Btus per pound.
Room‑and‑pillar mining

One of two major underground coal mining methods, utilizing continuous miners creating a network of “rooms” within a coal seam, leaving behind “pillars” of coal used to support the roof of a mine.

Unassigned reserves

Recoverable reserves that have not yet been designated for mining by a specific operation.




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ITEM 1A. RISK FACTORS.

Our business involves certain risks and uncertainties. In addition to the risks and uncertainties described below, we may face other risks and uncertainties, some of which may be unknown to us and some of which we may deem immaterial and the following review of important risk factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein or elsewhere. If one or more of these risks or uncertainties occur, our business, financial condition or results of operations may be materially and adversely affected.

Risks Related to Our Chapter 11 Cases

As a resultEmergence from Bankruptcy Protection


Information contained in our historical financial statements is not be comparable to the information contained in our financial statements after the application of fresh start accounting.

Following the consummation of the filing of the Bankruptcy Petitions, we are subject to the risks and uncertainties associated with bankruptcy proceedings, and operating under Chapter 11 may restrict our ability to pursue strategic and operational initiatives.

For the duration of the Chapter 11 Cases (In re Arch Coal, Inc., et al.), our operations and our ability to execute our business strategy will be subject to the risks and uncertainties associated with bankruptcy. These risks include:

·                  our ability to obtain Court approval with respect to motions filed in the Chapter 11 Cases from time to time;

·                  our ability to comply with and operate under any cash management orders entered by the Court from time to time;

·                  our ability to comply with our Restructuring Support Agreement and DIP Credit Agreement terms and conditions;

·                  our ability to confirm and consummate a Chapter 11 plan of reorganization;

·                  our ability to fund and execute our business plan; and

·                  our ability to continue as a going concern.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with the Chapter 11 Cases could adversely affect our relationships with our suppliers, customers and employees.   In particular, critical vendors may determine not to do business with us due to our Chapter 11 filing and we may not be successful in securing alternative sources.  Also, transactions outside the ordinary course of business are subject to the prior approval of the Court, which may limit our ability to respond timely to certain events or take advantage of opportunities. Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 reorganization process may have on our business, financial condition and results of operations, and there is no certainty as to our ability to continue as a going concern.

Under Chapter 11, transactions outside the ordinary course of business are subject to the prior approval of the Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. Additionally, the terms of the DIP Credit Agreement require us to comply with certain financial maintenance covenants, including (i) maximum capital expenditures and (ii) minimum unrestricted cash and cash equivalents. The DIP Credit Agreement also contains customary affirmative and negative covenants for debtor-in-possession financings, which include restrictions on (i) indebtedness, (ii) liens and guaranties, (iii) liquidations, mergers, consolidations, acquisitions, (iv) disposition of assets or subsidiaries, (v) affiliate transactions, (vi) creation or ownership of certain subsidiaries, partnerships and joint ventures, (vii) continuation of or change in business, (viii) restricted payments, (ix) sanctions and anti-corruption matters, (x) no restriction in agreements on dividends or certain loans, (xi) loans and investments, (xii) transactions with respect to Bonding Subsidiaries and (xiii) hedging transactions. In addition, the DIP Credit Agreement contains milestones relating to the Chapter 11 Cases. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply could result in an event of default under the DIP Credit Agreement.

Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.  We expect that the existing common stock of the Company will be extinguished and existing equity holders will not receive consideration in respect of their equity interests.

On the Petition Date, the NYSE determined that the Company’s stock (NYSE: ACI) was no longer suitable for listing pursuant to Section 8.02.01D of the NYSE continued listing standards and trading in the Company’s common stock was suspended on January 11, 2016.  We expect that the existing common stock of the Company will be extinguished upon the

Company’s emergence from Chapter 11 and existing equity holders will not receive consideration in respect of their equity interests.  Following delisting from the NYSE, Arch common stock has been traded over the counter in the Pink Sheets, but this may not always be the case. The delisting by the NYSE could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell shares of our common stock.

Arch’s Restructuring Support Agreement provides that, upon the Company’s emergence from Chapter 11, Arch’s existing stock will be cancelled and the senior lenders will receive the substantial majority of the new stock in the reorganized Arch. If a plan of reorganization is approved in the Chapter 11 Cases, it is likely that our existing common stock will be extinguished, and existing equity holders will likely not receive consideration in respect of their existing equity interests.

The pursuit of the Chapter 11 Cases has consumed and will continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

While the Chapter 11 Cases continue, our management will be required to spend a significant amount of time and effort focusing on the cases. This diversion of attention may materially adversely affect the conduct of our business, and, as a result, onPlan, our financial condition and results of operations particularly iffrom and after the Chapter 11 CasesEffective Date are protracted.

During the pendency of the Chapter 11 Cases, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.

If we are not able to obtain confirmation of a Chapter 11 plan of reorganization, or if current financing is insufficient or exit financing is not available, we could be required to seek a sale of the Company or certain of its material assets pursuant to Section 363 of the Bankruptcy Code or liquidate under Chapter 7 of the Bankruptcy Code.

In order to successfully emerge from Chapter 11 bankruptcy protection, we must obtain confirmation of a Chapter 11 plan of reorganization by the Court. If confirmation by the Court does not occur, we could be forced to sell the Company or certain of its material assets pursuant to Section 363 of the Bankruptcy Code or liquidate under Chapter 7 of the Bankruptcy Code.

There can be no assurance that our current cash position and amounts of cash from future operations will be sufficient to fund operations. In the event that we do not have sufficient cash to meet our liquidity requirements, and our current financing is insufficient or exit financing is not available, we may be required to seek additional financing. There can be no assurance that such additional financing would be available, or, if available, would be available on acceptable terms. Failure to secure any necessary exit financing or additional financing would have a material adverse effect on our operations and ability to continue as a going concern.

Our post-bankruptcy capital structure has yet to be determined, and any changes to our capital structure may have a material adverse effect on existing debt and security holders.

Our capital structure will be set pursuant to a plan of reorganization that requires Court approval. Any reorganization of our capital structure may include exchanges of new debt or equity securities for our existing debt and equity securities, and such new debt or equity securities may be issued at different interest rates, payment schedules and maturities than our existing creditors. The success of a reorganization through any such exchanges or modifications will depend on approval by the Court and the willingness of existing debt and security holders to agree to the exchange or modification, and there can be no guarantee of success. If such exchanges or modifications are successful, holders of our debt may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or may be modified or

replaced by debt with a principal amount that is less than the outstanding principal amount, longer maturities and reduced interest rates. There can be no assurance that any new debt or equity securities will maintain their value at the time of issuance.

Any plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, or adverse market conditions persist or worsen, our plan may be unsuccessful in its execution.

Any plan of reorganization that we may implement will affect both our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to substantially change our capital structure; (ii) our ability to obtain adequate liquidity and financing sources; (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them; (iv) our ability to retain key employees, and (v) the overall strength and stability of general economic conditions of the financial and coal industries, both in the U.S. and in global markets. The failure of any of these factors could materially adversely affect the successful reorganization of our businesses.

In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, EBITDA, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of our capital structure. Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.

As a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainty, and our historical financial information will not be indicative of our future financial performance.

Our capital structure will likely be significantly altered under any plan of reorganization ultimately confirmed by the Court. Under fresh-start reporting rules that may apply to us upon the effective date of a plan of reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh-start reporting rules apply, our financial condition and results of operations following our emergence from Chapter 11 would not be comparable to the financial condition andor results of operations reflected in our historical financial statements. Further,As a planresult of reorganization could materially change the amounts and classifications reported in our consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

While operatingrestructuring under the protectionChapter 11 of the Bankruptcy Code, andour financial statements are subject to Court approval or otherwise as permitted infresh start accounting provisions of generally accepted accounting principles (“GAAP”). In the normal courseapplication of business,fresh start accounting, we may sell or otherwise disposeallocated our reorganization value to the fair value of assets and liquidate or settle liabilities for amounts other than those reflected in our consolidated financial statements. In connectionconformity with the Chapter 11 Casesguidance for the acquisition method of accounting for business combinations. Adjustments to the carrying amounts were material and the development of a plan of reorganization, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such sales, disposals, liquidations, settlements or charges could be material to our consolidated financial position andwill affect prospective results of operations as balance sheet items are settled, depreciated, amortized or impaired. This will make it difficult for stockholders to assess our performance in any given period.

We may be unablerelation to comply with restrictions imposed by our DIP Credit Agreement, our Securitization Facility and other financing arrangements.

The agreements governing our outstanding financing arrangements impose a number of restrictionsprior periods. Our Annual Report on us. For example,Form 10-K for the terms of our credit facilities, leases and other financing arrangements contain financial and other covenants that create limitations on our ability to borrowfiscal year ending December 31, 2016 reflects the full amount under our credit facilities, effect acquisitions or dispositions and

incur additional debt and require us to maintain minimum levels of liquidity and various financial ratios and comply with various other financial covenants.  Specifically, the termsconsummation of the DIP Credit Agreement require us to comply with certain financial maintenance covenants, including (i) maximum capital expendituresPlan and (ii) minimum unrestricted cash and cash equivalents. The DIP Credit Agreement also contains customary affirmative and negative covenants for debtor-in-possession financings, which include restrictions on (i) indebtedness, (ii) liens and guaranties, (iii) liquidations, mergers, consolidations, acquisitions, (iv) dispositionthe adoption of assets or subsidiaries, (v) affiliate transactions, (vi) creation or ownership of certain subsidiaries, partnerships and joint ventures, (vii) continuation of or change in business, (viii) restricted payments, (ix) sanctions and anti-corruption matters, (x) no restriction in agreements on dividends or certain loans, (xi) loans and investments, (xii) transactions with respect to Bonding Subsidiaries and (xiii) hedging transactions. In addition, the DIP Credit Agreement contains milestones relating to the Chapter 11 Cases. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply could result in an event of default under the DIP Credit Agreement, the Securitization Facility or our other financing arrangements.

fresh start accounting effective October 1, 2016.


Risks Related to Our Operations


Coal prices are subject to change based on a number of factors and can be volatile. Within the last several years, coal prices are currently experiencinghave experienced an historic level of depression. If coal prices remain depressed, or if there is a further decline in prices, it 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:

·

the domestic and foreign supply of and demand for coal;

·

the domestic and foreign demand for electricity and steel;

·

the quantity and quality of coal available from competitors;

·

competition for production of electricity from non-coal sources, including the price and availability of alternative fuels;

·

domestic and foreign air emission standards for coal-fueled power plants and the ability of coal-fueled power plants to meet these standards;

·

adverse weather, climatic or other natural conditions, including unseasonable weather patterns;

·

domestic and foreign economic conditions, including economic slowdowns and the exchange rate of U.S. dollars for foreign currency;

·

domestic and foreign 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;

·

the proximity to, capacity of and cost of transportation and port facilities; and

·

market price fluctuations for sulfur dioxide or nitric oxide emission allowances.

Dueallowances; and

technological advancements, including those related to a number of factors outside our control, including decelerating demand for coal used in electricity (duealternative energy sources, those intended to low naturalconvert coal-to-liquids or gas prices and regulations), an oversupplied marketthose aimed at capturing, using and increased competition particularly from non-U.S. suppliers taking advantage of a strong dollar, we have experienced a sustained and significant downturn in coal pricing over the last several years. The global metallurgical coal market remains challenged and has shown no meaningful improvement over the

last several years. We are also experiencing higher than normal uncommitted volumes due to prolonged, depressed market conditions.  Pricing may be adversely affected or we may need to reduce production as a result of our uncommitted volume levels.  If coal prices remain depressed, or if there is a further declinestoring carbon dioxide.


Declines in the prices we receive for our future coal sales contracts, it could materially and adversely affect us by decreasing our profitability, cash flows, liquidity and the value of our coal reserves.


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Unfavorable economic and market conditions have adversely affected and may continue to affect our revenues and profitability.

Our profitability depends, in large part, on conditions in the markets that we serve, which fluctuate in response to various factors beyond our control. The prices at which we sell our coal are largely dependent on prevailing market prices. We have experienced significant price pressure overat times during the past several years and we expect that the price for our coal will continue to be depressed, as the demand for, and price of, coal remainshas been subject to pressure for a variety of reasons, including reductions in domestic and international demand for metallurgical and thermal coal. These conditions, among other factors, have led to our filing of the Bankruptcy Petitions.

Global economic downturns have also had and in the future could have a negative impact on us. These conditions have, in the past, led to extreme volatility of security prices, severely limited liquidity and credit availability, and resulted in declining valuations of assets. If there are downturns in economic conditions, our customers’ and our businesses, financial conditions or results of operations could be adversely affected. During unfavorableFurthermore, because we typically seek to enter into long-term arrangements for the sale of a substantial portion of our coal, the average sales price we receive for our coal may lag behind any general economic conditions werecovery. We are focused on cost control and capital discipline, but there can be no assurance that these actions, or any other actions that we may take, will be sufficient to offset any adverse effect these conditions may have on our business, financial condition or results of operations.

Competition could put downward pressure on coal prices and, as a result, materially and adversely affect our revenues and profitability.

We compete with numerous other domestic and foreign coal producers for domestic and international sales. Overcapacity and increased production within the coal industry, both domestically and internationally, and decelerating steel demand in ChinaAsia have at times, and could further,in the future, materially reduce coal prices and therefore materially reduce our revenues and profitability. Potential changes to international trade agreements, trade concessions or other political and economic arrangements may benefit coal producers operating in countries other than the United States. We may not be able to compete on the basis of price or other factors with companies that in the future benefit from favorable foreign trade policies or other arrangements. In addition, our ability to ship our coal to international customers depends on port capacity, which is limited. Increased competition within the coal industry for international sales could result in us not being able to obtain throughput capacity at port facilities, or the rates for such throughput capacity to increase to a point where it is not economically feasible to export our coal.

The domestic coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. In addition, substantial overcapacity exists in the coal industry and several other large coal companies have also filed, and others may file, bankruptcy proceedings which could enable them to lower their productions costs and thereby reduce the price for coal. Consolidation in the coal industry or current or future bankruptcy proceedings of our coal competitors could adversely affect our competitive position.
In addition to competing with other coal producers, we compete generally with producers of other fuels, such as natural gas. Natural gas pricing has declined significantly in recent years. The decline in the price of natural gas has caused demand for coal to decrease and adversely affect the price of our coal. Sustained periods of low natural gas prices have also contributed to utilities phasing out or closing existing coal-fired power plants and continued low prices could reduce or eliminate construction of any new coal-fired power plants. This trend has, and could continue to have, a material adverse effect on demand and prices for our coal.


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Any changedecrease in the coal consumption of electric power generators could result in less demand and lower prices for coal, which could materially and adversely affect our revenues and results of operations.

Thermal coal accounted for 95%93% of our coal sales by volume during 2015.2017. The majority of these sales were to electric power generators. The amount of coal consumed for electric power generation is affected primarily by the overall demand for electricity, the availability, quality and price of competing fuels (particularly, natural gas) for power generation and governmental regulations. regulations which may dictate an alternate source of fuel regardless of economics. Overall economic activity and the associated demands for power by industrial users can have significant effects on overall electricity demand and can be caused by a number of factors. An economic slowdown can significantly slow the growth of electricity demand and could result in reduced demand for coal. For example, declines in the rate of international economic growth in countries such as China, India or other developing countries could further negatively impact the demand for U.S. coal and result in a continuing oversupply of coal in the marketplace. Weather patterns can also greatly affect electricity demand. Extreme temperatures, both hot and cold, cause increased power usage and, therefore, increase generating requirements from all sources. Mild temperatures, on the other hand, result in lower electrical demand, which allow generators to choose the source of power generation when deciding which generation source to dispatch.
Gas-fueled generation has the potential to displace coal-fueled generation, particularly from older, less efficient coal-powered generators and this has occurred to date. We expect that many of the new power plants needed in the United States 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 generation. In addition, state and federal mandates for increased use of electricity from renewable energy sources also 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 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.

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:

·

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;

·

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;

·

mining, processing and plant equipment failures and unexpected maintenance problems;

·

adverse weather and natural disasters, such as heavy rains or snow, flooding and other natural events affecting operations, transportation or customers;

·

the unavailability of raw materials, equipment (including heavy mobile equipment) or other critical supplies such as tires, explosives, fuel, lubricants and other consumables of the type, quantity and/or size needed to meet production expectations;
unexpected or accidental surface subsidence from underground mining;

·

accidental mine water discharges, fires, explosions or similar mining accidents;

·

delays or closures by third-party transportation on coal shipments; and

·

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 or Leer mining complex,complexes, which accounted for approximately 78%75% of the coal volume we sold and 57% of the revenue we generated in 2015,2017, our coal mining operations may be disrupted and 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.


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A decline in demand for metallurgical coal would limit our ability to sell our coal into higher-priced metallurgical markets and could substantially affect our business.

Portions of our coal reserves possess quality characteristics that enable us to mine, process and market them as either metallurgical coal or high quality steam coal, depending on the prevailing conditions in the metallurgical and steam coal markets. We decide whether to mine, process and market these coals as metallurgical or steam coal based on management’s assessment as to which market is likely to provide us with a higher margin. We consider a number of factors when making this assessment, including the difference between the current and anticipated future market prices of steam coal and metallurgical coal and the increased costs incurred in producing coal for sale in the metallurgical market instead of the steam market. The global metallurgical coal market remains challenged and has shown no meaningful improvement over the last several quarters, due to, among other things, reduced steel production. A further decline in or prices remaining depressed in the metallurgical market relative to the steam market could cause us, as well as our competitors, to shift coal from the metallurgical market to the steam market, thereby reducing our revenues and profitability and increasing the availability of coal to customers in the steam market.

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. In certain locations, leases for oil, natural gas and coalbed methane reserves are located on, or adjacent to, some of our reserves, potentially creating conflicting interests between us and lessees of those interests. Other lessees’ rights relating to these mineral interests could prevent, delay or increase the cost of developing our coal reserves. These lessees may also seek damages from us based on claims that our coal mining operations impair their interests.
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, (including under our DIP Credit Agreement), 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,terms. Increased opposition from non-governmental organizations and restrictions on making acquisitions as a result of our Chapter 11 Cases.other third parties may also lengthen, delay or adversely impact the LBA process. 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.

On

In January 15, 2016, the federal government orderedimposed a moratorium on new leases for coal mined from federal lands as part of a review of the government’s management of federally-owned coal. TheIn March 2017, the U.S. Secretary of Interior signed Secretarial Order 3348 lifting that moratorium and halting the Federal Coal Program Programmatic Environmental Impact Statement that was in process at the time. Litigation is currently pending in the United States District Court for the District of Montana challenging the lifting of the moratorium as a violation of the National Environmental Policy Act, the Mineral Leasing Act and the Federal Land Policy and Management Act. Although the Bureau of Land Management is now working to process coal lease applications and modifications expeditiously in accordance with regulations and guidance that existed before Secretarial Order 3338, which imposed the moratorium on new coal leases, any delay in the LBA process, including any delay caused by the now-lifted moratorium could prevent us from obtaining replacement reserves when we require them. Also, the outcome of the government’s review is uncertain and could have a material and adverse impact on our business in any number of ways including by limiting our ability to mine reserves under ongoing or future applications, by increasing the costs or timeframe associated with obtaining leases under the LBA program, by making it uneconomical for us to participate in the programs or by preventing us from obtaining replacement reserves if the LBA program were to be terminated.

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;

·

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;

·

the percentage of coal ultimately recoverable;

·

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;

·

assumptions concerning the timing for the development of the reserves;

·

assumptions concerning physical access to the reserves; and

·

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.

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 and a loss or reduction in our ability to self-bondwhich could have a material adverse effect on our business and results of operations.

Federal and state laws require us to obtain surety bonds or post letters of credit 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. The costs of surety bonds have fluctuated in recent years while the market terms of such bonds have generally become more unfavorable to mine operators. These changes in the terms of the bonds have been accompanied at times by a decrease in the number of companies willing to issue surety bonds. In addition, federal and state regulators are considering making financial assurance requirements with respect to mine closure and reclamation more stringent. Because we are required by state and federal law to have these bonds in place before mining can commence or continue, our 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. We use self-bonding to secure performance of certain obligations in Wyoming. Self-bonding allows us to mine without posting any other third party financial assurance such as a surety bond or letter of credit.  As of December 31, 2015, we have self-bonded an aggregate of approximately $485.5 million. The Land Quality Division of the Wyoming Department of Environmental Quality periodically re-evaluates the amount of the bond, so this amount is subject to change.

On February 29, 2016, the Bankruptcy Court approved a stipulation between certain of our operating subsidiaries and the State of Wyoming, pursuant to which those subsidiaries granted Wyoming a $75 million superpriority claim to support the self-bonded obligations and agreed to substitute approximately $17 million of the self-bonds with financial assurance in the form of third-party collateral support.  In exchange, Wyoming agreed to a stay of any proceedings related to the subsidiaries’ self-bonded status and that, so long as the stipulation is effective, Wyoming will not seek additional collateral in respect of the self-bonds, take certain other adverse actions with respect to the subsidiaries’ mining permits or licenses in Wyoming or seek to enforce the subsidiaries’ obligations to make payments in respect of the self-bonds.  The stipulation is effective until the earlier of May 1, 2017 and the date upon which a plan of reorganization in the Chapter 11 Cases is approved and becomes effective, subject to certain early termination events.

Our self-bonding obligations may increase as our bankruptcy process continues, and, upon our emergence from bankruptcy or otherwise, we may not continue to qualify to self-bond or self-bonding programs may be terminated.  Alternative forms of financial assurance such as surety bonds and letters of credit may not be available to us. To the extent we are unable to maintain our current level of self-bonding, due to legislative or regulatory changes or changes in our financial condition, our costs would increase and it could have a material adverse effect on our financial condition and results of operations, as well as cast substantial doubt on our ability to continue as a going concern.

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 depends on the price of scrap steel. We also use significant amounts of diesel fuel and tires for trucks and other heavy machinery, particularly at our Black Thunder mining complex. There has been some consolidation in the supplier base providing mining materials to the coal industry, such as with suppliers of explosives in the U.S. and both surface and underground equipment globally, that has limited the number of sources for these materials. In situations where we have chosen to concentrate a large portion of purchases with one supplier, it has been to take advantage of cost savings from larger volumes of purchases and to ensure security of supply. 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 in our Appalachian segment. 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 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.

The success of our businesses depends on our ability to retain our current customers, renew our existing customer contracts and solicit new customers. Our ability to do so generally depends on a variety of factors, including the quality and price of our products, our ability to market these products effectively, our ability to deliver on a timely basis and the level of competition that we face. If current customers do not honor current contract commitments, or if they terminate agreements or exercise force majeure provisions allowing for the temporary suspension of performance, our revenues will be adversely affected. Changes in the coal industry may cause some of our customers not to renew, extend or enter into new long-term coal supply agreements or enter into agreements to purchase fewer tons of coal or on different terms or prices than in the past. In addition,

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uncertainty caused by federal and state regulations, including the U.S. Clean Air Act, could deter our customers from entering into long-term coal supply agreements. Also, the availability and price of competing fuels, such as natural gas, could influence the volume of coal a customer is willing to purchase under contract.

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 or if we incur financial or other economic penalties as a result of these provisions of our long-termcoal supply agreements. For more information about our long-term coal supply agreements, you should see the section entitled “Long-Term Coal Supply Arrangements” under Item 1.

Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates and our financial position could be materially and adversely effected by the bankruptcy of any of our significant customers.

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 be able to withhold delivery under the customer’s coal sales contract. If this occurs, we may decide to sell the customer’s 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 significant 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. Some 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. Customers in other countries may also be subject to other

pressures and uncertainties that may affect their ability to pay, including trade barriers, exchange controls and local economic and political conditions.

A defect in title or the loss of a leasehold interest in certain property or surface rights 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 or surface rights 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, reliability and cost-effectiveness 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, as well as seaborne vessels and port facilities, to deliver coal to our customers. Disruptions in transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks, route closures and other events beyond our control could impair our ability to supply coal to our customers. Since we do not have long-term contracts with all transportation providers we utilize, 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.


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In addition, a growing portion of our coal sales in recent years has been into export markets, and we are actively seeking additional international customers. Our ability to maintain and grow our export sales revenue and margins depends on a number of factors, including the existence of sufficient and cost-effective export terminal capacity for the shipment of coal to foreign markets. At present, there is limited terminal capacity for the export of coal into foreign markets. Our access to existing and future terminal capacity may be adversely affected by regulatory and permit requirements, environmental and other legal challenges, public perceptions and resulting political pressures, operational issues at terminals and competition among domestic coal producers for access to limited terminal capacity, among other factors. If we are unable to maintain terminal capacity, or are unable to access additional future terminal capacity for the export of our coal on commercially reasonable terms, or at all, our results could be materially and adversely affected.

From time to time we enter into “take or pay” contracts for rail and port capacity related to our export sales. These contracts require us to pay for a minimum quantity of coal to be transported on the railway or through the port regardless of whether we sell and ship any coal. If we fail to acquire sufficient export sales to meet our minimum obligations under these contracts, we are still obligated to make payments to the railway or port facility, which could have a negative impact on our cash flows, profitability and results of operations.

The loss of, or significant reduction in, purchases by our largest customers could adversely affect our profitability.

For the year ended December 31, 2015,2017, we derived approximately 18%17% of our total coal revenues from sales to our three largest customers and approximately 39%41% of our total coal revenues from sales to our ten largest customers. We are currently discussing the extension of coal sales agreements with some of these customers. However, we may be unsuccessful in obtaining coal supply agreements with those customers, and some or all of these customers could 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, it may have an adverse impact on the results of our business.

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.

International growth in our operations adds new and unique risks to our business.

We have recently openedsales offices in China, Singapore and the United Kingdom. The international expansion of our operations increases our exposure to country and currency risks. In addition, our international offices are selling our coal to new customers and customers in new countries, whose business practices and reputations are not as well known to us. We are also challenged by political risks by expanding internationally, including the potential for expropriation of assets and limits on the repatriation of earnings. In the event that we are unable to effectively manage these new risks, our results of operations, financial position or cash flow could be adversely affected by these activities.

If we sustain cyber attacks or other security breaches that disrupt our operations, or that result in the unauthorized release of proprietary or confidential information, we could be exposed to significant liability, reputational harm, loss of revenue, increased costs or other risks.

We may be subject to security breaches which could result in unauthorized access to our facilities or to information we are trying to protect. Unauthorized physical access to one or more of our facilities or locations, or electronic access to our proprietary or confidential information could result in, among other things, unfavorable publicity, litigation by parties affected by such breach, disruptions to our operations, loss of customers, and financial obligations for damages related to the theft or misuse of such information, any of which could have a substantial impact on our results of operations, financial condition or cash flows.

flow.


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Our ability to operate the Company effectively could be impaired if we lose key personnel or fail to attract qualified personnel.
We manage our business with a number of key personnel, the loss of whom could have a material adverse effect on us, absent the completion of an orderly transition. In addition, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel, particularly personnel with mining experience. Failure to retain or attract key personnel could have a material adverse effect on us.
We may be unable to comply with the restriction imposed by our New First Lien Debt Facility 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 comply with various affirmative covenants. The New First Lien Debt Facility contains customary affirmative and negative covenants, which include restrictions on (i) indebtedness, (ii) liens and guarantees, (iii) liquidations, mergers, consolidations, acquisitions, (iv) disposition of assets or subsidiaries, (v) affiliate transactions, (vi) creation or ownership of certain subsidiaries, partnerships and joint ventures, (vii) continuation of or change in business, (viii) restricted payments, (ix) payment of other indebtedness, (x) no restriction in agreements on dividends or certain loans, (xi) loans and investments, (ix) transactions with respect to Bonding Subsidiaries and (xiii) changes in organizational documents. Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply could result in an event of default under the New First Lien Debt Facility.
Risks 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 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-usersend‑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 effectiveis in coming years. Thethe process of being developed and implemented. For instance, the Clean Power Plan, under review by U.S. courts,if implemented in its current form, would severely limit emissions of carbon dioxide which would adversely affect our ability to sell coal. However, in April 2017, the EPA announced that it was initiating a review of the Clean Power Plan consistent with President Trump’s Executive Order 13783, and, in October 2017, the EPA published a proposed rule to formally repeal the Clean Power Plan. In addition,December 2015, the United States and 195 other countries reached an agreement (the “Paris Agreement” during the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, a long-term, international framework convention designed to address climate change over the next several decades. In June 2017, President Trump announced that the United States plans to withdraw from the Paris Agreement and to seek negotiations either to reenter the Paris Agreement on different terms or to establish a new framework agreement. The earliest permitted exit date under the Paris Agreement is four years from when the agreement took effect in November 2016, or November 2020. Whether the United States will adhere to the Paris Agreement’s exit process is, and the terms on which the United States may reenter the Paris Agreement or a separately negotiated agreement are, uncertain at this time. However, any efforts to control and/or reduce greenhouse gas emissions by the United States or other countries that have also pledged “Nationally Determined Contributions,” or concerted conservation efforts that result in reduced electricity consumption, could causeadversely impact coal prices, our ability to sell coal and, salesin turn, our financial position and results of our coal to materially decline.

operations.

Considerable uncertainty is associated with these air emissions initiatives. The content of regulatory requirements in the United States is in the process of being developed,continues to evolve and develop 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-fueledcoal‑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, or may cease operations, possibly reducing future demand for coal and a reduced need to construct new coal-fueledcoal‑fueled power plants. Any switching of fuel sources away from coal, closure of existing coal-firedcoal‑fired plants, or reduced construction of new plants could have a material adverse effect on

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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, “Environmental and Other Regulatory Matters” for more information about the various governmental regulations affecting us.

the market for our products.

The demand for our products or our securities, as well as the number and quantity of viable financing alternatives, may be significantly impacted by increased regulation or other scrutinygovernmental regulations and unfavorable lending and investment policies by financial institutions and insurance companies associated with concerns about environmental impacts of topics relatedcoal combustion, including perceived impacts on the global climate.
Carbon dioxide, which is considered to coal combustion.

be a greenhouse gas, is a by-product of burning coal. Global climate issues, including with respect to greenhouse gases such as carbon dioxide and topics relatedthe relationship that greenhouse gases may have with perceived climate change, continue to attract significant public and scientific attention. For example, the Fourth and Fifth Assessment Reports of the Intergovernmental Panel on Climate Change have expressed concern about the impacts of human activity, especially from fossil fuel combustion, on global climate issues. As a result of the public and scientific attention, several governmental bodies increasingly are focusing on climate issues and, more specifically, levels of emissions of carbon dioxide from coal combustion by power plants. The Clean Power Plan would severely limit emissions of carbon dioxide, possibly reducing future demand for coal. However, in April 2017 the EPA announced that it was initiating a review of the Clean Power Plan consistent with President Trump’s Executive Order 13783, and in October 2017 published a proposed rule to formally repeal the Clean Power Plan. Additionally, a number of governments pledged to control and reduce greenhouse gas emissions such asunder the Paris Agreement, which may impact demand for coal resources despite the United States’ June 2017 announcement that it intends to withdraw its commitment.

Future regulation of fossil fuel combustion, continuegreenhouse gas emissions in the United States could occur pursuant to attract increasing public scrutiny. Legislativefuture U.S. treaty obligations, statutory or regulatory efforts atchanges and the international, federal, state or local level to controlor otherwise. Enactment of laws or passage of regulations regarding greenhouse emissions from the combustion of coal mayby the U.S., some of its states or other countries, or other actions to limit emissions could result in electricity generators increasingly usingswitching from coal to other fuel sources other than coal or closures of coal-fueled power plants. plant closures. You should see Item 1, “Environmental and Other Regulatory Matters-Climate Change” for more information about governmental regulations relating to greenhouse gas emissions.
In addition, certain banks, and other financing sources and insurance companies have taken actions to limit available financing and insurance coverage for the development of new coal-fueled power plants and coal miners and utilities that derive a majority of their revenue from thermal coal, which also may adversely impact the future global demand for coal. Further, there have been recent efforts by members of the general financial and investment communities, such as investment advisors, sovereign wealth funds, public pension funds, universities and other groups, to divest themselves and to promote the divestment of securities issued by companies involved in the fossil fuel extraction market, such as coal producers. Those entities also have been pressuring lenders to limit financing available to such companies. These efforts may adversely affect the market for our securities and our ability to access capital and financial markets in the future.

Any future laws, regulations or other policies of the nature described above may adversely impact our business in material ways. The degree to which any particular law, regulation or policy impacts us will depend on several factors, including the substantive terms involved, the relevant time periods for enactment and any related transition periods. We routinely attempt to evaluate the potential impact on us of any proposed laws, regulations or policies, which requires that we make several material assumptions. From time to time, we determine that the impact of one or more such laws, regulations or policies, if adopted and ultimately implemented as proposed, may result in materially adverse impacts on our operations, financial condition or cash flow; however, we often are not able to reasonably quantify such impacts.flow. In general, however, it is likely that any future laws, regulations or other policies aimed at reducing greenhouse gas emissions will negatively impact demand for our coal.

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-governmentalnon‑governmental organizations, anti-mininganti‑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

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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.

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-openre‑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-partythird‑party sources, if it is available, to fulfill these obligations, incur capital expenditures to re-openre‑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:

·

limitations on land use;

·

mine permitting and licensing requirements;

·

reclamation and restoration of mining properties after mining is completed;

·completed and required surety bonds or other instruments to secure those reclamation and restoration obligations;

management of materials generated by mining operations;

·

the storage, treatment and disposal of wastes;

·

remediation of contaminated soil and groundwater;

·

air quality standards;

·

water pollution;

·

protection of human health, plant-lifeplant‑life and wildlife, including endangered or threatened species;

·

protection of wetlands;

·

the discharge of materials into the environment;

·

the effects of mining on surface water and groundwater quality and availability; and

·

the management of electrical equipment containing polychlorinated biphenyls.


The costs, liabilities and requirements associated with the laws and regulations related to these and other environmental matters may be costly and time-consumingtime‑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 the section entitled “Environmental and Other Regulatory Matters” in Item 1 for more information about the various governmental regulations affecting us.


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If the assumptions underlying our estimates of reclamation and mine closure obligations are inaccurate, our costs could be greater than anticipated.

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-partythird‑party profit, as required. The third-partythird‑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 cleanup 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 at sites that we may acquire. OurUnder certain federal and state environmental laws, our liability for such claimsconditions may be joint and several with other owners or owners/operators, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share.

Liability under these laws is generally strict. Accordingly, we may incur liability without regard to fault or to the legality of the conduct giving rise to the conditions.

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 can fail, which could release 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 Appalachian 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 § 404 permits issued by the Army Corps of Engineers (the Corps). 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 operate under the issued permits, and the claims against one of the subsidiaries was thereafter dismissed. On February 13, 2009, the U.S. Court of Appeals for the Fourth Circuit ruled on appeals from decisions rendered prior to our intervention, which may have a favorable impact on our permits. The matter is pending beforeintervention. On May 22, 2017, the U.S.United States District Court for the Southern District of West Virginia ongranted the remaining subsidiary’s motion to dismiss plaintiffs’ Seventh Supplemental and Amended Complaint after the D.C. Circuit Court of Appeals affirmed the EPA’s final determination rescinding Mingo Logan’s motion for summary judgment. If the matter isLogan Coal Company’s 404 authorization regarding Pigeonroost Branch and Oldhouse Branch. The D.C. Circuit Court of Appeals decision finally resolved ultimately in a manner that is adverselawsuit filed by Mingo Logan against EPA challenging EPA’s authority to the interestsrescind a 404 permit authorization.

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subsidiaries, such subsidiaries’ operating results may be adversely impacted.  For more information regarding this litigation matter you should see the section entitled “Legal Proceedings—Permit Litigation Matters” under Item 3.


Changes in the legal and regulatory environment 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. Environmental and other non-governmental organizations and activists, many of which are well funded, continue to exert pressure on regulators and other government bodies to enact more stringent laws and regulations. Changes in the legal and regulatory environment in which we operate may impact our results, increase our costs or liabilities, complicate or limit our business activities or result in litigation. Such legal and regulatory environment changes may include changes in such items as: the processes for obtaining or renewing permits; self-bonding programs; federal lease by application programs; costs associated with providing healthcare benefits to employees; health and safety standards; accounting standards; taxation requirements; and competition laws.

For example, in April 2010, Furthermore, pursuant to a February 2017 executive order and the proposed rule published on July 27, 2017, the EPA issued comprehensive guidance regardingwill review and revise the water quality standardsdefinition of “waters of the United States,” which may include re-codifying the definition that EPA believes should apply to certain new and renewedcurrently governs administration of the Clean Water Act permit applications for Appalachian surface coal miningAct. Adoption of more stringent application of existing regulations may materially increase our costs and adversely affect our operations. Under the EPA’s guidance, applicants seeking

Risks Related 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 EPA’s guidanceIncome Taxes

Recent U.S. tax legislation may be difficult for most surface mining operations to meet. Additionally, the EPA’s 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. The EPA’s guidance is subject to several pending legal challenges related to its legal effect and sufficiency including consolidated challenges pending in the United States Court of Appeals for 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 Company’s Upper Big Branch Mine and the ensuing tragedy, we expect that safety matters pertaining to underground coal mining operations will continue to 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 maintaining permits necessary to perform our mining operations or otherwise may prevent, delay or reduce our planned production, any of which couldmaterially adversely affect our financial condition, results of operations and cash flows.

Further, mining companies are entitled a

The ability to use our net operating losses (“NOLs”) and alternative minimum tax deduction for percentage depletion, which may allow for depletion deductions in excess(“AMT”) credits has been limited by the “ownership change” under Section 382 of the basis in Internal Revenue Code (the “Code”) that occurred on our emergence from bankruptcy (“the mineral reserves.Emergence Ownership Change”). The deductionlimitation resulting from the Ownership Change is currently being reviewed bysubstantial and applies to all NOLs and AMT tax credits existing at the federal government for repeal. If repealed,time of the inability to take a tax deduction for percentage depletion couldOwnership Change. The limitation resulting from the Emergence Ownership Change may have a materialsignificant impact on our financial condition, resultsability to offset future taxable income with carryforward net operating losses. NOLs and AMT credits generated after the Emergence Ownership Change are generally not subject to the limitations.
As a result of operations, cash flowsthe discharge of debt in the Chapter 11 Cases, we and futureour subsidiaries were required to reduce the amount of our NOLs and AMT credits and other tax payments.

attributes existing at the end of 2016.

Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations. Changes include the reduction of the U.S. corporate income tax rate, elimination of the AMT tax system, limitation of interest deductions and revision of the rules governing net operating losses. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions.
The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (“IRS”), any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.
While some of the changes made by the tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal and tax advisors with respect to such legislation.

ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.


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ITEM 2. PROPERTIES.

Our Properties

General

At December 31, 2015,2017, we owned or controlled, primarily through long-termlong‑term leases, approximately 28,54128,292 acres of coal land in Ohio, 21,8321,060 acres of coal land in Maryland, 46,55610,108 acres of coal land in Virginia, 380,471359,160 acres of coal land in West Virginia, 106,05998,488 acres of coal land in Wyoming, 273,299267,857 acres of coal land in Illinois, 129,04334,446 acres of coal land in Kentucky, 10,0009,840 acres of coal land in Montana, 21,802 acres of coal land in New Mexico, 426358 acres of coal land in Pennsylvania, and 18,44320,165 acres of coal land in Colorado. In addition, we also owned or controlled through long-termlong‑term leases smaller parcels of property in Alabama, Indiana, Washington, Arkansas, California, Utah and Texas. We lease approximately 86,32181,436 acres of our coal land from the federal government and approximately 23,34922,385 acres of our coal land from various state governments. Certain of our preparation plants or loadout facilities are located on properties held under leases which expire at varying dates over the next 30 years. Most of the leases contain options to renew. Our remaining preparation plants and loadout facilities are located on property owned by us or for which we have a special use permit.

Our executive headquarters occupies leased office space at One CityPlace Drive, in St. Louis, Missouri. Our subsidiaries currently own or lease the equipment utilized in their mining operations. You should see “Our Mining Operations” for more information about our mining operations, mining complexes and transportation facilities.

Our Coal Reserves

We estimate that we owned or controlled approximately 2.52.1. billion tons of proven and probable recoverable reserves at December 31, 2015.2017. Our coal reserve estimates at December 31, 20152017 were prepared by our engineers and geologists and reviewed by Weir International, Inc., a mining and geological consultant. Our coal reserve estimates are based on data obtained from our drilling activities and other available geologic data. Our coal reserve estimates are periodically updated to reflect past coal production and other geologic and mining data. Acquisitions or sales of coal properties will also change these estimates. Changes in mining methods or the utilization of new technologies may increase or decrease the recovery basis for a coal seam.

Our coal reserve estimates include reserves that can be economically and legally extracted or produced at the time of their determination. In determining whether our reserves meet this standard, we take into account, among other things, our potential inability to obtain a mining permit, the possible necessity of revising a mining plan, changes in estimated future costs, changes in future cash flows caused by changes in costs required to be incurred to meet regulatory requirements and obtaining mining permits, variations in quantity and quality of coal, and varying levels of demand and their effects on selling prices. We use various assumptions in preparing our estimates of our coal reserves. You should see “Inaccuracies in our estimates of our coal reserves could result in decreased profitability from lower than expected revenues or higher than expected costs” contained in Item 1A, “Risk Factors.”








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The following tables present our estimated assigned and unassigned recoverable coal reserves at December 31, 2015:

2017:

Total Assigned Reserves

(Tons in millions)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

As

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assigned

 

 

 

 

 

Sulfur Content (lbs.

 

Received

 

 

 

 

 

Mining Method

 

Past Reserve

 

 

 

Recoverable

 

 

 

 

 

per million Btus)

 

Btus per

 

Reserve Control

 

 

 

Under-

 

Estimates

 

 

 

Reserves

 

Proven

 

Probable

 

<1.2

 

1.2-2.5

 

>2.5

 

lb. (1)

 

Leased

 

Owned

 

Surface

 

ground

 

2013

 

2014

 

Wyoming

 

1,318

 

1,304

 

14

 

1,257

 

61

 

 

8,852

 

1,318

 

 

 

1,318

 

 

1,526

 

1,423

 

Montana

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Colorado

 

53

 

50

 

3

 

53

 

 

 

11,533

 

53

 

 

 

53

 

84

 

65

 

Central App.

 

35

 

34

 

1

 

23

 

12

 

 

12,479

 

35

 

 

25

 

10

 

169

 

139

 

Northern App.

 

40

 

35

 

5

 

 

40

 

 

13,074

 

2

 

38

 

 

40

 

58

 

74

 

Illinois

 

37

 

22

 

15

 

 

 

37

 

10,728

 

30

 

7

 

 

37

 

21

 

33

 

Total

 

1,483

 

1,445

 

38

 

1,333

 

113

 

37

 

9,195

 

1,438

 

45

 

1,343

 

140

 

1,858

 

1,734

 


(1)                                 As received Btus per lb. includes the weight of moisture in the coal on an as sold basis.

 Total Assigned Recoverable Reserves   As Received Btus per lb. (1)   
   Sulfur Content (lbs. per million Btus) Mining MethodPast Reserve Estimates
   Reserve Control Under-
 ProvenProbable<1.21.2-2.5>2.5LeasedOwnedSurfaceground2015
2016
Wyoming1,025
1,019
6
963
62

8,832
1,025
 1,025

1,318
1,115
Colorado53
47
6
53


11,476
53


53
53
56
Central App.69
59
10
25
44

13,076
62
7
22
47
35
70
Northern App.35
32
3

35

13,018
5
30

35
40
48
Illinois35
20
15


35
10,737
30
5

35
37
38
Total1,217
1,177
40
1,041
141
35
9,365
1,175
42
1,047
170
1,483
1,327

(1)As received Btus per lb. includes the weight of moisture in the coal on an as sold basis.


Total Unassigned Reserves

(Tons in millions)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unassigned

 

 

 

 

 

Sulfur Content

 

 

 

 

 

 

 

Mining Method

 

 

 

Recoverable

 

 

 

 

 

(lbs. per million Btus)

 

As Received

 

Reserve Control

 

 

 

Under-

 

 

 

Reserves

 

Proven

 

Probable

 

<1.2

 

1.2-2.5

 

>2.5

 

Btus per lb.(1)

 

Leased

 

Owned

 

Surface

 

ground

 

Wyoming

 

480

 

397

 

83

 

428

 

52

 

 

9,653

 

370

 

110

 

305

 

175

 

Montana

 

 

 

 

 

 

 

 

 

 

 

 

Colorado

 

33

 

25

 

8

 

33

 

 

 

11,220

 

33

 

 

 

33

 

Central App.

 

59

 

50

 

9

 

20

 

26

 

13

 

12,522

 

11

 

48

 

41

 

18

 

Northern App.

 

144

 

70

 

74

 

 

142

 

2

 

12,961

 

1

 

143

 

 

144

 

Illinois

 

298

 

197

 

101

 

 

 

298

 

11,137

 

65

 

233

 

4

 

294

 

Total

 

1,014

 

739

 

275

 

481

 

220

 

313

 

10,777

 

480

 

534

 

350

 

664

 


(1)                                 As received Btus per lb. includes the weight of moisture in the coal on an as sold basis.

The following table reconciles 2015 and 2014 coal proven and probable reserves:

 Total Unassigned Recoverable Reserves        
   Sulfur Content  Mining Method
   (lbs. per million Btus)As ReceivedReserve Control Under‑
 ProvenProbable<1.21.2-2.5>2.5
Btus per lb.(1)
LeasedOwnedSurfaceground
Wyoming290
244
46
242
48

8,446
290

290

Colorado28
22
6
28


11,339
28


28
Central App.51
44
7
14
24
13
12,482
2
49
33
18
Northern App.198
115
83

195
3
13,009
9
189

198
Illinois285
189
96


285
11,162
59
226
3
282
Total852
614
238
284
267
301
10,753
388
464
326
526

Tons

(1)

(As received Btus per lb. includes the weight of moisture in millions)

December 31, 2014

5,064

Depletion (1)

(127

)

Revisions and additions, net (2)

(1,709

)

Mining rights relinquished

(731

)

December 31, 2015

2,497

the coal on an as sold basis.



(1)                                 Reserves mined and sold in 2015.

(2)                                 Revisions and additions, net are due to reclassification of reserves that no longer meet the definition of compliant “reserves” per SEC Industry Guide 7 which defines a “reserve” as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.  The tonnage reclassified from reserves continues to be controlled by the company, is mineable with existing technologies, and could factor into the Company’s mining plans in the future.

Federal and state legislation controlling air pollution affects the demand for certain types of coal by limiting the amount of sulfur dioxide which may be emitted as a result of fuel combustion and encourages a greater demand for low-sulfur coal. All of our identified coal reserves have been subject to preliminary coal seam analysis to test sulfur content. Of these reserves, approximately 73%66% consist of compliance coal, or coal which emits 1.2 pounds or less of sulfur dioxide per million Btus upon combustion, while an additional approximately 5%8% could be sold as low-sulfur coal. The balance is classified as high-sulfur coal. Most of our reserves are suitable for the domestic steam coal markets. A substantial portion of the low-sulfur and compliance coal reserves at a number of our Appalachian mining complexes may also be used as metallurgical coal.

The carrying cost of our coal reserves at December 31, 20152017 was $2.5$0.4 billion, consisting of $33.7$4.7 million of prepaid royalties and a net book value of coal lands and mineral rights of $2.4 billion.

$0.4 billion.


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Reserve Acquisition Process

We acquire a significant portion of the coal we control in the western United States through the lease-by-applicationlease‑by‑application (LBA) process. Under this process, before a mining company can obtain new coal reserves, the coal tract must be nominated for lease, and the company must win the lease through a competitive bidding process. The LBA process can last anywhere from five to ten years or more from the time the coal tract is nominated to the time a final bid is accepted by the BLM. After the LBA is awarded, the company then conducts the necessary testing to determine what amount can be classified as reserves.

To initiate the LBA process, companies wanting to acquire additional coal must file an application with the BLM’s state office indicating interest in a specific coal tract. The BLM reviews the initial application to determine whether the application conforms to existing land-useland‑use plans for that particular tract of land and that the application would provide for maximum coal recovery. The application is further reviewed by a regional coal team at a public meeting. Based on a review of the available information and public comment, the regional coal team will make a recommendation to the BLM whether to continue, modify or reject the application.

If the BLM determines to continue the application, the company that submitted the application will pay for a BLM-directedBLM‑directed environmental analysis or an environmental impact statement to be completed. This analysis or impact statement

is subject to publication and public comment. The BLM may consult with other governmental agencies during this process, including state and federal agencies, surface management agencies, Native American tribes or bands, the U.S. Department of Justice or others as needed. The public comment period for an analysis or impact statement typically occurs over a 60-day60‑day period.

After the environmental analysis or environmental impact statement has been issued and a recommendation has been published that supports the lease sale of the LBA tract, the BLM schedules a public competitive lease sale. The BLM prepares an internal estimate of the fair market value of the coal that is based on its economic analysis and comparable sales analysis. Prior to the lease sale, companies interested in acquiring the lease must send sealed bids to the BLM. The bid amounts for the lease are payable in five annual installments, with the first 20% installment due when the mining operator submits its initial bid for an LBA. Before the lease is approved by the BLM, the company must first furnish to the BLM an initial rental payment for the first year of rent along with either a bond for the next 20% annual installment payment for the bid amount, or an application for history of timely payment, in which case the BLM may waive the bond requirement if the company successfully meets all the qualifications of a timely payor. The bids are opened at the lease sale. If the BLM decides to grant a lease, the lease is awarded to the company that submitted the highest total bid meeting or exceeding the BLM’s fair market value estimate, which is not published. The BLM, however, is not required to grant a lease even if it determines that a bid meeting or exceeding the fair market value of the coal has been submitted. The winning bidder must also submit a report setting forth the nature and extent of its coal holdings to the U.S. Department of Justice for a 30-day30‑day antitrust review of the lease. If the successful bidder was not the initial applicant, the BLM will refund the initial applicant certain fees it paid in connection with the application process, for example the fees associated with the environmental analysis or environmental impact statement, and the winning bidder will bear those costs. Coal won through the LBA process and subject to federal leases are administered by the U.S. Department of Interior under the Federal Coal Leasing Amendment Act of 1976. In addition, we occasionally add small coal tracts adjacent to our existing LBAs through an agreed upon lease modification with the BLM. Once the BLM has issued a lease, the company must also complete the permitting process before it can mine the coal. You should seePlease refer to the section entitled “Environmental and Other Regulatory Matters” under Item 1.

Most of our federal coal leases have an initial term of 20 years and are renewable for subsequent 10-year10‑year periods and for so long thereafter as coal is produced in commercial quantities. These leases require diligent development within the first ten years of the lease award with a required coal extraction of 1.0% of the total coal under the lease by the end of that 10-year10‑year period. At the end of the 10-year10‑year development period, the lessee is required to maintain continuous operations, as defined in the applicable leasing regulations. In certain cases a lessee may combine contiguous leases into a logical mining unit, which we refer to as an LMU. This allows the production of coal from any of the leases within the LMU to be used to meet the continuous operation requirements for the entire LMU. Some of our mines are also subject to coal leases with applicable state regulatory agencies and have different terms and conditions that we must adhere to in a similar way to our federal leases. Under these federal and state leases, if the leased coal is not diligently developed during the initial 10-year10‑year development period or if certain other terms of the leases are not complied with, including the requirement to produce a minimum quantity of coal or pay a minimum production royalty, if applicable, the BLM or the applicable state regulatory agency can terminate the lease prior to the expiration of its term.


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On January 15, 2016, the federal government ordered a moratorium on new leases for coal mined from federal lands as part of a review of the government’s management of federally-owned coal. The review could takeIn March 2017, the formU.S. Secretary of a programmatic environmental impact statement, which allows a broader lookInterior signed Secretarial Order 3348 lifting that moratorium and halting the Federal Coal Program Programmatic Environmental Impact Statement that was in process at all aspects of federal coal leasing across regions and can incorporate environmental and health impacts as well as financial ones.  The last review on this scale occurredthe time. Litigation is currently pending in the 1980’s.United States District Court for the District of Montana challenging the lifting of the moratorium as a violation of the National Environmental Policy Act, the Mineral Leasing Act and the Federal Land Policy and Management Act. Although the Bureau of Land Management is now working to process coal lease applications and modifications expeditiously in accordance with regulations and guidance that existed before Secretarial Order 3338, which imposed the moratorium on new coal leases, any delay in the LBA process, including any delay caused by the now-lifted moratorium could prevent us from obtaining replacement reserves when we require them. Also, the outcome of the government’s review is uncertain and could have a material and adverse impact on our business in any number of ways including by limiting our ability to mine reserves under ongoing or future applications, by increasing the costs or timeframe associated with obtaining leases under the LBA program, by making it uneconomical for us to participate in the programs or by preventing us from obtaining replacement reserves if the LBA program were to be terminated. Please see “Our inability to acquire additional coal reserves or our inability to develop coal reserves in an economically feasible manner may adversely affect our business,” under Risks Related to Our Operations.

contained in Item 1A. “Risk Factors” for more information.

Title to Coal Property

Title to coal properties held by lessors or grantors to us and our subsidiaries and the boundaries of properties are normally verified at the time of leasing or acquisition. However, in cases involving less significant properties and consistent with industry practices, title and boundaries are not completely verified until such time as our independent operating

subsidiaries prepare to mine such reserves. If defects in title or boundaries of undeveloped reserves are discovered in the future, control of and the right to mine such reserves could be adversely affected. You should see “A defect in title or the loss of a leasehold interest in certain property or surface rights could limit our ability to mine our coal reserves or result in significant unanticipated costs” contained in Item 1A, “Risk Factors” for more information.

At December 31, 2015,2017, approximately 23%24% of our coal reserves were held in fee, with the balance controlled by leases, most of which do not expire until the exhaustion of mineable and merchantable coal. Under current mining plans, substantially all reported leased reserves will be mined out within the period of existing leases or within the time period of assured lease renewals. Royalties are paid to lessors either as a fixed price per ton or as a percentage of the gross sales price of the mined coal. The majority of the significant leases are on a percentage royalty basis. In some cases, a payment is required, payable either at the time of execution of the lease or in annual installments. In most cases, the prepaid royalty amount is applied to reduce future production royalties.

From time to time, lessors or sublessors of land leased by our subsidiaries have sought to terminate such leases on the basis that such subsidiaries have failed to comply with the financial terms of the leases or that the mining and related operations conducted by such subsidiaries are not authorized by the leases. Some of these allegations relate to leases upon which we conduct operations material to our consolidated financial position, results of operations and liquidity, but we do not believe any pending claims by such lessors or sublessors have merit or will result in the termination of any material lease or sublease.

We leased approximately 65,88657,773 acres of property to other coal operators in 2015.2017. We received royalty income of $4.1 million during 2017 from the mining of approximately 1.2 million tons, $1.1 million during the period October 2 through December 31, 2016 from the mining of approximately 0.4 million tons, $1.7 million during the period January 1 through October 1, 2016 from the mining of approximately 0.6 million tons, and $6.3 million in 2015 from the mining of approximately 2.1 million tons, $9.6 million in 2014 from the mining of approximately 2.6 million tons and $9.5 million in 2013 from the mining of approximately 2.8 million tons on those properties. We have included reserves at properties leased by us to other coal operators in the reserve figures set forth in this report.

ITEM 3.   LEGAL PROCEEDINGS.

In addition to the following matters, we


We are involved in various claims and legal actions arising in the ordinary course of business, including employee injury claims. After conferring with counsel, it is the opinion of management that the ultimate resolution of these claims, to the extent not previously provided for, will not have a material adverse effect on our consolidated financial condition, results of operations or liquidity.

Permit Litigation Matters

Surface mines at our Mingo Logan and Coal-Mac mining operations were identified in an existing lawsuit brought by the Ohio Valley Environmental Coalition (OVEC) in the U.S. District Court for the Southern District of West Virginia as having been granted Clean Water Act § 404 permits by the Army Corps of Engineers (Corps), allegedly in violation of the Clean Water Act and the National Environmental Policy Act. The lawsuit, brought by OVEC in September 2005, originally was filed against the Corps for permits it had issued to four subsidiaries of a company unrelated to us or our operating subsidiaries. The suit claimed that the Corps had issued permits to the subsidiaries of the unrelated company that did not comply with the National Environmental Policy Act and violated the Clean Water Act.

The court ruled on the claims associated with those four permits in orders of March 23 and June 13, 2007. In the first of those orders, the court rescinded the four permits, finding that the Corps had inadequately assessed the likely impact of valley fills on headwater streams and had relied on inadequate or unproven mitigation to offset those impacts. In the second order, the court entered a declaratory judgment that discharges of sediment from the valley fills into sediment control ponds constructed in-stream to control that sediment must themselves be permitted under a different provision of the Clean Water Act, § 402, and meet the effluent limits imposed on discharges from these ponds. Both of the district court rulings were appealed to the U.S. Court of Appeals for the Fourth Circuit.

Before the court entered its first order, the plaintiffs were permitted to amend their complaint to challenge the Coal-Mac and Mingo Logan permits. Plaintiffs sought preliminary injunctions against both operations, but later reached agreements with our operating subsidiaries that have allowed mining to progress in limited areas while the district court’s rulings were on appeal. The claims against Coal-Mac were thereafter dismissed.

In February 2009, the Fourth Circuit reversed the district court. The Fourth Circuit held that the Corps’ jurisdiction under Section 404 of the Clean Water Act is limited to the narrow issue of the filling of jurisdictional waters. The court also held that the Corps’ findings of no significant impact under the National Environmental Policy Act and no significant degradation under the Clean Water Act are entitled to deference. Such findings entitle the Corps to avoid preparing an environmental impact statement, the absence of which was one issue on appeal. These holdings also validated the type of mitigation projects proposed by our operations to minimize impacts and comply with the relevant statutes. Finally, the Fourth Circuit found that stream segments, together with the sediment ponds to which they connect, are unitary “waste treatment systems,” not “waters of the United States,” and that the Corps had not exceeded its authority in permitting them.

OVEC sought rehearing before the entire appellate court, which was denied in May 2009, and the decision was given legal effect in June 2009. An appeal to the U.S. Supreme Court was then filed in August 2009. On August 3, 2010 OVEC withdrew its appeal.

Mingo Logan filed a motion for summary judgment with the district court in July 2009, asking that judgment be entered in its favor because no outstanding legal issues remained for decision as a result of the Fourth Circuit’s February 2009 decision. By a series of motions, the United States obtained extensions and stays of the obligation to respond to the motion in the wake of its letters to the Corps dated September 3 and October 16, 2009 (discussed below). By order dated April 22, 2010, the district court stayed the case as to Mingo Logan for the shorter of either six months or the completion of the U.S. Environmental Protection Agency’s (EPA) proposed action to deny Mingo Logan the right to use its Corps’ permit (as discussed below).


On October 15, 2010, the United States moved to extend the existing stay for an additional 120 days (until February 22, 2011) while the EPA Administrator reviewed the “Recommended Determination” issued by the EPA Region 3. By Memorandum Opinion and Order dated November 2, 2010, the court granted the United States’ motion. 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 was notified of the Final Determination and by order dated March 21, 2011 stayed further proceedings in the case until further order of the court, in light of the challenge to the EPA’s “Final Determination” then pending in federal court in Washington, D.C. In a Memorandum and Opinion and separate Order, each dated March 23, 2012, the federal court granted Mingo Logan’s motion for summary judgment, vacated EPA’s Final Determination and found valid and in full force Mingo Logan’s Section 404 permit. As described more fully below, the EPA appealed that order to the United States Court of Appeals for the D.C. Circuit and by Opinion of the Court dated April 23, 2013, the court reversed the lower court’s order and remanded the matter to the district court for further proceedings.

On April 5, 2012, Mingo Logan moved to lift the stay referenced above. On June 5, 2012, the court entered an order lifting the stay and allowing the case to proceed on Mingo Logan’s Motion for Summary Judgment. Shortly thereafter, OVEC filed a motion for leave to file a seventh amended and supplemental complaint seeking to update existing counts and raising two new claims (one, to enforce EPA’s “Final Determination” and, the other, that the Corps’ refusal to prepare a Supplemental Environmental Impact Statement violates the APA and NEPA). By Memorandum, Opinion and Order dated July 25, 2012, the court granted OVEC’s motion and directed the Clerk to file OVEC’s Seventh Amended and Supplemental Complaint. Mingo Logan filed its Motion for Summary Judgment on August 31, 2012, along with its Answer to the Seventh Amended and Supplemental Complaint and the matter remains pending before the court.

As a result of the Bankruptcy Petitions, much of the pending litigation against the Debtors is stayed.  Subject to certain exceptions and approval by the Court, during the Chapter 11 process, no party can take further actions to recover pre-petition claims against the Debtors.

EPA Actions Related to Water Discharges from the Spruce Permit

By letter of September 3, 2009, the EPA asked the Corps of Engineers to suspend, revoke or modify the existing permit it issued in January 2007 to Mingo Logan under Section 404 of the Clean Water Act, claiming that “new information and circumstances have arisen which justify reconsideration of the permit.” By letter of September 30, 2009, the Corps of Engineers advised the EPA that it would not reconsider its decision to issue the permit. By letter of October 16, 2009, the EPA advised the Corps that it has “reason to believe” that the Mingo Logan mine will have “unacceptable adverse impacts to fish and wildlife resources” and that it intends to issue a public notice of a proposed determination to restrict or prohibit discharges of fill material that already are approved by the Corps’ permit. By federal register publication dated April 2, 2010, the EPA issued its “Proposed Determination to Prohibit, Restrict or Deny the Specification, or the Use for Specification of an Area as a Disposal Site: Spruce No. 1 Surface Mine, Logan County, WV” pursuant to Section 404(c) of the Clean Water Act, the EPA accepted written comments on its proposed action (sometimes known as a “veto proceeding”), through June 4, 2010 and conducted a public hearing, as well, on May 18, 2010. We submitted comments on the action during this period. On September 24, 2010, the EPA Region 3 issued a “Recommended Determination” to the EPA Administrator recommending that the EPA prohibit the placement of fill material in two of the three watersheds for which filling is approved under the current Section 404 permit. Mingo Logan, along with the Corps, West Virginia DEP and the mineral owner, engaged in a consultation with the EPA as required by the regulations, to discuss “corrective action” to address the “unacceptable adverse effects” identified. On January 13, 2011, the EPA issued its “Final Determination” pursuant to Section 404(c) of the Clean Water Act to withdraw the specification of two of the three watersheds approved in the current Section 404 permit as a disposal site for dredged or fill material. By separate action, Mingo Logan sued the EPA on April 2, 2010 in federal court in Washington, D.C. seeking a ruling that the EPA has no authority under the Clean Water Act to veto a previously issued permit (Mingo Logan Coal Company, Inc. v. USEPA, No. 1:10-cv-00541(D.D.C.)). The EPA moved to dismiss that action, and we responded to that motion.

Pursuant to a scheduling order for summary disposition of the case, motions and cross-motions for summary judgment by both parties were filed. On November 30, 2011, the court heard arguments from the parties limited only to the threshold

issue of whether the EPA had the authority under Section 404(c) of the Clean Water Act to withdraw the specification of the disposal site after the Corps had already issued a permit under Section 404(a). The court deferred consideration of the remaining issue (i.e. whether the EPA’s “Final Determination” is otherwise lawful) until after consideration of the threshold issue. On March 23, 2012, the court entered an Order and a Memorandum Opinion granting Mingo Logan’s motion for summary judgment, denying the EPA’s cross-motion for summary judgment, vacating the Final Determination and ordering that Mingo Logan’s Section 404 permit remains valid and in full force.

On May 11, 2012, the EPA filed a notice of appeal to the United States Court of Appeals for the District of Columbia Circuit. The court heard oral arguments on March 14, 2013. By opinion of the court filed on April 23, 2013, the court reversed the district court on the threshold issue and remanded the matter to the district court to address the merits of our APA challenge to the Final Determination. On June 6, 2013, Mingo Logan filed a Petition for Rehearing En Banc and by Order filed July 25, 2013, the court denied the petition.

On November 13, 2013, Mingo Logan filed a Petition for Writ of Certiorari with the Supreme Court of the United States seeking review of the D.C. Circuit’s decision. On March 24, 2014, the Supreme Court denied Mingo Logan’s Petition for Writ of Certiorari and remanded the matter to the federal district court for the District of Columbia for further consideration on the merits of the Final Determination. On September 30, 2014, the court entered an opinion and order denying Mingo Logan’s motion for summary judgment and granting the government’s motion for summary judgment. The court upheld the Final Determination finding that EPA’s decision to withdraw the specifications for filling in Oldhouse Branch and Pigeonroost Branch under Mingo Logan’s Section 404 permit was not arbitrary and capricious. On November 11, 2014, Mingo Logan filed a notice of appeal to the United States Court of Appeals for the District of Columbia Circuit.  The matter is fully briefed and oral argument is scheduled for April 11, 2016.

UMWA 1974 Pension Plan et al. v Peabody Energy and Arch

On July 16, 2015, the UMWA 1974 Pension Trust (“Plan”) and its Trustees filed a Complaint for Declaratory Judgment against Peabody Energy Corporation, Peabody Holding Company, LLC and Arch, in the U.S. District Court in Washington D.C., seeking an order from the court requiring the defendants to submit to arbitration to determine their responsibility for pension withdrawal liability (triggered by Patriot Coal Corporation’s (“Patriot”) recent bankruptcy filing) for Plan participants of Patriot who formerly worked for Peabody and Arch subsidiaries.  In the alternative, the complaint asks the court to declare that Peabody and Arch are liable for Patriot’s withdrawal liability. With respect to Arch, plaintiffs allege that Arch engaged in actions to avoid and evade pension fund withdrawal liability when it sold subsidiaries that were signatory to UMWA agreements, to Magnum Coal Company (“Magnum”) in 2005, allegedly in violation of ERISA law.  Patriot subsequently purchased Magnum in 2008.  On October 29, 2015, plaintiffs filed an amended complaint to reflect that Patriot formally rejected its obligations to contribute to the Plan, triggering a withdrawal.  The amended complaint further alleged that Arch owes $299.8 million in withdrawal liability.  On October 29, 2015, the UMWA Funds issued a letter to Arch demanding payment of this withdrawal liability amount.  We believe there is no basis in the law to support any claim that Arch is responsible for Patriot’s withdrawal liability and we plan to vigorously defend this complaint.  Arch notified the District Court and the parties to the litigation of its bankruptcy filing and the automatic stay and, on January 21, 2016, the plaintiffs agreed that the automatic stay in the Chapter 11 Case applies to Arch and its affiliates that have filed bankruptcy petitions.

ITEM 4.           MINE SAFETY DISCLOSURES.

The statement concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Annual Report on Form 10-K for the period ended December 31, 2015.

2017.

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PART II


ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market for Registrant’s Common Equity and Related Stockholder Matters

On January 11, 2016,

Our common stock is listed on the New York Stock Exchange (NYSE) determined that Arch was no longer suitable(“NYSE”) under the symbol “ARCH” and has been trading since October 5, 2016 upon our emergence from bankruptcy. No prior established public trading market existed for listing pursuant to Section 8.02.01D of the NYSE continued listing standards, and trading of the Company’sthis newly issued common stock was suspended.  Our stock is now traded under the ticker symbol “ACIIQ” on the OTC Pink marketplace, operatedprior to this date. Based upon information provided by OTC Markets Group Inc.  Prior to January 11, 2016,our transfer agent, as of February 16, 2018, we had four stockholders of record.

Holders of our common stock was traded on the NYSE under the symbol “ACI.”  On February 12, 2016,are entitled to receive dividends when they are declared by our common stock closed at $0.47 on the OTC Pink.  On that date, there were approximately 5,400 holdersBoard of record of our common stock.

On August 4, 2015, the Company effected a 1-for-10 reverse stock split of its common stock.  Each stockholder’s percentage ownership and proportional voting power remain unchanged as a result of the reverse stock split.  All applicable share data, per share amounts and related information enclosed have been adjusted retroactively to give effect to the 1-for-10 reverse stock split.

In 2014, weDirectors. We paid an annual dividenddividends on our common stock totaling $2.1$24.4 million in 2017. There is no assurance as to the amount or $0.10 per share.  In 2015 we did not pay an annual dividend.  We are prohibited from payingpayment of dividends on our common stock during Chapter 11.

We expect thatin the existing common stock of the Companyfuture because they will be extinguished uponsubject to ongoing Board review and authorization will be based on a number of factors, including business and market conditions, the Company’s emergence from Chapter 11,future financial performance and existing equity holders will likely not receive consideration in respect of their equity interests.

other capital priorities.


The following table sets forth for each period indicated the dividends paid per common share and the per share high and low saleclosing prices offor our common stock as reported on the NYSE for eachthe periods presented:

 High Low Dividends per common share
Year Ended December 31, 2017     
First quarter$79.27
 $63.24
 $
Second quarter77.59
 60.13
 0.35
Third quarter81.09
 67.39
 0.35
Fourth quarter94.57
 68.95
 0.35
      
Year Ended December 31, 2016     
First quarter$
 $
 $
Second quarter
 
 
Third quarter
 
 
Fourth quarter (from October 5, 2016)86.47
 59.05
 




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Stockholder Return Performance Presentation

The following graph compares the cumulative 15-month total return of holders of Arch Coal, Inc.’s common stock with the cumulative total returns of the quarterly periods indicated.

 

 

2015

 

 

 

March 31

 

June 30

 

September 30

 

December 31

 

Dividends per common share

 

$

 

$

 

$

 

$

 

High

 

16.80

 

11.10

 

9.31

 

4.66

 

Low

 

8.20

 

3.40

 

1.05

 

0.84

 

 

 

2014

 

 

 

March 31

 

June 30

 

September 30

 

December 31

 

Dividends per common share

 

$

0.10

 

$

 

$

 

$

 

High

 

48.20

 

51.80

 

36.70

 

28.60

 

Low

 

38.81

 

32.30

 

20.80

 

15.00

 

S&P Midcap 400 index and a customized peer group of three companies: Cloud Peak Energy Inc., Cnx Resources Corp and Westmoreland Coal Company. The graph assumes that the value of the investment in our common stock, the S&P Midcap 400 index, and in the peer group (including reinvestment of dividends) was $100 on October 5, 2016 and tracks it through December 31, 2017.


 10/5/201610/1611/1612/161/172/173/174/17
         
Arch Coal, Inc.100.00
116.48
123.86
123.89
114.27
114.06
109.43
111.49
S&P Midcap 400100.00
97.32
105.12
107.42
109.22
112.08
111.65
112.58
Peer Group100.00
90.38
110.03
99.01
93.25
84.56
89.55
78.93
         
 5/176/177/178/179/1710/1711/1712/17
Arch Coal, Inc.112.88
108.94
121.33
127.97
114.94
122.44
132.87
149.93
S&P Midcap 400112.03
113.85
114.85
113.09
117.52
120.18
124.59
124.87
Peer Group74.35
75.91
83.97
72.58
84.44
81.29
83.65
87.92
The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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Issuer Purchases of Equity Securities

In September 2006, our board


During April 2017, the Board of directorsDirectors of Arch Coal, Inc. authorized a new share repurchase program for the purchase of up to 1,400,000$300 million of its common stock. In October 2017, the Company’s Board of Directors approved an incremental $200 million increase to the share repurchase program bringing the total authorization to $500 million. Below is a table showing the share repurchase activity in 2017:

2017:Total Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (in thousands)
1st quarter
$

$
2nd quarter710,701
$71.82
710,701
448,957
3rd quarter2,208,133
$75.49
2,208,133
282,272
4th quarter1,058,381
$79.73
1,058,381
197,892
Total shares repurchased3,977,215
$75.96
3,977,215
 

The timing of any future share repurchases, and the ultimate number of shares purchased, will depend on a number of factors, including business and market conditions, the Company’s future financial performance and other capital priorities. The shares will be acquired in the open market or through private transactions in accordance with the Securities and Exchange Commission requirements. The share repurchase program has no termination date, but may be amended, suspended or discontinued at any time and does not commit the Company to repurchase shares of ourits common stock. We did not purchase anyThe actual number and value of the shares to be purchased will depend on the performance of our commonthe Company’s stock under this programprice and other market conditions.



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ITEM 6.  SELECTED FINANCIAL DATA.


 SuccessorPredecessor
(In thousands, except per share data)Year Ended December 31, 2017October 2 through December 31, 2016January 1 through October 1, 2016Year Ended December 31, 2015Year Ended December 31, 2014Year Ended December 31, 2013
Statement of Operations Data: (1)(1)(2) (3)
Revenues$2,324,623
$575,688
$1,398,709
$2,573,260
$2,937,119
$3,014,357
Asset impairment and mine closure costs

129,267
2,628,303
24,113
220,879
Goodwill impairment




265,423
Income (loss) from operations232,396
46,118
(257,138)(2,865,063)(149,531)(663,141)
Interest expense(26,905)(11,241)(135,888)(397,979)(390,946)(381,267)
Non-operating expenses(4,945)(759)1,627,828
(27,910)
(42,921)
Income (loss) from continuing operations238,450
33,449
1,242,081
(2,913,142)(558,353)(745,228)
Net income (loss) attributable to Arch Coal238,450
33,449
1,242,081
(2,913,142)(558,353)(641,832)
Basic earnings (loss) per common share$10.05
$1.34
$58.33
$(136.86)$(26.31)$(30.26)
Diluted earnings (loss) per common share$9.84
$1.31
$58.28
$(136.86)$(26.31)$(30.26)
Balance Sheet Data:      
Total assets$1,979,632
$2,136,597
$2,123,829
$5,041,881
$8,346,362
$8,896,571
Working capital496,913
566,391
522,465
(4,361,009)1,023,357
1,293,849
Current maturities of debt15,783
11,038
6,662
5,042,353
12,191
14,419
Long-term debt, less current maturities310,134
351,841
353,272
30,953
5,064,818
5,043,454
Other long-term obligations669,552
725,948
786,015
755,283
695,881
717,174
Noncurrent deferred income tax liability



422,809
413,546
Arch Coal stockholders’ equity665,865
746,577
687,483
(1,244,289)1,668,154
2,253,249
Cash Flow Data:      
Cash provided by (used in) operating activities396,473
84,192
(228,218)(44,367)(33,582)55,742
Depreciation, depletion and amortization, including amortization of sales contracts, net176,449
33,400
190,853
370,534
405,561
438,247
Capital expenditures59,205
15,214
82,434
119,024
147,286
296,984
Net proceeds from the issuance of long term debt298,500



(4,519)623,511
Payments to retire debt, including redemption premium325,684




628,660
Purchases of treasury stock301,512
     
Dividend payments24,369



2,123
25,475
Operating Data:      
Tons sold98,218
26,812
67,128
127,632
134,360
139,607
Tons produced96,686
26,619
66,658
126,820
132,614
136,613
Tons purchased from third parties1,532
193
481
1,287
1,182
2,925



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(1)
Our 2016 results were impacted by the filing of bankruptcy, subsequent emergence and the application of fresh start accounting. See Note 3 to the Consolidated Financial Statements, “Emergence from Bankruptcy and Fresh Start Accounting” for additional information.
(2)
Our results in 2015 were impacted by further weakening of both the thermal and metallurgical coal markets. We incurred $2.6 billion of mine closure and asset impairment charges during the year; for additional information see Note 6 to the Consolidated Financial Statements, “Impairment Charges and Mine Closure Costs.”
(3)
As part of a strategy to divest non-core thermal coal assets, on August 16, 2013, we sold Canyon Fuel Company, LLC (“Canyon Fuel”) to Bowie Resources, LLC for $423 million. Canyon Fuel operated the Sufco and Skyline longwall mining complexes and the Dugout Canyon continuous miner operation in Utah. We recognized a gain on the sale of Canyon Fuel, net of tax, of $77.0 million during the third quarter of 2013.

The selected financial information presented above for the fiscal year ended December 31, 2015.  As of2017; the period October 2 through December 31, 2016, the period from January 1 through October 1, 2016, and the years ended December 31, 2015, we have purchased 307,420 shares of2014 and 2013 was derived from, and is qualified by, reference to our common stock under this program sinceConsolidated Financial Statements, including the board of directors authorized the program.  We are prohibited from purchasing shares under this program during Chapter 11.

ITEM 6.  SELECTED FINANCIAL DATA.

 

 

 

 

Year Ended December 31

 

(In thousands, except per share data)

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

 

(1)

 

 

 

(3)

 

(4)

 

(5)

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,573,260

 

$

2,937,119

 

$

3,014,357

 

$

3,768,126

 

$

3,883,039

 

Mine closure and asset impairment costs

 

2,628,303

 

24,113

 

220,879

 

539,182

 

7,316

 

Goodwill impairment

 

 

 

265,423

 

330,680

 

 

Acquisition and transition costs

 

 

 

 

 

47,360

 

Income (loss) from operations

 

(2,865,063

)

(149,531

)

(663,141

)

(757,012

)

343,061

 

Interest expense

 

(397,979

)

(390,946

)

(381,267

)

(317,615

)

(230,186

)

Non-operating expenses

 

(27,910

)

 

(42,921

)

(23,668

)

(51,448

)

Income (loss) from continuing operations

 

(2,913,142

)

(558,353

)

(745,228

)

(738,915

)

89,015

 

Diluted earnings (loss) from continuing operations per common share

 

$

(136.86

)

$

(26.31

)

$

(35.15

)

$

(34.97

)

$

4.60

 

Net income (loss) attributable to Arch Coal

 

(2,913,142

)

(558,353

)

(641,832

)

(683,955

)

141,683

 

Basic earnings (loss) per common share

 

$

(136.86

)

$

(26.31

)

$

(30.26

)

$

(32.36

)

$

7.45

 

Diluted earnings (loss) per common share

 

$

(136.86

)

$

(26.31

)

$

(30.26

)

$

(32.36

)

$

7.42

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,106,738

 

$

8,429,723

 

$

8,990,193

 

$

10,006,777

 

$

10,213,959

 

Working capital

 

(4,361,009

)

1,023,357

 

1,293,849

 

1,337,035

 

162,106

 

Current maturities of debt (2)

 

5,107,210

 

36,885

 

33,493

 

32,896

 

280,851

 

Long-term debt, less current maturities

 

30,953

 

5,123,485

 

5,118,002

 

5,085,879

 

3,762,297

 

Other long-term obligations

 

755,283

 

695,881

 

717,174

 

825,080

 

864,667

 

Noncurrent deferred income tax liability

 

 

422,809

 

413,546

 

664,182

 

976,753

 

Arch Coal stockholders’ equity

 

(1,244,289

)

1,668,154

 

2,253,249

 

2,854,567

 

3,578,040

 

Common Stock Data:

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

 

$

0.10

 

$

1.20

 

$

2.00

 

$

4.30

 

Shares outstanding at year-end

 

21,446

 

21,227

 

21,228

 

21,225

 

21,167

 

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

Cash provided by operating activities

 

(44,367

)

(33,582

)

55,742

 

332,804

 

642,242

 

Depreciation, depletion and amortization, including amortization of acquired sales contracts, net

 

370,534

 

405,561

 

438,247

 

500,319

 

444,518

 

Capital expenditures

 

119,024

 

147,286

 

296,984

 

395,225

 

540,936

 

Acquisitions of businesses, net of cash acquired

 

 

 

 

 

2,894,339

 

Net proceeds from the issuance of long term debt

 

 

(4,519

)

623,511

 

1,942,685

 

1,906,306

 

Net proceeds from the sale of common stock

 

 

 

 

 

1,267,933

 

Payments to retire debt, including redemption premium

 

 

 

628,660

 

452,934

 

605,178

 

Net increase (decrease) in borrowings under lines of credit and commercial paper program

 

 

 

 

(481,300

)

424,396

 

Dividend payments

 

 

2,123

 

25,475

 

42,440

 

80,748

 

Operating Data:

 

 

 

 

 

 

 

 

 

 

 

Tons sold

 

127,632

 

134,360

 

139,607

 

140,820

 

156,897

 

Tons produced

 

126,820

 

132,614

 

136,613

 

135,934

 

151,829

 

Tons purchased from third parties

 

1,287

 

1,182

 

2,925

 

4,327

 

5,557

 


(1)         Our resultsnotes thereto, contained elsewhere herein. The selected financial information should be read in 2015 were impacted by further weakening of both the thermal and metallurgical coal markets.  We incurred $2.6 billion of mine closure and asset impairment charges during the year; for additional information see Note 5 toconjunction with the Consolidated Financial Statements “Impairment Charges and Mine Closure Costs.related notes and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(2)         The filing


As a result of the Bankruptcy Petitions constituted an eventapplication of default that accelerated our obligations underfresh start accounting as of the documents governing each of our 7.00% senior notes due 2019, 9.875% senior notes due 2019, 8.00% senior secured second lien notes due 2019, 7.25% senior notes due 2020, 7.25% senior notes due 2021 and senior secured first lien term loan due 2018.

(3)         As part of a strategyPlan Effective Date, the financial statements on or prior to divest non-core thermal coal assets, on August 16, 2013, we sold Canyon Fuel Company, LLC (“Canyon Fuel”)October 1, 2016 are not comparable with the financial statements after October 1, 2016. References to Bowie Resources, LLC for $423 million.  Canyon Fuel operated the Sufco and Skyline longwall mining complexes and the Dugout Canyon continuous miner operation in Utah.  We recognized a gain on the sale of Canyon Fuel, net of tax, of $77.0 million during the third quarter of 2013.  See Note 3“Successor” refer to the Consolidated Financial Statements, “Divestitures,” for further information.

(4)         Our results in 2012 were impacted by challenging market conditions.  In response to these conditions, we idled 10 mines in Appalachia and curtailed production at other thermal mines. We incurred $523.6 million of closure and impairment costs relatingCompany after October 1, 2016, after giving effect to the closures, and recognized goodwill impairment charges $330.7 million.  In addition, we refinanced our debt, increasing our average borrowing levelapplication of fresh start accounting; references to build cash and highly liquid investments on the balance sheet as well as to decrease near-term maturities of debt.

(5)  ��      On June 15, 2011, we completed our acquisition of ICG, a leading coal producer, adding 12 mining complexes in Appalachia, one complex in the Illinois Basin and one mine under development in Appalachia, along with other coal reserves not currently in development. To finance the acquisition, we sold 48.7 million shares of our common stock and issued $2.0 billion in aggregate principal amount of senior unsecured notes. We directly expensed costs related“Predecessor” refer to the financing and acquisition of $104.2 million.

Company on or prior to October 1, 2016.


ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview


Our results for the year ended December 31, 2017 benefited from strength in 2015 were impacted by further weakening of both the metallurgical and international thermal and metallurgical coal markets.  Themarkets, while the domestic thermal market was depressed bylargely stable. Metallurgical coal markets remained volatile throughout 2017 with several notable spikes in prompt international pricing. Despite the volatility, prompt international pricing at all times in 2017 remained at levels that supported significant cash margins for our low cost metallurgical operations. We believe the volatility seen in 2017 is an indication of a global market that is in fairly tight balance. Years of global underinvestment in the industry and a return of more robust economic growth have led to a supply and demand balance that is sensitive to any significant supply disruption. Throughout the prompt pricing volatility of 2017 our realized net back prices remained fairly stable. This stability was due to having committed and priced significant volumes prior to the beginning of the year, and timing of specific index based pricing mechanisms and pricing negotiations. Future volatility in prompt international pricing will likely have a greater impact on realized net back pricing as we have elected to sell less of our planned 2018 production volumes on a full year fixed price basis.

Domestic thermal coal markets remained at levels that supported positive cash margins at all of our thermal operations throughout 2017. Natural gas prices remained tightly range bound for effectively the full year, as supply and demand for the competing fuel largely remained in balance. Late in the year, natural gas production levels began to increase, pressuring prices before increased seasonal heating demand drove natural gas prices and the implementation of new environmental regulations.  Abundant supply depressed naturalhigher. Natural gas pricing at the levels encountered in 2017 allowed some thermal coals, particularly Powder River Basin coals, to levels that made it increasingly economical to dispatchcompete economically for electric generation relative to thermal coal.  Implementationin many regions of the MATS regulation resulted incountry. Throughout the closureyear, international thermal markets supported west coast export shipments from certain of some older coal-based generating facilities, further depressing domestic thermal coal demand.  Pricingour operations. Additionally, pricing in international thermal coal markets was uneconomicstrengthened in the second half of the year increasing the opportunity for certain of our operations throughout 2015.

Metallurgicalto economically ship coal markets continued to weaken due to oversupply.  International metallurgical markets have been impacted byinto both the economic slowdown in ChinaAtlantic and elsewhere.  Furthermore, producers in the U.S. have been pressured by the strengtheningPacific thermal coal markets.


Filing Under Chapter 11 of the United States dollar compared to other producing countries’ currencies.  Many foreign producers benefited significantly from this strengthening as much of their cost structure is tied to their local currencies, but their revenue is largely generated in United States dollars.  Additionally, domestic demand for metallurgical coal softened in 2015 as blast furnace utilization has dropped, largely due to declining demand for steel in the oil and gas industry.

Despite lower volumes, we reduced cash costs per ton in our Powder River Basin and Appalachian regions compared to 2014.  In Appalachia we shifted production to lower cost operations, particularly the Leer Mine, and in the Powder River Basin we benefited from lower diesel fuel pricing.  Both regions benefited from a strong focus on cost control.  We continue cost control efforts throughout the business, and further reduced our capital outlays from 2014 levels.

Bankruptcy Code


On January 11, 2016 (the “Petition Date”), Arch Coal and substantially all of its wholly owned domestic subsidiaries (the “Filing Subsidiaries” and, together with Arch Coal, the “Debtors”; the Debtors, solely following the effective date of the Plan, the “Reorganized Debtors”) filed voluntary petitions for reorganization (collectively, the

“Bankruptcy “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Missouri (the “Court”). The Debtor’sDebtors’ Chapter 11 Cases (collectively, the “Chapter 11 Cases”) are beingwere jointly administered under the caption In re Arch Coal, Inc., et al. Case No. 16-40120 (lead case). EachDuring the Chapter 11 Cases, each Debtor will continue to operateoperated its


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business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court.

The filing


Upon emergence from bankruptcy on October 5, 2016, Arch Coal applied the provisions of fresh start accounting effective October 1, 2016 which resulted in Arch becoming a new entity for financial reporting purposes. Accordingly, the consolidated financial statements and accompanying footnotes on or after October 1, 2016 are not comparable to the consolidated financial statements prior to that date. References to “Successor” in the consolidated financial statements and footnotes are in reference to reporting dates on or after October 2, 2016; references to “Predecessor” in the consolidated financial statements and footnotes are in reference to reporting dates through October 1, 2016 which includes the impact of the Bankruptcy Petitions constituted an eventPlan provisions and the application of default that accelerated Arch’s obligations underfresh start accounting.

Results of Operations - Successor

Year Ended December 31, 2017 and Period from October 2 through December 31, 2016

Revenues.  Our revenues include sales to customers of coal produced at our operations and coal purchased from third parties. Transportation costs are included in cost of coal sales and amounts billed by us to our customers for transportation are included in revenues.

Coal sales. The following table summarizes information about our coal sales for the Debt Instruments, all asyear ended December 31, 2017 and the period from October 2 through December 31, 2016:
  Successor
  Year Ended December 31, 2017 October 2 through December 31, 2016
  (In thousands)
Coal sales $2,324,623
 $575,688
Tons sold 98,218
 26,812
Coal sales for the year ended December 31, 2017 by segment were approximately 44% Powder River Basin, 38% Metallurgical, and 17% Other. Tons sold for the year by segment were approximately 82% Powder River Basin, 8% Metallurgical, and 9% Other. Coal sales for the period from October 2 through December 31, 2016 by segment were approximately 48% Powder River Basin, 35% Metallurgical, and 17% Other. Tons sold for the period by segment were approximately 81% Powder River Basin, 9% Metallurgical, and 10% Other. See discussion in “Operational Performance” below for further describedinformation about regional results.
Costs, expenses and other.  The following table summarizes costs, expenses and other components of operating income for year ended December 31, 2017 and the period from October 2 through December 31, 2016: 
  Successor
  Year Ended December 31, 2017
October 2 through December 31, 2016
  (In thousands)
Cost of sales (exclusive of items shown separately below) $1,843,093
 $470,644
Depreciation, depletion and amortization 122,464
 32,604
Accretion on asset retirement obligations 30,209
 7,634
Amortization of sales contracts, net 53,985
 796
Change in fair value of coal derivatives and coal trading activities, net 7,222
 396
Selling, general and administrative expenses149,314
86,821
 22,836
Gain on sale of Lone Mountain Processing, Inc. (21,297) 
Other operating (income) expense, net (30,270) (5,340)
Total costs, expenses and other $2,092,227
 $529,570


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Cost of sales.  Our cost of sales for the year ended December 31, 2017 consisted primarily of labor related costs (approximately 27%), repairs and supplies (approximately 35%), operating taxes and royalties (approximately 21%), and transportation costs (approximately 14%). For the period from October 2 through December 31, 2016, our cost of sales consisted primarily of labor related costs (approximately 25%), repairs and supplies (approximately 33%), operating taxes and royalties (approximately 22%), and transportation costs (approximately 12%). See discussion in “Operational Performance” below for information about segment cost results.
Depreciation, depletion and amortization.  Our depreciation, depletion and amortization costs for the year ended December 31, 2017 consist of depreciation of plant and equipment (approximately 60%), depletion of reserves (approximately 19%), and amortization of development costs (approximately 21%). For the period from October 2 through December 31, 2016 these costs consist of depreciation of plant and equipment (approximately 63%), depletion of reserves (approximately 20%), and amortization of development costs (approximately 17%). This reflects the application of fresh start accounting. For further information on fresh start accounting, please see Note 26, “Subsequent Events”,3 to the Consolidated Financial Statements, includedEmergence from Bankruptcy and Fresh Start Accounting.”  

Accretion on asset retirement obligation.  For the year ended December 31, 2017, approximately 67%, and for the period from October 2 through December 31, 2016 approximately 66% of the accretion on our asset retirement obligation is attributable to our large surface operations in the Form 10-K. PursuantPowder River Basin.

Selling, general and administrative expenses. For the year ended December 31, 2017, selling, general and administrative expenses consist primarily of compensation costs of $54.9 million, and professional services and usage and maintenance agreements of $20.7 million. For the period from October 2 through December 31, 2016 , selling, general and administrative expenses consist primarily of compensation costs of $15.3 million, and professional services and usage and maintenance agreements of $5.1 million.

Gain on sale of Lone Mountain Processing, Inc. During the year ended December 31, 2017 we sold Lone Mountain Processing Inc. and Cumberland River Coal LLC to Revelation Energy LLC, generating a gain of approximately $21.3 million. For further information on the sale of Lone Mountain Processing Inc. and Cumberland River Coal LLC to Revelation Energy LLC, please see Note 5 to the Consolidated Financial Statements, “Divestitures.”

Other operating (income) expense, net. Other operating (income) expense, net for the year ended December 31, 2017 consists primarily of miscellaneous revenues including royalties, transloading fees, insurance recoveries, and net gains on asset sales totaling $31.6 million, and net income from equity investments of $8.6 million, partially offset by miscellaneous expenses primarily related to our land company of $9.8 million. Other operating (income) expense, net for the period from October 2 through December 31, 2016 consists primarily of miscellaneous revenues including royalties and net gains on asset sales of $5.0 million and net income from equity investments of $1.7 million, partially offset by miscellaneous expenses primarily related to our land company of $1.4 million.

Non-operating expense. The following table summarizes non-operating expense for the year ended December 31, 2017 and the period from October 2 through December 31, 2016:
 Successor
 Year Ended December 31, 2017 October 2 through December 31, 2016
 (In thousands)
Net loss resulting from early retirement of debt and debt restructuring$(2,547) $
Reorganization income (loss), net$(2,398) $(759)
Total nonoperating expense$(4,945) $(759)

Nonoperating expenses in the year ended December 31, 2017 are related to efforts to replace our securitization facility and expenses associated with our Chapter 11 reorganization. Nonoperating expenses for the period from October 2 through December 31, 2016 are expenses associated with our Chapter 11 reorganization. See further discussion in Note 3 to the Consolidated Financial Statements, “Emergence from Bankruptcy Code,and Fresh Start Accounting”, and Note 14, “Debt and Financing Arrangements.”


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Provision for income taxes. The following table summarizes our provision for income taxes for the filingyear ended December 31, 2017 and the period from October 2 through December 31, 2016:
 Successor
 Year Ended December 31, 2017 October 2 through December 31, 2016
 (In thousands)
Provision for (benefit from) income taxes$(35,255) $1,156

On December 22, 2017 the Tax Cut and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the elimination of the Bankruptcy Petitions automatically stayed most actions againstcorporate alternative minimum tax regime effective for tax years beginning after December 31, 2017, implementation of a process whereby corporations with unused alternative minimum tax credits will be refunded during 2018-2022, the Debtors, including most actionstransition of U.S. international taxation from a worldwide tax system to collect indebtedness incurred priora territorial system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, further limitation on the deductibility of certain executive compensation, allowance for immediate capital expensing of certain qualified property, and limitations on the amount of interest expense deductible beginning in 2018. We have provided our best estimate of the impact of the Act in our year-end income tax provision in accordance with our understanding of the Act and guidance available as of the date of this filing and as a result have recorded $35.7 million as an additional income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. A $35.7 million benefit was recorded from the release of a valuation allowance offsetting alternative minimum tax credits that have become refundable by the Act, as well as carryback claims filed in the fourth quarter related to specified liability losses that resulted in claims for refund of previously paid alternative minimum taxes. See further discussion in Note 15, to the Petition DateConsolidated Financial Statements “Taxes.”


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Operational Performance- Successor

Year Ended December 31, 2017 and Period from October 2 through December 31, 2016

Our mining operations are evaluated based on Adjusted EBITDAR, per-ton cash operating costs (defined as including all mining costs except depreciation, depletion, amortization, accretion on asset retirements obligations, and pass-through transportation expenses), and on other non-financial measures, such as safety and environmental performance. Adjusted EBITDAR is defined as net income attributable to the Company before the effect of net interest expense, income taxes, depreciation, depletion and amortization, the amortization of sales contracts, the accretion on asset retirement obligations, and reorganization items, net. Adjusted EBITDAR may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. Adjusted EBITDAR is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDAR are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDAR 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. Furthermore, analogous measures are used by industry analysts to exercise control overevaluate the Debtors’ property.

Additionally, on the Petition Date, the New York Stock Exchange (the “NYSE”) determinedCompany’s operating performance. Investors should be aware that our common stock was no longer suitable for listing pursuantpresentation of Adjusted EBITDAR may not be comparable to Section 8.02.01D of the NYSE continued listing standards and trading in our common stock was suspended on  January 11, 2016.  We expect that the existing common stock of the Company will be extinguished upon the Company’s emergence from Chapter 11 and existing equity holders will not receive consideration in respect of their equity interests.

We expect that our financial results will be significantly impactedsimilarly titled measures used by the filing of the Bankruptcy Petitions.  For example, the Debtors’ pre-petition unsecured obligations are subject to compromise and may be settled under a plan of reorganization for lesser amounts than the original claims. These liabilities remain subject to future adjustments arising from negotiated settlements, actions of  the Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events. Additionally, under Section 502(b)(2) of the Bankruptcy Code, we are no longer required to pay interest on our senior unsecured notes and our senior secured notes accruing on or after the Petition Date. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases pursuant to Section 362(a) of the Bankruptcy Code also automatically stayed the continuation of most legal proceedings, including the third party litigation matters described under Item 3, “Legal Proceedings—Permit Litigation Matters,” or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim. The determination of how liabilities will ultimately be treated cannot be made until the Court approves a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.

Operational Performance

companies.


The following table shows operating results of continuing coal operations for the yearsyear ended December 31, 2015, 20142017 and 2013. The “other” category includes the results of our other bituminous thermal operations, our West Elk mining complex in Colorado and our Viper mining complex in Illinois.

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

Powder River Basin

 

 

 

 

 

 

 

Tons sold (in thousands)

 

108,481

 

111,156

 

111,653

 

Coal sales per ton sold

 

$

13.15

 

$

12.86

 

$

12.44

 

Cost per ton sold

 

$

12.36

 

$

12.58

 

$

12.18

 

Operating margin per ton sold

 

$

0.79

 

$

0.28

 

$

0.26

 

Adjusted EBITDA (in thousands)

 

$

258,300

 

$

197,920

 

$

206,910

 

Appalachia

 

 

 

 

 

 

 

Tons sold (in thousands)

 

11,926

 

14,484

 

14,224

 

Coal sales per ton sold

 

$

62.47

 

$

68.77

 

$

73.07

 

Cost per ton sold

 

$

69.19

 

$

77.59

 

$

81.27

 

Operating loss per ton sold

 

$

(6.72

)

$

(8.82

)

$

(8.20

)

Adjusted EBITDA (in thousands)

 

$

82,837

 

$

109,053

 

$

88,883

 

Other

 

 

 

 

 

 

 

Tons sold (in thousands)

 

7,225

 

8,720

 

8,422

 

Coal sales per ton sold

 

$

30.99

 

$

30.78

 

$

32.63

 

Cost per ton sold

 

$

27.83

 

$

25.44

 

$

26.95

 

Operating margin per ton sold

 

$

3.16

 

$

5.34

 

$

5.68

 

Adjusted EBITDA (in thousands)

 

$

17,044

 

$

58,325

 

$

91,642

 

period from October 2 through December 31, 2016.

 Successor
 Year Ended December 31, 2017 October 2 through December 31, 2016
Powder River Basin   
Tons sold (in thousands)80,604
 21,824
Coal sales per ton sold$12.49
 $12.41
Cash cost per ton sold$10.53
 $9.88
Cash margin per ton sold$1.96
 $2.53
Adjusted EBITDAR (in thousands)$158,882
 $55,765
Metallurgical   
Tons sold (in thousands)8,192
 2,442
Coal sales per ton sold$90.17
 $65.61
Cash cost per ton sold$60.76
 $52.98
Cash margin per ton sold$29.41
 $12.63
Adjusted EBITDAR (in thousands)$243,616
 $30,819
Other Thermal   
Tons sold (in thousands)9,205
 2,510
Coal sales per ton sold$34.85
 $34.01
Cash cost per ton sold$24.20
 $21.79
Cash margin per ton sold$10.65
 $12.22
Adjusted EBITDAR (in thousands)$102,006
 $31,159
This table reflects numbers reported under a basis that differs from U.S. GAAP. See the “Reconciliation of Non-GAAP measures” below for explanation and reconciliation of these amounts to the nearest GAAP figures. Other companies may calculate these per ton amounts differently, and our calculation may not be comparable to other similarly titled measures.

Powder River Basin — Adjusted EBITDAEBITDAR for the year ended December 31, 2017 reflects relatively stable natural gas prices throughout the year at levels that allowed Powder River Basin coal to be competitive for electric generation in many regions of the country. Our tons sold volume fluctuated throughout the year with seasonal increases and decreases in heating and cooling demand. Customers in general are shifting to shorter term purchase contracts, and more actively managing delivery volumes to match their seasonal demand fluctuations. Our cash cost per ton sold was impacted by these volume fluctuations and increased 31%diesel pricing. We are actively managing our operations to enhance our flexibility to respond to these volume fluctuations efficiently. Our focus remains on cost control efforts in 2015 when comparedthis dynamic market. We expect future demand for Powder River Basin coal will be largely dependent on natural gas pricing and seasonal demand factors.

Adjusted EBITDAR for the period from October 2 through December 31, 2016 benefited from cost control efforts and rebounding demand driven by rising natural gas prices that increased the competitiveness of Powder River Basin coal for

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electric generation versus the competing fuel. Rising gas prices resulted from favorable summer heat, increased natural gas exports, both pipeline and liquefied natural gas, and flat to 2014 dueslightly declining natural gas production. Cost control efforts included adjusting operations to increasedalign with current market volume expectations.

Metallurgical — Adjusted EBITDAR for the year ended December 31, 2017 benefited from sustained strength in international pricing for metallurgical coal. As discussed above, prompt international coking coal prices moved significantly during the year, but always remained at levels that provided significant margins for our low cost operations. Improved coal sales per ton sold and decreased cost per ton sold,was partially offset by lower shipment volume.  Pricing improved asthe related increase in royalties and operating taxes. During the third quarter of the year, we experienced adverse geologic conditions at both the Leer and Mountain Laurel longwall operations, limiting production volume at that time. Conditions at those operations returned to a significant portion of 2015 shipments were priced following the harsh 2013-2014 winter season when the market was stronger.  Cost benefited from lower diesel fuel pricing and ongoing cost control efforts.  Shipment volume was favorable year over year through the first three quarters of 2015, but fell off significantlymore normal state later in the fourth quarter of 2015, reducing full year shipment volume below 2014 levels.  Natural gas pricing fell to historically low levels as the 2015 winter season began mildly, and the competing fuel began to dispatch for electrical generation ahead of Power River Basin coal in some areas. This decrease in coal burn has led to increasing generator stockpiles, further depressing demand.

Adjusted EBITDA decreased in 2014 when compared to 2013 due to a slight decrease in shipment volume and higher cost per ton sold, partially offset by increased coal sales per ton sold.  Pricing improved as low-priced export volume decreased and domestic markets firmed in 2014.  Maintenance costs increased in anticipation of increased shipment volume; however, railroad performance issues negatively impacted Powder River Basin shipmentyear. Sales volumes for much of 2014.

Appalachia —Adjusted EBITDA decreased 24% in 2015 when compared to 2014 due primarily to the gain on sale of operating and idled thermal coal mines in Kentucky in 2014 ($20.6 million).  See Note 3, “Divestitures,” to the Consolidated Financial Statements for further discussion.  2015 adjusted EBITDA waswere also negatively impacted at year end by reduced volumelogistics and reducedweather issues that pushed some scheduled shipments out of the year. Our metallurgical segment sold 6.4 million tons of coking coal sales per ton sold, partially offset by decreased cost per ton sold.  Volume was negatively impacted by the asset sales previously mentioned and further deterioration in both the1.8 million tons of associated thermal and metallurgical markets.  We were able to partially offsetPCI coal in the effects of the negative volume and pricing through productivity gains and continuing to shift volume to lower cost operations.year ended December 31, 2017. Longwall operations accounted for 41%approximately 57% of our shipment volume in 2015 versus 31%the year.


Adjusted EBITDAR for the period from October 2 through December 31, 2016 benefited from the significant increase in 2014.

Adjusted EBITDA increasedinternational pricing for metallurgical coal. Supply shortages driven by a Chinese mandate to restrict its domestic supply, supply rationalization in 2014 when comparedNorth America, years of global underinvestment in the industry, and some specific international supply disruptions, particularly in Australia, resulted in a significant increase in international prompt metallurgical coal prices. Our ability to 2013take advantage of the rapid increase in prompt international pricing was muted due to having significant volumes for the gain on saleperiod committed and priced prior to the rapid increase. Our metallurgical segment sold 1.9 million tons of operatingmetallurgical coal and idled0.5 million tons of associated thermal coal mines in Kentucky ($20.6 million).  See Note 3, “Divestitures,”the period from October 2 through December 31, 2016. Longwall operations accounted for approximately 55% of our shipment volume in the period. Late in the period prompt international metallurgical pricing began to retreat as loosening of Chinese supply restrictions and easing of supply disruptions began to mitigate the supply shortage.


OtherThermal— Adjusted EBITDAR for the year ended December 31, 2017 benefited from the stable natural gas pricing discussed in the Powder River Basin segment discussion above, and international thermal coal prices that supported certain export sales. These benefits were recognized throughout the year at our low cost West Elk longwall operation which has exposure to the Consolidated Financial StatementsPacific international thermal markets. Later in the year Atlantic international thermal coal prices rose to levels that made export opportunities economic for further discussion.  The gains were partially offset byour Coal Mac operation.

Adjusted EBITDAR for the impact of an increaseperiod from October 2 through December 31, 2016 benefited from the increased natural gas pricing discussed in per ton operating losses, caused by lower pricing for both metallurgical and thermal coal.  The startup of the longwall at the Leer mining complex, the idling and divesting of higher-cost production, and lower sales-sensitive costs contributed to lower per-ton costs, which largely offset the impact of lower sales pricing.

Other — Adjusted EBITDA decreased in 2015 and 2014 when compared with the respective prior year due to reduced benefit from coal risk management settlements,Powder River Basin segment discussion above, and increased liquidated damages on logistics contracts.  2015 was also negatively impacted byinternational thermal prices. These benefits were primarily recognized at our West Elk operation where domestic opportunities increased and export opportunities became economic. Partially offsetting those positive trends were operating issues at our Viper operation’s largest customer that significantly reduced sales volume related to low-priced natural gas, and further deterioration of overseas markets.

in the period.



Results of Operations

Items impacting comparability of results

We recorded tangible asset impairment - Predecessor


Period from January 1 through October 1, 2016 and mine closure charges of approximately $2,628.3 million, $24.1 million, and $220.9 million during 2015, 2014 and 2013, respectively.

We recorded goodwill impairment charges of $265.4 million during 2013.

As part of a strategy to divest non-core thermal coal assets, on August 16, 2013, we sold Canyon Fuel Company, LLC (“Canyon Fuel”) to Bowie Resources, LLC for $422.7 million.  Canyon Fuel operated the Sufco and Skyline longwall mining complexes and the Dugout Canyon continuous miner operation in Utah.  We recognized a gain on the sale of Canyon Fuel, net of tax, of $77.0 million.  The results of Canyon Fuel, including the gain on sale, are presented as discontinued operations.  See Note 3 to the Consolidated Financial Statements, “Divestitures,” for further information.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014


Revenues.  Our revenues consistinclude sales to customers of coal produced at our operations and coal purchased from third parties. Transportation costs are included in cost of coal sales and revenues fromamounts billed by us to our ADDCAR subsidiary prior to its dispositioncustomers for transportation are included in the first quarter of 2014.

revenues.


Coal sales. The following table summarizes information about our coal sales duringfor the period from January 1 through October 1, 2016 and the year ended December 31, 2015.
  Predecessor
  January 1 through October 1, 2016 Year Ended December 31, 2015
  (In thousands)
Coal sales $1,398,709
 $2,573,260
Tons sold 67,128
 127,632

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Coal sales for the period from January 1 through October 1, 2016 by segment were approximately 52% Powder River Basin, 31% Metallurgical, and 15% Other. Tons sold for the period by segment were approximately 82% Powder River Basin, 10% Metallurgical, and 8% Other. Coal sales for the year ended December 31, 2015 by segment were approximately 56% Powder River Basin, 25% Metallurgical, and compares it with the information17% Other. Tons sold for the year ended December 31, 2014:

 

 

Year Ended December 31,

 

 

 

 

 

2015

 

2014

 

Increase (Decrease)

 

 

 

(In thousands)

 

Coal sales

 

$

2,573,260

 

$

2,935,181

 

$

(361,921

)

Tons sold

 

127,632

 

134,360

 

(6,728

)

Coal sales decreased in the year ended December 31, 2015 from the year ended December 31, 2014 on a consolidated basis, primarily due to lower tons sold and pricing in our Appalachianby segment resulting inwere approximately a $274 million reduction in coal sales revenue.  Volume reductions accounted for approximately 64% of the decrease and lower prices approximately 36% of the decrease.  Lower85% Powder River Basin, 7% Metallurgical, and Other tons sold reduced coal sales approximately $34 million and $42 million, respectively.8% Other. See discussion in “Operational Performance” abovebelow for further information about regional results.

Costs, expenses and other.  The following table summarizes costs, expenses and other components of operating income for the period from January 1 through October 1, 2016 and the year ended December 31, 20152015. 
  Predecessor
  January 1 through October 1, 2016 Year Ended December 31, 2015
  (In thousands)
Cost of sales (exclusive of items shown separately below) $1,264,464
 $2,172,753
Depreciation, depletion and amortization 191,581
 379,345
Accretion on asset retirement obligations 24,321
 33,680
Amortization of sales contracts, net (728) (8,811)
Change in fair value of coal derivatives and coal trading activities, net 2,856
 (1,583)
Asset impairment and mine closure costs 129,267
 2,628,303
Losses from disposed operations resulting from Patriot Coal bankruptcy149,314

 116,343
Selling, general and administrative expenses 59,343
 98,783
Other operating (income) expense, net (15,257) 19,510
Total costs, expenses and other $1,655,847
 $5,438,323

Cost of sales.  Our cost of sales for the period from January 1 through October 1, 2016 consisted primarily of labor related costs (approximately 28%), repairs and compares it with the informationsupplies (approximately 34%), operating taxes and royalties (approximately 21%), and transportation costs (approximately 10%). Our cost of sales for the year ended December 31, 2014:

 

 

Year Ended December 31,

 

(Increase) Decrease

 

 

 

2015

 

2014

 

in Net Loss

 

 

 

(In thousands)

 

Cost of sales (exclusive of items shown separately below)

 

$

2,206,433

 

$

2,566,193

 

$

359,760

 

Depreciation, depletion and amortization

 

379,345

 

418,748

 

39,403

 

Amortization of acquired sales contracts, net

 

(8,811

)

(13,187

)

(4,376

)

Change in fair value of coal derivatives and coal trading activities, net

 

(1,583

)

(3,686

)

(2,103

)

Asset impairment and mine closure costs

 

2,628,303

 

24,113

 

(2,604,190

)

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

116,343

 

 

(116,343

)

Selling, general and administrative expenses

 

98,783

 

114,223

 

15,440

 

Other operating expense (income), net

 

19,510

 

(19,754

)

(39,264

)

Total costs, expenses and other

 

$

5,438,323

 

$

3,086,650

 

$

(2,351,673

)

Cost2015 consisted primarily of sales.labor related costs (approximately 28%), repairs and supplies (approximately 36%), operating taxes and royalties (approximately 23%), and transportation costs (approximately 9%). See discussion in “Operational Performance” below for information about segment cost results.

Depreciation, depletion and amortization.  Our costdepreciation, depletion and amortization costs for the period from January 1 through October 1, 2016 consist of sales decreased indepreciation of plant and equipment (approximately 55%), depletion of reserves (approximately 34%), and amortization of development costs (approximately 11%).  Our depreciation, depletion and amortization costs for the year ended December 31, 2015 from the year ended December 31, 2014, due to lower transportation costs on lower export sales volumes (a decreaseconsist of approximately $66 million)depreciation of plant and equipment (approximately 50%), lower diesel fueldepletion of reserves (approximately 38%), and amortization of development costs (approximately $88 million), improved productivity at12%).

Accretion on asset retirement obligation.  Approximately 70% of the accretion on our Leer longwall operation (approximately $28 million), savings associated with one soldasset retirement obligation for the period from January 1 through October 1, 2016, and two idled Appalachian complexes (approximately $77 million), lower sales sensitive costs (approximately $30 million), and other savings associated with cost-control efforts across all regions. See discussion in “Operational Performance” above66% of the accretion on our asset retirement obligation for information about regional cost results.

Depreciation, depletion and amortization.  When compared with the year ended December 31, 2014, depreciation, depletion and amortization costs decreased in the year ended December 31, 2015 duewas attributable to our large surface operations in the effect of lower production and sales volume, continued low capital spending levels, and the effect of the significant asset impairments at the end of the third quarter of 2015.

Powder River Basin.


Asset impairment and mine closure costs.Continued  During the period from January 1 through October 1, 2016 we received notification of intent to idle operations by a third party to whom we leased certain Appalachian reserves. As a result of the idling and weakness in the thermal coal market, we determined that the value of these reserves was impaired. Also during this period we relinquished our interest in Millennium Bulk Terminal while retaining future throughput rights. As a result of the sale, our remaining equity investment in Millennium was impaired.

During the year ended December 31, 2015 continued market deterioration, particularly for Appalachian products, was an indicator of impairment of certain assets.  Our testing indicated impairment of several active and undeveloped properties. Impairment costs in the year ended December 31, 2015 include a significant portion of our assets at three current operating complexes, and a significant portion of our undeveloped coal reserves value.  In


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Selling, general and administrative expenses. Total selling, general and administrative expenses for the third quarterperiod from January 1 through October 1, 2016 consist primarily of 2014, we idled a metallurgical coal mining complex in Appalachia, where we had previously idled two contract mining operations. See Note 5, “Impairment Chargescompensation costs of $38.5 million, and Mine Closure Costs,” toprofessional services and usage and maintenance agreements of $12.0 million. For the Consolidated Financial Statements for further discussion.

year ended December 31, 2015 total selling, general and administrative expenses consist primarily of compensation costs of $56.5 million, and professional services and usage and maintenance agreements of $25.8 million.


Losses from disposed operations relating toresulting from the Patriot Coal bankruptcy. In the year ended December 31, 2015 we recorded liabilities related to reclamation and employee obligations that we inherited as a result of the Patriot Coal bankruptcy. See further information regarding the losses related to the Patriot Coal bankruptcy in Note 7, “LossesLosses from disposed operations resulting from Patriot Coal bankruptcy”bankruptcy,” to the Consolidated Financial Statements.

Selling, general and administrative expenses. Total selling, general and administrative expenses decreased when compared with the year ended December 31, 2014, primarily due to decreased compensation costs of $13.8 million.


Other operating (income) expense, (income), net.  When compared withOther operating (income) expense, net for the year ended December 31, 2014, otherperiod from January 1 through October 1, 2016 consists primarily of miscellaneous revenues including royalties and net gains on asset sales of $18.1 million and net income from equity investments of $5.3 million, partially offset by miscellaneous expenses primarily related to our land company of $8.1 million. Other operating (income) expense, (income), net decreased duringfor the year ended December 31, 2015 as a resultconsists primarily of increased costsliquidated damages on logistics contracts of $16.4$52.9 million and miscellaneous expenses primarily related to shortfalls under throughput arrangements, and lower net gains from salesour land company of assets of $37.1 million.  These were$20.7 million partially offset by a $24 million gain onfrom a contract settlement, in 2015.

miscellaneous revenues including royalties and net gains on asset sales of $22.2 million and net income from equity investments of $7.9 million.


Non-operating expense. The following table summarizes non-operating expense for the period from January 1 through October 1, 2016 and the year ended December 31, 2015.
 Predecessor
 January 1 through October 1, 2016 Year Ended December 31, 2015
 (In thousands)
Net loss resulting from early retirement of debt and debt restructuring$(2,213) $(27,910)
Reorganization income (loss), net1,630,041
 
Total non-operating (expense) benefit$1,627,828

$(27,910)

Nonoperating expenses in the period from January 1 through October 1, 2016 related to our various debt restructuring activities and Chapter 11 reorganization. Nonoperating expenses in the year ended December 31, 2015 and compares it with the information for the year ended December 31, 2014:

 

 

 

 

 

 

(Increase) Decrease

 

 

 

Year Ended December 31,

 

in Net Loss

 

 

 

2015

 

2014

 

$

 

 

 

(In thousands)

 

Net loss resulting from early retirement of debt and debt restructuring

 

$

(27,910

)

$

 

$

(27,910

)

Amounts reported as nonoperating consist of expenses resulting from financing activities, other than interest costs.  In 2015, we incurred $24.2 million of legal and financial advisory fees associated withrelated to our various debt restructuring efforts.  Additionally, inactivities. For further information on our successful reorganization, please see Note 3 to the fourth quarter of 2015 we terminated our revolving credit agreement resulting in the write-off of $3.7 million of deferred financing costs.

Consolidated Financial Statements, “Provision for (benefit from)Emergence from Bankruptcy and Fresh Start Accounting.”


Benefit from income taxes. The following table summarizes our benefit from income taxes for the year ended December 31, 2015period from January 1 through October 1, 2016 and compares it with the information for the year ended December 31, 2014:

 

 

Year Ended December 31,

 

Decrease

 

 

 

2015

 

2014

 

in Net Loss

 

 

 

(In thousands)

 

Provision for (benefit from) income taxes

 

$

(373,380

)

$

25,634

 

$

399,014

 

2015.


 Predecessor
 January 1 through October 1, 2016 Year Ended December 31, 2015
 (In thousands)
Benefit from income taxes$(4,626) $(373,380)

The income tax benefit in the year ended December 31, 2015 compared to the income tax provision in the year ended December 31, 2014 was largely due to the approximately $2.6 billion increase in asset impairment losses recorded in the current year2015, partially offset by the increase of a valuation allowance relating to both federal and state net operating loss carryforwards. See further discussion in Note 15 “Taxes,” to the Consolidated Financial Statements, Taxes,”.





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Operational Performance - Predecessor

Our mining operations are evaluated based on Adjusted EBITDAR, per-ton cash operating costs (defined as including all mining costs except depreciation, depletion, amortization, accretion on asset retirements obligations, and pass-through transportation expenses), and on other non-financial measures, such as safety and environmental performance. Adjusted EBITDAR is defined as net income attributable to the Company before the effect of net interest expense, income taxes, depreciation, depletion and amortization, the amortization of sales contracts, the accretion on asset retirement obligations, and reorganization items, net. Adjusted EBITDAR may also be adjusted for further discussion.

Year Ended December 31, 2014 Compareditems that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. Adjusted EBITDAR is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDAR are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDAR should not be considered in isolation, nor as an alternative to Year Ended December 31, 2013

Revenues.  Our revenues consistnet income, income from operations, cash flows from operations or as a measure of coal sales and revenues from our ADDCAR subsidiary priorprofitability, liquidity or performance under generally accepted accounting principles. Furthermore, analogous measures are used by industry analysts to its disposition inevaluate the first quarterCompany’s operating performance. Investors should be aware that our presentation of 2014.

Coal sales. Adjusted EBITDAR may not be comparable to similarly titled measures used by other companies.



The following table compares information aboutshows operating results of continuing coal sales duringoperations for the Predecessor periods January 1 through October 1, 2016 and the year ended December 31, 2014 with2015.
 Predecessor
 January 1 through October 1, 2016 Year Ended December 31, 2015
Powder River Basin   
Tons sold (in thousands)54,911
 108,481
Coal sales per ton sold$13.01
 $13.15
Cash cost per ton sold$10.95
 $10.54
Cash margin per ton sold$2.06
 $2.61
Adjusted EBITDAR (in thousands)$113,185
 $281,039
Metallurgical   
Tons sold (in thousands)6,692
 8,352
Coal sales per ton sold$53.15
 $66.62
Cash cost per ton sold$51.40
 $58.36
Cash margin per ton sold$1.75
 $8.26
Adjusted EBITDAR (in thousands)$11,851
 $70,450
Other Thermal   
Tons sold (in thousands)5,181
 9,764
Coal sales per ton sold$36.16
 $37.32
Cash cost per ton sold$30.28
 $28.01
Cash margin per ton sold$5.88
 $9.31
Adjusted EBITDAR (in thousands)$31,448
 $42,734
  This table reflects numbers reported under a basis that differs from U.S. GAAP. See the information“Reconciliation of Non-GAAP measures” below for explanation and reconciliation of these amounts to the nearest GAAP figures. Other companies may calculate these per ton amounts differently, and our calculation may not be comparable to other similarly titled measures.  
Powder River Basin — Adjusted EBITDAR for the period from January 1 through October 1, 2016 was negatively impacted by demand destruction driven by historically low natural gas prices that limited the competitiveness of Powder River Basin coal for electric generation versus the competing fuel. The low natural gas prices were driven by mild winter weather and record natural gas production levels.

Adjusted EBITDAR for the year ended December 31, 2013:

 

 

Year Ended December 31,

 

 

 

 

 

2014

 

2013

 

Increase (Decrease)

 

 

 

(In thousands)

 

Coal sales

 

$

2,935,181

 

$

3,000,476

 

$

(65,295

)

Tons sold

 

134,360

 

134,300

 

60

 

Coal sales decreased2015 benefited from pricing a significant portion of 2015 tons sold following the harsh 2013-2014 winter season when the market was strong. Cost benefited from lower diesel fuel pricing and cost control efforts. Natural gas pricing fell to historically low levels due to mild winter weather in late 2015, and the competing fuel began to dispatch for electrical generation ahead of Power River Basin coal in some areas. This decrease in coal burn led to increasing generator stockpiles, further depressing demand.


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Metallurgical — Adjusted EBITDAR for the period from January 1 through October 1, 2016 was negatively impacted by declines in metallurgical coal prices. Years of global oversupply from anemic economic growth and international overproduction, particularly from Australia, drove pricing down to levels that were unprofitable for most North American producers. Our metallurgical segment sold 5.1 million tons of metallurgical coal and 1.6 million tons of associated thermal coal in the year ended December 31, 2014period from January 1 through October 1, 2016. During the year ended December 31, 2013 on a consolidated basis, primarily dueperiod we continued shifting volume to our lower cost Leer operation. Longwall operations accounted for approximately 65% of our shipment volume in the impact of lower average per-ton pricing (a decrease of approximately $66 million).  Average pricing decreased slightly from $22.34 to $21.85 per ton, primarily due to declines in export shipments, as fluctuations in regional pricing offset each other.   See discussion in “Operational Performance” above for further information about regional results.

Costs, expenses and other.period.  The following table compares costs, expenses and other components of operating income


Adjusted EBITDAR for the year ended December 31, 2014 with2015 was negatively impacted by declining metallurgical coal prices. Years of global oversupply from anemic economic growth and international overproduction, particularly from Australia, continued pressuring prices downward. During the informationyear we shifted volume to lower cost operations, particularly the Leer operation. Longwall operations accounted for 59% of our shipment volume in 2015.

OtherThermal— Adjusted EBITDAR for the period from January 1 through October 1, 2016 was negatively impacted by demand destruction driven by historically low natural gas prices discussed in the Powder River Basin segment discussion above, and the lack of economic export opportunities. These conditions severely restricted tons sold and coal sales per ton sold at our West Elk and Coal Mac operations.

Adjusted EBITDAR for the year ended December 31, 2013:

 

 

Year Ended December 31,

 

(Increase) Decrease

 

 

 

2014

 

2013

 

in Net Loss

 

 

 

(In thousands)

 

Cost of sales (exclusive of items shown separately below)

 

$

2,566,193

 

$

2,663,136

 

$

96,943

 

Depreciation, depletion and amortization

 

418,748

 

426,442

 

7,694

 

Amortization of acquired sales contracts, net

 

(13,187

)

(9,457

)

3,730

 

Change in fair value of coal derivatives and coal trading activities, net

 

(3,686

)

7,845

 

11,531

 

Asset impairment and mine closure costs

 

24,113

 

220,879

 

196,766

 

Goodwill impairment

 

 

265,423

 

265,423

 

Selling, general and administrative expenses

 

114,223

 

133,448

 

19,225

 

Other operating income, net

 

(19,754

)

(30,218

)

(10,464

)

Total costs, expenses and other

 

$

3,086,650

 

$

3,677,498

 

$

590,848

 

Cost of sales.   Our cost of sales decreased in the year ended December 31, 2014 from the year ended December 31, 2013, due to a decrease in transportation costs (approximately $83 million) and the sale of the ADDCAR subsidiary ($11.9 million). See discussion in “Operational Performance” above for information about regional cost results.

Depreciation, depletion and amortization.  When compared with the year ended December 31, 2013, depreciation, depletion and amortization costs decreased in the year ended December 31, 2014 due to lower overall production and capital spending levels.

Asset impairment and mine closure costs. In the face of weak coal markets, management has chosen to concentrate metallurgical coal production2015 was negatively impacted by declining tons sold at our lowest-costWest Elk and highest-margin operations.  In the third quarter of 2014, we idled an additional metallurgical coal mining complex in Appalachia, where we had previously idled two contract mining operations.  In the third quarter of 2013, in response to market conditions, we recorded impairment chargesCoal Mac operations related to a Kentucky coal operationlow natural gas pricing and our highwall mining equipment subsidiary.  In addition, we recorded an other-than-temporary impairment of investments in equity method investees and related loans receivable.    See further discussion in the Consolidated Financial Statements in Note 5, “Impairment Charges and Mine Closure Costs” and Note 10, “ Equity Method Investments and Membership Interests in Joint Ventures.”

Goodwill impairment. The remaining $265.4 million of goodwill from the ICG acquisition was impaired in the fourth quarter of 2013, as a result of weakness in the metallurgical coal markets. See further discussion in ‘‘Critical Accounting Policies’’ below.

Selling, general and administrative expenses. Total selling, general and administrative expenses decreased when compared with the year ended December 31, 2013, due to decreases in legal and professional fees ($6.5 million), lowerliquidated damages costs related to our pension plans ($8.5 million), and decreases in discretionary spending.

Other operating expense (income), net.  When compared with the year ended December 31, 2013, other operating income, net decreased during the year ended December 31, 2014, primarily as a result of costs of $36.5 million in the year ended December 31, 2014 related to export shortfalls under throughput arrangements (an increase of $24.8 million from the year ended December 31, 2013), and a decrease in realized gains of $26.6 million on derivatives used to manage coal price risk.  These were offset by an increase in gains on asset disposals of $22.9 million, primarily from the divestitures of mining operations in the Appalachia region and our ADDCAR subsidiary, and a decrease in contract settlement losses of $10.9 million.

Non-operating expense. The following table summarizes non-operating expense for the year ended December 31, 2014 and compares it with the information for the year ended December 31, 2013:

 

 

 

 

 

 

Decrease

 

 

 

Year Ended December 31,

 

in Net Loss

 

 

 

2014

 

2013

 

$

 

 

 

(In thousands)

 

Net loss resulting from early retirement of debt and debt restructuring

 

$

 

$

(42,921

)

$

42,921

 

Amounts reported as nonoperating consist of expenses resulting from financing activities, other than interest costs.  In the fourth quarter of 2013, we retired our 8.75% senior notes due in 2016 and reduced the capacity of our revolving credit facility, in conjunction with a refinancing discussed in the “Liquidity and Capital Resources” section.   As a result, we paid a tender premium and wrote off unamortized discount and fees.

Provision for (benefit from) Income taxes.  The following table summarizes our benefit from income taxes for the year ended December 31, 2014 and compares it with the information for the year ended December 31, 2013:

 

 

Year Ended December 31,

 

Increase

 

 

 

2014

 

2013

 

in Net Loss

 

 

 

(In thousands)

 

Provision for (benefit from) income taxes

 

$

25,634

 

$

(335,498

)

$

(361,132

)

The income tax provision in the year ended December 31, 2014 compared to an effective rate of 31% on our pretax loss in the year ended December 31, 2013 was the result of the establishment of a valuation allowance totaling approximately $227 million relating to 2014 federal and state net operating loss carryforwards.  See further discussion in Note 15, “Taxes,” to the Consolidated Financial Statements for further discussion.

Income from discontinued operations, net of tax.  The results of our Canyon Fuel subsidiary prior to its divestiture, including the gain on divestiture, are segregated from continuing operations. See further information in Note 3, “Divestitures”, to the Consolidated Financial Statements.

 

 

Year Ended December 31,

 

Increase

 

 

 

2014

 

2013

 

in Net Loss

 

 

 

(In thousands)

 

Income from discontinued operations, net of tax

 

$

 

$

103,396

 

$

103,396

 

logistics contracts.


Reconciliation of NON-GAAP measures


Non-GAAP Segment coal sales per ton sold


Non-GAAP Segment coal sales per ton sold areis calculated as the segment’ssegment coal sales revenues divided by segment tons sold. The segments’Segment coal sales per ton soldrevenues are adjusted for transportation costs, and may be adjusted for other items that, due to generally accepted accounting principles, are classified in “other income” on the statement of operations, but relate to price protection on the sale of coal. Segment coal sales per ton sold is not a measure of financial performance in accordance with generally accepted accounting principles. We believe segment coal sales per ton sold provides useful information to investors as it better reflects our revenue for the quality of coal sold and our operating results by including all income from coal sales. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Therefore, segment coal sales revenues should not be considered in isolation, nor as an alternative to coal sales revenues under generally accepted accounting principles.



 Successor
Year Ended December 31, 2017Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Revenues in the consolidated statements of operations$1,024,197
$887,839
$396,504
$16,083
$2,324,623
Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue     
Coal risk management derivative settlements classified in "other income"

200

200
Coal sales revenues from idled or otherwise disposed operations not included in segments


15,061
15,061
Transportation costs17,437
149,212
75,491
1,022
243,162
Non-GAAP Segment coal sales revenues$1,006,760
$738,627
$320,813
$
$2,066,200
Tons sold80,604
8,192
9,205
  
Coal sales per ton sold$12.49
$90.17
$34.85
  
      
      
      
      

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Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Reported segment coal sales revenues

 

$

2,395,258

 

$

2,693,898

 

$

2,702,865

 

Coal risk management derivative settlements classified in “other income”

 

(3,231

)

(5,958

)

(32,535

)

Transportation costs

 

181,233

 

247,241

 

330,146

 

Coal sales

 

2,573,260

 

2,935,181

 

3,000,476

 

Other revenues

 

 

1,938

 

13,881

 

Revenues in the consolidated statements of operations

 

$

2,573,260

 

$

2,937,119

 

$

3,014,357

 


      
 Successor
October 2 through December 31, 2016Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Revenues in the consolidated statements of operations$275,703
$200,377
$97,382
$2,226
$575,688
Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue     
Coal risk management derivative settlements classified in "other income"

(112)
(112)
Coal sales revenues from idled or otherwise disposed operations not included in segments


2,181
2,181
Transportation costs4,826
40,170
12,130
45
57,171
Non-GAAP Segment coal sales revenues$270,877
$160,207
$85,364
$
$516,448
Tons sold21,824
2,442
2,510
  
Coal sales per ton sold$12.41
$65.61
$34.01
  
 Predecessor
January 1 through October 1, 2016Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Revenues in the consolidated statements of operations$726,747
$437,069
$213,052
$21,841
$1,398,709
Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue     
Coal risk management derivative settlements classified in "other income"

448

448
Coal sales revenues from idled or otherwise disposed operations not included in segments


19,368
19,368
Transportation costs12,559
81,390
25,252
2,473
121,674
Non-GAAP Segment coal sales revenues$714,188
$355,679
$187,352
$
$1,257,219
Tons sold54,911
6,692
5,181
  
Coal sales per ton sold$13.01
$53.15
$36.16
  
 Predecessor
Year Ended December 31, 2015Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Revenues in the consolidated statements of operations$1,448,440
$637,941
$428,809
$58,070
$2,573,260
Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue     
Coal risk management derivative settlements classified in "other income"

(3,231)
(3,231)
Coal sales revenues from idled or otherwise disposed operations not included in segments


48,126
48,126
Transportation costs22,137
81,554
67,598
9,944
181,233
Non-GAAP Segment coal sales revenues$1,426,303
$556,387
$364,442
$
$2,347,132
Tons sold108,481
8,352
9,764
  
Coal sales per ton sold$13.15
$66.62
$37.32
  


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Non-GAAP Segment cash cost per ton sold


Non-GAAP Segment costscash cost per ton sold areis calculated as the segment’ssegment cash cost of coal sales divided by segment tons sold. The segments’Segment cash cost of tons sold arecoal sales is adjusted for transportation costs, and may be adjusted for other items that, due to generally accepted accounting principles, are classified in “other income” on the statement of operations, but relate directly to the costs incurred to produce coal. Segment cash cost of tonsper ton sold is not a measure of financial performance in accordance with generally accepted accounting principles. We believe segment cash cost of tonsper ton sold better reflects our controllable costs and our operating results by including all costs incurred to produce coal. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Therefore, segment cash cost of tons soldcoal sales should not be considered in isolation, nor as an alternative to cost of sales under generally accepted accounting principles.

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Reported segment cost of coal sales

 

$

2,368,100

 

$

2,743,182

 

$

2,743,766

 

Diesel fuel risk management derivative settlements classified in “other income”

 

(8,162

)

(6,789

)

(14,939

)

Transportation costs

 

181,233

 

247,241

 

330,146

 

Depreciation, depletion and amortization in reported segment cost of tons sold presented on separate line on statement of operations

 

(373,299

)

(414,379

)

(418,736

)

Other (other operating segments, operating overhead, etc.)

 

38,561

 

(3,062

)

22,899

 

Cost of sales in the consolidated statements of operations

 

$

2,206,433

 

$

2,566,193

 

$

2,663,136

 


 Successor
Year Ended December 31, 2017Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Cost of sales in the consolidated statements of operations$863,836
$646,911
$298,229
$34,118
$1,843,093
Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales     
Diesel fuel risk management derivative settlements classified in "other income"(2,645)


(2,645)
Transportation costs17,437
149,212
75,491
1,022
243,162
Cost of coal sales from idled or otherwise disposed operations not included in segments


28,065
28,065
Other (operating overhead, certain actuarial, etc.)


5,031
5,031
Non-GAAP Segment cash cost of coal sales849,044
497,699
222,738

1,569,480
Tons sold80,604
8,192
9,205
  
Cash Cost Per Ton Sold$10.53
$60.76
$24.20
  
 Successor
October 2 through December 31, 2016Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Cost of sales in the consolidated statements of operations$220,714
$169,532
$66,811
$13,586
$470,644
Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales     
Diesel fuel risk management derivative settlements classified in "other income"363



363
Transportation costs4,825
40,171
12,130
45
57,171
Cost of coal sales from idled or otherwise disposed operations not included in segments


5,853
5,853
Fresh start coal inventory fair value adjustment


7,345
7,345
Other (operating overhead, certain actuarial, etc.)


344
344
Non-GAAP Segment cash cost of coal sales$215,526
$129,361
$54,681
$
$399,568
Tons sold21,824
2,442
2,510
  
Cash Cost Per Ton Sold$9.88
$52.98
$21.79
  
      
      
      
      
      
      

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 Predecessor
January 1 through October 1, 2016Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Cost of sales in the consolidated statements of operations$610,734
$425,345
$181,872
$46,513
$1,264,464
Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales     
Diesel fuel risk management derivative settlements classified in "other income"(3,361)
(276)(59)(3,696)
Transportation costs12,560
81,389
25,253
2,472
121,674
Cost of coal sales from idled or otherwise disposed operations not included in segments


42,513
42,513
Other (operating overhead, certain actuarial, etc.)


1,587
1,587
Non-GAAP Segment cash cost of coal sales$601,535
$343,956
$156,895
$
$1,102,386
Tons sold54,911
6,692
5,181
  
Cash Cost Per Ton Sold$10.95
$51.40
$30.28
  
 Predecessor
Year Ended December 31, 2015Powder River BasinMetallurgicalOther ThermalIdle and OtherConsolidated
(In thousands)     
GAAP Cost of sales in the consolidated statements of operations$1,157,258
$568,971
$340,738
$105,785
$2,172,753
Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales     
Diesel fuel risk management derivative settlements classified in "other income"(7,750)
(332)(80)(8,162)
Transportation costs22,137
81,553
67,598
9,945
181,233
Cost of coal sales from idled or otherwise disposed operations not included in segments


79,290
79,290
Other (operating overhead, certain actuarial, etc.)


16,630
16,630
Non-GAAP Segment cash cost of coal sales$1,142,871
$487,418
$273,472
$
$1,903,762
Tons sold108,481
8,352
9,764
  
Cash Cost Per Ton Sold$10.54
$58.36
$28.01
  


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Reconciliation of Segment Adjusted EBITDAEBITDAR to Net Income

The discussion in “Results of Operations” above includes references to our Adjusted EBITDA.EBITDAR for each of our reportable segments. Adjusted EBITDAEBITDAR is defined as net income attributable to the Company before the effect of net interest expense, income taxes, depreciation, depletion and amortization, and the amortization of acquired sales contracts.contracts, the accretion on asset retirement obligations, and reorganization items, net. Adjusted EBITDAEBITDAR may also be adjusted for items that may not reflect the trend of future results.results by excluding transactions that are not indicative of our core operating performance. We believe thatuse Adjusted EBITDA presentsEBITDAR to measure the operating performance of our segments and allocate resources to our segments. Adjusted EBITDAR is not a usefulmeasure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDAR are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDAR 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 ability to service existing debt and incur additional debt based on ongoing operations.profitability, liquidity or performance under generally accepted accounting principles. Investors should be aware that our presentation of Adjusted EBITDAEBITDAR may not be comparable to similarly titled measures used by other companies. The table below shows how we calculate Adjusted EBITDA.

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Reported Adjusted EBITDA from coal operations

 

$

358,181

 

$

365,299

 

$

387,435

 

EBITDA from discontinued operations

 

 

 

173,776

 

Corporate and other

 

(108,064

)

(85,156

)

(135,289

)

Adjusted EBITDA

 

250,117

 

280,143

 

425,922

 

Income tax benefit (provision)

 

373,380

 

(25,634

)

335,498

 

Interest expense, net

 

(393,549

)

(383,188

)

(374,664

)

Depreciation, depletion and amortization

 

(379,345

)

(418,748

)

(426,442

)

Amortization of acquired sales contracts, net

 

8,811

 

13,187

 

9,457

 

Asset impairment and mine closure costs

 

(2,628,303

)

(24,113

)

(220,879

)

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

(116,343

)

 

 

Goodwill impairment

 

 

 

(265,423

)

Other nonoperating expenses

 

(27,910

)

 

(42,921

)

Settlement of UMWA legal claims

 

 

 

(12,000

)

Interest, depreciation, depletion and amortization classified as discontinued operations

 

 

 

(70,380

)

Net loss

 

$

(2,913,142

)

$

(558,353

)

$

(641,832

)

Corporate and otherEBITDAR.



  SuccessorPredecessor
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
Year Ended December 31, 2015
(In thousands)       
Net income (loss) $238,450
 $33,449
$1,242,081
 $(2,913,142)
Income tax benefit (provision) (35,255) 1,156
(4,626) (373,380)
Interest expense, net 24,256
 10,754
133,235
 393,549
Depreciation, depletion and amortization 122,464
 32,604
191,581
 379,345
Accretion on asset retirement obligations 30,209
 7,634
24,321
 33,680
Amortization of sales contracts, net 53,985
 796
(728) (8,811)
Asset impairment and mine closure costs 
 
129,267
 2,628,303
Losses from disposed operations resulting from Patriot Coal bankruptcy

 

 116,343
Gain on sale of Lone Mountain Processing, Inc.
(21,297) 

 
Net loss resulting from early retirement of debt and debt restructuring
2,547
 
2,213
 27,910
Reorganization items, net
2,398
 759
(1,630,041) 
Fresh start coal inventory fair value adjustment

 7,345

 
Adjusted EBITDAR 417,757
 94,497
87,303
 283,797
EBITDAR from idled or otherwise disposed operations 9,113
 2,795
14,514
 23,605
Selling, general and administrative expenses 86,821
 22,836
59,343
 98,783
Other (9,187) (2,385)(4,676) (11,962)
Segment Adjusted EBITDAR from coal operations $504,504
 $117,743
$156,484
 $394,223
Other includes primarily selling, general and administrative expenses, income from our equity investments, certain actuarial adjustments, and certain changes in the fair value of coal derivatives and coal trading activities.  Corporate

For the Successor year ended December 31, 2017, other consists primarily of net income from equity investments of $8.5 million.

For the Successor period from October 2 through December 31, 2016, other consists primarily of net income from equity investments of $1.7 million.


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For the Predecessor period from January 1 through October 1, 2016 Other consists primarily of net income from equity investments of $5.3 million.

For the Predecessor year ended December 31, 2015 Other consists primarily of net income from equity investments of $7.9 million.
Liquidity and other adjusted EBITDA decreased $22.9Capital Resources
Our primary sources of liquidity are proceeds from coal sales to customers and certain financing arrangements. Excluding significant investing activity, we intend to satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations and cash on hand. Our focus is prudently managing costs, including capital expenditures, maintaining a strong balance sheet, and insuring adequate liquidity.

On April 27, 2017, our Board of Directors authorized a share repurchase program for up to $300 million inof our common stock. On October 26, 2017 our Board of Directors authorized an additional $200 million for our share repurchase program, bringing the total authorization to $500 million. During the year ended December 31, 2015 when compared2017, we repurchased 3,977,215 shares of our stock for approximately $301.5 million. The timing of any future share purchases, and the ultimate number of shares to be purchased, will depend on a number of factors, including business and market conditions, our future financial performance, and other capital priorities. The shares will be acquired in the open market or through private transactions in accordance with Securities and Exchange Commission requirements.

On April 27, 2017, our Board of Directors authorized a quarterly common stock cash dividend of $0.35 per share. During the year ended December 31, 2014 due to the unfavorable year over year net change in pension settlement and curtailment costs2017, we paid three quarterly cash dividends of $23.8 million, further unfavorable year over year net change of $14.7 million in other various actuarial liabilities, and fully reserving$0.35 per share, totaling approximately $24.4 million. On February 13, 2018 we announced an uncollectable customer receivable of $7.8 million.  These impacts were partially offset by a $24 million gain on the settlement of a customer contract.

Corporate and other adjusted EBITDA decreased $50.1 millionincreased in the year ended December 31, 2014 when comparedquarterly dividend to $0.40 per share. The next dividend is scheduled to be paid on March 15, 2018 to stockholders of record at the year ended December 31, 2013 dueclose of business on March 5, 2018.


Given the volatile nature of coal markets, we believe it is important to take a prudent approach to managing our balance sheet and liquidity. Our dividend policy and share repurchase program will be implemented in a manner that will result in maintaining cash levels similar to those we have seen over the favorable year over year net changepast year. In the future, we will continue to evaluate our capital allocation initiatives in pension settlement and curtailment costs of $21.4 million, further favorable year over year net change of $7.4 million in other various actuarial liabilities, an $11.5 million favorable year over year change in the fair value of certain coal derivatives and coal trading activities, and a $5.0 million settlement with Patriot Coal in the year ended December 31, 2013.

Liquidity and Capital Resources

The filinglight of the Bankruptcy Petitions constituted an eventcurrent state of default that accelerated our obligations under our Debt Instruments, all as further described in Note 26, “Subsequent Events”, to the Consolidated Financial Statements included in the Form 10-K.  Pursuant to the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against the Debtors, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. Accordingly, although the filing of the Bankruptcy Petitions triggered defaults under Debt Instruments, creditors are stayed from taking action as a result of these defaults. Additionally, under Section 502(b)(2) of the Bankruptcy Code, the Company is no longer required to pay interest on its senior unsecured notes and senior secured notes accruing on or after the Petition Date. However, the Debtors will be required to pay interest on amounts borrowed under the Superpriority Secured Debtor-in-Possession Credit Agreement as amended by the Waiver and Consent and Amendment No. 1, dated as of March 4, 2016, (the “DIP Credit Agreement”).

On December 31, 2015, we had $651.0 million of cash and liquid securities on hand. Based on our current internal financial forecasts, we believe that our cash on hand, cash generated from the results of our operations and funds available under our DIP Credit Agreement will be sufficient to fund anticipated cash requirements until a plan of reorganization is confirmed for minimum operating and capital expenditures and for working capital purposes. However, given the current level of volatility in the market and the unpredictability of certain costs that could potentially arise in our operations, our liquidity needs could be significantly higher than we currently anticipate. In particular, weak coal market industry conditions, depressed

metallurgical coal prices, reduced steel production and reduced global steel demand may continue to impact our results of operations and our available liquidity.

Securitization Agreement

We are party to an accounts receivable securitization program under which eligible trade receivables are sold, without recourse, to a multi-seller, asset-backed commercial paper conduit. The entity through which these receivables are sold, Arch Receivable Company, LLC, is consolidated into our financial statements but is a non-debtor special purpose vehicle.  As of December 31, 2015 we could borrow and request letters of credit to be issued under the facility, and were required to pay facility fees, program fees and letter of credit fees (based on amounts of outstanding letters of credit) and certain other fees (based on amounts withdrawn and unreimbursed letters of credit).  The total aggregate letters of credit that can be issued are limited by eligible accounts receivable, as defined under the terms of the securitization agreement.  The securitization agreement expires on December 8, 2017.

At December 31, 2015, we had letters of credit outstanding under our securitization program totaling $179 million. We had no borrowing capacity under the facility asoutlook for coal markets; the amount of outstanding lettersour planned production that has been committed and priced; the capital needs of credit exceeded the borrowing base. Letters of credit can be issued up to the $200 million facility maximum, but amounts above the borrowing base must be backed by cash collateral. Cash collateral supporting outstanding letters of credit at December 31, 2015 was $97.5 million.

business; and other strategic opportunities.


On January 13, 2016,March 7, 2017, we agreed with our securitization financing providers that, subject to certain amendments (the “Amendments”), they will continue the $200 million trade accounts receivable securitization facility provided to Arch Receivable Company, LLC. Pursuant to the Amendments, which have been approved by the Court on a final basis, we are no longer eligible to borrow amounts under the facility but are allowed to continue to issue letters of credit thereunder.  Continuing this facility prevents the need to use either existing cash liquidity or higher cost Debtor-In-Possession financing to support our letters of credit.

Debtor-In-Possession Financing

On January 21, 2016, the Superpriority Secured Debtor-in-Possession Credit Agreement as amended by the Waiver and Consent and Amendment No. 1, dated as of March 4, 2016, (the “DIP Credit Agreement”) was entered into bya senior secured term loan credit agreement in an aggregate principal amount of $300 million (the “New Term Loan Debt Facility”) with Credit Suisse AG, Cayman Islands Branch, as administrative agent and among us, as borrower, certain ofcollateral agent (in such capacities, the Debtors, as guarantors (the “Guarantors”“Agent”), and together with us, the “Loan Parties”), the lendersother financial institutions from time to time party thereto (the “DIP Lenders”) and Wilmington Trust, National Association, as administrative agent and collateral agent for the DIP Lenders (in such capacities, the “DIP Agent”).

The DIP Credit Agreement which has been approved by the Court on a final basis provides for a super-priority senior secured debtor-in-possession credit facility (the “DIP Facility”) consisting of term loans (collectively, the “DIP“Lenders”). The New Term Loan”) in the aggregate principal amount of up to $275 million that may be funded in not more than two draws not later than six months after the effective dateLoan Debt Facility was issued at 99.50% of the DIP Facility (such six month period, the “Availability Period”).  Any portion of the DIPface amount and will mature on March 7, 2024. Proceeds from The New Term Loan commitment that has not been funded on or priorDebt Facility were used to repay all outstanding obligations under our previously existing term loan credit agreement, dated as of October 5, 2016.


On September 25, 2017, we entered into the First Amendment (the “Amendment”) to the end ofNew Term Loan Debt Facility. The Amendment reduces the Availability Period will be permanently cancelled.

The maturity date of the DIP Facility is the earliest of (i) January 31, 2017, (ii) the date of the substantial consummation of a plan of reorganization that is confirmed pursuant to an order of the Court, (iii) the consummation of the sale of all or substantially all of the assets of the Loan Parties pursuant to Section 363 of the Bankruptcy Code and (iv) the date the obligations under the DIP Facility are accelerated pursuant to the terms of the DIP Credit Agreement.  Borrowings under the DIP Facility bear interest at an interest rate per annum equalon the term loan facility to, at our option, either (i) the Company’s option (i) LIBORLondon interbank offered rate (“LIBOR”) plus 9.00%an applicable margin of 3.25%, subject to a 1.00% LIBOR floor, or (ii) thea base rate plus 8.00%an applicable margin of 2.25%.

Obligations


The term loans provided under the DIP Credit Agreement will be guaranteed on a super-priority senior secured basis by all of our existing and future wholly-owned domestic subsidiaries, and all newly created or acquired wholly-owned domestic subsidiaries, subject to customary limited exceptions.

The lenders under the DIP Credit Agreement will have a first priority lien on all encumbered and unencumbered assets of theNew Term Loan PartiesDebt Facility (the “DIP Lien”“Term Loans”), subject to a $75 million carve-out for super-priority claims relating to the Debtors’ bonding obligations, a customary professional fees carve-out and certain exceptions.

The Loan Parties are subject to certain financial maintenance covenantsquarterly principal amortization payments in an amount equal to $750,000. For further information regarding the New Term Loan Debt Facility see Note 14 to the Consolidated Financial Statements “Debt and Financing Arrangements”.



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During the second quarter of 2017, we entered into a series of interest rate swaps to fix a portion of the LIBOR interest payments due under the DIP Credit Agreement, including, without limitation, (i) maximum capital expendituresterm loan. The interest rate swaps qualify for cash flow hedge accounting treatment and (ii) minimum liquidity (defined as unrestricted cash and cash equivalentssuch, the change in the fair value of the Company and its domestic subsidiaries (other than any securitization subsidiaryinterest rate swaps are recorded on our Consolidated Balance Sheet as an asset or bonding subsidiary), plus withdrawable funds from brokerage accountsliability with the effective portion of the Companygains or losses reported as a component of accumulated other comprehensive income and its domestic subsidiaries (other than any securitization subsidiary or bonding subsidiary) plus any unused commitments thatthe ineffective portion reported in earnings. As interest payments are availablemade on the term loan, amounts in accumulated other comprehensive income will be reclassified into earnings through interest expense to be drawn byreflect a net interest on the Company pursuantterm loan equal to the termseffective yield of the DIP Credit Agreement)fixed rate of (A) $300 millionthe swap plus 3.25% which is the spread on the LIBOR term loan as amended. In the event that an interest rate swap is terminated prior to maturity, gains or losses in accumulated other comprehensive income will remain deferred and reclassified into earnings in the entryperiods which the hedged forecasted transaction affects earnings. For further information regarding the interest rate swaps see Note 14 to the Consolidated Financial Statements “Debt and Financing Arrangements”.

On April 27, 2017, we extended and amended our existing trade accounts receivable securitization facility which supports the issuance of letters of credit and requests for cash advances. The amendment to the Extended Securitization Facility decreases the borrowing capacity from $200 million to $160 million and extends the maturity date to three years after the Securitization Facility Closing Date. Pursuant to the Extended Securitization Facility, we also agreed to a final orderrevised schedule of fees payable to the administrator and the providers of the Court approvingExtended Securitization Facility. For further information regarding the DIP facility (the “Final Order”), which was entered on February 25, 2016 and (B) $500 million following the entry of the Final Order, in each case tested on a monthly basis.  The DIP Credit Agreement contains customary affirmative and negative covenants and representations for debtor-in-possession financings.  In addition to customary events of default for debtor-in-possession financings, the DIP Credit Agreement contains milestones relatingExtended Securitization Facility see Note 14 to the Chapter 11 CasesConsolidated Financial Statements “Debt and any failure to complyFinancing Arrangements”.

On April 27, 2017, we entered into a senior secured inventory-based revolving credit facility in an aggregate principal amount of $40 million (the “New Inventory Facility”) with Regions Bank (“Regions”) as administrative agent and collateral agent (in such milestones constitutes an eventcapacities, the “Agent”), as lender and swingline lender (in such capacities, the “Lender”) and as letter of default.

The DIPcredit issuer. Availability under the New Inventory Facility is subject to certain usuala borrowing base consisting of (i) 85% of the net orderly liquidation value of eligible coal inventory, (ii) the lesser of (x) 85% of the net orderly liquidation value of eligible parts and customary prepayment events, includingsupplies inventory and (y) 35% of the amount determined pursuant to clause (i), and (iii) 100% of net cash proceedsour Eligible Cash (defined in the New Inventory Facility), subject to reduction for reserves imposed by Regions.


The commitments under the New Inventory Facility will terminate on the date that is the earliest to occur of (i) debt issuances (otherthe third anniversary of the Inventory Facility Closing Date, (ii) the date, if any, that is 364 days following the first day that Liquidity (defined in the New Inventory Facility and consistent with the definition in the Extended Securitization Facility (as defined below)) is less than debt permitted to be incurred$250 million for a period of 60 consecutive days and (iii) the date, if any, that is 60 days following the maturity, termination or repayment in full of the Extended Securitization Facility.

Revolving loan borrowings under the terms ofNew Inventory Facility bear interest at a per annum rate equal to, at our option, either the DIP Credit Agreement), (ii) non-ordinary course asset salesbase rate or dispositions in excess of $50 million in the aggregate (with no individual asset sale or disposition in excess of $7.5 million) and (iii) any casualty event in excess of $50 million in the aggregate, subject to customary reinvestment rights,London interbank offered rate plus, in each case, a margin ranging from 2.25% to be applied2.50% (in the case of LIBOR loans) and 1.25% to prepay1.50% (in the DIP Term Loan.  Atcase of base rate loans) determined using a hearing held on February 23, 2016Liquidity-based grid. Letters of credit under the New Inventory Facility are subject to a fee in an amount equal to the Chapter 11 Cases,applicable margin for LIBOR loans, plus customary fronting and issuance fees. For further information regarding the Court approvedNew Inventory Facility see Note 14 to the DIP Facility on a final basis, overrulingConsolidated Financial Statements “Debt and Financing Arrangements”.

On December 31, 2017 we had total liquidity of approximately $434 million including $429 in unrestricted cash and equivalents, and short term investments in debt securities, with the objections of the Creditors’ Committeeremainder provided by availability under our credit facilities, and certain other parties who asserted, among other things, that the DIP Financing was unnecessary and argued that the Debtors should enter into an alternate debtor-in-possession financing facility proposed by certain members of the Creditors’ Committee.

funds withdrawable from brokerage accounts.

The following is a summary of cash provided by or used in each of the indicated types of activities:

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

 

 

Cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

(44,367

)

$

(33,582

)

$

55,742

 

Investing activities

 

(180,341

)

(111,434

)

125,445

 

Financing activities

 

(58,742

)

(31,852

)

(54,710

)

  SuccessorPredecessor
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)       
Cash provided by (used in):    
 
  
Operating activities $396,473
 $84,192
$(228,218) $(44,367)
Investing activities (59,802) 17,984
15,134
 (180,341)
Financing activities (368,656) 2,709
(37,210) (58,742)

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Cash used in operating activities increased in the year ended December 31, 2015 compared to the year ended December 31, 2014.  Furthermore, cashFlow - Successor

Cash provided by operating activities in the year ended December 31, 2013 became2017 resulted from strong international coking coal markets, stable Powder River Basin thermal markets, and improving international thermal coal market conditions. Our operating cost performance provided significant cash margins in these market conditions, particularly in the metallurgical segment as discussed in the Operational Performance section above. In addition, low cash interest expense contributed to the cash provided by operating activities.

Cash provided by operating activities in the Successor period October 2 through December 31, 2016 resulted from improved market conditions for most of our products and solid operating cost performance across all of our segments discussed in the Operational Performance section above. In addition, low cash interest expense and favorable working capital adjustments contributed to the cash provided by operating activities.

Cash used in investing activities in the year ended December 31, 2017 resulted from the net purchase of short term investments of approximately $69 million and capital expenditures of approximately $59 million. Capital expenditures in 2017 were at minimal levels. These uses of cash were partially offset by withdrawals of restricted cash as reduced collateral requirements and the utilization of the New Inventory Facility resulted in no cash being necessary to support letters of credit at the end of the year.

Cash provided by investing activities in the Successor period October 2 through December 31, 2016 resulted from the sale of short term investments and withdrawals of restricted cash as collateral requirements under the securitization facility discussed above diminished over the period. These benefits were partially offset by capital expenditures that have been effectively managed to minimal levels.

Cash used in financing activities in the year ended December 31, 2017 resulted from purchases of treasury stock, payment of quarterly dividends, net payments on outstanding debt, and financing costs associated with our New Term Loan Debt Facility, Extended Securitization Facility, and New Inventory Facility discussed above. For further information regarding our debt facilities see Note 14 to the Consolidated Financial Statements “Debt and Financing Arrangements”.

Cash provided by financing activities in the Successor period October 2 through December 31, 2016 resulted from insurance premium financing proceeds partially offset by the first principal amortization payment on our prior term loan.

Cash Flow - Predecessor

Cash used in operating activities in the Predecessor period January 1 through October 1, 2016 resulted from difficult market conditions for all of our products as discussed in the Operational Performance section above. In addition significant cash interest expense and cash restructuring costs impacted cash used in operating activities.

Cash used in operating activities in the year ended December 31, 2014.  This trend is primarily due to continued deterioration2015 resulted from deteriorating market conditions and high cash interest expenses.
Cash provided by investing activities in the Predecessor period January 1 through October 1, 2016 resulted from the net proceeds from sale of short term investments and withdrawals of restricted cash as collateral requirements under the coal markets.  WePredecessor securitization facility diminished over the period. These benefits were partially offset some of the impact of this continued deterioration through cost control efforts and concentrating activity at our most efficient operations, and we benefited from lower input costs, particularly diesel fuel.  In addition we deferred payment of semi-annual interest on certain unsecured obligationsby capital expenditures that were dueeffectively managed to minimal levels, but did include the final of five annual $60 million lease by application bonus bid payments for reserves acquired in December 2015 (See Note 13 to the Consolidated Financial Statements, “Accrued Expenses and Other Current Liabilities” for further discussion).

WePowder River Basin.


Cash used $180.3 million of cash in investing activities duringin the year ended December 31, 2015 comparedresulted from deposits of restricted cash as collateral requirements under the Predecessor securitization facility increased over the 2015 period, capital expenditures including the fourth of five annual $60 million lease by application bonus bid payments for reserves acquired in the Powder River Basin, partially offset by net proceeds from the sale of short term investments.

Cash used in financing activities in the Predecessor period January 1 through October 1, 2016 resulted from financing costs associated with the previous term loan facility and securitization facility, insurance premium financing payments, and expenses related to using $111.4 million of cashpre-filing debt restructuring costs.

Cash used in financing activities in the year ended December 31, 2014, and generating $125.4 million of cash in the year ended December 31, 2013.  We received $422.7 million2015 resulted from the divestiture of the Canyon Fuel operations in 2013 compared to $46.7 million from divestitures in 2014, and $0.7 million in 2015.  Capital expenditures decreased approximately $28 million and $149 million during 2015 and 2014, respectively, when compared to the previous year due to the startup of the Leer mining complex longwall in the first quarter of 2014 and ongoing cash management efforts. In 2013 we focused our spending on expanding our metallurgical coal production capacity, primarily the Leer Mine development for approximately $119 million,

net of proceeds from the sale and leaseback of longwall shields. We purchased and sold short term investments that provided $43.5 million in 2015, used $6.3 million in 2014, and used $19.2 million in 2013.  Restricted cash increased $91.9 million from 2014 to 2015 primarily due to increased collateral requirementsexpenses related to outstanding letters of credit.

Cash used in financing activities was approximately $150.6 million, $37.5 million and $54.7 million in 2015, 2014 and 2013, respectively.  In 2015 we incurred $24.2 million of legal and financial advisory fees associated with ourpre-filing debt restructuring efforts.  In 2013, we borrowed an additional $300.0 million face amountcosts, principal payments on theour pre-filing term loan, and issued $350.0 million 8.00% senior notes due in 2019 to retire 8.75% senior unsecured notes due 2016 for $628.7 million.  See further information about our outstanding debt balances in Note 14, “Debt and Financing Arrangements” to the Consolidated Financial Statements.  We decreased the dividend rate from $0.03 per quarter to $0.01 per annum in the first quarterpayments on other debt.



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Table of 2014, and eliminated the dividend in the first quarter of 2015 resulting in no dividends paid in 2015 as compared to $2.1 million in 2014 and $25.5 million in 2013.

Ratio of Earnings to Fixed Charges

The following table sets forth our ratios of earnings to combined fixed charges and preference dividends for the periods indicated:

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

2012

 

2011

 

Ratio of earnings to fixed charges(1)

 

N/A

(2)

N/A

(2)

N/A

 

1.26x

 

1.25x

 

Contents


(1)  Earnings consist of income from continuing operations before income taxes and are adjusted to include only distributed income from affiliates accounted for on the equity method and fixed charges (excluding capitalized interest). Fixed charges consist of interest incurred on indebtedness, the portion of operating lease rentals deemed representative of the interest factor and the amortization of debt expense.

(2) Total losses for the ratio calculation were $2,853.0 million and total fixed charges were $407.1 million for the year ended December 31, 2015.  Total losses for the ratio calculation were $120.9 million and total fixed charges were $404.5 million for the year ended December 31, 2014.  Total losses for the ratio calculation were $638.3 million and total fixed charges were $450.7 million for the year ended December 31, 2013.

Contractual Obligations

 

 

Payments Due by Period

 

 

 

2016

 

2017-2018

 

2019-2020

 

after 2020

 

Total

 

 

 

(Dollars in thousands)

 

Long-term debt, including related interest

 

$

375,176

 

$

2,508,000

 

$

2,491,350

 

$

1,033,547

 

$

6,408,073

 

Operating leases

 

20,857

 

23,689

 

5,599

 

9,807

 

59,952

 

Coal lease rights

 

68,947

 

27,088

 

24,291

 

103,771

 

224,097

 

Coal purchase obligations

 

 

 

 

 

 

Unconditional purchase obligations

 

94,552

 

35,954

 

22,917

 

11,076

 

164,499

 

Total contractual obligations

 

$

559,532

 

$

2,594,731

 

$

2,544,157

 

$

1,158,201

 

$

6,856,621

 

The above table reflects contractual maturities, although $5.1 billion of debt is classified as current due to the default caused by the Company’s bankruptcy filing.

The Chapter 11 Cases could materially modify and reduce our obligations.  Pursuant to Section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against us, including actions to collect indebtedness incurred prior to the Petition date or to exercise control over our property.  Subject to certain exceptions under the

Bankruptcy Code, the filing of our Chapter 11 Cases also automatically stayed the continuation of most legal proceedings, including third party litigation matters described under Item 3, “Legal Proceedings,” or the filing of other actions against or on behalf of us or our property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of our bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim.

 Payments Due by Period
 2018 2019-2020 2021-2022 after 2022 Total
 (Dollars in thousands)
Long-term debt, including related interest$32,287
 $52,224
 $40,023
 $299,854
 $424,388
Operating leases5,936
 6,914
 4,010
 8,292
 25,152
Coal lease rights3,582
 12,879
 14,219
 34,371
 65,051
Coal purchase obligations11,207
 
 
 
 11,207
Unconditional purchase obligations85,947
 
 
 
 85,947
Total contractual obligations$138,959
 $72,017
 $58,252
 $342,517
 $611,745

The related interest on long-term debt was calculated using rates in effect at December 31, 20152017 for the remaining term of outstanding borrowings.


Coal lease rights represent non-cancelable royalty lease agreements, as well as lease bonus payments due.


Unconditional purchase obligations include open purchase orders and other purchase commitments, which have not been recognized as a liability. The commitments in the table above relate to contractual commitments for the purchase of materials and supplies, payments for services and capital expenditures.


The table above excludes our asset retirement obligations. Our consolidated balance sheet reflects a liability of $410.5$328.7 million for asset retirement obligations that arise from SMCRA and similar state statutes, which require that mine property be restored in accordance with specified standards and an approved reclamation plan. Asset retirement obligations are recorded at fair value when incurred and accretion expense is recognized through the expected date of settlement. Determining the fair value of asset retirement obligations involves a number of estimates, as discussed in the section entitled “Critical Accounting Policies” below, including the timing of payments to satisfy the obligations. The timing of payments to satisfy asset retirement obligations is based on numerous factors, including mine closure dates. Please see the notes to our Consolidated Financial Statements for more information about our asset retirement obligations.


The table above also excludes certain other obligations reflected in our consolidated balance sheet, including estimated funding for pension and postretirement benefit plans and worker’s compensation obligations. The timing of contributions to our pension plans varies based on a number of factors, including changes in the fair value of plan assets and actuarial assumptions. Please see the section entitled “Critical Accounting Policies” below for more information about these assumptions. We expect to make contributions of $0.5$0.4 million to our pension plans in 2016,2018, which is impacted by the Moving Ahead for Progress in the 21st Century Act (MAP-21) enacted July 6, 2012. MAP-21 does not reduce our obligations under the plan, but redistributes the timing of required payments by providing near term funding relief for sponsors under the Pension Protection Act.


Please see the notesNotes to our Consolidated Financial Statements for more information about the amounts we have recorded for workers’ compensation and pension and postretirement benefit obligations.

The table above excludes future contingent payments



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Table of up to $58.5 million related to development financing for certain of our equity investees. Our obligation to make these payments, as well as the timing of any payments required, is contingent upon a number of factors, including project development progress, receipt of permits and the obtaining of construction financing.

Contents


Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include guarantees, indemnifications, financial instruments with off-balance sheet risk, such as bank letters of credit and performance or surety bonds. Liabilities related to these arrangements are not reflected in our consolidated balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

We use a combination of surety bonds, corporate guarantees (e.g., self bonds) and letters of credit and cash to secure our financial obligations for reclamation, workers’ compensation, coal lease obligations and other obligations as follows as of December 31, 2015:

 

 

 

 

 

 

Workers’

 

 

 

 

 

 

 

Reclamation

 

Lease

 

Compensation

 

 

 

 

 

 

 

Obligations

 

Obligations

 

Obligations

 

Other

 

Total

 

 

 

(Dollars in thousands)

 

Self bonding

 

$

485,546

 

$

 

$

 

$

 

$

485,546

 

Surety bonds

 

155,291

 

49,372

 

19,534

 

6,659

 

230,856

 

Letters of credit

 

11,166

 

 

117,568

 

6,790

 

135,524

 

In addition, we have agreed to continue to provide surety bonds for certain Magnum obligations, primarily reclamation. The surety bonding amounts are mandated by the state and are not directly related to the estimated cost to reclaim the properties. At December 31, 2015, we had $33.7 million of surety bonds and have posted $30.2 million in letters of credit related to Magnum properties.

2017:


     Workers’    
 Reclamation Lease Compensation    
 Obligations Obligations Obligations Other Total
 (Dollars in thousands)
Surety bonds$531,735
 $31,244
 $17,334
 $6,029
 $586,342
Letters of credit7,428
 
 94,499
 1,354
 103,281
Cash on deposit with others2,596
 
 11,132
 
 13,728

Critical Accounting Policies

We prepare our financial statements in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Management bases our estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Additionally, these estimates and judgments are discussed with our audit committee on a periodic basis. Actual results may differ from the estimates used under different assumptions or conditions. We have provided a description of all significant accounting policies in the notes to our consolidated financial statements.Consolidated Financial Statements. We believe that of these significant accounting policies, the following may involve a higher degree of judgment or complexity:

Fresh Start Accounting
On the plan Effective Date, the Company applied fresh start accounting which required the Company to allocate our reorganization value to the fair value of assets and liabilities in conformity with the guidance for the acquisition method of accounting for business combinations.
Fresh start accounting provides, among other things, for a determination of the value to be assigned to the equity of the emerging company as of a date selected for financial reporting purposes. In conjunction with the bankruptcy proceedings, a third party financial advisor provided an enterprise value of the Company of approximately $650 million to $950 million. The final equity value of $687.5 million was based upon the approximate high end of the enterprise value established by the third party valuation. The high end of the enterprise assumed a minimum cash balance at emergence of $250 million.
The enterprise value of the Company was estimated using various valuation methods including: (i) comparable public company analysis, (ii) discounted cash flow analysis (“DCF”) and (iii) sum-of-the-parts analysis.
All estimates, assumptions and financial projections, including the fair value adjustments, the financial projections, and the enterprise value and reorganization value projections, are inherently subject to significant uncertainties. Accordingly, there can be no assurance that the estimates, assumptions and financial projections will be realized, and actual results could vary materially.
For the impact of the adoption of fresh start accounting, see Note 3, “Emergence from Bankruptcy and Fresh Start Accounting,” of the Notes to the Consolidated Financial Statements.
Derivative Financial Instruments

We utilize derivative instruments to manage exposures to commodity prices.prices and interest rate risk on long-term debt. Additionally, we may hold certain coal derivative instruments for trading purposes. Derivative financial instruments are recognized in the balance sheet at fair value. Certain coal contracts may meet the definition of a derivative instrument, but because they provide for the physical purchase or sale of coal in quantities expected to be used or sold by us over a reasonable period in the normal course of business, they are not recognized on the balance sheet.


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Certain derivative instruments are designated as the hedge instrument in a hedging relationship. In a cash flow hedge, we hedge the risk of changes in future cash flows related to a forecasted purchase or sale.the underlying item being hedged. Changes in the fair value of the derivative instrument used as a hedge instrument in a cash flow hedge are recorded in other comprehensive income. Amounts in other comprehensive income are reclassified to earnings when the hedged transaction affects earnings and are classified in a manner consistent with the transaction being hedged.

We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives for undertaking various hedge transactions. We evaluate the effectiveness of our hedging relationships both at the hedge inception and on an ongoing basis.

Impairment of Long-lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change in the extent or manner in which we use a long-lived asset or a change in its physical condition.

When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying amount. If the projected undiscounted cash flows are less than the carrying amount, an impairment is recorded for the excess of the carrying amount over the estimate fair value, which is generally determined using discounted future cash flows. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes the new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of the asset.

We make various assumptions, including assumptions regarding future cash flows in our assessments of long-lived assets for impairment. The assumptions about future cash flows and growth rates are based on the current and long-term business plans related to the long-lived assets. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the long-lived assets. These assumptions require significant judgments on our part, and the conclusions that we reach could vary significantly based upon these judgments.

For additional information on impairment charges related to this filing, see Note 5,6, “Impairment Charges and Mine Closure Costs” into the Consolidated Financial Statements.

Asset Retirement Obligations

Our asset retirement obligations arise from SMCRA and similar state statutes, which require that mine property be restored in accordance with specified standards and an approved reclamation plan. Significant reclamation activities include reclaiming refuse and slurry ponds, reclaiming the pit and support acreage at surface mines, and sealing portals at deep mines. Our asset

retirement obligations are initially recorded at fair value, or the amount at which the obligations could be settled in a current transaction between willing parties. This involves determining the present value of estimated future cash flows on a mine-by-mine basis based upon current permit requirements and various estimates and assumptions, including estimates of disturbed acreage, reclamation costs and assumptions regarding equipment productivity. We estimate disturbed acreage based on approved mining plans and related engineering data. Since we plan to use internal resources to perform the majority of our reclamation activities, our estimate of reclamation costs involves estimating third-party profit margins, which we base on our historical experience with contractors that perform certain types of reclamation activities. We base productivity assumptions on historical experience with the equipment that we expect to utilize in the reclamation activities. In order to determine fair value, we discount our estimates of cash flows to their present value. We base our discount rate on the rates of treasury bonds with maturities similar to expected mine lives, adjusted for our credit standing.

Accretion expense is recognized on the obligation through the expected settlement date. On at least an annual basis, we review our entire reclamation liability and make necessary adjustments for permit changes as granted by state authorities, changes in the timing and extent of reclamation activities, and revisions to cost estimates and productivity assumptions, to reflect current experience. Any difference between the recorded amount of the liability and the actual cost of reclamation will be recognized as a gain or loss when the obligation is settled. We expect our actual cost to reclaim our properties will be less than the expected cash flows used to determine the asset retirement obligation. At December 31, 2015,2017, our balance sheet reflected asset retirement obligation liabilities of $410.5$328.7 million, including amounts classified as a current liability. As of December 31, 2015,2017, we estimate the aggregate undiscounted cost of final mine closures to be approximately $921$780.4 million.

See the rollforward of the asset retirement obligation liability in Note 16 to the Consolidated Financial Statements, “Asset Retirement Obligations”.


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Table of Contents

Employee Benefit Plans

We have non-contributory defined benefit pension plans covering certain of our salaried and hourly employees. Benefits are generally based on the employee’s ageyears of service and compensation. The actuarially-determined funded status of the defined benefit plans is reflected in the balance sheet.

The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability) associated with our defined benefit pension plans requires the use of a number of assumptions. These assumptions are summarized in Note 21, “Employee Benefit Plans”, to the Consolidated Financial StatementsStatements. Changes in these assumptions can result in different pension expense and liability amounts, and actual experience can differ from the assumptions.

·

The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s investment targets are 60%39% equity and 40%61% fixed income securities. Investments are rebalanced on a periodic basis to approximate these targeted guidelines. The long-term rate of return assumptions are less than the plan’s actual life-to-date returns. Any difference between the actual experience and the assumed experience is recorded in other comprehensive income and amortized into earnings in the future. The impact of lowering the expected long-term rate of return on plan assets 0.5% for 20152017 would have been an increase in expense of approximately $1.5$1.3 million.

·

The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested benefit obligations and the service and interest cost components of the net periodic pension cost. In estimating thatThe determination of the discount rate rates of return on high-quality fixed-income debt instruments are required. We utilize a bond portfoliowas updated from our actuary’s proprietary Yield Curve model, that includes bonds that are rated “AA” or higher with maturities that matchunder which the expected benefit payments underof the plan.plan are matched against a series of spot rates from a market basket of high quality fixed income securities. The impact of lowering the discount rate 0.5% for 20152017 would have been an increasedecrease in expense of approximately $2.8$0.9 million.

The differences generated from changes in assumed discount rates and returns on plan assets are amortized into earnings using the corridor method, whereby the unrecognized (gains)/losses in excess of 10% of the greater of the beginning of the year projected benefit obligation or market-related value of assets are amortized over a five-year period, which represents the average amountremaining life expectancy of time before participants vest in their benefits.

the plan participants.

We also currently provide certain postretirement medical and life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage

for themselves and their dependents. The salaried employee postretirement benefit plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance.

Actuarial assumptions are required to determine the amounts reported as obligations and costs related to the postretirement benefit plan. The discount rate assumption reflects the rates available on high-quality fixed-income debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. A change of 0.5% in these assumptions would not have had a significant impact on the benefit costs in 20152017 .

Income Taxes

We provide for deferred income taxes for temporary differences arising from differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates expected to be in effect when the related taxes are expected to be paid or recovered. We initially recognize the effects of a tax position when it is more than 50 percent likely, based on the technical merits, that the position will be sustained upon examination, including resolution of the related appeals or litigation processes, if any. Our determination of whether or not a tax position has met the recognition threshold considers the facts, circumstances, and information available at the reporting date.

We reassess our ability to realize our deferred tax assets annually in the fourth quarter, during our annual budget process, or when circumstances indicate that the ability to realize deferred tax assets has changed. The assessment takes into account expectations of future taxable income or loss, available tax planning strategies and the reversal of temporary differences. The development of these expectations involves the use of estimates such as production levels, operating profitability, timing of development activities and the cost and timing of reclamation work. A valuation allowance may be recorded to reflect the amount of future tax benefits that management believes are not likely to be realized. If actual outcomes differ from our expectations, we may record additional valuation allowance through income tax expense in the period such determination is made.

A valuation allowance is difficult to avoid when the company is in a cumulative loss position. A cumulative loss position is defined as a cumulative pre-tax loss for the current and the two preceding years. As our recent cumulative losses constitute significant negative evidence with regardregards to future taxable income, we have relied solely on the expected reversal of taxable temporary differences to support the future realization of our deferred tax assets. We perform a detailed scheduling process of our net taxable temporary differences.

At December 31, 2014, all deductible temporary differences were expected to be realized as there were sufficient deferred tax liabilities within the same jurisdiction and


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Table of the same character that are available to offset them.  Contents

Valuation allowances were established in prior years for federal and state net operating losses and tax credits that were not offset by the reversal of other net taxable temporary differences before the expiration of the attribute.

At December 31, 2015, additional losses were realized relating primarily to financial conditions and asset impairment charges. As a result, the expected reversal of taxable temporary differences were not sufficient to support the future realization of the deferred tax assets and an additional $865.1 million valuation allowance was recorded. The totalNet deferred tax assets of $1,135 million were completely offset by a valuation allowance.
At December 31, 2016, additional tax losses were realized primarily as a result of the non-recognition of CODI under section 108 of the IRC by the Predecessor entity. As a result, the expected reversal of taxable temporary differences were not sufficient to support the future realization of the deferred tax assets and an additional $1,185 million valuation allowance was recorded to the provision. Offsetting this increase was a net reduction in the valuation allowance of $1,289 million which did not impact the provision. This reduction was primarily the result of a decrease in NOLs and AMT credits due to the IRC section 108 offset rules. Net deferred tax assets of $1,022 million are completely offset by a valuation allowance.

On December 22, 2017 the Tax Cut and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the elimination of the corporate alternative minimum tax regime effective for tax years beginning after December 31, 2017, implementation of a process whereby corporations with unused alternative minimum tax credits will be refunded during 2018-2022, the transition of U.S. international taxation from a worldwide tax system to a territorial system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, further limitation on the deductibility of certain executive compensation, allowance for immediate capital expensing of certain qualified property, and limitations on the amount of interest expense deductible beginning in 2018.
The Company has not completed its analysis for the income tax effects of the Act but has provided its best estimate of the impact of the Act in its year-end income tax provision in accordance with the guidance and interpretations available as of the date of this filing for the items noted below. The Company anticipates finalizing the analysis for the estimate by December 31, 2018, within the one year measurement period under SAB 118, for the following items:
Remeasurement of deferred taxes: deferred tax assets and liabilities attributable to the U.S. were remeasured from 35% to the reduced tax rate of 21%. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $330.9 million of income tax expense, with an offsetting valuation allowance adjustment. Finalization of the remeasurement of deferred taxes will occur upon finalization of 2017 taxable income and attribute carryback claims.
One-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings: The provisional amount of income tax expense related to the mandatory deemed repatriation of foreign earnings was $1.5 million based on cumulative foreign earnings of $4.2 million. The deemed repatriation tax is completely offset with net operating loss carryforwards, with an offsetting valuation allowance adjustment. Finalization of 2017 earnings and profits calculations and receipt of further guidance in the form of Notices or Regulations may change the provisional calculation.
Elimination of the corporate AMT regime: Existing AMT credits as of December 31, 2017 will be refunded over the next four years. The refund may be subject to a sequestration reduction rate of approximately 6.6%. The Company has provisionally determined that it will receive a refund of existing AMT credits of approximately $22.4 million after an estimated sequestration reduction of $1.5 million. The valuation allowance previously recorded against these credits has been released and a tax benefit of $22.4 million was recorded. The Company’s accounting policy regarding the balance sheet presentation of the AMT credits is to record the balance as a deferred tax asset until a return is filed claiming a refund of a portion of the credit, at which time the amount will be presented as a tax receivable. Finalization of the AMT credit balance will occur upon finalization of 2017 taxable income and attribute carryback claims as well as the receipt of further guidance in the form of Notices or Regulations.
Elimination of executive compensation exemptions: The Act made changes to the $1 million limit on deductible compensation paid to certain “covered” employees. The Act eliminated exemptions for qualified performance based compensation and compensation paid after termination and expanded the number of employees to which the limit applies. The Company recorded a provisional amount of $0.2 million of tax expense, with an offsetting valuation allowance adjustment. The Act contains transitional rules, the implementation of which is uncertain at this time. The Company is still analyzing related aspects of the Act including the impact of the transitional rules. The provisional amount detailed above may change when further guidance is released that addresses these rules.

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Other provisions in the Act that may impact the company in future years include limitations on interest expense deductions and the global intangible low-taxed income “GILTI” rules covering foreign income earned in low-tax countries. There was no impact recorded for these changes in the 2017 provision. Additional work is necessary to do a more detailed review of the Act, but is anticipated to be completed by December 31, 2018.
At December 31, 2017 additional tax losses were realized primarily as a result of the reversal of deductible temporary differences and percentage depletion. A $35.7 million benefit was recorded from the release of valuation allowance offsetting alternative minimum tax credits that have become refundable by the Act, as well as carryback claims filed in the fourth quarter related to specific liability losses that resulted in claims for refund of previously paid alternative minimum taxes. At December 31, 2017 a $610.5 million valuation allowance fully offsets all net deferred tax assets, other than alternative minimum tax credits.


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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We manage our commodity price risk for our non-trading, thermal coal sales through the use of long-term coal supply agreements, and to a limited extent, through the use of derivative instruments.  Sales commitments in the metallurgical coal market are typically not long-term in nature, and we are therefore subject to fluctuations in market pricing.

Our commitments for 2016 and 20172018 are as follows:

 

 

2016

 

2017

 

 

 

Tons

 

$ per ton

 

Tons

 

$ per ton

 

 

 

(in millions)

 

(in millions)

 

Powder River Basin

 

 

 

 

 

 

 

 

 

Committed, Priced

 

69.8

 

$

13.34

 

37.8

 

$

13.84

 

Committed, Unpriced

 

4.8

 

 

 

9.0

 

 

 

Appalachia

 

 

 

 

 

 

 

 

 

Committed, Priced Thermal

 

3.7

 

$

54.36

 

2.1

 

$

45.35

 

Committed, Unpriced Thermal

 

 

 

 

 

 

 

Committed, Priced Metallurgical

 

1.9

 

$

71.57

 

1.4

 

$

77.03

 

Committed, Unpriced Metallurgical

 

0.7

 

 

 

0.7

 

 

 

Other Bituminous

 

 

 

 

 

 

 

 

 

Committed, Priced

 

4.0

 

$

32.15

 

3.3

 

$

33.33

 

Committed, Unpriced

 

 

 

 

 

 

 

  2018
  Tons $ per ton
Metallurgical (in millions)  
Committed, Priced Coking 1.7
 $103.96
Committed, Unpriced Coking 2.6
  
     
Committed, Priced Thermal 0.5
 $30.43
Committed, Unpriced Thermal 
  
     
Powder River Basin  
  
Committed, Priced 62.1
 $11.95
Committed, Unpriced 2.3
  
     
Other Thermal  
Committed, Priced 7.7
 $36.88
Committed, Unpriced 
  
We are also exposed to commodity price risk in our coal trading activities, which represents the potential future loss that could be caused by an adverse change in the market value of coal. Our coal trading portfolio included forward, swap and put and call option contracts at December 31, 2015.2017. The estimated future realization of the value of the trading portfolio is $5.8$1.2 million of gainslosses in 2016.

2018.

We monitor and manage market price risk for our trading activities with a variety of tools, including Value at Risk (VaR), position limits, management alerts for mark to market monitoring and loss limits, scenario analysis, sensitivity analysis and review of daily changes in market dynamics. Management believes that presenting high, low, end of year and average VaR is the best available method to give investors insight into the level of commodity risk of our trading positions. Illiquid positions, such as long-dated trades that are not quoted by brokers or exchanges, are not included in VaR.

VaR is a statistical one-tail confidence interval and down side risk estimate that relies on recent history to estimate how the value of the portfolio of positions will change if markets behave in the same way as they have in the recent past. While presenting VaR will provide a similar framework for discussing risk across companies, VaR estimates from two independent sources are rarely calculated in the same way. Without a thorough understanding of how each VaR model was calculated, it would be difficult to compare two different VaR calculations from different sources. The level of confidence is 95%. The time across which these possible value changes are being estimated is through the end of the next business day. A closed-form delta-neutral method used throughout the finance and energy sectors is employed to calculate this VaR. VaR is back tested to verify usefulness.

On average, portfolio value should not fall more than VaR on 95 out of 100 business days. Conversely, portfolio value declines of more than VaR should be expected, on average, 5 out of 100 business days. When more value than VaR is lost due to market price changes, VaR is not representative of how much value beyond VaR will be lost.


During the year ended December 31, 2015,2017, VaR for our coal trading positions that are recorded at fair value through earnings ranged from under $0.1 million$0 to $0.9$1.0 million. The linear mean of each daily VaR was $0.4$0.2 million. The final VaR at December 31, 20152017 was under $0.1 million.


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We are exposed to fluctuations in the fair value of coal derivatives that we enter into to manage the price risk related to future coal sales, but for which we do not elect hedge accounting. Any gains or losses on these derivative instruments would be offset in the pricing of the physical coal sale.  During the year ended December 31, 20152017 VaR for our risk management positions that are recorded at fair value through earnings ranged from $0.1 million$0 to $0.5$1.1 million. The linear mean of each daily VaR was $0.2$0.3 million. The final VaR at December 31, 20152017 was $0.1$0.8 million.

We are also exposed to the risk of fluctuations in cash flows related to our purchase of diesel fuel. We expect to use approximately 5042 to 5846 million gallons of diesel fuel for use in our operations during 2016.2018. We may enter into forward physical purchase contracts, as well as purchased heating oil options, to reduce volatility in the price of diesel fuel for our operations. At December 31, 2015,2017, we had purchased heating oil call options for approximately 5626 million gallons for the purpose of protecting against substantial increases in pricerelatingprice relating to 20152018 diesel purchases. These positions reduce our risk of cash flow fluctuations related to these surchargesfuel purchases but the positions are not accounted for as hedges. A $0.25 per gallon decrease in the price of heating oil would not result in an increase in our expense related to the heating oil derivatives. We also at times have purchased heating oil call options to manage the price risk associated with fuel surcharges on barge and rail shipments, which cover increases in diesel fuel prices. At December 31, 2015,2017, we had no positions outstanding for this purpose.

We are exposed to market risk associated with interest rates due to our existing level of indebtedness. At December 31, 2015,2017, of our $5.1 billion$334.3 million principal amount of debt outstanding, approximately $1.9 billion$297.8 million of outstanding borrowings have interest rates that fluctuate based on changes in the market rates. An increase in the interest rates related to these borrowings of 25 basis points would not result in an annualized increase in interest expense based on interest rates in effect at December 31, 2015,2017, because we have fixed the LIBOR portion of the interest rate on our term loan has a minimumusing interest rate that exceedsswaps. See Note 14, “Debt and Financing Arrangements” to the current market rates.

Consolidated Financial Statements for additional information on the interest rate swaps.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


The Consolidated Financial Statements and consolidated financial statement schedule of Arch Coal, Inc. and subsidiaries are included in this Annual Report on Form 10-K beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

None.

ITEM 9A. CONTROLS AND PROCEDURES.


We performed an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015.2017. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of such date.  There were no changes in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


We incorporate by reference the opinion of independent registered public accounting firm and management’s report on internal control over financial reporting included on pages F-3 and F-4, respectively,within the Financial Statement section of this Annual Report on Form 10-K.

ITEM 9B. OTHER INFORMATION.
None.





77

None.

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PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Except for the disclosures contained in Part I of this report under the caption “Executive Officers”Officers of the Registrant”, the information required under this item is incorporated herein by reference to “Director Qualifications, Diversity and Biographies,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Guidelines and Code of Business Conduct,” “Nomination Process for Election of Directors” and “Board Meetings and Committees” in an amendmentour Proxy Statement for the 2018 Annual Meeting of Stockholders, which is expected to this Annual Report on Form 10-K, which will be filed with the SEC within 120 days after the close of our Company’s 2015 fiscal year.

ITEM 11.EXECUTIVE COMPENSATION.

ITEM 11.EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by reference to “Executive Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Inside Participation” and “Personnel and Compensation Committee Report” in an amendmentour Proxy Statement for the 2018 Annual Meeting of Stockholders, which is expected to this Annual Report on Form 10-K, which will be filed with the SEC within 120 days after the close of our Company’s 2015 fiscal year.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Except as provided below, the

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required under this item is incorporated herein by reference to “Equity Compensation Plan Information,” “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners” in an amendmentour Proxy Statement for the 2018 Annual Meeting of Stockholders, which is expected to this Annual Report on Form 10-K, which will be filed with the SEC within 120 days after the close of our Company’s 2015 fiscal year.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required under this item is incorporated herein by Items 404 and 407(a)reference to “Director Independence” in our Proxy Statement for the 2018 Annual Meeting of Regulation S-KStockholders, which is included under the caption “Directors and Corporate Governance Practices” in an amendmentexpected to this Annual Report on Form 10-K, which will be filed with the SEC within 120 days after the close of our Company’s 2015 fiscal year.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table sets forth the fees accrued or paidinformation required under this item is incorporated herein by reference to Ernst & Young LLP, the Company’s independent registered public accounting firm,“Fees Paid to Auditors” in our Proxy Statement for the years ended December 31, 2015 and December 31, 2014:

 

 

Fee

 

Service

 

2015

 

2014

 

Audit(1)

 

$

2,327,680

 

$

1,989,282

 

Audit-Related(2)

 

48,636

 

0

 

Tax(3)

 

6,500

 

14,500

 

All Other

 

 

0

 


(1)                                 Audit fees include fees for professional services rendered by Ernst & Young LLP for2018 Annual Meeting of Stockholders, which is expected to be filed with the auditsSEC within 120 days after the close of our annual consolidated financial statements and report on internal control over financial reporting, the review procedures on the consolidated financial statements included in our Forms 10-Q, as well as the statutory auditsfiscal year.


78

Table of our international subsidiaries and other services related to Securities and Exchange Commission filings, including comfort letters and consents.

(2)                                 Audit-related fees include fees for the carve-out audits of a certain entity.

(3)                                 Tax fees consist of amounts billed for tax compliance matters.

The Audit Committee has adopted an audit and non-audit services pre-approval policy that requires the Audit Committee, or the chairman of the Audit Committee, to pre-approve services to be provided by our independent registered public accounting firm. The Audit Committee will consider whether the services to be provided by the independent registered

Contents


public accounting firm are prohibited by the SEC’s rules on auditor independence and whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service. The Audit Committee is mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve such services. The Audit Committee has delegated to the chairman of the Audit Committee pre-approval authority between committee meetings, and the chairman must report any pre-approval decisions to the committee at the next regularly scheduled committee meeting. All non-audit services performed by Ernst & Young LLP in 2015 and 2014 were pre-approved in accordance with the procedures established by the Audit Committee.

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements

Reference is made to the index set forth on page F-1 of this report.

Financial Statement Schedules

The following financial statement schedule of Arch Coal, Inc. is at the page indicated:

Schedule

Page

SchedulePage
Valuation and Qualifying Accounts

F-63

All other financial statement schedules listed under SEC rules but not included in this report are omitted because they are not applicable or the required information is provided in the notes to our consolidated financial statements.

Exhibits

Reference is made to the Exhibit Index beginning on page 87the following page.
ITEM 16.FORM 10-K SUMMARY.
None.







79

Table of this report.

Contents

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report


Exhibits to be signed on its behalf by the undersigned, thereunto duly authorized.

included in 10-K

Arch Coal, Inc.

Description

2.1

/s/ John W. Eaves

2.2

John W. Eaves

3.1

Chairman

March 15, 2016

Signatures

Capacity

Date

/s/ John W. Eaves

John W. Eaves

Chairman and Chief Executive Officer,

March 15, 2016

(Principal Executive Officer)

/s/ John T. Drexler

John T. Drexler

Senior Vice President and Chief Financial

March 15, 2016

Officer (Principal Financial Officer)

(Principal Accounting Officer)

*

David D. Freudenthal

Director

March 15, 2016

*

Patricia F. Godley

Director

March 15, 2016

*

Paul T. Hanrahan

Director

March 15, 2016

*

Douglas H. Hunt

Director

March 15, 2016

*

J. Thomas Jones

Director

March 15, 2016

*

Paul A. Lang

Director

March 15, 2016

*

George C. Morris III

Director

March 15, 2016

*

Theodore D. Sands

Director

March 15, 2016

*

Wesley M. Taylor

Director

March 15, 2016

*

Peter I. Wold

Director

March 15, 2016

*By

/s/ Robert G. Jones

Robert G. Jones,

Attorney-in-Fact

Exhibit Index

Exhibit

Description

3.1

Restated Certificate of Incorporation of Arch Coal, Inc. 10.19 (incorporated herein by reference to Exhibit 3.1 of Arch Coal’s registration statement on Form 8-A filed on October 4, 2016).

3.2
4.1
4.2
4.3
10.1
10.2
10.3

3.2

10.4

4.1

10.5

Indenture,

4.2

10.6

First Supplemental Indenture, dated as of August 9, 2010, by

4.3

10.7

4.4

Third Supplemental Indenture, dated as10.7 of June 24, 2011, by and among Arch Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.13 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).

4.5

Fourth Supplemental Indenture, dated as of October 7, 2011, by and among Arch Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.14 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).

4.6

Fifth Supplemental Indenture, dated as of July 2, 2012, by and among Arch Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).

4.7

Sixth Supplemental Indenture, dated as of July 31, 2012, by and among Arch Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.5 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).

4.8

Seventh Supplemental Indenture, dated as of July 26, 2013, by and among Arch Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013).

4.9

Eighth Supplemental Indenture, dated December 2, 2013, by and among Arch Coal, Inc. the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.21 to the registrant’s Annual Report on Form 10-K for the period ended December 31, 2013).

4.10

Indenture, dated as of June 14, 2011, by and among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the registrant’sCoal’s Current Report on Form 8-K filed on June 14, 2011)October 31, 2017).

4.11

10.8

First Supplemental Indenture,

4.12

10.9

10.10
10.11

4.13

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Table of Contents

Third Supplemental Indenture, dated as of July 2, 2012, by and among

10.12

4.14

10.13

Fourth Supplemental Indenture, dated as of July 31, 2012, by and among

4.15

Fifth Supplemental Indenture, dated as10.1 of July 26, 2013, by and among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013).

4.16

Sixth Supplemental Indenture, dated as of December 2, 2013, by and among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association (incorporated herein by reference to Exhibit 4.28 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).

4.17

Indenture, dated as of November 21, 2012, among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the registrant’sCoal’s Current Report on Form 8-K filed on November 26, 2012).

21, 2016)

4.18

10.14

First Supplemental Indenture, dated as of July 26, 2013, by and among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.4 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013).

4.19

Second Supplemental Indenture, dated as of December 2, 2013, by and among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.31 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).

4.2

Indenture, dated as of December 17, 2013, by and among Arch Coal, Inc., the subsidiary guarantors named therein and UMB Bank National Association, as trustee and collateral agent (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed on December 17, 2013).

10.1

Amended and Restated Credit Agreement, dated as of June 14, 2011, by and among the Company, the lenders party thereto, PNC Bank, National Association, as administrative agent and Bank of America, N.A., The Royal Bank of Scotland PLC and Citibank, N.A., as co-documentation agents (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on June 17, 2011).

10.2

Incremental Amendment, dated as of November 21, 2012, by and among Arch Coal, Inc., as Borrower, the guarantors party thereto, the incremental term loan lenders party thereto, Bank of America, N.A., as Term Loan Administrative Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, PNC Capital Markets LLC, Morgan Stanley Senior Funding, Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, BBVA Securities Inc., RBS Securities Inc. and Union Bank, N.A., as Lead Arrangers, as Lead Arrangers (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on November 26, 2012).

10.3

First Amendment to Amended and Restated Credit Agreement, dated as of May 16, 2012, by and among Arch Coal, Inc., as Borrower, the guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Revolver Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on May 17, 2012).

10.4

Second Amendment to Amended and Restated Credit Agreement, dated as of November 21, 2012, by and among Arch Coal, Inc., as Borrower, the guarantors party thereto, the lenders party thereto, Bank of America, N.A., as Term Loan Administrative Agent, and PNC Bank, National Association, as Revolver Administrative Agent (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on November 26, 2012).

10.5

Third Amendment to Amended and Restated Credit Agreement, dated as of November 21, 2012, by and among Arch Coal, Inc., as Borrower, the guarantors party thereto, the revolver lenders party thereto and PNC Bank, National Association, as Revolver Administrative Agent (incorporated herein by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on November 26, 2012).

10.6

Amendment Number Four to Amended and Restated Credit Agreement, dated as of December 17, 2013, by and among Arch Coal, Inc., as Borrower, the guarantors party thereto, the lenders party thereto, Bank of America, N.A., as term loan administrative agent, and PNC Bank, National Association, as Revolver Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 17, 2013).

10.7*

Form of Employment Agreement for Executive Officers of Arch Coal, Inc. (incorporated herein by reference to Exhibit 10.4 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).

10.8

Coal Lease Agreement dated as of March 31, 1992, among Allegheny Land Company, as lessee, and UAC and Phoenix Coal Corporation, as lessors, and related guarantee (incorporated herein by reference to the Current Report on Form 8-K filed by Ashland Coal, Inc. on April 6, 1992).

10.9

10.15

Federal Coal Lease dated as of June 24, 1993 between the U.S. Department of the Interior and Southern Utah Fuel Company (incorporated herein by reference to Exhibit 10.17 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.10

Federal Coal Lease between the U.S. Department of the Interior and Utah Fuel Company (incorporated herein by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.11

Federal Coal Lease dated as of July 19, 1997 between the U.S. Department of the Interior and Canyon Fuel Company, LLC (incorporated herein by reference to Exhibit 10.19 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.12

Federal Coal Lease dated as of January 24, 1996 between the U.S. Department of the Interior and the Thunder Basin Coal Company (incorporated herein by reference to Exhibit 10.20 to the registrant’sArch Coal’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.13

10.16

Federal Coal Lease Readjustment dated as of November 1, 1967 between the U.S. Department of the Interior and the Thunder Basin Coal Company (incorporated herein by reference to Exhibit 10.21 to the registrant’sArch Coal’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.14

10.17

Federal Coal Lease effective as of May 1, 1995 between the U.S. Department of the Interior and Mountain Coal Company (incorporated herein by reference to Exhibit 10.22 to the registrant’sArch Coal’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.15

10.18

Federal Coal Lease dated as of January 1, 1999 between the Department of the Interior and Ark Land Company (incorporated herein by reference to Exhibit 10.23 to the registrant’sArch Coal’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.16

10.19

Federal Coal Lease dated as of October 1, 1999 between the U.S. Department of the Interior and Canyon Fuel Company, LLC (incorporated herein by reference to Exhibit 10 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).

10.17

10.18

10.20

10.19

10.21

10.20*

10.22*

10.21*

10.23*

10.22*

10.24*

10.23*

10.25

Arch Coal, Inc. Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on May 8, 2013).

10.24*

Arch Mineral Corporation 1996 ERISA Forfeiture Plan (incorporated herein by reference to Exhibit 10.20 to the Registration Statement on Form S-4 (Registration No. 333-28149) filed by the registrant on May 30, 1997).

10.25*

10.26*

10.27*

10.28*

10.28*

10.29*

10.29*

Form of 2008 Restricted Stock Unit Contract for Messrs. Leer and Eaves (incorporated herein by reference to Exhibit 10.3 to the registrant’sArch Coal’s Current Report on Form 8-K8-k filed on February 27, 2008)November 30, 2016).

10.30*

Form of 2008 Non-Qualified Stock Option Agreement for Messrs. Leer and Eaves (incorporated herein by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on February 27, 2008).

10.31*

Form of Non-Qualified Stock Option Agreement (for stock options granted on or after February 21, 2008) (incorporated herein by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed on February 27, 2008).

10.32*

Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013).

10.33*

Form of Performance Unit Contract (incorporated herein by reference to Exhibit 10.2 to the registrant’sArch Coal’s Quarterly Report on Form 10-Q for the period ended March 31, 2013).

10.34*

10.31

Form of 2011 Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).

10.35*

Form of 2011 Restricted Stock Unit Contract (incorporated herein by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).

10.36*

Form of 2011 Restricted Stock Unit Contract for Non-Employee Directors (incorporated herein by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).

10.37*

Form of 2011 Performance Unit Contract (incorporated herein by reference to Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).

10.38*

Form of Restricted Stock Unit Contract (incorporated herein by reference to Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013).

10.39*

Form of Restricted Stock Unit Contract for Non-Employee Directors (incorporated herein by reference to Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013).

10.40*

10.41*

10.32

Form of Performance Shares Contract

10.42

Amended and Restated Receivables Purchase Agreement, dated as of February 24, 2010, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc., Market Street Funding LLC, as issuer, the financial institutions from time to time party thereto, as LC Participants, and PNC Bank, National Association, as Administrator on behalf of the Purchasers and as LC Bank (incorporated herein by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2010).

10.43

First Amendment to Amended and Restated Receivables Purchase Agreement, dated January 31, 2011, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto (incorporated by reference to Exhibit 10.41 to the registrant’s Annual Report on Form 10-K for the period ended December 31, 2010).

10.44

Second Amendment to Amended and Restated Receivables Purchase Agreement dated June 15, 2011 (incorporated by reference to Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011).

10.45

Third Amendment to Amended and Restated Receivables Purchase Agreement dated November 21, 2011, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto (incorporated herein by reference to Exhibit 10.38 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).

10.46

Fourth Amendment to Amended and Restated Receivables Purchase Agreement dated December 13, 2011, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto (incorporated herein by reference to Exhibit 10.39 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).

10.47

Fifth Amendment to Amended and Restated Receivables Purchase Agreement dated December 11, 2012, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto (incorporated herein by reference to Exhibit 10.45 to the registrant’s Annual Report on Form 10-K for the period ended December 31, 2012).

10.48

Sixth Amendment to Amended and Restated Receivables Purchase Agreement dated October 4, 2013, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc., and the other parties thereto (incorporated herein by reference to Exhibit 10.51 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).

10.49

Seventh Amendment to Amended and Restated Receiveables Purchase Agreement dated December 10, 2013, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc., and the other parties thereto (incorporated herein by reference to Exhibit 10.52 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).

10.50

Eighth Amendment to Amended and Restated Receivables Purchase Agreement dated October 28, 2014, among Arch Receivables Company, LLC, Arch Coal Sales Company, Inc., and the other parties thereto (incorporated by reference to Exhibit 10.54 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.51

Ninth Amendment to Amended and Restated Receivables Purchase Agreement, dated December 29, 2014, among Arch Receivables Company, LLC, Arch Coal Sales Company, Inc., and the other parties thereto (incorporated herein by reference to Exhibit 10.55 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).

10.52

Second Supplemental Indenture dated as of July 16, 2015 among Arch Coal, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the registrant’sCoal’s Current Report on Form 8-K filed on July 17, 2015)September 19, 2017).


10.53

81


Superpriority Senior Secured Debtor in Possession Credit

10.33

10.54

Second AmendedMonarch Alternative Solutions Master Fund Ltd, Monarch Capital Master Partners III LP, MCP Holdings Master LP and Restated Receivables Purchase Agreement, dated as of January 13, 2016, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto.

10.55

Restructuring Support Agreement, dated as of January 10, 2016, by and among the Debtors (as defined therein) and the Consenting Lenders (as defined therein)Monarch Debt Recovery Master Fund Ltd. (incorporated herein by reference to Exhibit 10.1 to the registrant’sof Arch Coal’s Current Report on Form 8-K filed on JanuaryDecember 11, 2016)2017).

10.56

21.1

Waiver and Consent and Amendment No. 1, dated as of March 4, 2016, to the Superpriority Senior Debtor-in-Possession Credit Agreement, by and among Arch Coal, Inc., subsidiaries of Arch Coal, Inc. from time to time party thereto as guarantors, the lenders from time to time party thereto and the Agent (as defined therein).

10.57

First Amendment to Restructuring Support Agreement dated as of February 25, 2016 by and among the Debtors (as defined therein) and the Consenting Lenders (as defined therein).

12.1

Computation of ratio of earnings to combined fixed charges and preference dividends.

21.1

23.1

23.2

24.1

31.1

31.2

32.1

32.2

95

95.1

101

Interactive Data File (Form 10-K for the year ended December 31, 20152017 filed in XBRL). The financial information contained in the XBRL-related documents is “unaudited”''unaudited" and “unreviewed.”

"unreviewed."



* Denotes a management contract or compensatory plan arrangements.

or arrangement.



82


Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Arch Coal, Inc.
/s/ John W. Eaves
John W. Eaves
Chief Executive Officer, Director
February 23, 2018

83



SignaturesCapacityDate
/s/ John W. Eaves
John W. EavesChief Executive Officer, Director (Principal Executive Officer)February 23, 2018
/s/ John T. Drexler
John T. DrexlerSenior Vice President and Chief Financial Officer (Principal Financial Officer)February 23, 2018
/s/ John W. Lorson
John W. LorsonVice President and Chief Accounting Officer (Principal Accounting Officer)February 23, 2018
*
James N. ChapmanChairmanFebruary 23, 2018
*
Patrick J. Bartels, Jr.DirectorFebruary 23, 2018
*
Sherman K. Edmiston IIIDirectorFebruary 23, 2018
*
Patrick A. KriegshauserDirectorFebruary 23, 2018
*
Richard A. NavarreDirectorFebruary 23, 2018
*
Scott D. VogelDirectorFebruary 23, 2018

84


*By/s/ Robert G. Jones
Robert G. Jones,
Attorney-in-Fact




85


FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Index to Consolidated Financial Statements




F- 1



Table of Contents


Report of Independent Registered Public Accounting Firm

The


To the Stockholders and the Board of Directors and Shareholders of Arch Coal, Inc.


Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Arch Coal, Inc. and subsidiaries (the Company) as of December 31, 20152017 and 2014,2016 (Successor), and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three years in the periodyear ended December 31, 2015. Our audits also included2017 (Successor), the period from October 2, 2016 through December 31, 2016 (Successor), the period from January 1, 2016 through October 1, 2016 (Predecessor), and the year ended December 31, 2015 (Predecessor) and the related notes and financial statement schedule listed in the Index at Item 15. These15 (collectively referred to as the “financial statements”). In our opinion, the financial statements and schedule arepresent fairly, in all material respects, the responsibilityconsolidated financial position of the Company’s management. Our responsibility isCompany at December 31, 2017 and 2016 (Successor), and the consolidated results of its operations and its cash flows for the year ended December 31, 2017 (Successor), the period from October 2, 2016 through December 31, 2016 (Successor), the period from January 1, 2016 through October 1, 2016 (Predecessor), and the year ended December 31, 2015 (Predecessor), in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 1 and 3 to express an opinion on thesethe consolidated financial statements, on September 13, 2016, the Bankruptcy Court entered an order confirming the Plan of Reorganization, which became effective on October 5, 2016. Accordingly, the accompanying consolidated financial statements have been prepared in conformity with Accounting Standards Codification 852-10, Reorganizations, for the Successor Company as a new entity with assets, liabilities and schedule based on our audits.

a capital structure having carrying amounts not comparable with prior periods (Predecessor) as described in Notes 1 and 3.


We conducted our auditsalso have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion,


/s/ Ernst & Young, LLP

We have served as the financial statements referred to above present fairly, in all material respects,Company’s auditor since 1997.

St. Louis, Missouri
February 23, 2018



F- 2


Report of Independent Registered Public Accounting Firm

To the consolidated financial positionStockholders and the Board of Directors of Arch Coal, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Arch Coal, Inc. and subsidiaries atinternal control over financial reporting as of December 31, 2015 and 2014, and2017, based on criteria established in Internal Control- Integrated Framework issued by the consolidated resultsCommittee of their operations and their cash flows for eachSponsoring Organizations of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, inTreadway Commission (2013 framework) (the COSO criteria). In our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairlyArch Coal, Inc. (and subsidiaries) (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, to the consolidated financial statements, the Company has recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

COSO criteria.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Arch Coal, Inc.’s internal control over financial reporting and subsidiaries (the Company) as of December 31, 2017 and 2016 (Successor), and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows for the year ended December 31, 2017 (Successor), the period from October 2, 2016 through December 31, 2016 (Successor), the period from January 1, 2016 through October 1, 2016 (Predecessor), and the year ended December 31, 2015 based on criteria established(Predecessor) and the related notes and financial statement schedule listed in Internal Control-Integrated Framework issued by the Committee of Sponsoring OrganizationsIndex at Item 15 of the Treadway Commission (2013 framework)Company, and our report dated March 15, 2016February 23, 2018 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

St. Louis, Missouri

March 15, 2016

F-2



Basis for Opinion

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Arch Coal, Inc.

We have audited Arch Coal, Inc. and subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Arch Coal, Inc. and subsidiaries’Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Arch Coal, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Arch Coal, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015, and our report dated March 15, 2016, expressed an unqualified opinion thereon that included an explanatory paragraph regarding Arch Coal, Inc.’s ability to continue as a going concern.

/s/ Ernst & Young, LLP


St. Louis, Missouri

March 15, 2016

F-

February 23, 2018


F- 3



Table of Contents


REPORT OF MANAGEMENT

The management of Arch Coal, Inc. (the “Company”) is responsible for the preparation of the consolidated financial statements and related financial information in this annual report. The financial statements are prepared in accordance with accounting principles generally accepted in the United States and necessarily include some amounts that are based on management’s informed estimates and judgments, with appropriate consideration given to materiality.

The Company maintains a system of internal accounting controls designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for and safeguarded. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the value of the benefits derived. The Company has a professional staff of internal auditors who monitor compliance with and assess the effectiveness of the system of internal accounting controls.

The Audit Committee of the Board of Directors, comprised of independent directors, meets regularly with management, the internal auditors, and the independent auditors to discuss matters relating to financial reporting, internal accounting control, and the nature, extent and results of the audit effort. The independent auditors and internal auditors have full and free access to the Audit Committee, with and without management present.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Arch Coal, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or processes may deteriorate.

Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 20152017 based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management concluded that the Company’s internal control over financial reporting is effective as of December 31, 2015.2017.

The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an audit opinion on the Company’s internal control over financial reporting as of December 31, 2015.

F-2017.




F- 4



Table of Contents

Arch Coal, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,573,260

 

$

2,937,119

 

$

3,014,357

 

Costs, expenses and other operating

 

 

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

2,206,433

 

2,566,193

 

2,663,136

 

Depreciation, depletion and amortization

 

379,345

 

418,748

 

426,442

 

Amortization of acquired sales contracts, net

 

(8,811

)

(13,187

)

(9,457

)

Change in fair value of coal derivatives and coal trading activities, net

 

(1,583

)

(3,686

)

7,845

 

Asset impairment and mine closure costs

 

2,628,303

 

24,113

 

220,879

 

Goodwill impairment

 

 

 

265,423

 

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

116,343

 

 

 

Selling, general and administrative expenses

 

98,783

 

114,223

 

133,448

 

Other operating expense (income), net

 

19,510

 

(19,754

)

(30,218

)

 

 

5,438,323

 

3,086,650

 

3,677,498

 

Loss from operations

 

(2,865,063

)

(149,531

)

(663,141

)

Interest expense, net

 

 

 

 

 

 

 

Interest expense

 

(397,979

)

(390,946

)

(381,267

)

Interest and investment income

 

4,430

 

7,758

 

6,603

 

 

 

(393,549

)

(383,188

)

(374,664

)

Nonoperating expense

 

 

 

 

 

 

 

Net loss resulting from early retirement of debt and debt restructuring

 

(27,910

)

 

(42,921

)

Loss from continuing operations before income taxes

 

(3,286,522

)

(532,719

)

(1,080,726

)

Provision for (benefit from) income taxes

 

(373,380

)

25,634

 

(335,498

)

Loss from continuing operations

 

(2,913,142

)

(558,353

)

(745,228

)

Income from discontinued operations, including gain on sale - net of tax

 

 

 

103,396

 

Net loss

 

(2,913,142

)

(558,353

)

(641,832

)

 

 

 

 

 

 

 

 

Losses per common share

 

 

 

 

 

 

 

Basic and diluted LPS- Loss from continuing operations

 

$

(136.86

)

$

(26.31

)

$

(35.15

)

Basic and diluted LPS - Net loss

 

$

(136.86

)

$

(26.31

)

$

(30.26

)

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

21,285

 

21,222

 

21,210

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

 

$

0.10

 

$

1.20

 


Arch Coal, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data) 
 
SuccessorPredecessor
 
Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
        
Revenues $2,324,623
 $575,688
$1,398,709
 $2,573,260
Costs, expenses and other operating    
 
  
Cost of sales (exclusive of items shown separately below) 1,843,093
 470,644
1,264,464
 2,172,753
Depreciation, depletion and amortization 122,464
 32,604
191,581
 379,345
Accretion on asset retirement obligations 30,209
 7,634
24,321
 33,680
Amortization of sales contracts, net 53,985
 796
(728) (8,811)
Change in fair value of coal derivatives and coal trading activities, net 7,222
 396
2,856
 (1,583)
Asset impairment and mine closure costs 
 
129,267
 2,628,303
Losses from disposed operations resulting from Patriot Coal bankruptcy 
 

 116,343
Selling, general and administrative expenses 86,821
 22,836
59,343
 98,783
Gain on sale of Lone Mountain Processing, Inc. (21,297) 

 
Other operating (income) expense, net (30,270) (5,340)(15,257) 19,510
  2,092,227
 529,570
1,655,847
 5,438,323
Income (loss) from operations
232,396
 46,118
(257,138) (2,865,063)
        
Interest expense, net       
Interest expense
(26,905) (11,241)(135,888) (397,979)
Interest and investment income
2,649
 487
2,653
 4,430
  (24,256) (10,754)(133,235) (393,549)
        
Income (loss) before nonoperating expenses 208,140
 35,364
(390,373) (3,258,612)
        
Nonoperating income (expense)       
Net loss resulting from early retirement of debt and debt restructuring
(2,547) 
(2,213) (27,910)
Reorganization income (loss), net (2,398) (759)1,630,041
 
  (4,945) (759)1,627,828
 (27,910)
        
Income (loss) before income taxes
203,195
 34,605
1,237,455
 (3,286,522)
Provision for (benefit from) income taxes (35,255) 1,156
(4,626) (373,380)
Net income (loss)
238,450
 33,449
1,242,081
 (2,913,142)
        
Earnings (loss) per common share    
 
  
Basic earnings (loss) per common share $10.05
 $1.34
$58.33
 $(136.86)
        
Diluted earnings (loss) per common share $9.84
 $1.31
$58.28
 $(136.86)
        
Weighted average shares outstanding       
Basic weighted average shares outstanding 23,725
 25,002
21,293
 21,285
        
Diluted weighted average shares outstanding 24,240
 25,469
21,313
 21,285

The accompanying notes are an integral part of the consolidated financial statements.

F-


F- 5



Table of Contents


Arch Coal, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,913,142

)

$

(558,353

)

$

(641,832

)

 

 

 

 

 

 

 

 

Derivative instruments

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

(3,477

)

3,102

 

(2,626

)

Income tax benefit (provision)

 

1,252

 

(1,117

)

947

 

 

 

(2,225

)

1,985

 

(1,679

)

Pension, postretirement and other post-employment benefits

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

(5,592

)

(44,143

)

77,201

 

Income tax benefit (provision)

 

2,011

 

15,891

 

(27,803

)

 

 

(3,581

)

(28,252

)

49,398

 

Available-for-sale securities

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

1,185

 

(12,788

)

10,190

 

Income tax benefit (provision)

 

(435

)

4,604

 

(3,710

)

 

 

750

 

(8,184

)

6,480

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

(5,056

)

(34,451

)

54,199

 

Total comprehensive loss

 

$

(2,918,198

)

$

(592,804

)

$

(587,633

)


  SuccessorPredecessor
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
        
Net income (loss) $238,450
 $33,449
$1,242,081
 $(2,913,142)
        
Derivative instruments       
Comprehensive income (loss) before tax 647
 
(532) (3,477)
Income tax benefit (provision) 
 
80
 1,252
  647
 
(452) (2,225)
Pension, postretirement and other post-employment benefits       
Comprehensive income (loss) before tax (4,347) 24,067
(1,848) (5,592)
Income tax benefit (provision) 
 
483
 2,011
  (4,347) 24,067
(1,365) (3,581)
Available-for-sale securities       
Comprehensive income (loss) before tax (387) 387
2,968
 1,185
Income tax benefit (provision) 
 
(1,042) (435)
  (387) 387
1,926
 750
        
Total other comprehensive income (loss) (4,087) 24,454
109
 (5,056)
Total comprehensive income (loss) $234,363
 $57,903
$1,242,190
 $(2,918,198)


The accompanying notes are an integral part of the consolidated financial statements.

F-



F- 6



Table of Contents


Arch Coal, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)

 

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

450,781

 

$

734,231

 

Short term investments

 

200,192

 

248,954

 

Restricted cash

 

97,542

 

5,678

 

Trade accounts receivable (net of allowance for doubtful accounts of $7.8 million and $0.2 million, respectively)

 

117,405

 

211,506

 

Other receivables

 

18,362

 

20,511

 

Inventories

 

196,720

 

190,253

 

Prepaid royalties

 

10,022

 

11,118

 

Deferred income taxes

 

 

52,728

 

Coal derivative assets

 

8,035

 

13,257

 

Other current assets

 

104,723

 

54,515

 

Total current assets

 

1,203,782

 

1,542,751

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

Coal lands and mineral rights

 

3,713,639

 

6,040,656

 

Plant and equipment

 

2,359,674

 

2,935,381

 

Deferred mine development

 

553,286

 

891,649

 

 

 

6,626,599

 

9,867,686

 

Less accumulated depreciation, depletion and amortization

 

(3,007,570

)

(3,414,228

)

Property, plant and equipment, net

 

3,619,029

 

6,453,458

 

Other assets

 

 

 

 

 

Prepaid royalties

 

23,671

 

66,806

 

Equity investments

 

201,877

 

235,842

 

Other noncurrent assets

 

58,379

 

130,866

 

Total other assets

 

283,927

 

433,514

 

Total assets

 

$

5,106,738

 

$

8,429,723

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

128,131

 

$

180,113

 

Accrued expenses and other current liabilities

 

329,450

 

302,396

 

Current maturities of debt

 

5,107,210

 

36,885

 

Total current liabilities

 

5,564,791

 

519,394

 

Long-term debt

 

30,953

 

5,123,485

 

Asset retirement obligations

 

396,659

 

398,896

 

Accrued pension benefits

 

27,373

 

16,260

 

Accrued postretirement benefits other than pension

 

99,810

 

32,668

 

Accrued workers’ compensation

 

112,270

 

94,291

 

Deferred income taxes

 

 

422,809

 

Other noncurrent liabilities

 

119,171

 

153,766

 

Total liabilities

 

6,351,027

 

6,761,569

 

Stockholders’ equity (deficit)

 

 

 

 

 

Common stock, $0.01 par value, authorized 26,000 shares, issued 21,446 and 21,379 shares at December 31, 2015 and 2014, respectively

 

2,145

 

2,141

 

Paid-in capital

 

3,054,211

 

3,048,460

 

Treasury stock, at cost

 

(53,863

)

(53,863

)

Accumulated deficit

 

(4,244,967

)

(1,331,825

)

Accumulated other comprehensive income

 

(1,815

)

3,241

 

Total stockholders’ equity (deficit)

 

(1,244,289

)

1,668,154

 

Total liabilities and stockholders’ equity (deficit)

 

$

5,106,738

 

$

8,429,723

 


 December 31, 2017December 31, 2016
Assets  
Current assets 
 
Cash and cash equivalents$273,387
$305,372
Short term investments155,846
88,072
Restricted cash
71,050
Trade accounts receivable172,604
184,483
Other receivables29,771
19,877
Inventories128,960
113,462
Other current assets70,426
96,306
Total current assets830,994
878,622
   
Property, plant and equipment  
Coal lands and mineral rights390,920
387,591
Plant and equipment445,407
418,182
Deferred mine development267,063
280,323
 1,103,390
1,086,096
Less accumulated depreciation, depletion and amortization(147,442)(32,493)
Property, plant and equipment, net955,948
1,053,603
Other assets 
 
Prepaid royalties4,280

Deferred income taxes22,520

Equity investments106,107
96,074
Other noncurrent assets59,783
108,298
Total other assets192,690
204,372
Total assets$1,979,632
$2,136,597
Liabilities and Stockholders' Equity  
Current liabilities 
 
Accounts payable$134,137
$95,953
Accrued expenses and other current liabilities184,161
205,240
Current maturities of debt15,783
11,038
Total current liabilities334,081
312,231
Long-term debt310,134
351,841
Asset retirement obligations308,855
337,227
Accrued pension benefits14,036
38,884
Accrued postretirement benefits other than pension102,369
101,445
Accrued workers’ compensation184,835
184,568
Other noncurrent liabilities59,457
63,824
Total liabilities1,313,767
1,390,020
Stockholders' equity 
 
Common stock, $0.01 par value, authorized 300,000 shares, issued 25,047 and 25,002 shares at December 31, 2017 and 2016, respectively

250
250
Paid-in capital700,125
688,424
Treasury stock, 3,977 shares at December 31, 2017, at cost(302,109)
Retained earnings247,232
33,449
Accumulated other comprehensive income (loss)20,367
24,454
Total stockholders’ equity665,865
746,577
Total liabilities and stockholders’ equity$1,979,632
$2,136,597

The accompanying notes are an integral part of the consolidated financial statements.

F-


F- 7



Table of Contents


Arch Coal, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(2,913,142

)

$

(558,353

)

$

(641,832

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

379,345

 

418,748

 

447,704

 

Amortization of acquired sales contracts, net

 

(8,811

)

(13,187

)

(9,457

)

Prepaid royalties expensed

 

8,109

 

9,698

 

13,706

 

Deferred income taxes

 

(367,210

)

25,152

 

(263,099

)

Employee stock-based compensation expense

 

5,760

 

9,847

 

11,790

 

Gains on disposals and divestitures

 

(2,270

)

(27,512

)

(120,321

)

Asset impairment and noncash mine closure costs

 

2,613,345

 

16,868

 

220,879

 

Goodwill impairment

 

 

 

265,423

 

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

116,343

 

 

 

Amortization relating to financing activities

 

25,241

 

17,363

 

24,789

 

Net loss resulting from early retirement of debt and debt restructuring

 

27,910

 

 

42,921

 

Changes in:

 

 

 

 

 

 

 

Receivables

 

98,212

 

(8,991

)

62,881

 

Inventories

 

(6,534

)

41,548

 

44,635

 

Coal derivative assets and liabilities

 

973

 

5,449

 

3,606

 

Accounts payable, accrued expenses and other current liabilities

 

(15,532

)

41,680

 

(78,126

)

Asset retirement obligations

 

16,640

 

18,288

 

17,432

 

Pension, postretirement and other postemployment benefits

 

4,800

 

(25,347

)

7,284

 

Other

 

(27,546

)

(4,833

)

5,527

 

Cash provided by (used in) operating activities

 

(44,367

)

(33,582

)

55,742

 

Investing activities

 

 

 

 

 

 

 

Capital expenditures

 

(119,024

)

(147,286

)

(296,984

)

Minimum royalty payments

 

(5,871

)

(7,317

)

(14,947

)

Proceeds from sale-leaseback transactions

 

 

 

34,919

 

Proceeds from disposals and divestitures

 

2,191

 

62,358

 

433,453

 

Purchases of short term investments

 

(246,735

)

(211,929

)

(213,726

)

Proceeds from sales of short term investments

 

290,205

 

205,611

 

194,537

 

Proceeds from sale of investments in equity investments and securities

 

2,259

 

9,464

 

 

Investments in and advances to affiliates, net

 

(11,502

)

(16,657

)

(15,260

)

Withdrawals (deposits) of restricted cash

 

(91,864

)

(5,678

)

3,453

 

Cash provided by (used in) investing activities

 

(180,341

)

(111,434

)

125,445

 

Financing activities

 

 

 

 

 

 

 

Proceeds from term loan

 

 

 

294,000

 

Proceeds from issuance of senior notes

 

 

 

350,000

 

Payments to retire debt

 

 

(300

)

(628,660

)

Payments on term loan

 

(19,500

)

(19,500

)

(17,250

)

Net payments on other debt

 

(11,332

)

(5,395

)

(6,836

)

Debt financing costs

 

 

(4,519

)

(20,489

)

Dividends paid

 

 

(2,123

)

(25,475

)

Expenses related to debt restructuring

 

(27,910

)

 

 

Other

 

 

(15

)

 

Cash used in financing activities

 

(58,742

)

(31,852

)

(54,710

)

Increase (decrease) in cash and cash equivalents

 

(283,450

)

(176,868

)

126,477

 

Cash and cash equivalents, beginning of period

 

734,231

 

911,099

 

784,622

 

Cash and cash equivalents, end of period

 

$

450,781

 

$

734,231

 

$

911,099

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid during the year for interest

 

$

283,337

 

$

361,727

 

$

380,389

 

Cash refunded during the year for income taxes, net

 

$

4,138

 

$

4,896

 

$

18,741

 

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
       
Operating activities   
 
  
Net income (loss)$238,450
 $33,449
$1,242,081
 $(2,913,142)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:

 



 

Depreciation, depletion and amortization122,464
 32,604
191,581
 379,345
Accretion on asset retirement obligations30,209
 7,634
24,321
 33,680
Amortization of sales contracts, net53,985
 796
(728) (8,811)
Prepaid royalties expensed2,905
 2,587
4,791
 8,109
Deferred income taxes(21,965) 3
(419) (367,210)
Employee stock-based compensation expense10,437
 1,032
2,096
 5,760
Gains on disposals and divestitures(24,327) (485)(6,628) (2,270)
Asset impairment and noncash mine closure costs
 
119,194
 2,613,345
Losses from disposed operations resulting from Patriot Coal bankruptcy
 

 116,343
Amortization relating to financing activities3,736
 467
12,800
 25,241
Net loss resulting from early retirement of debt and debt restructuring2,547
 
2,213
 27,910
Non-cash bankruptcy reorganization items
 
(1,775,910) 
Changes in:

 



 

Receivables8,370
 (22,196)(42,786) 98,212
Inventories(19,626) 24,870
34,440
 (6,534)
Coal derivative assets and liabilities6,040
 1,662
5,678
 973
Accounts payable, accrued expenses and other current liabilities17,173
 34,129
15,316
 (15,532)
Asset retirement obligations(20,584) (4,535)(12,041) (17,040)
Pension, postretirement and other postemployment benefits(15,253) (5,625)(15,692) 4,800
Other1,912
 (22,200)(28,525) (27,546)
Cash provided by (used in) operating activities396,473
 84,192
(228,218) (44,367)
Investing activities   
 
  
Capital expenditures(59,205) (15,214)(82,434) (119,024)
Minimum royalty payments(5,296) (63)(305) (5,871)
Proceeds from disposals and divestitures12,920
 572
(2,921) 2,191
Purchases of short term investments(258,948) 
(98,750) (246,735)
Proceeds from sales of short term investments190,064
 23,000
185,859
 290,205
Proceeds from sale of investments in equity investments and securities
 
1,147
 2,259
Investments in and advances to affiliates, net(10,173) (823)(3,441) (11,502)
Withdrawals (deposits) of restricted cash70,836
 10,512
15,979
 (91,864)
Cash provided by (used in) investing activities(59,802) 17,984
15,134
 (180,341)
Financing activities   
 
  
Proceeds from issuance of term loan due 2024298,500
 

 
Payments to extinguish term loan due 2021(325,684) 

 
Payments on term loan(2,250) (816)
 (19,500)
Net receipts (payments) on other debt(694) 3,374
(11,986) (11,332)
Debt financing costs(10,149) 
(23,011) 
Dividends paid(24,369) 

 
Purchases of treasury stock(301,512) 

 
Expenses related to debt restructuring(2,360) 
(2,213) (27,910)
Other(138) 151

 
Cash provided by (used in) financing activities(368,656) 2,709
(37,210) (58,742)
Increase (decrease) in cash and cash equivalents(31,985) 104,885
(250,294) (283,450)
Cash and cash equivalents, beginning of period305,372
 200,487
450,781
 734,231
Cash and cash equivalents, end of period$273,387
 $305,372
$200,487
 $450,781
SUPPLEMENTAL CASH FLOW INFORMATION      
Cash paid during the period for interest$34,691
 $39,620
$79,979
 $283,337
Cash refunded during the period for income taxes, net$7,958
 $287
$49
 $4,138
The accompanying notes are an integral part of the consolidated financial statements.

F-



F- 8



Table of Contents


Arch Coal, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)

Three Years Ended December 31, 20152017

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Treasury

 

 

 

Other

 

 

 

 

 

Common

 

Paid-In

 

Stock, at

 

Accumulated

 

Comprehensive

 

 

 

 

 

Stock

 

Capital

 

Cost

 

Deficit

 

Income (Loss)

 

Total

 

 

 

(In thousands, except per share data)

 

BALANCE AT JANUARY 1, 2013

 

$

2,141

 

$

3,026,823

 

$

(53,848

)

$

(104,042

)

$

(16,507

)

$

2,854,567

 

Total comprehensive (loss)

 

 

 

 

(641,832

)

54,199

 

(587,633

)

Dividends on common shares ($1.20 per share)

 

 

 

 

(25,475

)

 

(25,475

)

Issuance of 39 shares of common stock under the stock incentive plan — restricted stock and restricted stock units, net of forfeitures

 

0

 

0

 

 

 

 

 

Employee stock-based compensation expense

 

 

11,790

 

 

 

 

11,790

 

BALANCE AT DECEMBER 31, 2013

 

2,141

 

3,038,613

 

(53,848

)

(771,349

)

37,692

 

2,253,249

 

Total comprehensive income (loss)

 

 

 

 

(558,353

)

(34,451

)

(592,804

)

Dividends on common shares ($0.10 per share)

 

 

 

 

(2,123

)

 

(2,123

)

Treasury shares purchased

 

0

 

0

 

(15

)

 

 

(15

)

Employee stock-based compensation expense

 

 

9,847

 

 

 

 

9,847

 

BALANCE AT DECEMBER 31, 2014

 

2,141

 

3,048,460

 

(53,863

)

(1,331,825

)

3,241

 

1,668,154

 

Total comprehensive income (loss)

 

 

 

 

(2,913,142

)

(5,056

)

(2,918,198

)

Issuance of 64 shares of common stock under the stock incentive plan-restricted stock and restricted stock units, net of forfeitures

 

4

 

(9

)

 

 

 

 

 

 

(5

)

Employee stock-based compensation expense

 

 

5,760

 

 

 

 

5,760

 

BALANCE AT DECEMBER 31, 2015

 

$

2,145

 

$

3,054,211

 

$

(53,863

)

$

(4,244,967

)

$

(1,815

)

$

(1,244,289

)

F-

     Treasury Retained Earnings Accumulated Other  
 Common Paid-In Stock, at (Accumulated Comprehensive  
 Stock Capital Cost Deficit) Income (Loss) Total
 (In thousands, except per share data)
Predecessor Company           
BALANCE AT JANUARY 1, 2015$2,141
 $3,048,460
 $(53,863) $(1,331,825) $3,241
 $1,668,154
Total comprehensive loss
 
 
 (2,913,142) (5,056) (2,918,198)
Issuance of 64 shares of common stock under the stock incentive plan-restricted stock and restricted stock units, net of forfeitures4
 (9) 
 
 
 (5)
Employee stock-based compensation expense
 5,760
 
 
 
 5,760
BALANCE AT DECEMBER 31, 2015$2,145
 $3,054,211
 $(53,863) $(4,244,967) $(1,815) $(1,244,289)
Total comprehensive income
 
 
 1,242,081
 109
 1,242,190
Employee stock-based compensation expense
 2,099
 
 
 
 2,099
Elimination of predecessor equity(2,145) (3,056,310) 53,863
 3,002,886
 1,706
 
BALANCE AT OCTOBER 1, 2016$
 $
 $
 $
 $
 $
Successor Company           
Issuance of successor equity250
 687,233
 
 
 
 687,483
Employee stock-based compensation
 1,032
 
 
 
 1,032
Warrants exercised
 159
 
 
 
 159
Total comprehensive income
 
 
 33,449
 24,454
 57,903
BALANCE AT DECEMBER 31, 2016$250
 $688,424
 $
 $33,449
 $24,454
 $746,577
Dividends on common shares ($0.35/share)$
 $
 $
 $(24,667) $
 $(24,667)
Employee stock-based compensation
 10,437
 
 
 
 10,437
Issuance of 17,233 shares of common stock under long-term incentive plans
 1,244
 
 
 
 1,244
Warrants exercised
 20
 
 
 
 20
Purchase of 3,977,215 shares of common stock under share repurchase program
 
 (302,109) 
 
 (302,109)
Total comprehensive income (loss)
 
 
 238,450
 (4,087) 234,363
            
BALANCE AT DECEMBER 31, 2017$250
 $700,125
 $(302,109) $247,232
 $20,367
 $665,865




F- 9



Table of Contents


Arch Coal, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Basis of Presentation


The accompanying consolidated financial statements include the accounts of Arch Coal, Inc. and its subsidiaries and controlled entities (the “Company”). Unless the context indicates otherwise, the terms “Arch” and the “Company” are used interchangeably in this Annual Report on Form 10-K refer to both the Predecessor and Successor Company. The Company’s primary business is the production of thermal and metallurgical coal from surface and underground mines located throughout the United States, for sale to utility, industrial and steel producers both in the United States and around the world. The Company currently operates mining complexes in West Virginia, Kentucky, Maryland, Virginia, Illinois, Wyoming and Colorado. All subsidiaries are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.

Filing Under


Chapter 11 of the United StatesFiling and Emergence from Bankruptcy Code


On January 11, 2016 (the “Petition Date”), Arch and substantially all of its wholly owned domestic subsidiaries (the “Filing Subsidiaries” and, together with Arch, the “Debtors”) filed voluntary petitions for reorganization (collectively, the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Missouri (the “Court”). The Debtor’s Chapter 11 Cases (collectively, the “Chapter 11 Cases”) are beingwere jointly administered under the caption In re Arch Coal, Inc., et al. Case No. 16-40120 (lead case). EachDuring the bankruptcy proceedings, each Debtor will continue to operateoperated its business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court.

The filing of the Bankruptcy Petitions constituted an event of default that accelerated Arch’s obligations under the documents governing each of Arch’s 7.00% senior notes due 2019, 9.875% senior notes due 2019, 8.00% senior secured second lien notes due 2019, 7.25% senior notes due 2020, 7.25% senior notes due 2021 (together, the “senior notes”) and senior secured first lien term loan due 2018 (the “Existing Credit Agreement”) (collectively with the senior notes, the “Debt Instruments”), all as further described in Note 14, “Debt and Financing Arrangements”


For periods subsequent to the Consolidated Financial Statements included in the Form 10-K. Immediately after filing the Bankruptcy Petitions, Arch began notifying all known current or potential creditorsthe Company applied the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations”, in preparing its consolidated financial statements. ASC 852 requires that financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the Debtors ofbusiness. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy filings.

Additionally,proceedings have been recorded in a reorganization line item on the Petition Date,Consolidated Statement of Operations. In addition, the New York Stock Exchange (the “NYSE”) determinedpre-petition obligations that may be impacted by the Company’s stock was no longer suitable for listing pursuantbankruptcy reorganization process were classified on the balance sheet as liabilities subject to Section 8.02.01D ofcompromise.

On September 13, 2016, the NYSE continued listing standards and trading in the Company’s common stock was suspended on  January 11, 2016.   We expect that the existing common stock of the Company will be extinguished upon the Company’s emergence from Chapter 11 and existing equity holders will not receive consideration in respect of their equity interests.

On the Petition Date, the Debtors filed a number of motions with theBankruptcy Court generally designed to stabilize their operations and facilitateentered an order, Docket No. 1324, confirming the Debtors’ transition intoFourth Amended Joint Plan of Reorganization under Chapter 11. Certain of these motions sought authority from the Court for the Debtors to make payments upon, or otherwise honor, certain pre-petition obligations (e.g., obligations related to certain employee wages, salaries and benefits and certain vendors and other providers essential to the Debtors’ businesses). The Court has entered orders approving the relief sought in these motions.

Pursuant to Section 36211 of the Bankruptcy Code dated as of September 11, 2016 (the “Plan”), which order was amended on September 15, 2016, Docket No. 1334.


On October 5, 2016, Arch Coal satisfied the filing ofclosing conditions contemplated by the Bankruptcy Petitions automatically stayed most actions againstPlan, which became effective on that date (the “Effective Date”).

On the Debtors, including actionsPlan Effective Date, the Company applied fresh start accounting which required the Company to collect indebtedness incurred priorallocate its reorganization value to the Petition Date or to exercise control over the Debtors’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases also automatically stayed the continuation of most legal proceedings, including the third party litigation matters described under “Legal Proceedings,” or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim.  Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

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As required by the Bankruptcy Code, the U.S. Trustee for the Eastern District of Missouri appointed an official committee of unsecured creditors (the “Creditors’ Committee”) on January 25, 2016. The Creditors’ Committee represents all unsecured creditors of the Debtors and has a right to be heard on all matters that come before the Court.

As a result of extremely challenging current market conditions, the Company believes it will require a significant restructuring of its balance sheet in order to continue as a going concern in the long term. The Company’s ability to continue as a going concern is dependent upon, among other things, improvement in current market conditions, its ability to become profitable and maintain profitability and its ability to successfully implement its Chapter 11 plan strategy.  As a result of the Bankruptcy Petitions, the realization of the Debtors’ assets and the satisfaction of liabilities are subject to significant uncertainty. While operating as a debtor-in-possession pursuant to the Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Court or as otherwise permitted in the ordinary course of business for amounts other than those reflected in the accompanying consolidated financial statements. Further, a Chapter 11 plan is likely to materially change the amounts and classificationsfair value of assets and liabilities reportedin conformity with the guidance for the acquisition method of accounting for business combinations. In addition to fresh start accounting, the Company’s consolidated financial statements reflect all impacts of the transactions contemplated by the Plan. Under the provisions of fresh start accounting, a new entity has been created for financial reporting purposes. The Company selected an accounting convenience date of October 1, 2016 for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date does not result in a material difference in the Company’s Consolidated Financial Statements.

On August 4, 2015,results. References to “Successor” in the Company effected a 1-for-10 reverse stock split of its common stock.  Each stockholder’s percentage ownershipfinancial statements and proportional voting power remain unchanged as a resultaccompanying footnotes are in reference to reporting dates on or after October 2, 2016; references to “Predecessor” in the financial statements and accompanying footnotes are in reference to reporting dates through October 1, 2016 which includes the impact of the reverse stock split.  All applicable share data, per share amountsPlan provisions and related informationthe application of fresh start accounting. As such, the Company’s financial statements for the Successor will not be comparable in the Consolidated Financial Statements and notes thereto have been adjusted retroactivelymany respects to give effectits financial statements for periods prior to the 1-for-10 reverse stock split.

The Company completedadoption of fresh start accounting and prior to the saleaccounting for the effects of Canyon Fuel Company, LLC (Canyon Fuel) on August 16, 2013.  The resultsthe Plan.





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2. Accounting Policies


The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for financial reporting and U.S. Securities and Exchange Commission regulations.

Accounting Pronouncements

There are no accounting pronouncements whose adoption had, or is expected to have, a material impact on the Company’s consolidated financial statements.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses in the accompanying consolidated financial statements and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost. Cash equivalents consist of highly-liquid investments with an original maturity of three months or less when purchased.

Restricted cash

Restricted cash represents cash collateral supporting letters of credit issued under the Company’s accounts receivable securitization program.

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Accounts Receivable

Accounts receivable are recorded at amounts that are expected to be collected, based on past collection history, the economic environment and specified risks identified in the receivables portfolio.

Inventories

Coal and supplies inventories are valued at the lower of average cost or market. Coal inventory costs include labor, supplies, equipment costs, transportation costs incurred prior to the transfer of title to customers and operating overhead. The costs of removing overburden, called stripping costs, incurred during the production phase of the mine are considered variable production costs and are included in the cost of the coal extracted during the period the stripping costs are incurred.

Investments and Membership Interests in Joint Ventures

Investments and membership interests in joint ventures are accounted for under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. The Company’s share of the entity’s income or loss is reflected in “Other operating expense (income), net” in the consolidated statements of operations. Information about investment activity is provided in Note 10 to the Consolidated Financial Statements, Equity Method Investments and Membership Interests in Joint Ventures”Ventures.

Investments in debt securities and marketable equity securities that do not qualify for equity method accounting are classified as available-for-sale and are recorded at their fair values. Unrealized gains and losses on these investments are recorded in other comprehensive income or loss. A decline in the value of an investment that is considered other-than-temporary would be recognized in operating expenses.

Acquired

Sales Contracts

Coal supply agreements (sales contracts) valued during fresh start accounting or acquired in a business combination are capitalized at their fair value and amortized over the tons of coal shipped during the term of the contract. The fair value of a sales contract is determined by discounting the cash flows attributable to the difference between the contract price and the prevailing forward prices for the tons under contract at the date of acquisition. See Note 11 “Acquired to the Consolidated Financial Statements, “Sales Contracts”Contracts for further information related to the Company’s acquired sales contracts.

Exploration Costs

Costs to acquire permits for exploration activities are capitalized. Drilling and other costs related to locating coal deposits and evaluating the economic viability of such deposits are expensed as incurred.

Prepaid Royalties

Leased mineral rights are often acquired through royalty payments. When royalty payments represent prepayments recoupable against royalties owed on future revenues from the underlying coal, they are recorded as a prepaid asset, with amounts expected to be recouped within one year classified as current. When coal from these leases is sold, the royalties owed are recouped against the prepayment and charged to cost of sales. An impairment charge is recognized for prepaid royalties that are not expected to be recouped.


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Property, Plant and Equipment

Plant and Equipment

Plant and equipment arewere recorded at fair value at emergence during fresh start accounting; subsequent purchases of property, plant and equipment have been recorded at cost. Interest costs incurred during the construction period for major asset additions are capitalized. WeThe Company did not capitalize any interest costs during the years ended December 31, 20152017 and 20142016, respectively. Expenditures that extend the useful lives of existing plant and equipment or increase the productivity of the asset are capitalized. The cost of maintenance and repairs that do not extend the useful life or increase the productivity of the asset is expensed as incurred.

Preparation plants and loadouts are depreciated using the units-of-production method over the estimated recoverable reserves, subject to a minimum level of depreciation. Other plant and equipment are depreciated principally using the straight-line method over the estimated useful lives of the assets, limited by the remaining life of the mine. The useful lives of mining equipment, including longwalls, draglines and shovels, range from 57 to 3218 years. The useful lives of buildings and leasehold improvements generally range from 101 to 3021 years.

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Deferred Mine Development

Costs of developing new mines or significantly expanding the capacity of existing mines are capitalized and amortized using the units-of-production method over the estimated recoverable reserves that are associated with the property being benefited. Costs may include construction permits and licenses; mine design; construction of access roads, shafts, slopes and main entries; and removing overburden to access reserves in a new pit. Additionally, deferred mine development includes the asset cost associated with asset retirement obligations.

Coal sales revenue related to incidental production during the development phase will be recorded as coal sales revenue with an offset to cost of coal sales based on the estimated cost per ton sold for the mine when the asset is in place for its intended use.

Coal Lands and Mineral Rights

Rights to coal reserves may be acquired directly through governmental or private entities. A significant portion of the Company’s coal reserves are controlled through leasing arrangements. Lease agreements are generally long-term in nature (original terms range from 10 to 50 years), and substantially all of the leases contain provisions that allow for automatic extension of the lease term providing certain requirements are met.

The net book value of the Company’s coal interests was $2.4 billion$361.2 million and $4.7 billion$381.0 million at December 31, 20152017 and 2014,2016, respectively. Payments to acquire royalty lease agreements and lease bonus payments are capitalized as a cost of the underlying mineral reserves and depleted over the life of proven and probable reserves. Coal lease rights are depleted using the units-of-production method, and the rights are assumed to have no residual value.

Future

The Company currently does not have any future lease bonus payments total $60.0 million in 2016.

payments.

Depreciation, depletion and amortization.

amortization

The depreciation, depletion and amortization related to long-lived assets is reflected in the statement of operations as a separate line item. No depreciation, depletion or amortization is included in any other operating cost categories.

Impairment

If facts and circumstances suggest that the carrying value of a long-lived asset or asset group may not be recoverable, the asset or asset group is reviewed for potential impairment. If this review indicates that the carrying amount of the asset will not be recoverable through projected undiscounted cash flows generated by the asset and its related asset group over its remaining life, then an impairment loss is recognized by reducing the carrying value of the asset to its fair value. The Company may, under certain circumstances, idle mining operations in response to market conditions or other factors. Because an idling is not a permanent closure, it is not considered an automatic indicator of impairment. See additional discussion in Note 5,6 to the Consolidated Financial Statements, “Impairment Charges and Mine Closure Costs.”

Goodwill

In a business combination, goodwill represents the excess of the purchase price over the fair value assigned to the net tangible and identifiable intangible assets acquired. The Company tests goodwill for impairment annually as of the beginning of the fourth quarter, or when circumstances indicate a possible impairment may exist. If the results of the testing indicate that the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the fair value of goodwill must be calculated. An impairment loss generally would be recognized when the carrying amount of goodwill exceeds the implied fair value of goodwill, determined by subtracting the fair value of the other assets and liabilities associated with the reporting unit from the total fair value of the reporting unit. The fair value of a reporting unit is determined using a discounted cash flow (“DCF”) technique. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, projections of production volumes, quality and costs to produce; projections of sales volumes by market (e.g., thermal versus metallurgical); and projections of market prices. See additional discussion in Note 6, “Goodwill.”

Deferred Financing Costs

The Company capitalizes costs incurred in connection with new borrowings, the establishment or enhancement of credit facilities and the issuance of debt securities. These costs are amortized as an adjustment to interest expense over the life of the borrowing or term of the credit facility using the interest method. Debt issuance costs related to a recognized liability are presented in the balance sheet as a direct reduction from the carrying amount of that liability whereas debt issuance costs related to a credit facility with no balance outstanding are shown as an asset. The unamortized balance of deferred financing costs shown as an asset was

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$66.3 million and $89.1 $5.3 million at December 31, 2015 and 2014, respectively.  Amounts2017, with $2.3 million classified as current were $65.6 million and $25.5 millioncurrent; the unamortized balance of deferred financing costs shown as an asset at December 31, 2015 and 2014, respectively. Current2016 was $5.2 million with $1.9 million classified as current. The current amounts are recorded inclassified within “Other current assets” and the noncurrent amounts are recorded in “Otherclassified within


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“Other noncurrent assets” inassets.” For information on the accompanying consolidatedunamortized balance sheets.

of deferred financing fees related to outstanding debt, see Note 14 to the Consolidated Financial Statements, “Debt and Financing Arrangements.”

Revenue Recognition

Revenues include sales to customers of coal produced at Company operations and coal purchased from third parties. The Company recognizes revenue at the time risk of loss passes to the customer at contracted amounts. Transportation costs are included in cost of sales and amounts billed by the Company to its customers for transportation are included in revenues.

Other Operating Expense (Income), net

Other operating expense (income), net in the accompanying consolidated statements of operations reflects income and expense from sources other than physical coal sales, including: bookouts, or the practice of offsetting purchase and sale contracts for shipping convenience purposes; contract settlements; liquidated damage charges related to unused terminal and port capacity; royalties earned from properties leased to third parties; income from equity investments (Note 10)10, “Equity Method Investments and Membership Interests in Joint Ventures”); non-material gains and losses from divestitures and dispositions of assets (Note 3);assets; and realized gains and losses on derivatives that do not qualify for hedge accounting and are not held for trading purposes (Note 12)12, “Derivatives”).

Asset Retirement Obligations

The Company’s legal obligations associated with the retirement of long-lived assets are recognized at fair value at the time the obligations are incurred. Accretion expense is recognized through the expected settlement date of the obligation. Obligations are incurred at the time development of a mine commences for underground and surface mines or construction begins for support facilities, refuse areas and slurry ponds. The obligation’s fair value is determined using a discounted cash flow technique and is based upon permit requirements and various estimates and assumptions that would be used by market participants, including estimates of disturbed acreage, reclamation costs and assumptions regarding equipment productivity. Upon initial recognition of a liability, a corresponding amount is capitalized as part of the carrying value of the related long-lived asset.

The Company reviews its asset retirement obligation at least annually and makes necessary adjustments for permit changes as granted by state authorities and for revisions of estimates of the amount and timing of costs. For ongoing operations, adjustments to the liability result in an adjustment to the corresponding asset. For idle operations, adjustments to the liability are recognized as income or expense in the period the adjustment is recorded. Any difference between the recorded obligation and the actual cost of reclamation is recorded in profit or loss in the period the obligation is settled. See additional discussion in Note 16, “Asset Retirement Obligations.”

Loss Contingencies

The Company accrues for cost related to contingencies when a loss is probable and the amount is reasonably determinable. Disclosure of contingencies is included in the financial statements when it is at least reasonably possible that a material loss or an additional material loss in excess of amounts already accrued may be incurred. The amount accrued represents the Company’s best estimate of the loss, or, if no best estimate within a range of outcomes exists, the minimum amount in the range.

Derivative Instruments

The Company generally utilizes derivative instruments to manage exposures to commodity prices.prices and interest rate risk on long-term debt. Additionally, the Company may hold certain coal derivative instruments for trading purposes. Derivative financial instruments are recognized in the balance sheet at fair value. Certain coal contracts may meet the definition of a derivative instrument, but because they provide for the physical purchase or sale of coal in quantities expected to be used or sold by the Company over a reasonable period in the normal course of business, they are not recognized on the balance sheet.

Certain derivative instruments are designated as the hedge instrument in a hedging relationship. In a fair value hedge, the Company hedges the risk of changes in the fair value of a firm commitment, typically a fixed-price coal sales contract. Changes in both the hedged firm commitment and the fair value of a derivative used as a hedge instrument in a fair value hedge are recorded in earnings. In a cash flow hedge, the Company hedges the risk of changes in future cash flows related to a forecasted purchase or sale.the underlying item being hedged. Changes in the fair value of the derivative instrument used as a hedge instrument in a cash flow hedge are

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recorded in other comprehensive income or loss. Amounts in other comprehensive income or loss are reclassified to earnings when the hedged transaction affects earnings and are classified in a manner consistent with the transaction being hedged. The Company formally documents the relationships between hedging instruments and the respective hedged items, as well as its risk management objectives for hedge transactions.


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The Company evaluates the effectiveness of its hedging relationships both at the hedge’s inception and on an ongoing basis. Any ineffective portion of the change in fair value of a derivative instrument used as a hedge instrument in a fair value or cash flow hedge is recognized immediately in earnings. The ineffective portion is based on the extent to which exact offset is not achieved between the change in fair value of the hedge instrument and the cumulative change in expected future cash flows on the hedged transaction from inception of the hedge in a cash flow hedge or the change in the fair value. Ineffectiveness was insignificant for the years ended December 31, 2015, 2014 and 2013.

periods disclosed within.

See Note 12, “Derivatives” for further disclosures related to the Company’s derivative instruments.

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly hypothetical transaction between market participants at a given measurement date. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs. See Note 17, “Fair Value Measurements” for further disclosures related to the Company’s recurring fair value estimates.

Income Taxes

Deferred income taxes are provided for temporary differences arising from differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates anticipated to be in effect when the related taxes are expected to be paid or recovered. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. Management reassesses the ability to realize its deferred tax assets annually in the fourth quarter or when circumstances indicate that the ability to realize deferred tax assets has changed. In determining the need for a valuation allowance, the Company considers projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and the reversal of temporary differences.

Benefits from tax positions that are uncertain are not recognized unless the Company concludes that it is more likely than not that the position would be sustained in a dispute with taxing authorities, should the dispute be taken to the court of last resort. The Company would measure any such benefit at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement with taxing authorities.

See Note 15, “Taxes”Taxes for further disclosures about income taxes.

Benefit Plans

The Company has non-contributory defined benefit pension plans covering most of its salaried and hourly employees. On January 1, 2015 the Company’s cash balance and excess pension plans were amended to freeze new service credits for any new or active employee. The Company also currently provides certain postretirement medical and life insurance coverage for eligible employees. The cost of providing these benefits areis determined on an actuarial basis and accrued over the employee’s period of active service.

The Company recognizes the overfunded or underfunded status of these plans as determined on an actuarial basis on the balance sheet and the changes in the funded status are recognized in other comprehensive income. The Company amortizes actuarial gains and losses over the remaining service attribution periods of the employees using the corridor method. See Note 21, “Employee Benefit Plans” for additional disclosures relating to these obligations.

Stock-Based Compensation

The compensation cost of all stock-based awards is determined based on the grant-date fair value of the award, and is recognized over the requisite service period. The grant-date fair value of option awards and restricted stock awards with a market condition is determined using a Black-Scholes option pricing model.Monte Carlo simulation. Compensation cost for an award with performance conditions is accrued if it is probable that the conditions will be met. The Company accounts for forfeitures as they occur. See further discussion in Note 19, “Stock-BasedStock-Based Compensation and Other Incentive Plans.Plans.

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Recently Adopted Accounting Guidance
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718) ("ASU 2016-09"). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted all provisions of this new accounting standard in the first quarter of 2017 and changed its forfeiture policy to recognize the impact of forfeitures when they occur from estimating expected forfeitures in determining stock-based compensation expense. There was no material impact to the Company's financial statements.

Recent Accounting Guidance Issued

Not Yet Effective


In May 2014, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)ASU No. 2014-09, Revenue“Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will requirerequires that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will requirerequires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. EarlyThe Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts with utilities, industrial customers and steel producers whereby revenue is currently recognized when risk of loss has passed to the customer. During the fourth quarter of 2017, the Company finalized its assessment related to the new standard by analyzing certain contracts representative of the majority of the Company’s coal sales and determined that the timing of revenue recognition related to the Company’s coal sales will remain consistent between the new standard and the current standard. The Company also reviewed other sources of revenue, and concluded the current basis of accounting for these items is in accordance with the new standard. The Company has concluded its adoption, using the modified retrospective method, will not have a material impact on its consolidated financial statements and there will be no cumulative adjustment to retained earnings. The Company also reviewed the disclosure requirements under the new standard and is permitted onlycompiling information needed for the expanded disclosures required during the first quarter of 2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in annual reporting periodsits balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the term of the lease, on a generally straight line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2016,2018, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.within those fiscal years; early adoption is permitted. The Company has both operating and capital leases. We expect the adoption of this standard to result in the recognition of right-of-use assets and lease liabilities not currently recorded on the Company’s financial statements. The Company is currently in the process of evaluatingaccumulating all contractual lease arrangements in order to determine the impact of ASU 2014-09 on the Company’sits financial statements and disclosures.

statements.


In August 2014,2016, the FASB issued ASU 2014-15, “PresentationNo. 2016-15, “Classification of Financial Statements-Going Concern (Subtopic 205-40): DisclosureCertain Cash Receipts and Cash Payments.” The amendment requires the classification of Uncertainties About an Entity’s Ability To Continue as a Going Concern.” ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concerncertain cash receipts and to provide related footnote disclosures. The update provides guidance to an organization’s management, with principles and definitions that are intendedcash payments in the statement of cash flows to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.practice. The amendments arenew guidance will be effective for the Company’s fiscal year and interim periods within those years beginning after November 1, 2017. EarlyDecember 15, 2017 and the interim periods therein, with early adoption permitted. The amendments in the classification should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, the prospective application is permitted. The Company isplans to adopt the guidance in this standard during the first quarter of 2018.

In October 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows-Restricted Cash.” The amendment requires that a statement of cash flows explain the change during the period in the processtotal of evaluatingcash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the impactbeginning period and end of ASU 2014-15period total amounts shown on the Company’s financial statements and disclosures.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update No. 2015-03 (“statement of cash flows. ASU 2015-03”), Simplifying the Presentation of Debt Issuance Costs.  ASU 2015-03 requires debt issuance costs related to recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the liability, consistent with debt discounts.  Amendments in the update are2016-18 is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2015, with2018, including interim periods within those fiscal years; early adoption is permitted. Upon adoption of thisThe Company plans to adopt the guidance the current financial statement classification of debt issuance costs will change from total assets to long-term debt on our Consolidated Balance Sheets.

In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. On April 7, 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 adds these SEC comments to the “S” section of the Codification. The adoption ofin this standard is not expected to have a material impact onduring the Company’s consolidated financial statements.

first quarter of 2018.



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In May 2015,March 2017, the FASB issued ASU No. 2015-07 “Fair Value Measurement (Topic 820), Disclosures for Investments2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)”. This ASU eliminates the requirement to categorize withinsame income statement line item(s) as other employee compensation costs arising from services rendered during the fair value hierarchy investments who fair values are measured at net asset value (NAV) usingperiod. Employers will present the practical expedient in ASC 820. Instead entitiesother components separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. Employers will have to disclose the fair valuesline(s) used to present the other components of such investments so that financial statement users can reconcile amounts reportednet periodic benefit cost, if the components are not presented separately in the fair value hierarchy table toincome statement. Additionally, only the amounts reportedservice cost component will be eligible for capitalization in the balance sheet.assets. ASU 2015-072017-07 is effective for public business entities in fiscal years beginning after 15 December 2015 and interim periods within those years. Early adoption is permitted and guidance will be applied retrospectively. The Company is currently evaluating the impact the adoption of ASU 2015-07 on the Company’s financial statements and disclosures.

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In July 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory, which requires that inventory within the scope of ASU 2015-11 be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not impacted by the new guidance. ASU 2015-11 applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for public business entities in fiscal years, and interim periods within those years beginning after December 15, 2016. Early2017, including interim periods within those fiscal year; early adoption is permitted. The Company plans to adopt the guidance in this standard during the first quarter of 2018.


In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The new guidance provides targeted improvements to the accounting for hedging activities to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedging results. ASU 2017-12 is currently evaluatingeffective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; early adoption is permitted. The Company anticipates early adopting the standard in the first quarter of 2018, although we do not expect a significant impact to the Company’s financial results.

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3. Emergence from Bankruptcy and Fresh Start Accounting

On January 11, 2016 (the “Petition Date”), Arch and substantially all of its wholly owned domestic subsidiaries (the “Filing Subsidiaries” and, together with Arch, the “Debtors”) filed voluntary petitions for reorganization (collectively, the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Missouri (the “Court”). The Debtor’s Chapter 11 Cases (collectively, the “Chapter 11 Cases”) were jointly administered under the caption In re Arch Coal, Inc., et al. Case No. 16-40120 (lead case). During the bankruptcy proceedings, each Debtor operated its business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court.

For periods subsequent to filing the Bankruptcy Petitions, the Company applied the FASB Accounting Standards Codification (“ASC”) 852, “Reorganizations”, in preparing its consolidated financial statements. ASC 852 requires that financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings have been recorded in a reorganization line item on the Consolidated Statement of Operations. In addition, the pre-petition obligations that may be impacted by the bankruptcy reorganization process were classified on the balance sheet as liabilities subject to compromise.

On September 13, 2016, the Bankruptcy Court entered an order, Docket No. 1324, confirming the Debtors’ Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated as of September 11, 2016 (the “Plan”), which order was amended on September 15, 2016, Docket No. 1334.

On October 5, 2016, Arch Coal satisfied the closing conditions contemplated by the Plan, which became effective on that date (the “Effective Date”).

On the Plan Effective Date, the Company applied fresh start accounting which required the Company to allocate its reorganization value to the fair value of assets and liabilities in conformity with the guidance for the acquisition method of accounting for business combinations. In addition to fresh start accounting, the Company’s consolidated financial statements reflect all impacts of the transactions contemplated by the Plan. Under the provisions of fresh start accounting, a new entity has been created for financial reporting purposes. The Company selected an accounting convenience date of October 1, 2016 for purposes of applying fresh start accounting as the activity between the convenience date and the Effective Date does not result in a material difference in the results. References to “Successor” in the financial statements and accompanying footnotes are in reference to reporting dates on or after October 2, 2016; references to “Predecessor” in the financial statements and accompanying footnotes are in reference to reporting dates through October 1, 2016 which includes the impact of the adoptionPlan provisions and the application of ASU 2015-11 onfresh start accounting. As such, the Company’s financial statements for the Successor will not be comparable in many respects to its financial statements for periods prior to the adoption of fresh start accounting and disclosures.

On November 20, 2015,prior to the Financial Accounting Standards Boardaccounting for the effects of the Plan.


The following is a summary of certain provisions of the Plan, as confirmed by the Bankruptcy Court pursuant to the Confirmation Order, and is not intended to be a complete description of the Plan.

Treatment of Claims

The Plan contemplates that:

Holders of allowed administrative expense claims, priority claims (other than administrative expense claims and priority tax claims) and secured claims (other than claims arising under priority claims, the prepetition first lien credit facility and prepetition second lien notes) will be paid in full.

Holders of allowed claims arising under the Debtors’ prepetition first lien credit facility (“FASB”First Lien Credit Facility”) will receive their pro rata distribution of (i) total cash payments equal to the greater of (A) $144.8 million less the amount of the adequate protection payments and (B) $30 million; (ii) $326.5 million in principal amount of New First Lien Debt Facility; and (iii) 94% of the common stock of Reorganized Arch Coal (the “New Common Stock”), subject to dilution on account of (a) any Class A Common Stock (as defined below) issued upon exercise of the warrants (the “New Warrants”) issued ASU No. 2015-17, Balance Sheet Classificationpursuant to the Plan to purchase up to 12% of Deferred Taxes, requiring all deferred tax assetsthe fully diluted Class A Common Stock as of the Effective Date and liabilities,exercisable at any time for a period of 7 years from the Effective Date at a strike price calculated based on a total equity capitalization of $1.425 billion ($57 per share) and any related valuation allowance,(b) the issuance of New Common

F- 17


Stock in an amount of up to be classified as noncurrent10% of the New Common Stock, on a fully diluted basis, pursuant to a management incentive plan (the “Management Incentive Plan”).

Holders of allowed claims on account of prepetition second lien or unsecured notes (the “Prepetition Notes”) will receive their pro rata distribution of (i) $22.636 million in cash, (ii) at such holder’s election, either (A) such holder’s pro rata share of the balance sheet. The classification change for all deferred taxes as noncurrent simplifies entities’ processes as it eliminates the need to separately identify the net current and net noncurrent deferred tax assetNew Warrants or liability in each jurisdiction and allocate valuation allowances. The Company is in the process(B) such holder’s pro rata share of evaluating the impact of ASU 2015-07 on the Company’s financial statements and disclosures.

3. Divestitures

During 2014, the Company entered into agreements to sell various non-core operations, including operating and idled thermal coal complexes in Kentucky and the Company’s highwall manufacturing subsidiary.  The Company received $46.7$25 million in cash and recognized(iii) 6% of the New Common Stock (subject to dilution on account of any exercise of the New Warrants and pursuant to the Management Incentive Plan).


Holders of allowed general unsecured claims against Debtors (other than claims on account of the First Lien Credit Facility or Prepetition Notes) will receive their pro rata distribution of $7.364 million cash, less fees and expenses incurred by any professionals retained by a net pre-tax gainclaims oversight committee up to $200,000.

The Reorganized Debtors will waive and release any claims or causes of $17.8 million from these divestitures, reflectedaction that they have, had, or may have that are based on sections 502(d), 544, 545, 547, 548, 549, 550, 551, 553(b) and 724(a) of the Bankruptcy Code and analogous non-bankruptcy law for all purposes against (i) prepetition trade creditors and (ii) officers, directors, employees or representatives of the Debtors or the Reorganized Debtors and all agents and representatives of all of the foregoing. However, the Reorganized Debtors will retain the right to assert any said claims as defenses or counterclaims in “other operating expense (income), net” inany cause of action brought by any creditor.

Warrant Agreement

On the Consolidated Statement of Operations.

As part of a strategy to divest non-core thermal coal assets,Effective Date, the Company entered into a warrant agreement (the “Warrant Agreement”) with American Stock Transfer & Trust Company, LLC as warrant agent and, pursuant to the terms of the Plan, issued warrants (“Warrants”) to purchase up to an aggregate of 1,914,856 shares of Class A Common Stock, par value $0.01 per share, of Arch Coal (the “Class A Common Stock”) to holders of claims arising under the Cancelled Notes (as defined below). Each Warrant expires on October 5, 2023, and is initially exercisable for one share of Class A Common Stock at an initial exercise price of $57.00 per share. The Warrants are exercisable by a holder paying the exercise price in cash or on a cashless basis, at the election of the holder. The Warrants contain anti-dilution adjustments for stock splits, reverse stock splits, stock dividends, dividends and distributions of cash, other securities or other property, spin-offs and tender and exchange offers by Arch Coal or its subsidiaries to purchase Class A Common Stock at above-market prices.


If, in connection with a merger, recapitalization, business combination, transfer to a third party of substantially all of Arch Coal’s consolidated assets or other transaction that results in a change to the Class A Common Stock (each, a “Transaction”), (i) the Transaction is consummated prior to the fifth anniversary of the Effective Date and the Transaction consideration to holders of Class A Common Stock is 90% or more listed common stock or common stock of a company that provides publicly available financial reporting, and holds management calls regarding the same, no less than quarterly (“Reporting Stock”) or (ii) regardless of the consideration, the Transaction is consummated on or after the fifth anniversary of the Effective Date, the Warrants will be assumed by the surviving company and will become exercisable for the consideration that the holders of Class A Common Stock receive in such Transaction; provided that if the consideration such holders receive consists solely of cash, then upon the consummation of such Transaction, Arch Coal will pay for each Warrant an amount of cash equal to the greater of (i) (x) the amount of cash payable with respect to the number of shares of Class A Common Stock underlying the Warrant minus (y) the exercise price per share then in effect multiplied by the number of shares of Class A Common Stock underlying the Warrant and (ii) $0.

If a Transaction is consummated prior to the fifth anniversary of the Effective Date in which the Transaction consideration is less than 90% Reporting Stock, a portion of the Warrants corresponding to the portion of the Transaction consideration that is Reporting Stock will be assumed by the surviving company and will become exercisable for the Reporting Stock consideration that the holders of Class A Common Stock receive in such Transaction, and the portion of the Warrants corresponding to the portion of the Transaction consideration that is not Reporting Stock will, at the option of each holder, (i) be assumed by the surviving company and will become exercisable for the consideration that the holders of Class A Common Stock receive in such Transaction or (ii) be redeemed by Arch Coal for cash in an amount equal to the Black Scholes Payment (as defined in the Warrant Agreement).

Termination of Material Definitive Agreements

On the Effective Date, by operation of the Plan, all outstanding obligations under the following notes issued by Arch Coal and guaranteed by certain subsidiary guarantors, (collectively, the “Cancelled Notes”) were cancelled and the indentures governing such obligations were cancelled except as necessary to (a) enforce the rights, claims and interests of the applicable

F- 18


trustee vis-a-vis any parties other than the Debtors, (b) allow each trustee to receive distributions under the Plan and to distribute them to the holders of the Cancelled Notes in accordance with the terms of the applicable indenture, (c) preserve any rights of the applicable trustee to compensation, reimbursement and indemnification under each of the applicable indentures solely as against any money or property distributable to holders of Cancelled Notes, (iv) permit each of the trustees to enforce any obligation owed to them under the Plan and (v) permit each of the trustees to appear in the Chapter 11 cases or in any proceeding in the Bankruptcy Court or any other court:

7.000% Senior Notes due 2019, issued pursuant to an indenture dated as of June 14, 2011, by and among Arch Coal, as issuer, UMB Bank National Association, as trustee, and the guarantors named therein, as amended, supplemented or revised thereafter;

7.250% Senior Notes due 2020, issued pursuant to an indenture dated as of August 9, 2010, by and among Arch Coal, as issuer, U.S. Bank National Association, as trustee, and the guarantors named therein, as amended, supplemented or revised thereafter;

7.250% Senior Notes due 2021, issued pursuant to an indenture dated as of June 14, 2011, by and among Arch Coal, as issuer, UMB Bank National Association, as trustee, and the guarantors named therein, as amended, supplemented or revised thereafter;

9.875% Senior Notes due 2019, issued pursuant to an indenture dated as of November 21, 2012, by and among Arch Coal, as issuer, UMB Bank National Association, as trustee, and the guarantors named therein, as amended, supplemented or revised thereafter; and

8.000% Second Lien notes due 2019, issued pursuant to an indenture dated as of December 17, 2013, by and among Arch Coal, as issuer, Wilmington Savings Fund Society, as trustee and collateral agent as successor to UMB Bank National Association, and the guarantors named therein, as amended, supplemented or revised thereafter.

On the Effective Date, by operation of the Plan, all outstanding obligations under the following credit agreement (the “Prepetition Credit Agreement”) entered into by Arch Coal and guaranteed by certain of Arch Coal’s subsidiaries and the related collateral, guaranty and other definitive agreements relating to the Prepetition Credit Agreement were cancelled and the Prepetition Credit Agreement was cancelled except as necessary to (i) enforce the rights, claims and interests of the Prepetition Agent (as defined below) and any predecessor thereof vis-a-vis the Lenders and any parties other than the Debtors, (ii) to allow the Prepetition Agent to receive distributions under the Plan and to distribute them to the lenders under the Prepetition Credit Agreement and (iii) preserve any rights of the Prepetition Agent and any predecessor thereof as against any money or property distributable to holders of claims arising out of the Prepetition Credit Agreement or any related transaction documents, including any priority in respect of payment and the right to exercise any charging lien:

Amended and Restated Credit Agreement, dated as of June 14, 2011 (as amended by the First Amendment, dated as of May 16, 2012, the Second Amendment, dated as of November 20, 2012, the Third Amendment, dated as of November 21, 2012 and the Fourth Amendment, dated as of December 17, 2013), among Arch Coal, Inc., as borrower, the lenders from time to time party thereto, Wilmington Trust, National Association, in its capacities as term loan facility administrative agent (as successor to Bank of America, N.A. in such capacity) and collateral agent (as successor to PNC Bank, National Association in such capacity) (in such capacities, the “Prepetition Agent”)

On the Effective Date, all outstanding obligations under the following credit agreement (the “DIP Credit Agreement”) other than contingent and/or unliquidated obligations were paid in cash in full, all commitments under the DIP Credit Agreement and the related transaction documents referred to therein as the “Loan Documents” were terminated, all liens on property of the Debtors arising out of or related to the DIP Facility terminated and the Loan Documents were cancelled except with respect to (a) contingent and and/or unliquidated obligations under the Loan Documents which survive the Effective Date and continue to be governed by the Loan Documents and (b) the relationships among the DIP Agent (as defined below) and the lenders under the DIP Credit Agreement, as applicable, including but not limited to, those provisions relating to the rights of the DIP Agent and the lenders to expense reimbursement, indemnification and other similar amounts, certain reinstatement obligations set forth in the DIP Credit Agreement and any provisions that may survive termination or maturity of the credit facility governed by the DIP Credit Agreement in accordance with the terms thereof:

Superpriority Secured Debtor-In-Possession Credit Agreement, dated as of January 21, 2016 (as amended by the Waiver and Consent and Amendment No. 1, dated as of March 4, 2016, Amendment No. 2, dated as of March 28, 2016, Amendment No. 3, dated as of April 26, 2016, Amendment No. 4, dated as of June 27, 201310, 2016, Amendment No. 5, dated as of June 23, 2016, Amendment No. 6, dated as of July 20, 2016, and Amendment No. 7, dated as of September

F- 19


28, 2016) among Arch Coal, Inc., as borrower, certain subsidiaries of Arch Coal, Inc., as guarantors, the lenders from time to sell Canyon Fuel,time party there and Wilmington Trust, National Association, in its capacity as administrative agent and as collateral agent (in such capacities, the “DIP Agent”).

Equity Securities

Under the Plan, 24,589,834 shares of Class A Common Stock and 410,166 shares of Class B Common Stock, par value $.01 per share, (“Class B Common Stock” and together with Class A Common Stock, “Common Stock”) were distributed to Bowie Resources, LLC.   Canyon Fuel operated two longwallthe secured lenders and to certain holders of general unsecured claims under the Plan on the Effective Date. In addition, on the Effective Date, Arch Coal issued Warrants to purchase up to an aggregate of 1,914,856 shares of Class A Common Stock. Arch Coal relied, based on the confirmation order it received from the Bankruptcy Court, on Section 1145(a)(1) of the U.S. Bankruptcy Code to exempt from the registration requirements of the Securities Act of 1933, as amended (i) the offer and sale of Common Stock to the secured lenders and to the general unsecured creditors, (ii) the offer and sale of the Warrants to the holders of claims arising under the Cancelled Notes and (iii) the offer and sale of the Class A Common Stock issuable upon exercise of the Warrants. Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of
reorganization from registration under Section 5 of the Securities Act and state laws if three principal requirements are satisfied:

the securities must be offered and sold under a plan of reorganization and must be securities of the debtor, of an affiliate participating in a joint plan of reorganization with the debtor or of a successor to the debtor under the plan of reorganization;

the recipients of the securities must hold claims against or interests in the debtor; and

the securities must be issued in exchange, or principally in exchange, for the recipient’s claim against or interest in the debtor.

Reorganization Value

Fresh start accounting provides, among other things, for a determination of the value to be assigned to the equity of the emerging company as of a date selected for financial reporting purposes. In conjunction with the bankruptcy proceedings, a third party financial advisor provided an enterprise value of the Company of approximately $650 million to $950 million. The final equity value of $687.5 million was based upon the approximate high end of the enterprise value established by the third party valuation plus excess cash of $64 million less the fair value of debt related to the New First Lien Debt Facility of $326.5 million. The high end of the enterprise value assumed a minimum cash balance at emergence of $250 million.

The enterprise value of the Company was estimated using various valuation methods including: (i) comparable public company analysis, (ii) discounted cash flow analysis (“DCF”) and (iii) sum-of-the-parts analysis. The comparable public company analysis is based on the enterprise value of selected publicly traded companies that have operating and financial characteristics comparable in certain respects to the Company, for example, operational requirements and risk and profitability characteristics. Selected companies are comprised of coal mining complexescompanies with primary operations in the United States. Under this methodology, certain financial multiples and ratios that measure financial performance and value are calculated for each selected company and then applied to the Company’s financials to imply an enterprise value for the Company.

The DCF analysis is a continuous miner operationforward-looking enterprise valuation methodology that estimates the value of an assets or business by calculating the present value of expected future cash flows by that asset or business. The basis of the DCF analysis was the Company’s prepared projections which included a variety of estimates and assumptions, such as pricing and demand for coal. The Company’s pricing was based on its view of the market taking into account third party forward pricing curves adjusted for the quality of products sold by the Company. While the Company considers such estimates and assumptions reasonable, they are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control and, therefore, may not be realized. Changes in Utah.these estimates and assumptions may have a significant effect on the determination of the Company’s enterprise value. The saleassumptions used in the calculations for the DCF analysis included projected revenue, cost and cash flows for the years ending December 31, 2016 through each respective mine life and represented the Company’s best estimates at the time the analysis was prepared. The DCF analysis was completed on August 16, 2013, for $422.7 million in cash, including adjustmentsusing discount rates at a range of estimated weighted average costs of capital ranging from 13.25% to 15.25% . The DCF analysis involves complex considerations and judgments concerning appropriate discount rates. Due to the purchase priceunobservable inputs to finalize working capital.

the valuation, the fair value would be considered Level 3 in the fair value hierarchy.



F- 20


The sum-of-the-parts analysis is a more detailed market multiples approach the values each part of a company’s business separately based upon the enterprise values of selected publicly traded companies that have operating and financial characteristics comparable in certain respects to each part of the reorganized Company. Under this methodology, certain financial multiples and ratios that measure financial performance and value are calculated for each selected comparable company and then applied to the relevant segment of the Company’s financials to imply an enterprise value for the Company.

Accounting Impact of Emergence

Upon emergence in accordance with ASC 852, the Company applied fresh start accounting to its consolidated financial statements as of October 1, 2016 because (i) the reorganization value of the assets of the emerging entity immediately before the date of confirmation was less than the total of all postpetition liabilities and allowed claims and (ii) the holders of the existing voting shares immediately before confirmation received less than 50 percent of the voting shares of the emerging entity. Upon adoption of fresh start accounting, the Company became a new entity for financial reporting purposes reflecting the Successor capital structure. As such, a new accounting basis in the identifiable assets and liabilities assumed was established with no retained earnings or accumulated other comprehensive income (loss) (“OCI”).

The following table summarizesbalance sheet illustrates the impacts of the implementation of the Plan and the application of fresh start accounting, which results in the opening balance sheet of the Successor company.


F- 21


As of October 1, 2016 (In thousands)Predecessor (a) Effect of Plan (b) Fresh Start Adjustments (c) Successor
Assets       
Current assets 
  
    
Cash and cash equivalents$400,205
 $(199,718)(d)$
 $200,487
Short term investments111,451
 
 
 111,451
Restricted cash81,563
 
 
 81,563
Trade accounts receivable165,522
 
 
 165,522
Other receivables17,227
 
 779
(j)18,006
Inventories159,410
 
 (21,078)(k)138,332
Prepaid royalties4,805
 
 
 4,805
Deferred income taxes
 
 
 
Coal derivative assets2,180
 
 
 2,180
Other current assets36,960
 6,367
 53,851
(l)97,178
Total current assets979,323
 (193,351) 33,552
 819,524
        
Property, plant and equipment, net3,434,941
 
 (2,363,829)(m)1,071,112
Other assets 
  
    
Prepaid royalties20,997
 
 (20,997)(n)
Equity investments164,232
 
 (61,606)(o)102,626
Other noncurrent assets58,569
 34,495
(e)37,503
(p)130,567
Total other assets243,798
 34,495
 (45,100) 233,193
Total assets$4,658,062
 $(158,856) $(2,375,377) $2,123,829
        
Liabilities and Stockholders’ Equity (Deficit)       
Liabilities not subject to compromise 
  
    
Accounts payable$74,595
 $
 $(250)(q)$74,345
Accrued expenses and other current liabilities225,739
 (36,331)(f)26,644
(r)216,052
Current maturities of debt3,397
 3,265
(g)
 6,662
Total current liabilities303,731
 (33,066) 26,394
 297,059
Long-term debt30,037
 323,235
(g)
 353,272
Asset retirement obligations394,699
 
 (60,570)(s)334,129
Accrued pension benefits23,716
 
 24,565
(t)48,281
Accrued other postretirement benefits87,123
 
 24,836
(t)111,959
Accrued workers’ compensation119,828
 
 74,520
(u)194,348
Deferred income taxes
 
 
 
Other noncurrent liabilities96,410
 
 888
(v)97,298
Total liabilities not subject to compromise1,055,544
 290,169
 90,633
 1,436,346
        
Liabilities subject to compromise5,278,612
 (5,278,612)(h)
 
        
Total liabilities6,334,156
 (4,988,443) 90,633
 1,436,346
        
Stockholders’ equity (deficit) 
  
    
Common stock, predecessor2,145
 (2,145)(i)
 
Common stock, successor
 250
(b)
 250
Paid-in capital, predecessor3,056,307
 (3,056,307)(i)
 
Paid-in capital, successor
 687,233
(b)
 687,233
Treasury stock, at cost(53,863) 53,863
(i)
 
Accumulated earnings (deficit)(4,678,977) 7,146,693
(i)(2,467,716) 
Accumulated other comprehensive income (loss)(1,706) 
 1,706
 
Total stockholders’ equity (deficit)(1,676,094) 4,829,587
 (2,466,010) 687,483
Total liabilities and stockholders’ equity (deficit)$4,658,062
 $(158,856) $(2,375,377) $2,123,829



F- 22


(a)Represents the Predecessor consolidated balance sheet as of October 1, 2016.

(b)Represents amounts recorded for the implementation of the Plan on the Effective Date. This includes the settlement of liabilities subject to compromise through a combination of cash payments, the issuance of new common stock and warrants and the issuance of new debt. The following is the calculation of the total pre-tax gain on the settlement of the liabilities subject to compromise:
  In thousands
Liabilities subject to compromise $5,278,612
Less amounts issued to settle claims:  
Common stock (at par) Successor (250)
Warrants Successor (14,822)
Paid-in capital Successor (672,411)
Issuance of Term Loan Successor (326,500)
Cash payment to settle claims and professional fees (122,525)
   
Total pre-tax gain on plan effects $4,142,104

(c)Represents the fresh start accounting adjustments required to record the assets and liabilities of the Company at fair value.

(d)The following table reflects the use of cash at emergence:
  In thousands
Payment to secured lenders $43,496
Payments to unsecured creditors 42,399
Final adequate protection payment 36,331
Collateral requirements 31,665
Professional fees 31,630
Other 14,197
   
Total cash outflow at emergence $199,718

(e)Represents amounts paid for required collateral deposits.

(f)Represents the final adequate protection payments made to the secured lenders.

(g)Represents the fair value of the $326.5 million new term loan of which $3.3 million is shown within current maturities of debt.

(h)Liabilities subject to compromise include unsecured or under-secured liabilities incurred prior to the Chapter 11 filing; and consists of the following:

Previously Reported Balance Sheet Line In thousands
Debt $5,026,806
Accrued expenses and other current liabilities 136,295
Accounts payable 106,297
Other noncurrent liabilities 9,214
   
Total liabilities subject to compromise $5,278,612


F- 23


(i)Reflects the impacts of the reorganization adjustments:
  In thousands
Total pre-tax gain on settlement of claims $4,142,104
Cancellation of predecessor common stock 2,145
Cancellation of predecessor paid-in capital 3,056,307
Cancellation of predecessor treasury stock (53,863)
   
Net impact on accumulated earnings (deficit) $7,146,693

(j)Represents adjustments to record other receivables at fair value which includes an $0.8 million short-term receivable related to insurance coverage for self-insured workers’ compensation obligations.
(k)Represents the following fair value adjustments: a $7.3 million increase related to coal inventory which was fair valued at estimated selling prices less the sum of selling costs, shipping costs and a reasonable profit allowance for the selling effort offset by a $28.4 million reduction in critical spare parts inventory. During fresh start accounting, the Company changed its accounting policy with respect to critical spare parts with long lead times; previously these items were valued within inventory, but prospectively, these items will be capitalized within property, plant and equipment when purchased and depreciated over the life of the related equipment.

(l)Represents the short-term portion of above market coal sales contracts of $71.1 million offset by $11.3 million in reductions related to prepaid balances. The fair value of sales contracts was estimated using a discounted cash flow model and will be amortized into earnings as the coal is shipped throughout the term of the associated contracts.

(m)Represents a $2.4 billion reduction in property, plant and equipment to estimated fair value as discussed below:

 PredecessorFresh Start AdjustmentsSuccessor
(in thousands)   
Net Coal Properties$2,358,779
$(1,971,314)$387,465
Net Plant & Equipment812,888
(405,259)407,629
Net Deferred Charges263,274
12,744
276,018
    
 $3,434,941
$(2,363,829)$1,071,112

The fair value of coal properties was established at $387.5 million utilizing a discounted cash flow model and the market approach. The market approach was used to provide a starting value of the coal mineral reserves without consideration for economic obsolescence. The DCF model was based on assumptions market participants would use in the pricing of these assets as well as projections of revenues and expenditures that would be incurred to mine or maintain these coal reserves through the life of mine. The basis of the DCF analysis was the Company’s prepared projections which included a variety of estimates and assumptions, such as pricing and demand for coal. The Company’s pricing was based on its view of the market taking into account third party forward pricing curves adjusted for the quality of products sold by the Company.

The fair value of plant and equipment was set at $407.6 million utilizing both market and cost approaches. The market approach was used to estimate the value of assets where detailed information for the asset was available and an active market was identified with a sufficient number of sales of comparable property that could be independently verified through reliable sources. The cost approach was utilized where there were limitations in the secondary equipment market to derive values from. The first step in the cost approach is the estimation of the cost required to replace the asset via construction or purchasing a new asset with similar utility adjusting for depreciation due to physical deterioration, functional obsolescence due to technology changes and economic obsolescence due to external factors such as regulatory changes. Useful lives were assigned to all assets based on remaining future economic benefit of each asset.


F- 24


The fair value of deferred charges represents the corresponding asset related to the asset retirement obligation discussed in item (q) below.

(n)Represents a fair value adjustment to a long-term prepaid royalty balance that the Company has concluded should not be assigned value based on market conditions and after considering economic obsolescence.

(o)Represents a fair value adjustment to the Company’s equity investments in Knight Hawk Holdings, LLC, a coal producer in the Illinois Basin; and Dominion Terminal Associates which operates a ground storage-to-vessel coal trans-loading facility in Newport News, Virginia. Equity investments were fair valued in a manner similar to the Company’s wholly-owned subsidiaries using a discounted cash flow model and comparable company approach. The discount rate selected was 14% and due to the unobservable nature of the inputs, the fair values are considered Level 3 in the fair value hierarchy.

(p)Represents the long-term portion of above market coal sales contracts of $26.0 million and $18.6 million related to a long-term insurance receivable related to insurance coverage for self-insured workers’ compensation obligations partially offset by $13.2 million in reductions related to prepaid balances. The fair value of sales contracts was estimated using a discounted cash flow model and will be amortized into earnings as the coal is shipped throughout the term of the associated contracts.

(q)Represents a fair value adjustment to miscellaneous accounts payable.

(r)Represents fair value adjustments for the following: a $27.8 million increase related to the short-term portion of below market sales contracts offset by fair value adjustments to establish the current portion of pension, postretirement and workers’ compensation liabilities. The fair value of sales contracts was estimated using a discounted cash flow model and will be amortized into earnings as the coal is shipped throughout the term of the associated contracts.

(s)Represents the fair value adjustment related to the Company’s asset retirement obligations which was calculated using discounted cash flow models based on current mine plans using the guidance provided within Accounting Standard Codification 410-20, “Asset Retirement Obligations.” The discount rates ranged from 7.06% to 9.08%.

(t)Pension and postretirement benefits were fair valued based on plan assets and employee benefit obligations at October 1, 2016. The benefit obligations were computed using the applicable October 1, 2016 discount rates. In conjunction with fresh start accounting, the Company updated its mortality rate table assumptions and corridor assumption.

(u)Represents fair value adjustments for workers’ compensation benefits, including occupational disease benefits, that were actuarially determined using the guidance provided within Accounting Standard Codification 712, “Non-retirement Post-employment Benefits.” Upon emergence, the Company’s accounting policy is to actuarially calculate this liability. Prior to emergence, the Company had accounted for its liability based on outstanding reserves calculated per third party administrators.

(v)Represents the following fair value adjustments: $3.9 million increase related to the long-term portion of below market sales contracts partially offset by $3.1 million reduction in miscellaneous noncurrent liabilities. The fair value of sales contracts was estimated using a discounted cash flow model and will be amortized into earnings as the coal is shipped throughout the term of the associated contracts.


F- 25


Reorganization Items, Net

In accordance with ASC 852, the statement of operations shall portray the results of operations of the reporting entity while it is in Chapter 11. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses resulting from reorganization and restructuring of the business shall be reported separately as reorganization items.

The Company’s reorganization items, net for the respective periods are as follows:

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)      
Gain on settlement of claims (per above)$
 $
$4,142,104
 $
Fresh start adjustments, net (per above)
 
(2,466,010) 
Professional fees(2,398) (759)(46,053) 
   
   
 $(2,398) $(759)$1,630,041
 $

Professional fees directly related to the reorganization include fees associated with advisors to the Company, certain secured creditors and the Creditors’ Committee. During the Successor period ended December 31, 2017, the Company continued to incur costs related to professional fees that are directly attributable to the reorganization.

Contractual Interest Expense During Bankruptcy

Upon the filing of bankruptcy, the Company discontinued operationsrecording interest expense on unsecured debt that was classified as a liability subject to compromise. Actual interest expense recorded on the Predecessor debt subsequent to the Petition Date was $135.9 million for the period January 1 through the date of disposition:

 

 

Year Ended
December 31,

 

 

 

2013

 

 

 

 

 

Total Revenues

 

$

219,002

 

Income from discontinued operations before income taxes

 

$

32,167

 

Gain on sale

 

120,321

 

Less: income tax expense

 

49,092

 

Income from discontinued operations, including gain on sale - net of tax

 

$

103,396

 

 

 

 

 

Basic earnings per common share from discontinued operations

 

$

4.87

 

Diluted earnings per common share from discontinued operations

 

$

4.87

 

October 1, 2016; contractual interest during this time was F-$300.9 million17.


F- 26




4. Accumulated Other Comprehensive Income (Loss)


The following items are included in accumulated other comprehensive income (loss):

 

 

 

 

Pension,

 

 

 

 

 

 

 

 

 

Postretirement

 

 

 

Accumulated

 

 

 

 

 

and Other Post-

 

 

 

Other

 

 

 

Derivative

 

Employment

 

Available-for-

 

Comprehensive

 

 

 

Instruments

 

Benefits

 

Sale Securities

 

Income (Loss)

 

 

 

(In thousands)

 

Balance at January 1, 2014

 

$

565

 

$

31,112

 

$

6,015

 

$

37,692

 

Unrealized gains

 

3,677

 

(22,516

)

(5,727

)

(24,566

)

Amounts reclassified from accumulated other comprehensive income (loss)

 

(1,692

)

(5,736

)

(2,457

)

(9,885

)

Balance at December 31, 2014

 

2,550

 

2,860

 

(2,169

)

3,241

 

Unrealized gains (losses)

 

3,903

 

(8,723

)

(3,333

)

(8,153

)

Amounts reclassified from accumulated other comprehensive income (loss)

 

(6,128

)

5,142

 

4,083

 

3,097

 

Balance at December 31, 2015

 

$

325

 

$

(721

)

$

(1,419

)

$

(1,815

)

        
   Pension,    
   Postretirement   Accumulated
   and Other Post-   Other
 Derivative Employment Available-for- Comprehensive
 Instruments Benefits Sale Securities Income (Loss)
 (In thousands)
Predecessor Company       
January 1, 2016$325
 $(721) $(1,419) $(1,815)
Unrealized gains (losses)(138) 
 701
 563
Amounts reclassified from accumulated other comprehensive income (loss)(316) (1,363) 1,225
 (454)
Fresh start accounting adjustment129
 2,084
 (507) 1,706
October 1, 2016
 
 
 
Successor Company       
Unrealized gains (losses)
 24,067
 387
 24,454
Amounts reclassified from accumulated other comprehensive income (loss)
 
 
 
December 31, 2016$
 $24,067
 $387
 $24,454
Unrealized gains (losses)497
 (3,589) 
 (3,092)
Amounts reclassified from accumulated other comprehensive income (loss)150
 (758) (387) (995)
December 31, 2017$647
 $19,720
 $
 $20,367

The unrealized gain in the successor period ended December 31, 2016 is the result of changes in the discount rates used to calculate our pension, postretirement health and occupational disease obligations.

F- 27


The following amounts were reclassified out of accumulated other comprehensive income (loss) during the years ended December 31, 2015 and 2014, respectively:

Details about accumulated
other comprehensive income components

 

Reclassifications

 

Line Item in the
Consolidated Statement of Operations

 

 

 

2015

 

2014

 

 

 

 

 

(in thousands)

 

 

 

Derivative instruments

 

$

9,575

 

$

2,643

 

Revenues

 

 

 

(3,447

)

(951

)

Provision for (benefit from) income taxes

 

 

 

$

6,128

 

$

1,692

 

Net of tax

 

 

 

 

 

 

 

 

 

Pension, postretirement and other post-employment benefits

 

 

 

 

 

Amortization of prior service credits

 

$

8,335

(1)

$

11,760

 

 

 

Amortization of net actuarial gains (losses)

 

(16,369

)(1)

(2,797

)

 

 

 

 

(8,034

)

8,963

 

Total before tax

 

 

 

2,892

 

(3,227

)

Provision for (benefit from) income taxes

 

 

 

$

(5,142

)

$

5,736

 

Net of tax

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

(6,391

)(2)

$

3,838

 

Interest and investment income

 

 

 

2,308

 

(1,381

)

Provision for (benefit from) income taxes

 

 

 

$

(4,083

)

$

2,457

 

Net of tax

 

respective periods:

Details about accumulated
other comprehensive income components
 SuccessorPredecessor 
Line Item in the
 Consolidated Statement of Operations
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016  
(in thousands)       
Derivative instruments 

 



  
Coal hedges $
 $
$397
 Revenues
Interest rate hedges (150)  
 Interest expense
  
 
(81) Provision for (benefit from) income taxes
  $(150) $
$316
 Net of tax
        
Pension, postretirement and other post-employment benefits       
Amortization of prior service credits 1
 $
 $
$7,854
  
Amortization of net actuarial gains (losses) 1
 
 
(6,010)  
Curtailments (773) 

  
Settlements 1,531
 

  
  758
 
1,844
 Total before tax
  
 
(481) Provision for (benefit from) income taxes
  $758
 $
$1,363
 Net of tax
        
Available-for-sale securities 2
 $387
 $
$(2,263) Interest and investment income
  
 
1,038
 Provision for (benefit from) income taxes
  $387
 $
$(1,225) Net of tax
1 Production-related benefits and workers’ compensation costs are included in costs to produce coal.
2 The gains and losses on sales of available-for-sale-securities are determined on a specific identification basis.


F- 28

(1) Production-related benefits and workers’ compensation costs are included in costs to produce coal.

(2) The gains and losses on sales of available-for-sale-securities are determined on a specific identification basis.

F-18




5.Divestitures

On September 14, 2017, the Company closed on its’ definitive agreement to sell Lone Mountain Processing LLC, an operating mine complex within the Company’s metallurgical coal segment, and two idled mining companies, Cumberland River Coal LLC and Powell Mountain Energy LLC to Revelation Energy LLC. The Company received $8.3 million of proceeds offset by $1.4 million in disbursements related to landholder consent fees and professional fees; and recorded a gain of $21.3 million which is reflected as a separate line, “Gain on sale of Lone Mountain Processing, Inc.,” within the Consolidated Statement of Operations. The gain included a $4.7 million curtailment gain related to black lung liabilities accrued for active employees at these operations.
6. Impairment Charges and Mine Closure Costs


The following table summarizes the amounts reflected on the line Asset impairment and mine closure costs” in the consolidated statements of operations:

 SuccessorPredecessor
DescriptionYear Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)      
Coal lands and mineral rights$
 $
$74,144
 $2,210,488
Plant and equipment
 

 199,107
Deferred development
 

 159,474
Prepaid royalties
 
3,406
 41,990
Equity investments
 
40,920
 21,325
Inventories
 

 66
Other
 
10,797
 (4,147)
Total$
 $
$129,267
 $2,628,303


January 1 Through October 1, 2016 Impairment Charges
During the period January 1 through October 1, 2016, the Company recorded the following to “Asset impairment and mine closure costs” in the consolidated statementsConsolidated Statements of operations:

 

 

Year Ended December 31,

 

Description

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

Coal lands and mineral rights

 

$

2,210,488

 

$

 

$

79,094

 

Plant and equipment

 

199,107

 

1,512

 

36,296

 

Deferred development

 

159,474

 

 

13,451

 

Prepaid royalties

 

41,990

 

15,356

 

1,104

 

Equity investments

 

21,325

 

 

28,947

 

Notes receivable

 

 

 

49,203

 

Inventories

 

66

 

 

12,765

 

Other

 

(4,147

)

7,245

 

19

 

Total

 

$

2,628,303

 

$

24,113

 

$

220,879

 

Operations: $74.1 million recorded in the first quarter related to the impairment of coal reserves and surface land in Kentucky that are being leased to a mining company that idled its mining operations; $3.4 million recorded in the first quarter related to the impairment on the portion of an advance royalty balance on a reserve base mined at the Company’s Mountain Laurel operation that will not be recouped; $2.9 million recorded in the first quarter related to an other-than-temporary-impairment charge on an available-for-sale security; a $38.0 million impairment recorded in the second quarter related to the Company’s equity investment in a brownfield bulk commodity terminal on the Columbia River in Longview, Washington as the Company relinquished its ownership rights in exchange for future throughput rights; $7.2 million of severance expense related to headcount reductions during the first half of the year; a $3.6 million curtailment charge related to the Company’s pension, postretirement health and black lung actuarial liabilities due to headcount reductions in the first half of the year.


2015 Impairment Charges

In 2015, as a result of the continued deterioration in thermal and metallurgical coal markets and projections for a muted pricing recovery, certain of the Company’s mine complexes have incurred and are expected to continue to incur operating losses. The Company determined that the further weakening of the pricing environment in the last half of the year and the projected operating losses representrepresented indicators of impairment with respect to certain of its long-lived assets or assets groups. Using current pricing expectations which reflectreflected marketplace participant assumptions, life of mine cash flows were used to determine if the undiscounted cash flows exceedexceeded the current asset values for certain operating complexes in the Company’s Appalachia segment.  For multiple operating complexes, the undiscounted cash flows did not exceed the carrying value of the long-lived assets.  Discounted cash flows were utilized to reduce the carrying value of those assets to fair value. The discount rate used reflectsreflected the then current financial difficulties present in the commodities sector in general and coal mining specifically; the perceived risk of financing coal mining in light of industry defaults; and the lack of an active market for buying or selling coal mining assets.  Additionally, the Company determined that the then current market conditions representrepresented an indicator of impairment for certain undeveloped coal properties that were acquired in times of significantly

F- 29


higher coal prices. CurrentThe then current prices and the significant capital outlay that would behave been required to develop these reserves indicateindicated that the carrying value iswas not recoverable.  As a result the Company recorded a $2.6 billion asset impairment charge in the last two quarters of 2015 of which $2.1 billion was recorded during the third quarter and the remaining $0.5 billion was recorded in the fourth quarter. Of the total charge. $2.2 billion was recorded to the Company’s Appalachia segment, with the remaining $0.4 billion recorded to the Company’s Other operating segment. There is no fair value remaining related to the impaired assets.


During the second quarter of 2015, the Company recorded $19.1 million to “Asset impairment and mine closure costs” in the Consolidated Statements of Operations. An impairment charge of $12.2 million relatesrelated to the portion of an advance royalty balance on a reserve base mined at the Company’s Mountain Laurel, Spruce and Briar Branch operations that willwas determined would not be recouped based on latest estimates of sales volume and pricing through the March 2017 recoupment period. Additionally, the companyCompany recorded a $5.6 million impairment charge related to the closure of a higher-cost mining complex serving the metallurgical coal markets.

2014 Impairment Charges

During the Company’s annual budgeting process for 2015 (performed in the fall of 2014), a review of forecasted revenues indicated that the remaining balance of advance royalty payments made on a reserve base supplying the Company’s Mountain Laurel, Spruce Mine and Briar Branch operations would not be recoupable against future royalties payments. Under

F-19




Table of Contents

the lease, any unrecouped advance payment balance at March 31, 2017 will be forfeited by the Company.  Based on estimates of sales volumes and pricing through the end of the recoupment period, an impairment charge was recorded during the fourth quarter of 2014 for $15.4 million of the remaining $48.0 million balance that would not be recouped.

In response to weak metallurgical coal markets the Company idled a higher-cost mining complex in the third quarter of 2014 in order to concentrate on metallurgical coal production from its lowest-cost and highest-margin operations.  Closure charges of $5.1 million were recognized during the third quarter of 2014 relating to the idling.

2013 Impairment Charges

As a result of the weak thermal coal markets in Appalachia, the Company assessed in the third quarter of 2013 whether the carrying values of certain assets were recoverable through future cash flows.  The Company determined that the carrying amounts of certain assets associated with the Hazard mining complex in Kentucky and the Company’s ADDCAR subsidiary, which manufactures and sells its patented highwall mining system, could not be recovered through future cash flows expected to be generated from use of the assets and their ultimate disposal.

The assets’ fair values were determined based on projections of cash flows to be generated from use of the assets and their ultimate disposal including estimates relating to market demand, coal prices, production costs and mine plans, and recovery value of the assets.   An impairment charge of $142.8 million was recognized to adjust the carrying value of the assets to their fair value of $71.3 million.

During 2013, the Company also recognized other-than-temporary impairment charges related to equity method investments.  See further discussion in Note 10, “Equity Method Investments and Membership Interests in Joint Ventures.”

Due to the unobservable inputs within the modeling used to determine fair market value within the Company’s asset impairment process, the fair value would be considered level 3 within the fair value hierarchy.

6. Goodwill

Changes in the carrying value of goodwill for the three years ended December 31, 2015 are as follows:

 

 

(In thousands)

 

Balance at January 1, 2013

 

$

265,423

 

Impairment

 

(265,423

)

Balance at December 31, 2013

 

$

 

The Company performed its annual impairment testing as of October 1, 2013 on its two remaining Appalachia reporting units with goodwill balances, the Leer mining complex and an undeveloped property adjacent to it.   The fair value of these two reporting units are sensitive to the volatility in the demand for and pricing of metallurgical coal, and continuing weakness in the metallurgical coal markets resulted in a reassessment of key marketing and operating assumptions during the Company’s annual budgeting process.   As a result, the book values of the reporting units exceeded their fair values after the first step of the goodwill impairment tests.  It was also determined that the goodwill had no fair value, and the Company recognized an impairment loss for the remaining reporting units totaling $265.4 million.

7. Losses from disposed operations resulting from Patriot Coal bankruptcy


On December 31, 2005, Arch entered into a purchase and sale agreement with Magnum to sell certain operations. On July 23, 2008, Patriot acquired Magnum. On May 12, 2015, Patriot and certain of its wholly owned subsidiaries (“Debtors”), including Magnum, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Code in the U.S. Bankruptcy

F-20



Table of Contents

Court for the Eastern District of Virginia. Subsequently, on October 28, 2015, Patriot’s Plan of Reorganization was approved, including an authorization to reject their collective bargaining agreements and modify certain union-related retiree benefits. As a result of the Plan of Reorganization, the Company became statutorily responsible for retiree medical benefits pursuant to Section 9711 of the Coal Industry Retiree Health Benefit Act of 1992 for certain retirees of Magnum who retired prior to October 1, 1994. In addition, the Company hashad provided surety bonds to Patriot related to permits that were sold to an affiliate of Virginia Conservation Legacy Fund, Inc. (“VCLF”). Should VCLF not perform required reclamation, the Company would incur losses under the bonds and related indemnity agreements.  The Company recognized $116.3 million in losses in 2015 related to the previously disposed operations as a result of the Patriot Coal bankruptcy. An original charge


On November 22, 2016, Arch entered into a”Collateral Use Agreement” which caused the replacement, substitution and discharge of $149.3 million was recorded in the third quarter of 2015 based on our best estimate at the time. This was subsequently reduced by $33.0 million in the fourth quarter due to revised census data and changes in underlying assumptionsreclamation surety bonds related to the retiree medical benefits.

F-21former Magnum properties placed by Arch in exchange for a collateral release of $20 million held by the bonding company to VCLF.




Table of Contents

8. Inventories

Inventories consist of the following:

 

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Coal

 

$

85,043

 

$

71,901

 

Repair parts and supplies

 

111,677

 

118,352

 

 

 

$

196,720

 

$

190,253

 

  December 31, 2017 December 31, 2016
(In thousands)    
Coal $54,692
 $37,268
Repair parts and supplies 74,268
 76,194
  $128,960
 $113,462
The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $6.0$0.3 million at December 31, 2017 and $0.0 million at December 31, 2015 and $6.6 million at December 31, 2014.

2016.


F- 30


9. Investments in Available-for-Sale Securities


The Company has invested primarily in highly liquid investment-grade corporate bonds. These investments are held in the custody of a major financial institution. These securities, along with the Company’s investments in marketable equity securities, are classified as available-for-sale securities and, accordingly, the unrealized gains and losses are recorded through other comprehensive income.


The Company’s investments in available-for-sale marketable securities are as follows:

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Gross

 

Gross

 

 

 

Classification

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

Short-Term

 

Other

 

 

 

Cost Basis

 

Gains

 

Losses

 

Value

 

Investments

 

Assets

 

 

 

(In thousands)

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

10,007

 

$

 

$

(12

)

$

9,995

 

$

9,995

 

 

 

Corporate notes and bonds

 

190,496

 

 

(299

)

190,197

 

190,197

 

 

Equity securities

 

3,938

 

668

 

(2,888

)

1,718

 

 

1,718

 

Total Investments

 

$

204,441

 

$

668

 

$

(3,199

)

$

201,910

 

$

200,192

 

$

1,718

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Gross

 

Gross

 

 

 

Classification

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

Short-Term

 

Other

 

 

 

Cost Basis

 

Gains

 

Losses

 

Value

 

Investments

 

Assets

 

 

 

(In thousands)

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes and bonds

 

$

253,590

 

$

 

$

(4,636

)

$

248,954

 

$

248,954

 

$

 

Equity securities

 

3,910

 

4,125

 

(2,890

)

5,145

 

 

5,145

 

Total Investments

 

$

257,500

 

$

4,125

 

$

(7,526

)

$

254,099

 

$

248,954

 

$

5,145

 

 December 31, 2017
         Balance Sheet
   Gross Gross   Classification
   Unrealized Unrealized Fair Short-Term Other
 Cost Basis Gains Losses Value Investments Assets
 (In thousands)
Available-for-sale:           
U.S. government and agency securities$64,151
 $22
 $(73) $64,100
 $64,100
 $
Corporate notes and bonds92,038
 
 (292) 91,746
 91,746
 
Total Investments$156,189
 $22
 $(365) $155,846
 $155,846
 $

 December 31, 2016
         Balance Sheet
   Gross Gross   Classification
   Unrealized Unrealized Fair Short-Term Other
 Cost Basis Gains Losses Value Investments Assets
 (In thousands)
Available-for-sale:           
Corporate notes and bonds$88,161
 $
 $(89) $88,072
 $88,072
 $
Equity securities1,749
 388
 
 2,137
 
 2,137
Total Investments$89,910
 $388
 $(89) $90,209
 $88,072
 $2,137

The aggregate fair value of investments with unrealized losses that had been owned for less than a year was $184.6$132.0 million and $163.0$47.6 million at December 31, 20152017 and 2014,2016, respectively. The aggregate fair value of investments with unrealized losses that have been owned for over a year was $15.8$0.0 million and $86.1$40.4 million at December 31, 20152017 and 2014,2016, respectively.


F-22



Table of Contents

The debt securities outstanding at December 31, 20152017 have maturity dates ranging from the first quarter of 2016 2018

through the second quarter of 2017.2019. The Company classifies its investments as current based on the nature of the investments and their availability to provide cash for use in current operations, if needed.



F- 31


10. Equity Method Investments and Membership Interests in Joint Ventures

The Company accounts for its investments and membership interests in joint ventures under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. Certain of the Company’s investments are in development stage companies whose success depends on factors including the receipt of permits and other regulatory environmental issues, the ability of the investee companies to raise additional funds in financial markets that can be volatile and other key business factors, any of which may impact the Company’s ability to recover its investment.

Below are the equity method investments reflected in the consolidated balance sheets:

Investee

 

Knight
Hawk

 

DTA

 

Millennium

 

Tongue
River

 

DKRW

 

Tenaska

 

Other

 

Total

 

Balance at January 1, 2013

 

$

149,063

 

$

15,462

 

$

32,214

 

$

14,697

 

$

15,515

 

$

15,264

 

$

 

$

242,215

 

Advances to (distributions from) affiliates, net

 

(13,536

)

3,644

 

6,476

 

4,004

 

 

 

200

 

788

 

Equity in comprehensive income (loss)

 

17,279

 

(4,969

)

(2,796

)

(282

)

(1,832

)

 

 

7,400

 

Impairment of equity investment

 

 

 

 

 

(13,683

)

(15,264

)

 

(28,947

)

Balance at December 31, 2013

 

152,806

 

14,137

 

35,894

 

18,419

 

 

 

200

 

221,456

 

Advances to (distributions from) affiliates, net

 

(12,603

)

3,774

 

6,742

 

2,541

 

 

 

3,600

 

4,054

 

Equity in comprehensive income (loss)

 

18,274

 

(4,173

)

(2,413

)

(220

)

 

 

(1,136

)

10,332

 

Balance at December 31, 2014

 

158,477

 

13,738

 

40,223

 

20,740

 

 

 

2,664

 

235,842

 

Advances to (distributions from) affiliates, net

 

(29,862

)

3,207

 

7,052

 

913

 

 

 

330

 

(18,360

)

Equity in comprehensive income (loss)

 

22,977

 

(3,706

)

(9,686

)

(328

)

 

 

(1,278

)

7,979

 

Impairment of equity investment

 

 

 

 

(21,325

)

 

 

 

(21,325

)

Sale of equity investment

 

 

 

 

 

 

 

(2,259

)

$

(2,259

)

Balance at December 31, 2015

 

$

151,592

 

$

13,239

 

$

37,589

 

$

 

$

 

$

 

$

(543

)

$

201,877

 

(In thousands) Knight Hawk DTA Millennium Tongue River Other Total
Predecessor Company            
January 1, 2015 $158,477
 $13,738
 $40,223
 $20,740
 $2,664
 $235,842
Advances to (distributions from) affiliates, net (29,862) 3,207
 7,052
 913
 330
 (18,360)
Equity in comprehensive income (loss) 22,977
 (3,706) (9,686) (328) (1,278) 7,979
Impairment of equity investment 
 
 
 (21,325) 
 (21,325)
Sale of equity investment 
 
 
 
 (2,259) (2,259)
December 31, 2015 151,592
 13,239
 37,589
 
 (543) 201,877
Advances to (distributions from) affiliates, net (8,374) 1,474
 1,966
 
 
 (4,934)
Equity in comprehensive income (loss) 9,033
 (2,095) (1,530) 
 (94) 5,314
Impairment of equity investment 
 
 (38,025) 
 
 (38,025)
Fresh start accounting adjustment (58,251) (4,018) 
 
 662
 (61,607)
October 1, 2016 94,000
 8,600
 
 
 25
 102,625
Successor Company            
Advances to (distributions from) affiliates, net (9,076) 822
 
 
 
 (8,254)
Equity in comprehensive income (loss) 2,569
 (841) 
 
 (25) 1,703
December 31, 2016 $87,493
 $8,581
 $
 $
 $
 $96,074
Investments in affiliates 
 7,158
 
 
 
 7,158
Advances to (distributions from) affiliates, net (8,736) 3,014
 
 
 
 (5,722)
Equity in comprehensive income (loss) 11,409
 (2,812) 
 
 
 8,597
             
December 31, 2017 $90,166
 $15,941
 $
 $
 $
 $106,107

The Company holds a 49% equity interest in Knight Hawk Holdings, LLC (“Knight Hawk”), a coal producer in the Illinois Basin.

The Company holds a general partnership interest of 21.875% in Dominion Terminal Associates (“DTA”), which is accounted for under the equity method. In March 2017, the Company paid $7.2 million through an auction process held by one of the existing owners, increasing its ownership in DTA from 21.875% to 35%. DTA operates a ground storage-to-vessel coal transloading facility in Newport News, Virginia for use by the partners. Under the terms of a throughput and handling agreement with DTA, each partner is charged its share of cash operating and debt-service costs in exchange for the right to use the facility’s loading capacity and is required to make periodic cash advances to DTA to fund such costs.

The Company holdspreviously held a 38% ownership interest in Millennium Bulk Terminals-Longview, LLC (“Millennium”), the owner of a brownfield bulk commodity terminal on the Columbia River near Longview, Washington. Additional future purchase consideration is due upon the completion of certain project milestones. Millennium continues to work on obtaining the required approvals and necessary permits to complete dredging and other upgrades to ship coal, alumina and cementitious material from the terminal. During the second quarter of 2016, the Company recorded an impairment charge of $38.0 million representing the entire value of its equity investment as the Company relinquished its ownership rights in exchange for future throughput rights through the facility when completed.
The Company will control 38% of the terminal’s throughput and storage capacity, in order to facilitate export shipments of coal off the west coast of the United States.

The Company holdspreviously held a 35% membership interest in the Tongue River Holding Company, LLC (“Tongue River”) joint venture. Tongue River willwas formed to develop and construct a railway line near Miles City, Montana and the Company’s Otter Creek reserves.reserves formerly controlled by the Company. The Company hashad the right, upon the receipt of permits and approval for construction or under other prescribed circumstances, to require the other investors to purchase all of the Company’s units in the venture at an amount equal to the capital contributions made by the Company at that time, less any distributions received. During the third quarter of 2015, the

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Table of Contents

Company recorded an impairment charge of $21.3 million representing the entire value of the Company’s investment in the project; the impairment charge is included on the line “Asset impairment and mine closure costs.”


F- 32


The Company holds a 24% equity interest in DKRW Advanced Fuels LLC (“DKRW”), who had entered into an Engineering, Procurement and Construction Agreement with a Chinese company to construct and commission the Medicine Bow coal-to-liquids facility. However, as the project didis not progress to the next stage of development, the Company recorded an other-than-temporary impairment charge of $57.7 million in the third quarter of 2013, representing the Company’s equity investment of $13.7 million and an outstanding $44.0 million loan receivable balance. The impairment charges are included on the line “Asset impairment and mine closure costs” in the consolidated statement of operations.

During the second quarter of 2013,  Tenaska Trailblazer Partners, LLC (“Tenaska”) announced that it was discontinuing its development plans for the Trailblazer Energy Center in Texas.  As a result, the Company recorded a $20.5 million impairment charge, which consisted of its 35% equity investment of $15.3 million and a $5.2 million receivable balance related to advances for development work. The impairment charges are included on the line “Asset impairment and mine closure costs” in the consolidated statement of operations.

The Company may be required to make any future contingent payments of up to $58.5 million related to development financing for certainany of its equity investees. The Company’s obligation to make these payments, as well as the timing of any payments required, is contingent upon the achievement of project development milestones.


11.  Acquired Sales Contracts


The acquired sales contracts reflected in the consolidated balance sheets are as follows:

 

 

December 31, 2015

 

December 31, 2014

 

 

 

Assets

 

Liabilities

 

Net Total

 

Assets

 

Liabilities

 

Net Total

 

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

Acquired fair value

 

$

131,299

 

$

166,697

 

 

 

$

131,299

 

$

166,697

 

 

 

Accumulated amortization

 

(130,839

)

(151,354

)

 

 

(130,363

)

(134,988

)

 

 

Total

 

$

460

 

$

15,343

 

$

(14,883

)

$

936

 

$

31,709

 

$

(30,773

)

Balance Sheet classification:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other current

 

$

460

 

$

3,852

 

 

 

$

462

 

$

12,453

 

 

 

Other noncurrent

 

$

 

$

11,491

 

 

 

$

474

 

$

19,256

 

 

 

 December 31, 2017 December 31, 2016
 Assets Liabilities Net Total Assets Liabilities Net Total
 (In thousands)   (In thousands)  
Original fair value$97,196
 $31,742
   $97,196
 $31,742
  
Accumulated amortization(84,760) (29,979)   (25,625) (24,829)  
Total$12,436
 $1,763
 $10,673
 $71,571
 $6,913
 $64,658
Balance Sheet classification:           
Other current$12,432
 $934
   $59,702
 $5,114
  
Other noncurrent$4
 $829
   $11,869
 $1,799
  
The Company anticipates amortizationthe majority of acquiredthe remaining net book value of sales contracts to be amortized in 2018 based upon expected shipmentsshipments.

12. Derivatives
Interest rate risk management

The Company has entered into some interest rate swaps to reduce the variability of cash outflows associated with interest payments on its variable rate term loan. These swaps have been designated as cash flow hedges. For additional information on these arrangements, see Note 14, “Debt and Financing Arrangements” in the next five years, to be income of approximately $3.3 million in 2016, $3.7 million in 2017,  $3.7 million in 2018, $3.7 million in 2019 and $0.3 million  in 2020.

12. DerivativesConsolidated Financial Statements.


Diesel fuel price risk management

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 5042 to 5846 million gallons of diesel fuel for use in its operations during 2016.2018. To protect the Company’s cash flows from increases in the price of diesel fuel for its operations, the Company may useuses forward physical diesel purchase contracts and purchase out-of-the-moneypurchased heating oil call options to protect against substantial increases in pricing.options. At December 31, 2015,2017, the Company had heating oil call options for approximately 5626.2 million gallons at an average strike price of $1.98.

$1.84.


Coal risk management positions

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted sales

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Table of Contents

or purchases of coal or to the risk of changes in the fair value of a fixed price physical sales contract. Certain derivative contracts may be designated as hedges of these risks.

At December 31, 2015,2017, the Company held derivatives for risk management purposes that are expected to settle in the following years:

(Tons in thousands)

 

2016

 

2017

 

Total

 

Coal sales

 

480

 

 

480

 

Coal purchases

 

255

 

 

255

 

(Tons in thousands) 2018 2019 Total
Coal sales 1,706
 159
 1,865
Coal purchases 747
 
 747

The Company may also enter into natural gas options to protect the Company from decreases in natural gas prices, which could impact thermal coal demand. These options are not designated as hedges. Additionally, the Company may enter into nominal quantities of foreign currency options protecting for decreases in the Australian to United States dollar exchange rate, which could impact metallurgical coal demand. These options are not designated as hedges.

F- 33


Coal trading positions

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market for trading purposes. The Company is exposed to the risk of changes in coal prices on the value of its coal trading portfolio. The unrecognized gainslosses of $5.8$1.2 million in the trading portfolio are expected to be realized in 2016.

2018.


Tabular derivatives disclosures

The Company has master netting agreements with all of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the consolidated balance sheets. The amounts shown in the table below represent the fair value position of individual contracts, and not the net position presented in the accompanying consolidated balance sheets.


The fair value and location of derivatives reflected in the accompanying consolidated balance sheets are as follows:

 

 

December 31, 2015

 

 

 

December 31, 2014

 

 

 

Fair Value of Derivatives

 

Asset

 

Liability

 

 

 

Asset

 

Liability

 

 

 

(In thousands)

 

Derivative

 

Derivative

 

 

 

Derivative

 

Derivative

 

 

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

$

4

 

$

(20

)

 

 

$

6,535

 

$

(2,492

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating oil — diesel purchases

 

1,017

 

 

 

 

300

 

 

 

 

Coal held for trading purposes, exchange traded swaps and futures

 

110,653

 

(104,814

)

 

 

96,898

 

(93,272

)

 

 

Coal — risk management

 

3,912

 

(1,947

)

 

 

8,510

 

(3,688

)

 

 

Natural gas

 

494

 

(247

)

 

 

 

 

 

 

Total

 

116,076

 

(107,008

)

 

 

105,708

 

(96,960

)

 

 

Total derivatives

 

116,080

 

(107,028

)

 

 

112,243

 

(99,452

)

 

 

Effect of counterparty netting

 

(107,028

)

107,028

 

 

 

(98,686

)

98,686

 

 

 

Net derivatives as classified in the balance sheets

 

$

9,052

 

$

 

$

9,052

 

$

13,557

 

$

(766

)

$

12,791

 

F-25



  December 31, 2017   December 31, 2016  
Fair Value of Derivatives Asset Liability   Asset Liability  
(In thousands) Derivative Derivative   Derivative Derivative  
Derivatives Designated as Hedging Instruments  
  
  
  
  
  
Coal $942
 $(2,146)  
 $
 $(15)  
  

 

   

 

  
Derivatives Not Designated as Hedging Instruments  
  
  
  
  
  
Heating oil -- diesel purchases 5,354
 
  
 4,646
 
  
Coal held for trading purposes, exchange traded swaps and futures 44,088
 (45,221)  
 68,948
 (68,740)  
Coal -- risk management 5,139
 (9,892)  
 475
 (580)  
Natural gas 27
 
   86
 (13)  
Total 54,608
 (55,113)  
 74,155
 (69,333)  
Total derivatives 55,550
 (57,259)  
 74,155
 (69,348)  
Effect of counterparty netting (50,042) 50,042
  
 (69,247) 69,247
  
Net derivatives as classified in the balance sheets $5,508
 $(7,217) $(1,709) $4,908
 $(101) $4,807

    December 31, 2017 December 31, 2016
Net derivatives as reflected on the balance sheets    
  
Heating oil Other current assets $5,354
 $4,646
Coal Other current assets 154
 262
  Accrued expenses and other current liabilities (7,217) (101)
    $(1,709) $4,807
Table of Contents

 

 

 

 

December 31,

 

 

 

 

 

2015

 

2014

 

Net derivatives as reflected on the balance sheets

 

 

 

 

 

 

 

Heating oil

 

Other current assets

 

$

1,017

 

$

300

 

Coal

 

Coal derivative assets

 

8,035

 

13,257

 

 

 

Accrued expenses and other current liabilities

 

 

(766

)

 

 

 

 

$

9,052

 

$

12,791

 

The Company had a current asset for the right to reclaim cash collateral of $1.7$16.2 million and a current liability for the obligation to return cash collateral of $2.4$2.8 million at December 31, 20152017 and 2014,2016, respectively. These amounts are not included with the derivatives presented in the table above and are included in “other current assets” and  “other current liabilities”, respectively, in the accompanying consolidated balance sheets.

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F- 34


Table of Contents



The effects of derivatives on measures of financial performance are as follows:


Derivatives used in Cash Flow Hedging Relationships (in thousands)

For the year ended December 31,

 

 

Gain (Loss) Recognized in Other
Comprehensive Income (Effective Portion)

 

Gains (Losses) Reclassified from Other
Comprehensive Income into Income
(Effective Portion)

 

 

 

2015

 

2014

 

2013

 

2015

 

2014

 

2013

 

Coal sales(1)

 

$

12,816

 

$

10,842

 

(338

)

$

18,635

 

$

5,336

 

$

3,664

 

Coal purchases(2)

 

(6,718

)

(5,097

)

526

 

(9,060

)

(2,693

)

(683

)

 

 

$

6,098

 

$

5,745

 

$

188

 

$

9,575

 

$

2,643

 

$

2,981

 

noted periods,

  Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)
  SuccessorPredecessor
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
Coal sales
(1) 
$(2,127) $
$(672) 12,816
Coal purchases
(2) 
942
 
536
 (6,718)
  $(1,185) $
$(136) $6,098
        
        
  Gains (Losses) Reclassified from Other Comprehensive Income into Income
(Effective Portion)
  SuccessorPredecessor
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
Coal sales $
 $
$1,634
 $18,635
Coal purchases 
 
(1,237) (9,060)
  $
 $
$397
 $9,575
No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging relationships were recognized in the results of operations in the years ended December 31, 2015, 2014 and 2013.

respective periods. 



Derivatives Not Designated as Hedging Instruments (in thousands)

For the year ended December 31,

 

 

Gain (Loss) Recognized

 

 

 

2015

 

2014

 

2013

 

Coal — unrealized(3)

 

$

(3,883

)

$

430

 

$

(12,700

)

Coal — realized(4)

 

$

3,236

 

$

5,956

 

$

32,534

 

Heating oil — diesel purchases(4)

 

$

(8,294

)

$

(7,848

)

$

(9,791

)

Heating oil — fuel surcharges(4)

 

$

 

$

(405

)

$

(947

)

Natural gas

 

$

878

 

$

 

$

 

Foreign currency

 

$

(887

)

$

 

$

 

noted periods,
  Gain (Loss) Recognized
  SuccessorPredecessor
  Year Ended December 31, 2017October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
Coal — unrealized
(3) 
$(4,648)$(408)$(1,662) $(3,883)
Coal — realized
(4) 
$
$116
$(476) $3,236
Heating oil — diesel purchases
(4) 
$(1,057)$827
$826
 $(8,294)
Natural gas $(774)$(91)$(463) $878
Foreign currency $
$(9)$(451) $(867)



F- 35

Table of Contents


Location in statement of operations:

(1) — Revenues

(2) — Cost of sales

(3) — Change in fair value of coal derivatives and coal trading activities, net

(4) — Other operating income, net

The Company recognized net unrealized and realized losses of $2.0 million for the year ended December 31, 2017; an immaterial amount for the period October 2 through December 31, 2016; net unrealized and realized losses of $0.9 million for the period January 1 through October 1, 2016; and net unrealized and realized gains of $5.7 million $3.2 million, and $4.9 million during the yearsyear ended December 31, 2015, 2014 and 2013, respectively, related to its trading portfolio, which are included in the caption “Change in fair value of coal derivatives and coal trading activities, net” in the accompanying consolidated statements of operations, and are not included in the previous tables reflecting the effects of derivatives on measures of financial performance.

Based on fair values at December 31, 2015, losses2017, amounts on derivative contracts designated as hedge instruments in cash flow hedges expected to be reclassified from other comprehensive income into earnings during the next twelve months are immaterial.

F-losses of $1.2 million.27




Table of Contents

13. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Payroll and employee benefits

 

$

58,423

 

$

73,362

 

Taxes other than income taxes

 

104,755

 

114,598

 

Interest

 

119,785

 

30,384

 

Acquired sales contracts

 

3,852

 

12,453

 

Workers’ compensation

 

16,875

 

16,714

 

Asset retirement obligations

 

13,795

 

19,222

 

Other

 

11,965

 

35,663

 

 

 

$

329,450

 

$

302,396

 

The increase in the accrued interest balance is due to

  December 31, 2017 December 31, 2016
(In thousands)    
Payroll and employee benefits $53,149
 $58,468
Taxes other than income taxes 77,017
 92,733
Interest 246
 8,032
Sales contracts 934
 5,114
Workers’ compensation 18,782
 15,184
Asset retirement obligations 19,840
 19,515
Other 14,193
 6,194
  $184,161
 $205,240


F- 36



14.Debt and Financing Arrangements
  December 31, 2017 December 31, 2016
(In thousands)  
Term loan due 2024 ($297.8 million face value) $296,435
 $
Term loan due 2021 ($325.7 million face value) $
 $325,684
Other 36,514
 37,195
Debt issuance costs (7,032) 
  325,917
 362,879
Less current maturities of debt 15,783
 11,038
Long-term debt $310,134
 $351,841

Term Loan Facility
On March 7, 2017, the Company exercisingentered into a new senior secured term loan credit agreement in an aggregate principal amount of $300 million (the “New Term Loan Debt Facility”) with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent (in such capacities, the 30-day grace period under its indenture agreements with holders of its 9.875% Senior Notes due 2019, the 7.00% Senior Notes due 2019“Agent”), and the 7.25% Senior Notes due 2021other financial institutions from time to time party thereto (collectively, the “Lenders”). The New Term Loan Debt Facility was issued at 99.50% of the face amount and will mature on December 15, 2015.  This extended the time periodMarch 7, 2024.

On September 25, 2017, the Company hadentered into the First Amendment (the “Amendment”) to makeits Credit Agreement, dated as of March 7, 2017, among Arch Coal as borrower, the approximately $90lenders from time to time party thereto, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent.

The Amendment reduces the interest rate on the $300 million interest payment due December 15, 2015 without triggeringterm loan facility to, at the option of Arch Coal, either (i) the London interbank offered rate (“LIBOR”) plus an eventapplicable margin of default3.25%, subject to a 1.00% LIBOR floor, or (ii) a base rate plus an applicable margin of 2.25%. The Amendment also resets the 1.00% call premium to apply to repricing events that occur on or prior to March 26, 2018.

Borrowings under the indentures.  Subsequently, on January 11, 2016New Term Loan Debt Facility bear interest at a per annum rate equal to, at the Company’s option, either (i) a London interbank offered rate plus an applicable margin of 4%, subject to a 1% LIBOR floor (the “Petition Date”“LIBOR Rate”), or (ii) a base rate plus an applicable margin of 3%. The term loans provided under the CompanyNew Term Loan Debt Facility (the “Term Loans”) are subject to quarterly principal amortization payments in an amount equal to $750,000.

The New Term Loan Debt Facility is guaranteed by all existing and substantially all of itsfuture wholly owned domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of Title 11 of the U.S. Code inCompany (collectively, the United States Bankruptcy Court for“Subsidiary Guarantors” and, together with Arch Coal, the Eastern District of Missouri.  See additional details in Note 26, “Subsequent Events.”

14.  Debt“Loan Parties”), subject to customary exceptions, and Financing Arrangements

 

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Term loan due 2018 ($1.9 billion and $1.93 billion face value, respectively)

 

$

1,875,429

 

$

1,890,846

 

7.00% senior notes due 2019 at par

 

1,000,000

 

1,000,000

 

8.00% senior secured notes due 2019 at par

 

350,000

 

350,000

 

9.875% senior notes ($375.0 million face value) due 2019

 

365,600

 

363,493

 

7.25% senior notes due 2020 at par

 

500,000

 

500,000

 

7.25% senior notes due 2021 at par

 

1,000,000

 

1,000,000

 

Other

 

47,134

 

56,031

 

 

 

5,138,163

 

5,160,370

 

Less current maturities of debt

 

5,107,210

 

36,885

 

Long-term debt

 

$

30,953

 

$

5,123,485

 

Acceleration of Debt Obligations; Automatic Stay

The filingis secured by first priority security interests on substantially all assets of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the documents governing each of its 7.00% senior notes due 2019, 9.875% senior notes due 2019, 8.00% senior secured second lien notes due 2019, 7.25% senior notes due 2020, 7.25% senior notes due 2021 (together, the “senior notes”) and senior secured first lien term loan due 2018.  Immediately after filing the Bankruptcy Petitions, the Company began notifying all known current or potential creditorsLoan Parties, including 100% of the Debtorsvoting equity interests of directly owned domestic subsidiaries and 65% of the bankruptcy filings.

Pursuantvoting equity interests of directly owned foreign subsidiaries, subject to Section 362customary exceptions.


The Company has the right to prepay Term Loans at any time and from time to time in whole or in part without premium or penalty, upon written notice, except that any prepayment of Term Loans that bear interest at the LIBOR Rate other than at the end of the Bankruptcy Code, the filingapplicable interest periods therefor shall be made with reimbursement for any funding losses and redeployment costs of the Bankruptcy Petitions automatically stayed most actions against the Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. SubjectLenders resulting therefrom.

The New Term Loan Debt Facility is subject to certain exceptions under the Bankruptcy Code, the filingusual and customary mandatory prepayment events, including 100% of the Debtors’ Chapter 11 Cases also automatically stayed the continuationnet cash proceeds of most legal proceedings, including the third party litigation matters described under

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Table of Contents

Item 3, “Legal Proceedings,” or the filing of other actions against or on behalf of the Debtors or their property(i) debt issuances (other than debt permitted to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim.  Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers

Credit Facilities

As of September 30, 2015, availability under the Company’s revolver was subject to limits on secured debt in its senior note indentures.  At September 30, 2015, the limit under the most restrictive indenture did not provide meaningful availability under the revolver and, as a result, on November 6, 2015 the Company delivered an irrevocable 5 day notice to the administrative agent to voluntarily terminate all commitments thereunder, which terminated on November 11, 2015.  The Company had no borrowings outstanding under the revolving credit facility at September 30, 2015 and had not been using it as a source of liquidity in the recent past.

The Company is also party to an accounts receivable securitization program under which 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 the Company’s financial statements. The Company may borrow and draw letters of credit against the facility, and pays facility fees, program fees and letter of credit fees (based on amounts of outstanding letters of credit).  The total aggregate borrowings and letters of credit are limited by eligible accounts receivable, as definedbe incurred under the terms of the New Term Loan Debt Facility) and (ii) non-ordinary course asset sales or dispositions, subject to customary thresholds, exceptions and reinvestment rights.


The New Term Loan Debt Facility contains customary affirmative covenants and representations.


F- 37


The New Term Loan Debt Facility also contains customary negative covenants, which, among other things, and subject to certain exceptions, include restrictions on (i) indebtedness, (ii) liens, (iii) liquidations, mergers, consolidations and acquisitions, (iv) disposition of assets or subsidiaries, (v) affiliate transactions, (vi) creation or ownership of certain subsidiaries, partnerships and joint ventures, (vii) continuation of or change in business, (viii) restricted payments, (ix) prepayment of subordinated and junior lien indebtedness, (x) restrictions in agreements on dividends, intercompany loans and granting liens on the collateral, (xi) loans and investments, (xii) sale and leaseback transactions, (xiii) changes in organizational documents and fiscal year and (xiv) transactions with respect to bonding subsidiaries. The New Term Loan Debt Facility does not contain any financial maintenance covenant.

The New Term Loan Debt Facility contains customary events of default, subject to customary thresholds and exceptions, including, among other things, (i) nonpayment of principal and nonpayment of interest and fees, (ii) a material inaccuracy of a representation or warranty at the time made, (iii) a failure to comply with any covenant, subject to customary grace periods in the case of certain affirmative covenants, (iv) cross-events of default to indebtedness of at least $50 million, (v) cross-events of default to surety, reclamation or similar bonds securing obligations with an aggregate face amount of at least $50 million, (vi) uninsured judgments in excess of $50 million, (vii) any loan document shall cease to be a legal, valid and binding agreement, (viii) uninsured losses or proceedings against assets with a value in excess of $50 million, (ix) certain ERISA events, (x) a change of control or (xi) bankruptcy or insolvency proceedings relating to the Company or any material subsidiary of the Company.

On the effective date of the New Term Loan Debt Facility, all outstanding obligations under the Company’s previously existing term loan credit agreement, dated as of October 5, 2016, among the Company, as borrower, the lender party thereto and Wilmington Trust, National Association, as administrative agent and collateral agent (the “Previous First Lien Debt Facility”), other than indemnification and other contingent obligations, were paid in cash in full and the related transaction documents were terminated (other than with respect to certain provisions that customarily survive termination); there was no gain or loss recognized on the extinguishment of the previously existing term loan credit agreement. All liens on property of the Company and the guarantors thereunder arising out of or related to the Previous First Lien Debt Facility were terminated.

Accounts Receivable Securitization Facility

On April 27, 2017, the Company extended and amended its existing trade accounts receivable securitization facility provided to Arch Receivable Company, LLC, a special-purpose entity that is a wholly owned subsidiary of the Company (“Arch Receivable”) (the “Extended Securitization Facility”), which supports the issuance of letters of credit and requests for cash advances. The amendment to the Extended Securitization Facility decreases the borrowing capacity from $200 million to $160 million and extends the maturity date to the date that is three years after the Securitization Facility Closing Date. Pursuant to the Extended Securitization Facility, Arch Receivable also agreed to a revised schedule of fees payable to the administrator and the providers of the Extended Securitization Facility.

The Extended Securitization Facility will terminate at the earliest of (i) three years from the Securitization Facility Closing Date, (ii) if the Liquidity (defined in the Extended Securitization Facility and consistent with the definition in the New Inventory Facility) is less than $175 million for a period of 60 consecutive days, the date that is the 364th day after the first day of such 60 consecutive day period and (iii) the occurrence of certain predefined events substantially consistent with the existing transaction documents. Under the Extended Securitization Facility, Arch Receivable, the Company and certain of its subsidiaries party to the Extended Securitization Facility have granted to the administrator of the Extended Securitization Facility a first priority security interest in eligible trade accounts receivable generated by such parties from the sale of coal and all proceeds thereof. As of December 31, 2017, letters of credit totaling $85.0 million were outstanding under the facility with no additional availability for borrowings.

Inventory-Based Revolving Credit Facility

On April 27, 2017, the Company and certain subsidiaries of Arch Coal entered into a new senior secured inventory-based revolving credit facility agreement.  in an aggregate principal amount of $40 million (the “New Inventory Facility”) with Regions Bank (“Regions”) as administrative agent and collateral agent (in such capacities, the “Agent”), as lender and swingline lender (in such capacities, the “ Lender ”) and as letter of credit issuer. Availability under the New Inventory Facility is subject to a borrowing base consisting of (i) 85% of the net orderly liquidation value of eligible coal inventory, (ii) the lesser of (x) 85% of the net orderly liquidation value of eligible parts and supplies inventory and (y) 35% of the amount determined pursuant to clause (i), and (iii) 100% of Arch Coal’s Eligible Cash (defined in the New Inventory Facility), subject to reduction for reserves imposed by Regions.


F- 38


The credit agreement expirescommitments under the New Inventory Facility will terminate on December 8, 2017.

At December 31, 2015, the Company had no available borrowing capacity under its linesdate that is the earliest to occur of credit.

Term Loan

On May 16, 2012,(i) the Company borrowed $1.4 billion underthird anniversary of the Inventory Facility Closing Date, (ii) the date, if any, that is 364 days following the first day that Liquidity (defined in the New Inventory Facility and consistent with the definition in the Extended Securitization Facility (as defined below)) is less than $250 million for a secured termperiod of 60 consecutive days and (iii) the date, if any, that is 60 days following the maturity, termination or repayment in full of the Extended Securitization Facility.


Revolving loan facility, issued at a 1% discount.  The proceeds from the term loan were used to retire all outstanding borrowings under the revolvingNew Inventory Facility bear interest at a per annum rate equal to, at the option of the Company, either at the base rate or the London interbank offered rate plus, in each case, a margin ranging from 2.25% to 2.50% (in the case of LIBOR loans) and 1.25% to 1.50% (in the case of base rate loans) determined using a Liquidity-based grid. Letters of credit under the New Inventory Facility are subject to a fee in an amount equal to the applicable margin for LIBOR loans, plus customary fronting and issuance fees.

All existing and future direct and indirect domestic subsidiaries of the Company, subject to customary exceptions, will either constitute co-borrowers under or guarantors of the New Inventory Facility (collectively with the Company, the “Loan Parties”). The New Inventory Facility is secured by first priority security interests in the ABL Priority Collateral (defined in the New Inventory Facility) of the Loan Parties and second priority security interests in substantially all other assets of the Loan Parties, subject to customary exceptions (including an exception for the collateral that secures the Extended Securitization Facility).

The Company has the right to prepay borrowings under the New Inventory Facility at any time and from time to time in whole or in part without premium or penalty, upon written notice, except that any prepayment of such borrowings that bear interest at the LIBOR rate other than at the end of the applicable interest periods therefore shall be made with reimbursement for any funding losses and redeployment costs of the Lender resulting therefrom.

The New Inventory Facility is subject to certain usual and customary mandatory prepayment events, including non-ordinary course asset sales or dispositions, subject to customary thresholds, exceptions (including exceptions for required prepayments under the Company’s term loan facility) and reinvestment rights.

The New Inventory Facility contains certain customary affirmative and negative covenants; events of default, subject to customary thresholds and exceptions; and representations, including certain cash management and reporting requirements that are customary for asset-based credit facilities. The New Inventory Facility also includes a requirement to maintain Liquidity equal to or exceeding $175 million at all times. As of December 31, 2017, letters of credit totaling $29.0 million were outstanding under the facility with $1.1 million additional availability for borrowings.

Interest Rate Swaps

During the second quarter of 2017, the Company entered into a series of interest rate swaps to fix a portion of the LIBOR interest payments due under the term loan. The interest rate swaps qualify for cash flow hedge accounting treatment and as such, the change in the fair value of the interest rate swaps are recorded on the Company’s Consolidated Balance Sheet as an asset or liability with the effective portion of the gains or losses reported as a component of accumulated other comprehensive income and the outstanding $450.0 million principal amount of 6.75% Senior Notes due 2013 issued by Arch Western Finance, LLC, the Company’s indirect subsidiary. On November 21, 2012, the Company borrowed an incremental $250.0 millionineffective portion reported in earnings. As interest payments are made on the term loan, facility atamounts in accumulated other comprehensive income will be reclassified into earnings through interest expense to reflect a 1% discount atnet interest on the same rate asterm loan equal to the initial borrowing.   On December 17, 2013 the credit facility amendment increased the maximum amount of term loans allowed under the facility, and the Company borrowed an incremental $300.0 million aggregate principal amount at 98%effective yield of the face amount.

Thefixed rate of the swap plus 3.25% which is the spread on the revised LIBOR term loan contains no financial maintenance covenants,loan. In the event that an interest rate swap is prepayable,terminated prior to maturity, gains or losses in accumulated other comprehensive income will remain deferred and reclassified into earnings in the periods which the hedged forecasted transaction affects earnings.



F- 39


Below is secured by substantially alla summary of the Company’s assets.  Quarterly principal paymentsoutstanding interest rate swap agreements designated as hedges as of $3.5 million began in September 2012, increased to $4.125 million per quarter as a result
December 31, 2017:

Notional Amount (in millions)Effective DateFixed RateReceive RateExpiration Date
     
$250.0June 30, 20171.372%1-month LIBORJune 29, 2018
$250.0June 29, 20181.662%1-month LIBORJune 28, 2019
$200.0June 28, 20191.952%1-month LIBORJune 30, 2020
$150.0June 30, 20202.182%1-month LIBORJune 30, 2021
The fair value of the incremental borrowing in November, 2012, and increased further to $4.875interest rate swaps at December 31, 2017 is an asset of $1.8 million which is recorded within Other noncurrent assets with the offset to accumulated other comprehensive income on the Company’s Consolidated Balance Sheet. The Company realized $0.1 million of losses during the year ended December 17, 2013 borrowing.  A balloon payment of $1.8 billion is due in May, 2018. Interest is payable at a rate that is equal31, 2017 related to a basesettlements of the greater of a LIBOR-basedinterest rate and 1.25%, plus 500 basis points.

2019 9.875% Notes

On November 21, 2012, the Company issued $375.0 million aggregate principal amount of 9.875% senior unsecured notes due 2019 (the “2019 9.875% Notes”) at an issue price of 95.934% of the face amount.  Interest is payableswaps which was recorded to interest expense on the 2019 9.875% Notes annually on June 15 and December 15.Company’s Consolidated Statement of Operations. The Company may redeem some or all ofinterest rate swaps are classified as level 2 within the notes at prices that are reflected as a percentage of the principal amount, as follows:  104.938% commencing December 15, 2016; 102.469% commencing December 15, 2017; and 100% on or after December 15, 2018.

The unsecured senior notes are guaranteed by substantially all of the Company’s subsidiaries, except for Arch Receivable Company, LLC, which is the conduit for the accounts receivable securitization program, and the Company’s subsidiaries outside the U.S.

F-fair value hierarchy.29



Table of Contents

2019 Secured Notes

On December 17, 2013, the Company issued $350.0 million aggregate principal amount of 8.00% senior secured second lien notes due 2019 (the “2019 Secured Notes”) at par.  The 2019 Secured Notes are secured by the same assets that secure indebtedness under the senior secured term loan, but on a second priority basis, subject to certain exceptions and permitted liens.  Interest is payable on the 2019 Secured Notes on January 15 and July 15 of each year.  The Company may redeem some or all of the notes at prices that are reflected as a percentage of the principal amount, as follows: 104.0% commencing January 15, 2016, 102.0% commencing January 15, 2017, and 100% on or after January 15, 2018.

2020 Notes

The Company has outstanding $500.0 million in aggregate principal amount of 7.25% senior unsecured notes due in 2020 (“2020 Notes”) at par.  Interest is payable on the 2020 Notes on April 1 and October 1 of each year.  The Company may redeem some or all of the 2020 Notes during the respective 12 month periods at prices that are reflected as a percentage of the principal amount, as follows: 103.625% commencing October 1, 2015; 102.417% commencing October 1, 2016; 101.208% commencing October 1, 2017; and 100% on or after October 1, 2018.

2019 7% Notes and 2021 Notes

The Company has outstanding  $1.0 billion of 7.00% unsecured senior notes due 2019 (“2019 7% Notes”) and $1.0 billion of 7.25% unsecured senior notes due 2021 (“2021 Notes”).  Interest is payable on the 2019 7% Notes and 2021 Notes on June 15 and December 15 of each year.  The Company may redeem some or all of the 2019 7% Notes at prices that are reflected as a percentage of the principal amount, as follows: 103.5% commencing June 15, 2015; 101.75% commencing June 15, 2016; and 100% on or after June 15, 2017. The Company may redeem some or all of the 2021 Notes at prices that are reflected as a percentage of the principal amount, as follows: 103.625% commencing June 15, 2016; 102.417% commencing June 15, 2017; 101.208% commencing June 15, 2018 and 100% on or after June 15, 2019. In each case, accrued and unpaid interest at the redemption date is due upon redemption.

Other Debt Retirements

On December 17, 2013, the Company retired the outstanding $600 million in aggregate principal amount of 8.75% senior unsecured notes due 2016 (“2016 Notes”) for $628.7 million with the proceeds from the incremental term loan and the 2019 Secured Notes.  The Company recorded a $41.0 million loss related to this transaction which is reflected in the line “Net loss resulting from early retirement of debt and debt restructuring” in the Consolidated Statements of Operations.

Debt Maturities

The contractual maturities of debt as of December 31, 20152017 are as follows, although $5.1 billion is classified as current due to the default caused by the Company’s bankruptcy filing.

Year

 

 

 

2016

 

$

35,674

 

2017

 

30,484

 

2018

 

1,858,567

 

2019

 

1,731,317

 

2020

 

501,642

 

Thereafter

 

1,000,574

 

 

 

$

5,158,258

 

F-30

follows:


Table of Contents

Debt Covenants

Terms of the Company’s credit facilities and leases contain covenants that limit the ability of the Company to, among other things, acquire, dispose, merge or consolidate assets; incur additional debt; pay dividends and make distributions or repurchase stock; make investments; create liens; issue and sell capital stock of subsidiaries; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or advances to the Company; engage in transactions with affiliates and enter into sale and leaseback transactions. Failure by the Company to comply with such covenants could result in an event of default, which, if not cured or waived, could have a material adverse effect on the Company.

Year (In thousands)
2018 $16,809
2019 11,119
2020 11,442
2021 8,853
2022 3,130
Thereafter 282,911
  $334,264

Financing Costs


The Company did not incur any financing costs in 2015 and paid financing costs of $4.5$10.1 million during the year ended December 31, 2017; zero during the period October 2 through December 31, 2016; $23.0 million during the period January 1 through October 1, 2016; and $20.5 millionzero during the year ended December 31, 2015, respectively, in conjunction with its financing activities.

The Company incurred $2.5 million and $2.2 million of legal fees and financial advisory fees associated with debt restructuring activities during the yearsperiod ended December 31, 20142017 and 2013,January 1 through October 1, 2016, respectively.

Additionally, the Company incurred $24.2 million of legal fees and financial advisory fees associated with debt restructuring activities during 2015. During the year ended December 31, 2015 the Company wrote off $3.7 million of deferred financing costs related to the termination of the revolver facility. Additionally, the company incurred $24.2 million of legal fees and financial advisory fees associated with debt restructuring activities in 2015.  All amounts have been reflected in the line, “Net loss resulting from early retirement and refinancing of debt” in the Consolidated Statement of Operations.




F- 40


15. Taxes

In 2016, under the Plan of bankruptcy reorganization, the Company’s pre-petition equity, bank related debt and certain other obligations were cancelled and extinguished. Absent an exception, a debtor recognizes cancellation of debt income (CODI) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. In accordance with Internal Revenue Code (IRC) Section 108, the Company excluded the amount of discharged indebtedness from taxable income since the IRC provides that a debtor in a bankruptcy case may exclude CODI from income but must reduce certain tax attributes by the amount of CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less than the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued, and (iii) the fair market value of any other consideration, including equity, issued.
CODI from the discharge of indebtedness was $3,414 million. As a result of the CODI and in accordance with IRC rules, the Company reduced its gross federal net operating loss (NOL) carryovers $3,185 million and its alternative minimum tax (AMT) credits $76 million. The Company was able to retain $957.1 million of gross federal NOLs, $25.6 million of AMT credit and $64.5 million of capital loss carryforwards following the bankruptcy.
Due to changes in ownership that occurred in connection with the Company’s emergence from bankruptcy, there was a change in ownership for purposes of IRC Section 382. Section 382 provides a combined annual limitation with respect to the ability of a corporation to use its NOLs, AMT credits and capital loss carryforwards generated before the ownership change against future taxable income. The Company’s annual limit under IRC section 382 is estimated to be $29.8 million. The Company had a net unrealized built-in gain, based on comparing the fair value and carryover tax basis in assets, at the time of the ownership change, therefore, certain built-in gains recognized within five years after the ownership change will increase the annual IRC section 382 limit for the five year recognition period beginning October 1, 2016 through September 30, 2021. There is uncertainty surrounding which assets with built-in gain will be realized within the five year period following the Company’s emergence from bankruptcy and allow the Company to realize the incremental net operating losses and credit in excess of the base 382 limitation. The Company is reflecting a deferred tax asset for the full amount of the net operating losses and credit carryforwards. If at some point in time it becomes evident that some portion of the deferred tax assets will not be realizable, the deferred tax asset, and offsetting valuation allowance will be reduced.
The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The tax years 2002 through 20152017 remain open to examination for U.S. federal income tax matters and 19982002 through 20152017 remain open to examination for various state income tax matters.

Significant components of the provision for (benefit from) income taxes are as follows:

 

 

Year Ended December 31

 

 

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

Current:

 

 

 

 

 

 

 

Federal

 

$

 

$

 

$

 

State

 

3

 

25

 

(647

)

Total current

 

3

 

25

 

(647

)

Deferred:

 

 

 

 

 

 

 

Federal

 

(329,393

)

18,535

 

(318,956

)

State

 

(43,990

)

7,074

 

(15,895

)

Total deferred

 

(373,383

)

25,609

 

(334,851

)

 

 

$

(373,380

)

$

25,634

 

$

(335,498

)

F-31


 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)      
Current:      
Federal$835
 $
$
 $
State31
 (252)7
 3
Total current866
 (252)7
 3
Deferred:      
Federal(36,162) 1,352
(4,720) (329,393)
State41
 56
87
 (43,990)
Total deferred(36,121) 1,408
(4,633) (373,383)
 $(35,255) $1,156
$(4,626) $(373,380)

F- 41


A reconciliation of the statutory federal income tax provision (benefit) at the statutory rate to the actual provision for (benefit from) income taxes follows:

 

 

Year Ended December 31

 

 

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

Income tax provision (benefit) at statutory rate

 

$

(1,150,283

)

$

(186,452

)

$

(378,463

)

Percentage depletion allowance

 

(19,035

)

(12,692

)

(15,796

)

Goodwill

 

 

 

70,301

 

State taxes, net of effect of federal taxes

 

(76,445

)

(3,903

)

(25,265

)

Change in valuation allowance

 

865,146

 

226,929

 

8,659

 

Other, net

 

7,237

 

1,752

 

5,066

 

 

 

$

(373,380

)

$

25,634

 

$

(335,498

)

In 2015, 2014 and 2013, compensatory stock options and other equity based compensation awards were exercised resulting in a tax expense of $6.7 million, $1.6 million and $1.5 million, respectively. The tax benefit will be recorded in paid-in capital at such point in time when a cash tax benefit is recognized.

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)      
Income tax provision (benefit) at statutory rate$71,118
 $12,112
$433,109
 $(1,150,283)
Percentage depletion allowance(31,255) (4,292)(3,681) (19,035)
State taxes, net of effect of federal taxes
7,002
 633
(46,122) (76,445)
Reversal of cancellation of indebtedness income
 
(1,493,162) 
Worthless stock deduction
 
(80,077) 
Change in valuation allowance
(410,983) (7,655)1,185,326
 865,146
Impact of Tax Cuts and Jobs Act of 2017332,345
 

 
Other, net
(3,482) 358
(19) 7,237
 $(35,255) $1,156
$(4,626) $(373,380)

Significant components of the Company’s deferred tax assets and liabilities that result from carryforwards and temporary differences between the financial statement basis and tax basis of assets and liabilities are summarized as follows:

F-32


 December 31, 2017 December 31, 2016
(In thousands)   
Deferred tax assets:
   
Tax loss carryforwards$271,405
 $376,293
Tax credit carryforwards29,736
 22,798
Investment in tax partnerships & corporations308,653
 604,914
Other28,321
 39,251
Gross deferred tax assets638,115
 1,043,256
Valuation allowance(610,571) (1,021,553)
Total deferred tax assets27,544
 21,703
Deferred tax liabilities:   
Plant and equipment3,674
 7,332
Other1,351
 14,258
Total deferred tax liabilities5,025
 21,590
Net deferred tax asset22,519
 113

F- 42

Table of Contents

 

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Deferred tax assets:

 

 

 

 

 

Net operating loss carryforwards

 

$

1,086,332

 

$

871,848

 

Alternative minimum tax credit carryforwards

 

120,994

 

127,169

 

Reclamation and mine closure

 

121,276

 

114,430

 

Goodwill

 

38,671

 

50,072

 

Workers’ compensation

 

42,835

 

38,924

 

Share based compensation

 

22,612

 

30,283

 

Acquired sales contracts

 

17,466

 

26,833

 

Retiree benefit plans

 

16,996

 

22,913

 

Contract obligations

 

 

15,693

 

Advance royalties

 

18,751

 

 

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

39,287

 

 

Other, primarily accrued liabilities

 

45,303

 

64,503

 

Gross deferred tax assets

 

1,570,523

 

1,362,668

 

Valuation allowance

 

(1,135,399

)

(270,251

)

Total deferred tax assets

 

435,124

 

1,092,417

 

Deferred tax liabilities:

 

 

 

 

 

Plant and equipment

 

389,169

 

1,354,396

 

Deferred development

 

41,047

 

95,129

 

Investment in tax partnerships

 

 

7,377

 

Other

 

4,706

 

5,533

 

Total deferred tax liabilities

 

434,922

 

1,462,435

 

Net deferred (asset) liability

 

(202

)

370,018

 


The Company has gross federal net operating loss carryforwards for regular income tax purposes of $3.0 billion$980.2 million at December 31, 20152017 that will expire between 2022 and 2035.2037. The Company has an alternative minimum tax credit carryforward of $121.0$23.9 million at December 31, 2015,2017, which has no expiration date and can be used to offset future regular tax in excess of the alternative minimum tax.

The future annual usage of NOLs and AMT credit will be limited under IRC section 382.

As part of its efforts to create operational efficiency leading up to and through the bankruptcy process, the Company recorded increaseshas consolidated its mining operations and land management into a partnership structure to match its legal form with the Company’s streamlined operations during 2016. As such, deferred taxes related to those operations are now reported based upon the book and tax outside basis difference in its valuation allowance against its deferred tax assetsthe partnership interests as provided in ASC 740-30-25-7, which results in a different basis of $865.1 million, $226.9 million and $8.7 millionpresentation than used in 2015 2014 and 2013, respectively. In 2015 and 2014,under the Company determined that it would not realize the all of the benefit fromCompany’s prior legal structure.
Valuation allowances were established in prior years for federal and state net operating losses and tax credits that were not offset by the reversal of other net taxable temporary differences before the expiration of the attribute.
At December 31, 2015, additional losses were realized relating primarily to financial conditions and asset impairment charges. As a result, the expected reversal of taxable temporary differences were not sufficient to support the future realization of the deferred tax assets and an additional $865.1 million valuation allowance was recorded. Net deferred tax assets of $1,135 million were completely offset by a valuation allowance.
At December 31, 2016, additional tax losses were realized primarily as a result of the non-recognition of CODI under section 108 of the IRC by the Predecessor entity. As a result, the expected reversal of taxable temporary differences were not sufficient to support the future realization of the deferred tax assets and an additional $1,185 million valuation allowance was recorded to the provision. Offsetting this increase was a net reduction in the valuation allowance of $1,289 million which did not impact the provision. This reduction was primarily the result of a decrease in NOLs and AMT credits due to the IRC section 108 offset rules. Net deferred tax assets of $1,022 million were completely offset by a valuation allowance.
On December 22, 2017 the Tax Cut and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the elimination of the corporate alternative minimum tax regime effective for tax years beginning after December 31, 2017, implementation of a process whereby corporations with unused alternative minimum tax credits will be refunded during 2018-2022, the transition of U.S. international taxation from a worldwide tax system to a territorial system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, further limitation on the deductibility of certain executive compensation, allowance for immediate capital expensing of certain qualified property, and limitations on the amount of interest expense deductible beginning in 2018.
The Company has not completed its analysis for the income tax effects of the Act but has provided its best estimate of the impact of the Act in its year-end income tax provision in accordance with the guidance and interpretations available as of the date of this filing for the items noted below. The Company anticipates finalizing the analysis for the estimate by December 31, 2018, within the one year measurement period under SAB 118, for the following items:
Remeasurement of deferred taxes: deferred tax assets and liabilities attributable to the U.S. were remeasured from 35% to the reduced tax rate of 21%. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on projections of reversing timing differencesthe rates at which they are expected to reverse in the future.  Adjustments in 2013 relatefuture was $330.9 million of income tax expense, with an offsetting valuation allowance adjustment. Finalization of the remeasurement of deferred taxes will occur upon finalization of 2017 taxable income and attribute carryback claims.
One-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings: The provisional amount of income tax expense related to certain state andthe mandatory deemed repatriation of foreign earnings was $1.5 million based on cumulative foreign earnings of $4.2 million. The deemed repatriation tax is completely offset with net operating loss benefits.

F-33

carryforwards, with an offsetting valuation allowance adjustment and will not result in a cash tax liability. Finalization of 2017 earnings and profits calculations and receipt of further guidance in the form of Notices or Regulations may change the provisional calculation.

Elimination of the corporate AMT regime: Existing AMT credits as of December 31, 2017 will be refunded over the next four years. The refund may be subject to a sequestration reduction rate of approximately 6.6%. The Company has provisionally determined that it will receive a refund of existing AMT credits of approximately $22.4 million after an estimated sequestration reduction of $1.5 million. The valuation allowance previously recorded against these credits has been released and a tax benefit of $22.4 million was recorded. The Company’s accounting policy regarding the balance sheet presentation of the AMT credits is to record the balance as a deferred tax asset until a return is filed claiming a refund of a portion of the credit, at which time the amount will be presented as a tax receivable.


F- 43



Finalization of the AMT credit balance will occur upon finalization of 2017 taxable income and attribute carryback claims as well as the receipt of further guidance in the form of Notices or Regulations.
Elimination of executive compensation exemptions: The Act made changes to the $1 million limit on deductible compensation paid to certain “covered” employees. The Act eliminated exemptions for qualified performance based compensation and compensation paid after termination and expanded the number of employees to which the limit applies. The Company recorded a provisional amount of $0.2 million of tax expense, with an offsetting valuation allowance adjustment. The Act contains transitional rules, the implementation of which is uncertain at this time. The Company is still analyzing related aspects of the Act including the impact of the transitional rules. The provisional amount detailed above may change when further guidance is released that addresses these rules.
Other provisions in the Act that may impact the company in future years include limitations on interest expense deductions and the global intangible low-taxed income “GILTI” rules covering foreign income earned in low-tax countries. There was no impact recorded for these changes in the 2017 provision. Additional work is necessary to do a more detailed review of the Act, but is anticipated to be completed by December 31, 2018.
At December 31, 2017 additional tax losses were realized primarily as a result of the reversal of deductible temporary differences and percentage depletion. A $35.7 million benefit was recorded from the release of valuation allowance offsetting alternative minimum tax credits that have become refundable by the Act, as well as carryback claims filed in the fourth quarter related to specific liability losses that resulted in claims for refund of previously paid alternative minimum taxes. At December 31, 2017 a $610.5 million valuation allowance fully offsets all net deferred tax assets, other than alternative minimum tax credits.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:

 

 

(In thousands)

 

Balance at January 1, 2013

 

$

31,150

 

Additions based on tax positions related to the current year

 

1,199

 

Additions for tax positions of prior years

 

688

 

Reductions as a result of lapses in the statute of limitations

 

(1,248

)

Balance at December 31, 2013

 

31,789

 

Additions based on tax positions related to the current year

 

2,920

 

Balance at December 31, 2014

 

34,709

 

Additions for tax positions of the current year

 

4,168

 

Balance at December 31, 2015

 

$

38,877

 

   (In thousands)
Balance atJanuary 1, 2015$34,709
Additions based on tax positions related to the current year4,168
Balance atDecember 31, 201538,877
Additions based on tax positions related to the current year2,979
Additions for tax positions of prior years2,709
Reductions as a result of lapses in the statute of limitations(37,110)
Balance atDecember 31, 20167,455
Additions for tax positions of prior years
Additions for tax positions related to the current year3,928
Reductions as a result of bankruptcy
Balance atDecember 31, 2017$11,383
If recognized, the entire amount of the gross unrecognized tax benefits at December 31, 20152017 would affect the effective tax rate.

As a result of the bankruptcy, federal and state governments are precluded from assessing additional tax in audits of tax periods ending prior to bankruptcy. As a result, the Company has released $37.1 million of gross unrecognized tax benefits for years 2015 and prior. These gross unrecognized tax benefits are fully offset by a corresponding release in valuation allowance.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $1.7$0.6 million and $1.5$0.5 million at December 31, 20152017 and 2014,2016, respectively. In the next 12 months, no$3.3 million gross unrecognized tax benefits are expected to be reduced due to the expiration of the statute of limitations.


F- 44


16.Asset Retirement Obligations


The Company’s asset retirement obligations arise from the Federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes, which require that mine property be restored in accordance with specified standards and an approved reclamation plan. The required reclamation activities to be performed are outlined in the Company’s mining permits. These activities include reclaiming the pit and support acreage at surface mines, sealing portals at underground mines, and reclaiming refuse areas and slurry ponds.

ponds and water treatment.

The following table describes the changes to the Company’s asset retirement obligation liability:

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Balance at January 1 (including current portion)

 

$

418,118

 

$

427,653

 

Accretion expense

 

33,680

 

32,909

 

Obligations of divested operations

 

(334

)

(30,684

)

Adjustments to the liability from changes in estimates

 

(28,570

)

627

 

Liabilities settled

 

(12,440

)

(12,387

)

Balance at December 31

 

$

410,454

 

$

418,118

 

Current portion included in accrued expenses

 

(13,795

)

(19,222

)

Noncurrent liability

 

$

396,659

 

$

398,896

 

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
(In thousands)    
Balance at beginning of period (including current portion)$356,742
 $354,326
$410,454
Accretion expense30,209
 7,634
24,321
Obligations of divested operations(12,569) 
(14,702)
Adjustments to the liability from changes in estimates(23,215) 
3,003
Liabilities settled(22,472) (5,218)(11,087)
Fresh start accounting adjustment
 
(57,663)
Balance at period end$328,695
 $356,742
$354,326
Current portion included in accrued expenses(19,840) (19,515)(17,290)
Noncurrent liability$308,855
 $337,227
$337,036
As of December 31, 2015,2017, the Company had $155.3$531.7 million in surety bonds outstanding $485.5 million in self-bonding, and $11.2$7.4 million in letters of credit to secure reclamation bonding obligations.

F-34 Additionally, the Company has posted $2.6 million in cash as collateral related to reclamation surety bonds; this amount is recorded within “Noncurrent assets” on the Consolidated Balance Sheet.


F- 45




17. Fair Value Measurements

The hierarchy of fair value measurements assigns a level to fair value measurements based on the inputs used in the respective valuation techniques. The levels of the hierarchy, as defined below, give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

·Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include available-for-sale equity securities, U.S. Treasury securities, and coal swaps and futures that are submitted for clearing on the New York Mercantile Exchange.

·Level 2 is defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s level 2 assets and liabilities include U.S. government agency securities, and coal commodity contracts and interest rate swaps with fair values derived from quoted prices in over-the-counter markets or from prices received from direct broker quotes.

·Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. These include the Company’s commodity option contracts (coal and heating oil) valued using modeling techniques, such as Black-Scholes, that require the use of inputs, particularly volatility, that are rarely observable. Changes in the unobservable inputs would not have had a significant impact on the reported Level 3 fair values at December 31, 20152017 and 2014.

2016.

The table below sets forth, by level, the Company’s financial assets and liabilities that are recorded at fair value in the accompanying consolidated balance sheet:

 

 

Fair Value at December 31, 2015

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Investments in marketable securities

 

$

201,910

 

$

11,713

 

$

190,197

 

$

 

Derivatives

 

9,052

 

5,597

 

1,023

 

2,432

 

Total assets

 

$

210,962

 

$

17,310

 

$

191,220

 

$

2,432

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

 

$

 

$

 

$

 

 

 

Fair Value at December 31, 2014

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Investments in marketable securities

 

$

254,099

 

$

5,145

 

$

248,954

 

$

 

Derivatives

 

13,557

 

9,026

 

1,491

 

3,040

 

Total assets

 

$

267,656

 

$

14,171

 

$

250,445

 

$

3,040

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

766

 

$

 

$

766

 

$

 

  Fair Value at December 31, 2017
  Total Level 1 Level 2 Level 3
  (In thousands)
Assets:  
  
  
  
Investments in marketable securities $155,846
 $64,100
 $91,746
 $
Derivatives 7,339
 
 1,985
 5,354
Total assets $163,185
 $64,100
 $93,731
 $5,354
Liabilities:  
  
  
  
Derivatives $7,217
 $7,263
 $26
 $(72)
  Fair Value at December 31, 2016
  Total Level 1 Level 2 Level 3
  (In thousands)
Assets:  
  
  
  
Investments in marketable securities $90,209
 $2,137
 $88,072
 $
Derivatives 4,908
 262
 
 4,646
Total assets $95,117
 $2,399
 $88,072
 $4,646
Liabilities:  
  
  
  
Derivatives $101
 $(8) $
 $109

The Company’s contracts with its counterparties allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. For classification purposes, the Company records the net fair value of all the positions with these counterparties as a net asset or liability. Each level in the table above displays the underlying contracts according to their classification in the accompanying consolidated balance sheet, based on this counterparty netting.


F- 46


The following table summarizes the change in the fair values of financial instruments categorized as level 3.

F-35



   SuccessorPredecessor
   Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
(In thousands)      
Balance, beginning of period  $4,537
 $3,842
$2,432
Realized and unrealized (gains) losses recognized in earnings, net  (2,305) 926
(1,686)
Included in other comprehensive income  
 

Purchases  4,910
 1,225
5,021
Issuances  (535) (34)(488)
Settlements  (1,181) (1,422)(1,437)
Ending balance  $5,426
 $4,537
$3,842

Table of Contents

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

3,040

 

$

4,946

 

Realized and unrealized losses recognized in earnings, net

 

(8,602

)

(6,572

)

Included in other comprehensive income

 

(1,341

)

 

Purchases

 

13,541

 

5,288

 

Issuances

 

(4,046

)

(622

)

Settlements

 

(160

)

 

Ending balance

 

$

2,432

 

$

3,040

 

Net unrealized lossesgains of $2.7$2.3 million were recognized during the year ended December 31, 20152017 related to level 3 financial instruments held on December 31, 2015.

2017

Cash and Cash Equivalents

At December 31, 20152017 and 2014,2016, the carrying amounts of cash and cash equivalents approximate their fair value.

Fair Value of Long-Term Debt

At December 31, 20152017 and 2014,2016, the fair value of the Company’s debt, including amounts classified as current, was $937.1$336.1 million and $2.7 billion,$362.9 million, respectively. Fair values are based upon observed prices in an active market, when available, or from valuation models using market information, which fall into Level 2 in the fair value hierarchy.

18.Capital Stock

Stock


Dividends
The Company declared and paid cash dividends per share during the periods presented below:
2017:Dividends per shareAmount (in thousands)
1st quarter$
$
2nd quarter0.35
8,563
3rd quarter0.35
8,200
4th quarter0.35
7,606
Total cash dividends declared and paid$1.05
$24,369

Future dividend declarations will be subject to ongoing Board review and authorization will be based on a number of factors, including business and market conditions, the Company’s future financial performance and other capital priorities.

F- 47


Share Repurchase Plan

The Company’sProgram

During April 2017, the Board of Directors of Arch Coal, Inc. authorized a new share repurchase program allows for the purchase of up to 1,400,000$300 million of its common stock. In October 2017, the Company’s Board of Directors approved an incremental $200 million increase to the share repurchase program bringing the total authorization to $500 million. Below is a table showing the share repurchase activity in 2017:

2017:Number of SharesAverage Repurchase Price per ShareAmount (in thousands)
1st quarter
$
$
2nd quarter710,701
$71.82
51,043
3rd quarter2,208,133
$75.49
166,685
4th quarter1,058,381
$79.73
84,381
Total shares repurchased3,977,215
$75.96
$302,109

The timing of any future share repurchases, and the ultimate number of shares purchased, will depend on a number of factors, including business and market conditions, the Company’s future financial performance and other capital priorities. The shares will be acquired in the open market or through private transactions in accordance with the Securities and Exchange Commission requirements. The share repurchase program has no termination date, but may be amended, suspended or discontinued at any time and does not commit the Company to repurchase shares of its common stock. The actual number and value of the shares to be purchased will depend on the performance of the Company’s common stock. Atstock price and other market conditions.
Outstanding Warrants
During 2017, holders of warrants had exercised 65,499 of the warrants, leaving 1,846,158 warrants outstanding at December 31, 2015, 1,092,5802017.
As provided in ASC 825-20, “Financial Instruments,” the warrants are considered equity because they can only be physically settled in Company shares, of common stock were available for repurchase under the plan. There is no expiration date on the program. Any future repurchases under the plan willcan be made at management’s discretion and will depend on market conditions and other factors.

Reverse Stock Split

On August 4, 2015,settled in unregistered shares, the Company effected a 1-for-10 reversehas adequate authorized shares to settle the outstanding warrants and each warrant is fixed in terms of settlement to one share of Company stock splitsubject only to remote contingency adjustment factors designed to assure the relative value in terms of our common stock.  Each stockholder’s percentage ownership and proportional voting power remain unchanged as a result of the reverse stock split.  All applicable share data, per share amounts and related information in the Consolidated Financial Statements and notes thereto have been adjusted retroactively to give effect to the 1-for-10 reverse stock split.

shares remains fixed.


19. Stock-Based Compensation and Other Incentive Plans


Under the Company’s Stock2016 Omnibus Incentive Plan (the “Incentive Plan”), 3.13.0 million shares of the Company’s common stock were reserved for awards to officers and other selected key management employees of the Company. The Incentive Plan provides the Board of Directors with the flexibility to grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock or units, merit awards, phantom stock awards and rights to acquire stock through purchase under a stock purchase program (“Awards”). Awards the Board of Directors elects to pay out in cash do not impact the shares authorized in the Incentive Plan. Shares available for award under the plan were 1.02.4 million at December 31, 2015.

Stock Options

Stock options are granted at a strike price equal to the closing market price of the Company’s common stock on the date of grant and are generally subject to vesting provisions of at least one year from the date of grant. Information regarding stock option activity under the Incentive Plan follows for the year ended December 31, 2015:

F-36

2017.



Table of Contents

 

 

 

 

Weighted Average

 

Aggregate

 

Average

 

 

 

Common

 

Exercise

 

Intrinsic

 

Remaining

 

 

 

Shares

 

Price

 

Value

 

Life

 

 

 

(In thousands)

 

(years)

 

Options outstanding at January 1

 

682

 

$

198.41

 

 

 

 

 

Canceled

 

(17

)

$

151.72

 

 

 

 

 

Expired

 

(10

)

$

300.62

 

 

 

 

 

Options outstanding at December 31

 

655

 

$

198.15

 

$

 

4.6

 

Options exercisable at December 31

 

488

 

$

213.00

 

 

4.4

 

Unvested options at December 31

 

167

 

 

 

 

 

 

 

The remaining unvested options have a weighted average grant date fair value of $35.47 per share.

The total grant-date fair value of options vested during the years ended December 31, 2015, 2014 and 2013 was $3.8 million, $8.7 million and $8.9 million, respectively. The options provide for the continuation of vesting for retirement-eligible recipients that meet certain criteria. The expense for these options is recognized through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn part or all of the award. Compensation expense related to stock options for the years ended December 31, 2015, 2014 and 2013 was $1.4 million, $3.2 million and $6.7 million, respectively. Unrecognized compensation cost related to the unvested stock options of $0.2 million at December 31, 2015 will be recognized in 2016.The majority of the cost relating to the stock-based compensation plans is included in “Selling, general and administrative expenses” in the accompanying consolidated statements of operations.

Weighted average assumptions used in the Black-Scholes option pricing model for granted options follow:

 

 

Year Ended
December 31,

 

 

 

2013

 

Weighted average grant-date fair value per share of options granted

 

$

23.70

 

Assumptions (weighted average):

 

 

 

Risk-free interest rate

 

0.65

%

Expected dividend yield

 

2.30

%

Expected volatility

 

66.7

%

Expected life (in years)

 

4.5

 

Expected volatilities are based on historical stock price movement and implied volatility from traded options on the Company’s stock. The expected life of options is determined based on historical exercise activity.

F-37



Table of Contents

Restricted Stock and Restricted Stock Unit Awards

The Company may issue restricted stock and restricted stock units, which require no payment from the employee. Restricted stock cliff-vests at various dates and restricted stock units either vest ratably over or vest at the end of three years.the award’s stated vesting period. Compensation expense is based on the fair value on the grant date and is recorded ratably over the vesting period.period utilizing the straight-line recognition method. The employee receives cash compensation equal to the amount of dividends that would have been paid on the underlying shares.

During 2017, the Company granted both time based awards and performance based awards. The time based awards vest over either a one or three year period and the performance based awards vest over a three year period. The time based awards’ grant date fair value was determined based on the stock price at the date of grant. The performance awards grant date fair value was determined using a Black-Scholes Monte Carlo simulation. A volatility of 50% and 60% were selected for each of the performance-based awards based on comparator companies, and the three-year risk free rate was derived from yields on U.S. Government bonds. Information regarding the restricted stock and restricted stock unitunits activity and weighted average grant-date fair value followsfollows:

F- 48


 Time Based Awards Performance Based Awards
 Restricted Stock UnitsWeighted Average Grant-Date Fair Value Restricted Stock UnitsWeighted Average Grant-Date Fair Value
(Shares in thousands)     
Outstanding at January 1, 2017159
$78.60
 225
$67.34
Granted92
81.91
 86
101.38
Forfeited/Canceled(2)78.60
 

Vested(9)78.60
 

Unvested outstanding at December 31, 2017240
$79.87
 311
$76.75

The Company recognized expense related to restricted stock units of $10.4 million for the year ended December 31, 2015:

 

 

Restricted Stock

 

Restricted Stock Units

 

 

 

 

 

Weighted
Average

 

 

 

Weighted
Average

 

 

 

Common

 

Grant-Date

 

Common

 

Grant-Date

 

 

 

Shares

 

Fair Value

 

Shares

 

Fair Value

 

 

 

(In thousands)

 

 

 

(In thousands)

 

 

 

Outstanding at January 1

 

2

 

$

134.42

 

307

 

$

60.53

 

Granted

 

 

 

169

 

12.84

 

Vested

 

(2

)

134.42

 

(66

)

104.90

 

Canceled

 

 

 

(21

)

35.81

 

Outstanding at December 31

 

 

 

389

 

33.69

 

The Company’s recognized expense related to restricted stock2017 and restricted stock units was $5.9 million, $5.6 million, and $5.0$1.0 million for the years endedperiod October 2, 2016 through December 31, 2015, 2014 and 2013, respectively

2016. As of December 31, 2017, there was $32.4 million of unrecognized share-based compensation expense which is expected to be recognized over a weighted-average period of approximately three years.


Long-Term Incentive Compensation

The Company has a long-term incentive program that allows for the award of performance units. The total number of units earned by a participant is based on financial and operational performance measures, and may be paid out in cash or in shares of the Company’s common stock. The Company recognizes compensation expense over the three year term of the grant. The liabilities are remeasured quarterly. The Company recognized $7.9 million, $10.1 million and $9.1expense of $0.7 million for the yearsyear ended December 31, 2015, 20142017, $1.6 million for the period October 2 through December 31, 2016, $7.2 million for the period January 1 through October 1, 2016 and 2013,$7.9 million for the year ended December 31, 2015, respectively. The expense is included primarily in “Selling, general and administrative expenses” in the accompanying consolidated statements of operations.
Amounts accrued and unpaid for all grants under the plan totaled $17.8$8.7 million and $21.1$13.9 million as of December 31, 20152017 and 2014,2016, respectively.




F- 49


Deferred20. Workers’ Compensation PlanExpense

The Company maintains a deferred compensation plan that allowsis liable under the Federal Mine Safety and Health Act of 1969, as subsequently amended, to provide for pneumoconiosis (occupational disease) benefits to eligible employees, to defer receipt of compensation until the dates elected by the participant. Participants in the plan may defer up to 85% of their base salariesformer employees and up to 100% of their annual incentive awards. The plan also allows participants to defer receipt of up to 100% of the shares under any restricted stock unit or performance-contingent stock awards. The amounts deferred are invested in accounts that mirror the gains and losses of a number of different investment funds, including a hypothetical investment in shares of the Company’s common stock. Participants are always vested in their deferrals to the plan and any related earnings.dependents. The Company has establishedcurrently provides for federal claims principally through a grantor trust to fundself-insurance program. The Company is also liable under various state workers’ compensation statutes for occupational disease benefits. The occupational disease benefit obligation represents the obligations under the plan. The trust has purchased corporate-owned life insurance to offset these obligations. The net cash surrender values of the policies of $14.3 million and $37.6 million at December 31, 2015 and 2014, respectively, are included in “Other noncurrent assets” in the accompanying consolidated balance sheets. The participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. Any assets placed in trust by the Company to fund future obligations of the plan are subject to the claims of creditors in the event of insolvency or bankruptcy, and participants are general creditors of the company as to their deferred compensation in the plans.

Under the plan, the Company credits each participant’s account with the number of units equal to the number of shares or units that the participant could purchase or receive with the amount of compensation deferred, based upon the fair marketpresent value of the underlying investment on that date. The amountof the employee will receive fromactuarially computed present and future liabilities for such benefits over the plan will beemployees’ applicable years of service.

In addition, the Company is liable for workers’ compensation benefits for traumatic injuries which are calculated using actuarially-based loss rates, loss development factors and discounted based on a risk free rate of 2.43%. Traumatic workers’ compensation claims are insured with varying retentions/deductibles, or through state-sponsored workers’ compensation programs.

Workers’ compensation expense consists of the number of

F-38

following components:

  SuccessorPredecessor
  Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)       
Self-insured occupational disease benefits:       
Service cost $6,320
 $1,583
$3,465
 $4,282
Interest cost 4,651
 1,126
3,184
 3,944
Net amortization 
 
4,325
 6,973
Total occupational disease $10,971
 $2,709
$10,974
 $15,199
Traumatic injury claims and assessments 3,208
 3,162
6,628
 16,781
Total workers’ compensation expense $14,179
 $5,871
$17,602
 $31,980

The table below reconciles changes in the occupational disease liability for the respective period.

 SuccessorPredecessor
(In thousands)Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
Beginning of period$111,159
 $119,710
$90,836
Service cost6,320
 1,583
3,465
Interest cost4,651
 1,126
3,184
Curtailments(5,433) 
4,156
Actuarial (gain) loss12,242
 (9,675)
Benefit and administrative payments(6,513) (1,585)(3,728)
Fresh start accounting adjustment
 
21,797
 $122,426
 $111,159
$119,710


F- 50

Table of Contents

units credited to each participant’s account, valued on the basis of the fair market value of an equivalent number of shares or units of the underlying investment on that date. The liability under the plan was $19.5 million and $35.1 million at December 31, 2015 and 2014.

The Company’s net income related to the deferred compensation plan for the years ended December 31, 2015, 2014 and 2013 was $0.9 million, $1.6 million and $2.6 million, respectively, most of which is included in “Selling, general and administrative expenses” in the accompanying consolidated statements of operations.

20.  Workers’ Compensation Expense


The following table detailsprovides the components of workers’ compensation expense:

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

Total occupational disease

 

$

15,199

 

$

4,432

 

$

6,137

 

Traumatic injury claims and assessments

 

16,781

 

19,924

 

21,089

 

Total workers’ compensation expense

 

$

31,980

 

$

24,356

 

$

27,226

 

assumptions used to determine the projected occupational disease obligation:

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
(Percentages)    
Occupational Disease Benefit    
Discount rate3.66 4.313.80
Cost escalation rateN/A N/AN/A


Summarized below is information about the amounts recognized in the accompanying consolidated balance sheets for workers’ compensation benefits:

 

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Occupational disease costs

 

$

90,836

 

$

72,749

 

Traumatic and other workers’ compensation claims

 

38,309

 

38,256

 

Total obligations

 

129,145

 

111,005

 

Less amount included in accrued expenses

 

16,875

 

16,714

 

Noncurrent obligations

 

$

112,270

 

$

94,291

 

 Year Ended December 31, 2017 Year Ended December 31, 2016
(In thousands)   
Occupational disease costs$122,426
 $111,159
Traumatic and other workers’ compensation claims81,191
 88,593
Total obligations203,617
 199,752
Less amount included in accrued expenses18,782
 15,184
Noncurrent obligations$184,835
 $184,568
As of December 31, 2015,2017, the Company had $148.2$123.0 million in surety bonds and letters of credit outstanding to secure workers’ compensation obligations.

The Company’s recorded liabilities include $20.3 million of obligations that are reimbursable under various insurance policies purchased by the company. These insurance receivables are recorded in the balance sheet line items “Other receivables” and “Other noncurrent assets” for $3.3 million and $17.0 million, respectively.

2121. Employee Benefit Plans

Defined Benefit Pension and Other Postretirement Benefit Plans

The Company provides funded and unfunded non-contributory defined benefit pension plans covering certain of its salaried and hourly employees. Benefits are generally based on the employee’s age and compensation. The Company funds the plans in an amount not less than the minimum statutory funding requirements or more than the maximum amount that can be deducted for U.S. federal income tax purposes.

The Company also currently provides certain postretirement medical and life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement benefit plans are contributory, with retiree contributions adjusted annually,Company offers a subsidy to eligible retirees based on age and years of service at retirement and contain other cost-sharing features such as deductibles and coinsurance. The Company’s current funding policy is to fund the cost of all postretirement benefits as they are paid.

The idling of the Cumberland River mining operations in Appalachia in the third quarter of 2014 reduced the estimated years of future service for the CRCC Scotia Employee Association Pension Plan.

On January 1, 2015, the Company’s cash

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balance and excess plans were amended to freeze new service credits for any new or active employee.   These two events triggered curtailment accounting, resulting in an immediate recognition



F- 51


Obligations and Funded Status.

Summaries of the changes in the benefit obligations, plan assets and funded status of the plans are as follows:

 

 

 

 

 

 

Other Postretirement

 

 

 

Pension Benefits

 

Benefits

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands)

 

CHANGE IN BENEFIT OBLIGATIONS

 

 

 

 

 

 

 

 

 

Benefit obligations at January 1

 

$

353,736

 

$

355,468

 

$

36,098

 

$

42,531

 

Service cost

 

9

 

21,478

 

866

 

1,649

 

Interest cost

 

14,604

 

17,070

 

1,904

 

1,841

 

Re-entry of former Magnum employees

 

 

 

85,843

 

 

Plan amendments

 

 

(23

)

 

 

Curtailments

 

 

(25,787

)

 

 

Benefits paid

 

(61,955

)

(53,974

)

(3,646

)

(3,431

)

Other-primarily actuarial loss (gain)

 

(5,102

)

39,504

 

(17,605

)

(6,492

)

Benefit obligations at December 31

 

$

301,292

 

$

353,736

 

$

103,460

 

$

36,098

 

CHANGE IN PLAN ASSETS

 

 

 

 

 

 

 

 

 

Value of plan assets at January 1

 

$

336,709

 

$

347,952

 

$

 

$

 

Actual return on plan assets

 

(1,679

)

36,130

 

 

 

Employer contributions

 

424

 

6,601

 

3,646

 

3,431

 

Benefits paid

 

(61,955

)

(53,974

)

(3,646

)

(3,431

)

Value of plan assets at December 31

 

$

273,499

 

$

336,709

 

$

 

$

 

Accrued benefit cost

 

$

(27,793

)

$

(17,027

)

$

(103,460

)

$

(36,098

)

ITEMS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC BENEFIT COST

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

$

 

$

 

$

26,944

 

$

21,972

 

Accumulated gain (loss)

 

(16,769

)

(11,332

)

11,313

 

9,125

 

 

 

$

(16,769

)

$

(11,332

)

$

38,257

 

$

31,097

 

BALANCE SHEET AMOUNTS

 

 

 

 

 

 

 

 

 

Current liability

 

$

(420

)

$

(767

)

$

(3,650

)

$

(3,430

)

Noncurrent liability

 

$

(27,373

)

$

(16,260

)

$

(99,810

)

$

(32,668

)

 

 

$

(27,793

)

$

(17,027

)

$

(103,460

)

$

(36,098

)

 Pension Benefits Other Postretirement Benefits
 SuccessorPredecessor SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
(In thousands)         
CHANGE IN BENEFIT OBLIGATIONS         
Benefit obligations at beginning of period$313,629
 $341,427
$301,292
 $111,867
 $120,311
$103,460
Service cost
 

 671
 180
393
Interest cost11,169
 2,768
9,338
 4,150
 978
3,223
Divestitures (see Note 5 to the Consolidated Financial Statements)(29,097) 

 
 

Settlements(1,532) (135)
 
 

Curtailments
 
454
 (520) 
714
Benefits paid(38,197) (11,009)(8,699) (8,152) (1,962)(8,273)
Other-primarily actuarial (gain) loss14,126
 (19,422)
 2,503
 (7,640)
Fresh start accounting adjustments
 
39,042
 
 
$20,794
Benefit obligations at end of period$270,098
 $313,629
$341,427
 $110,519
 $111,867
$120,311
CHANGE IN PLAN ASSETS         
Value of plan assets at beginning of period$274,225
 $292,726
$273,499
 $
 $
$
Actual return on plan assets39,689
 (7,899)27,811
   

Employer contributions429
 407
115
 8,152
 1,962
8,273
Benefits paid(38,197) (11,009)(8,699) (8,152) (1,962)(8,273)
Divestitures$(20,504) $
$
 $
 $
$
Value of plan assets at end of period$255,642
 $274,225
$292,726
 $
 $
$
Accrued benefit cost$(14,456) $(39,404)$(48,701) $(110,519) $(111,867)$(120,311)
ITEMS NOT YET RECOGNIZED AS A COMPONENT OF NET PERIODIC BENEFIT COST         
Prior service credit (cost)$
 $
$
 $
 $
$
Accumulated gain16,178
 6,751

 5,137
 7,640

 $16,178
 $6,751
$
 $5,137
 $7,640
$
BALANCE SHEET AMOUNTS         
Current liability$(420) $(520)$(420) $(8,150) $(10,422)$(8,352)
Noncurrent liability(14,036) (38,884)(48,281) (102,369) (101,445)(111,959)
 $(14,456) $(39,404)$(48,701) $(110,519) $(111,867)$(120,311)
Pension Benefits

The accumulated benefit obligation for all pension plans was $301.3$270.1 million and $353.7$313.6 million at December 31, 20152017 and 2014,2016, respectively.

Net

Due to the Company adopting the corridor method of amortizing actuarial loss of $3.0 milliongains (losses) during fresh start accounting, it is anticipated there will be amortized from accumulated other comprehensive incomeno amortization recorded into net periodic benefit cost in 2016.

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during 2018.



Table of Contents

Other Postretirement Benefits

Prior service credit and net

Due to the Company adopting the corridor method of amortizing actuarial gain of $10.7 million and $2.3 million, respectively,gains (losses) during fresh start accounting, it is anticipated there will be amortized from accumulated other comprehensive incomeno amortization recorded into net periodic benefit cost in 2016.

F-41

during 2018.




F- 52



Components of Net Periodic Benefit Cost. The following table details the components of pension and postretirement benefit costs (credits):

 

 

Pension Benefits

 

Other Postretirement Benefits

 

 

 

Year Ended December 31,

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

 

 

 

 

Service cost

 

$

9

 

$

21,478

 

$

27,065

 

$

866

 

$

1,649

 

$

2,027

 

Interest cost

 

14,604

 

17,070

 

16,207

 

1,904

 

1,841

 

1,739

 

Curtailments

 

 

(25,368

)

47

 

 

 

(5,444

)

Settlements

 

2,656

 

646

 

 

 

 

 

Expected return on plan assets

 

(20,367

)

(23,756

)

(23,761

)

 

 

 

Amortization of prior service credits

 

 

(257

)

(204

)

(8,335

)

(10,003

)

(10,621

)

Amortization of other actuarial losses

 

8,850

 

3,128

 

14,616

 

(2,109

)

(761

)

(252

)

Net benefit cost (credit)

 

$

5,752

 

$

(7,059

)

$

33,970

 

$

(7,674

)

$

(7,274

)

$

(12,551

)

 Pension Benefits Other Postretirement Benefits
 SuccessorPredecessor SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)             
Service cost$
 $
$
 $9
 $671
 $180
$393
 $866
Interest cost11,169
 2,768
9,338
 14,604
 4,150
 978
3,223
 1,904
Curtailments
 
454
 
 (520) 
(970) 
Settlements(1,532) (135)
 2,656
 
 

 
Expected return on plan assets(16,498) (4,770)(13,623) (20,367) 
 

 
Amortization of prior service credits
 

 
 
 
(7,854) (8,335)
Amortization of other actuarial losses (gains)
 
3,973
 8,850
 
 
(849) (2,109)
Net benefit cost (credit)$(6,861) $(2,137)$142
 $5,752
 $4,301
 $1,158
$(6,057) $(7,674)
The differences generated from changes in assumed discount rates and returns on plan assets are amortized into earnings over a five-year period.

the remaining service attribution periods of the employees using the corridor method.

Assumptions. The following table provides the weighted average assumptions used to determine the actuarial present value of projected benefit obligations at December 31 offor the respective years.

 

 

Pension Benefits

 

Other Postretirement Benefits

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

4.59

%

4.15

%

4.57

%

3.91

%

Rate of compensation increase

 

N/A

 

N/A

 

N/A

 

N/A

 

periods.

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016
(Percentages)    
Pension Benefits    
Discount rate3.49/3.27 3.953.39
Rate of compensation increaseN/A N/AN/A
     
Other Postretirement Benefits    
Discount rate3.49 3.933.37
Rate of compensation increaseN/A N/AN/A


F- 53


The following table provides the weighted average assumptions used to determine net periodic benefit cost for the respective years ended December 31.

 

 

Pension Benefits

 

Other Postretirement Benefits

 

 

 

2015

 

2014

 

2013

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

4.15%

 

5.08/

 

4.23/

 

4.14%

 

4.13/

 

5.05%

 

3.91%

 

4.58%

 

3.64/

 

4.58%

 

Rate of compensation increase

 

N/A

 

 

 

N/A

 

 

 

3.39%

 

N/A

 

N/A

 

N/A

 

N/A

 

Expected return on plan assets

 

7.00%

 

 

 

7.75%

 

 

 

7.75%

 

N/A

 

N/A

 

N/A

 

N/A

 

periods.

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(Percentages)      
Pension Benefits      
Discount rate3.77 3.39/3.954.59/3.80 4.15/4.61/4.41/4.60
Rate of compensation increaseN/A N/AN/A N/A
Expected return on plan assets6.20 6.856.85 7.00
       
Other Postretirement Benefits      
Discount rate3.85 3.374.57/3.80 3.91
Rate of compensation increaseN/A N/AN/A N/A
Expected return on plan assetsN/A N/AN/A N/A

The discount rates used in 20142017, 2016 and 20132015 were reevaluated during the year for settlements and the curtailments as described previously.curtailments. The obligations are remeasured at an updated discount rate that impacts the benefit cost recognized subsequent to the remeasurement.

The Company establishes the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The Company utilizes modern portfolio theory modeling techniques in the development of its return assumptions. This technique projects rates of return that can be generated through various asset allocations that lie within the risk tolerance set forth by members of the Company’s pension committee (the

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Table of Contents

“Pension “Pension Committee”). The risk assessment provides a link between a pension plan’s risk capacity, management’s willingness to accept investment risk and the asset allocation process, which ultimately leads to the return generated by the invested assets.

The health care cost trend rate assumed for 20162018 is 7.1%6.2% and is expected to reach an ultimate trend rate of 4.5% by 2028.2038. A one-percentage-point increase in the health care cost trend rate would increase the postretirement benefit obligation at December 31, 20152017 by $9.4$11.6 million and the net periodic postretirement benefit cost for the year ended December 31, 20152017 by $0.1$0.4 million.


Plan Assets

The Pension Committee is responsible for overseeing the investment of pension plan assets. The Pension Committee is responsible for determining and monitoring appropriate asset allocations and for selecting or replacing investment managers, trustees and custodians. The pension plan’s current investment targets are 60%39% equity and 40%61% fixed income securities. The Pension Committee reviews the actual asset allocation in light of these targets on a periodic basis and rebalances among investments as necessary. The Pension Committee evaluates the performance of investment managers as compared to the performance of specified benchmarks and peers and monitors the investment managers to ensure adherence to their stated investment style and to the plan’s investment guidelines.


F- 54


The Company’s pension plan assets at December 31, 20152017 and 2014,2016, respectively, are categorized below according to the fair value hierarchy as defined in Note 17, “Fair Value Measurements”:

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

2015

 

2014

 

2015

 

2014

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands)

 

Equity Securities:(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. small-cap

 

$

11,640

 

$

16,512

 

$

11,640

 

$

16,512

 

$

 

$

 

$

 

$

 

U.S. mid-cap

 

28,524

 

46,481

 

10,979

 

17,301

 

17,545

 

29,180

 

 

 

U.S. large-cap

 

67,244

 

89,008

 

33,249

 

43,181

 

33,995

 

45,827

 

 

 

Non-U.S.

 

18,785

 

25,905

 

 

 

18,785

 

25,905

 

 

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

U.S. government securities(B)

 

18,844

 

13,708

 

18,183

 

12,988

 

661

 

720

 

 

 

Non-U.S. government securities(C)

 

766

 

1,599

 

 

 

766

 

1,599

 

 

 

U.S. government asset and mortgage backed securities(D)

 

1,056

 

830

 

 

 

1,056

 

830

 

 

 

Corporate fixed income(E)

 

39,939

 

22,702

 

 

 

39,939

 

22,702

 

 

 

State and local government securities(F)

 

5,725

 

8,005

 

 

 

5,725

 

8,005

 

 

 

Other fixed income(G)

 

57,209

 

83,735

 

 

 

57,209

 

83,735

 

 

 

Short-term investments(H)

 

3,898

 

6,818

 

 

 

3,898

 

6,818

 

 

 

Other investments(I)

 

19,869

 

21,406

 

 

 

1,234

 

3,336

 

18,635

 

18,070

 

Total

 

$

273,499

 

$

336,709

 

$

74,051

 

$

89,982

 

$

180,813

 

$

228,657

 

$

18,635

 

$

18,070

 


 Total Level 1 Level 2 Level 3
 2017 2016 2017 2016 2017 2016 2017 2016
 (In thousands)
Equity Securities:(A)
               
U.S. small-cap$5,064
 $13,520
 $5,064
 $13,520
 $
 $
 $
 $
U.S. mid-cap22,640
 29,687
 6,017
 9,422
 16,623
 20,265
 
 
U.S. large-cap43,232
 70,226
 21,416
 34,107
 21,816
 36,119
 
 
Non-U.S.10,115
 18,937
 
 
 10,115
 18,937
 
 
Fixed income securities:
 
           
U.S. government securities(B)
66,922
 26,519
 60,286
 19,973
 6,636
 6,546
 
 
Non-U.S. government securities(C)
4,050
 1,567
 
 
 4,050
 1,567
 
 
U.S. government asset and mortgage backed securities(D)
2,440
 1,074
 
 
 2,440
 1,074
 
 
Corporate fixed income(E)
54,679
 58,191
 
 
 54,679
 58,191
 
 
State and local government securities(F)
3,829
 6,406
 
 
 3,829
 6,406
 
 
Other investments(I)
27,057
 26,151
 
 
 8,457
 6,910
 18,600
 19,241
Total$240,028
 $252,278
 $92,783
 $77,022
 $128,645
 $156,015
 $18,600
 $19,241
Other fixed income(G)
16,646
 35,519
            
Short-term investments(H)
8,573
 8,598
            
Other liabilities(J)
(9,605) (22,170)            
 $255,642
 $274,225
            
(A) Equity securities includes investments in 1) common stock, 2) preferred stock and 3) mutual funds. Investments in common and preferred stocks are valued using quoted market prices multiplied by the number of shares owned. Investments in mutual funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date and are traded on listed exchanges.

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Table of Contents

(B) U.S. government securities includes agency and treasury debt. These investments are valued using dealer quotes in an active market.

(C) Non-U.S. government securities includes debt securities issued by foreign governments and are valued utilizing a price spread basis valuation technique with observable sources from investment dealers and research vendors.

(D) U.S. government asset and mortgage backed securities includes government-backed mortgage funds which are valued utilizing an income approach that includes various valuation techniques and sources such as discounted cash flows models, benchmark yields and securities, reported trades, issuer trades and/or other applicable data.

(E) Corporate fixed income is primarily comprised of corporate bonds and certain corporate asset-backed securities that are denominated in the U.S. dollar and are investment-grade securities. These investments are valued using dealer quotes.

(F) State and local government securities include different U.S. state and local municipal bonds and asset backed securities, these investments are valued utilizing a market approach that includes various valuation techniques and sources such as value generation models, broker quotes, benchmark yields and securities, reported trades, issuer trades and/or other applicable data.

(G) Other fixed income investments are actively managed fixed income vehicles that are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.

(H) Short-term investments include governmental agency funds, government repurchase agreements, commingled funds, and pooled funds and mutual funds. Governmental agency funds are valued utilizing an option adjusted spread valuation technique and sources such as interest rate generation processes, benchmark yields and broker quotes. Investments in governmental repurchase agreements, commingled funds and pooled funds and mutual funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.


F- 55


(I) Other investments includesinclude cash, forward contracts, derivative instruments, credit default swaps, interest rate swaps and mutual funds. Investments in interest rate swaps are valued utilizing a market approach that includes various valuation techniques and sources such as value generation models, broker quotes in active and non-active markets, benchmark yields and securities, reported trades, issuer trades and/or other applicable data. Forward contracts and derivative instruments are valued at their exchange listed price or broker quote in an active market. The mutual funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date and are traded on listed exchanges.

During 2013, the plan invested $16.0 million in Level 3 investments. Subsequent changes in fair value are the result of unrealized gains on the investment.

(J)Net payable amount due for pending securities purchased and sold due to broker/dealer.
Cash Flows. The Company expects to make contributions of $0.5$0.4 million to the pension plans in 2016,2018, which is impacted by theMoving Ahead for Progress in the 21st Century Act (MAP-21). MAP-21 does not reduce the Company’s obligations under the plan, but redistributes the timing of required payments by providing near term funding relief for sponsors under the Pension Protection Act.

The following represents expected future benefit payments from the plan, which reflect expected future service, as appropriate:

 

 

 

 

Other

 

 

 

Pension

 

Postretirement

 

 

 

Benefits

 

Benefits

 

 

 

(In thousands)

 

2016

 

$

19,164

 

$

8,356

 

2017

 

20,320

 

8,341

 

2018

 

21,833

 

8,344

 

2019

 

21,341

 

8,281

 

2020

 

21,461

 

8,245

 

Next 5 years

 

106,953

 

38,178

 

 

 

$

211,072

 

$

79,745

 

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Table of Contents

   Other
 Pension Postretirement
 Benefits Benefits
 (In thousands)
2018$17,614
 $12,381
201917,834
 12,549
202018,174
 12,990
202118,635
 13,239
202219,235
 13,423
Next 5 years83,071
 62,854
 $174,563
 $127,436

Other Plans

The Company sponsors savings plans which were established to assist eligible employees in providing for their future retirement needs. The Company’s expense, representing its contributions to the plans, was $20.5 million, $22.9 million and $25.1$18.0 million for the yearsyear ended December 31, 2015, 20142017; $3.5 million for the period October 2 through December 31, 2016; $13.8 million for the period January 1 through October 1, 2016; and 2013, respectively.

22.  Loss Per Common Share$20.5 million

The effect of options, restricted stock and restricted stock units that were excluded from the calculation of diluted weighted average shares outstanding because the exercise price or grant price of the securities exceeded the average market price of the Company’s common stock were: 1.0 million shares of common stock for the year ended December 31, 2015, and 0.8 million sharesrespectively.


22. Earnings (Loss) Per Common Share
The Company computes basic net income per share using the weighted average number of common stock for each ofshares outstanding during the years ending December 31, 2014 and December 31, 2013.  Theperiod. Diluted net income per share is computed using the weighted average share impactsnumber of options, restricted stockcommon shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities may consist of warrants, restricted stock units that were excluded fromor other contingently issuable shares. The dilutive effect of outstanding warrants, restricted stock units and other contingently issuable shares is reflected in diluted earnings per share by application of the calculationtreasury stock method.

The following table provides the basis for basic and diluted EPS by reconciling the numerators and denominators of weighted average shares due to the Company’s incurring a net loss for the three years ending December 31, 2015, 2014 and 2013 were not significant.

computations:

 SuccessorPredecessor
 Year Ended December 31, 2017October 2 through December 31, 2016January 1 through October 1, 2016Year Ended December 31, 2015
(In Thousands)    
Weighted average shares outstanding:    
Basic weighted average shares outstanding23,725
25,002
21,293
21,285
Effect of dilutive securities515
467
20

     
Diluted weighted average shares outstanding24,240
25,469
21,313
21,285


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2323. Leases


The Company leases equipment, land and various other properties under non-cancelable long-term leases, expiring at various dates. Certain leases contain options that would allow the Company to extend the lease or purchase the leased asset at the end of the base lease term.

In addition, the Company enters into various non-cancelable royalty lease agreements under which future minimum payments are due.

Minimum payments due in future years under these agreements in effect at December 31, 20152017 are as follows:

 

 

Operating

 

 

 

 

 

Leases

 

Royalties

 

 

 

(In thousands)

 

2016

 

$

20,857

 

$

8,947

 

2017

 

17,277

 

13,991

 

2018

 

6,412

 

13,097

 

2019

 

3,448

 

12,295

 

2020

 

2,151

 

11,996

 

Thereafter

 

9,807

 

103,771

 

 

 

$

59,952

 

$

164,097

 

Obligations

 Operating  
 Leases Royalties
 (In thousands)
2018$5,936
 $3,582
20194,655
 5,926
20202,260
 6,953
20211,985
 7,216
20222,024
 7,003
Thereafter8,292
 34,371
 $25,152
 $65,051
The Company has no obligations for the future minimum payments under capital leases for equipment totaling $40.0 million  and $46.0. million at December 31, 20152017 and 2014, respectively, are included in other long term debt obligations in Note 14, “Debt and Financing Arrangements”.

2016.

Rental expense, including amounts related to these operating leases and other shorter-term arrangements, amounted to $19.2 million in 2017, $5.0 million for the period October 2 through December 31, 2016, $19.4 million for the period January 1 through October 1, 2016 and $28.4 million in 2015, $42.1 million in 2014 and $42.1 million in 2013.

2015.

Royalties are paid to lessors either as a fixed price per ton or as a percentage of the gross selling price of the mined coal. Royalties under the majority of the Company’s significant leases are paid on the percentage of gross selling price basis. Royalty expense, including production royalties, was $167.4 million in 2017, $45.3 million for the period October 2 through December 31, 2016, $116.4 million for the period January 1 through October 1, 2016 and $227.7 million in 2015, $242.5 million in 2014 and $261.1 million in 2013.

2015.

As of December 31, 2015,2017, certain of the Company’s lease obligations were secured by outstanding surety bonds totaling $49.4$31.2 million.

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24. Risk Concentrations

Credit Risk and Major Customers

The Company has a formal written credit policy that establishes procedures to determine creditworthiness and credit limits for trade customers and counterparties in the over-the-counter coal market. Generally, credit is extended based on an evaluation of the customer’s financial condition. Collateral is not generally required, unless credit cannot be established. Credit losses are provided for in the financial statements and historically have been minimal.

The Company markets its steam coal principally to domestic and foreign electric utilities and its metallurgical coal to domestic and foreign steel producers. As of December 31, 20152017 and 2014,2016, accounts receivable from electric utilities of $83.8$72.9 million and $134.7$96.0 million, respectively, represented 72%42% and 64%52% of total trade receivables at each date. As of December 31, 20152017 and 2014,2016, accounts receivable from sales of metallurgical-quality coal of $32.8$99.4 million and $76.0$88.0 million, respectively, represented 28%58% and 36%48% of total trade receivables at each date.

The Company uses shipping destination as the basis for attributing revenue to individual countries. Because title may transfer on brokered transactions at a point that does not reflect the end usage point, they are reflected as exports, and attributed to an end delivery point if that knowledge is known to the Company. The Company’s foreign revenues by geographical

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location are as follows:

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

 

 

(In thousands)

 

Europe

 

$

170,314

 

$

277,565

 

$

371,363

 

Asia

 

96,523

 

156,057

 

160,404

 

North America

 

40,315

 

78,445

 

80,322

 

Central and South America

 

55,323

 

20,496

 

55,493

 

Brokered Sales

 

32,848

 

79,354

 

154,442

 

Total

 

$

395,323

 

$

611,917

 

$

822,024

 

 SuccessorPredecessor
 Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
(In thousands)      
Europe$388,926
 $61,408
$113,888
 $170,314
Asia264,503
 55,634
68,536
 96,523
North America88,145
 43,831
56,594
 40,315
Central and South America30,982
 13,224
41,861
 55,323
Africa14,901
 

 
Brokered Sales6,137
 

 32,848
Total$793,594
 $174,097
$280,879
 $395,323
The Company is committed under long-term contracts to supply steam coal that meets certain quality requirements at specified prices. These prices are generally adjusted based on market indices. Quantities sold under some of these contracts may vary from year to year within certain limits at the option of the customer.customer based on their requirements. The Company sold approximately 127.698.2 million tons of coal in 2015.2017. Approximately 68%66% of this tonnage (representing approximately 55% of the Company’s revenues) was sold under long-term contracts (contracts having a term of greater than one year). Long-term contracts range in remaining life from one to fivefour years.

Third-party sources of coal

The Company uses independent contractors to mine coal at certain mining complexes. The Company also purchases coal from third parties that it sells to customers. Factors beyond the Company’s control could affect the availability of coal produced for or purchased by the Company. Disruptions in the quantities of coal produced for or purchased by the Company could impair its ability to fill customer orders or require it to purchase coal from other sources at prevailing market prices in order to satisfy those orders.

Transportation

The Company depends upon barge, rail, truck and belt transportation systems to deliver coal to its customers. Disruption of these transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could temporarily impair the Company’s ability to supply coal to its customers In the past, disruptions in rail service have resulted in missed shipments and production interruptions.


25. Commitments and Contingencies


The Company accrues for cost related to contingencies when a loss is probable and the amount is reasonably determinable. Disclosure of contingencies is included in the financial statements when it is at least reasonably possible that a material loss or an additional material loss in excess of amounts already accrued may be incurred.

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Allegheny Energy Supply (“Allegheny”), the sole customer of coal produced at the Company’s subsidiary Wolf Run Mining Company’s (“Wolf Run”) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge Holdings, Inc. (“Hunter Ridge”), and ICG in state court in Allegheny County, Pennsylvania on December 28, 2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in the contract.  The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas wells that were previously unidentified and unmapped.

After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the many gas wells within the reserve.  The amended complaint also alleged that the production stoppages constitute a breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into the contract in early 2005.  Allegheny voluntarily dropped the breach of representation claims later.  Allegheny claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the contract.  ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of the remaining claims.

On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and conspiracy.  On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract and did not exist at the time Wolf Run and Allegheny entered into the contract.  No new substantive claims were asserted.  ICG answered the second amended complaint on October 13, 2009, denying all of the new claims.  The Company’s counterclaim was dismissed on motion for summary judgment entered on May 11, 2010.  Allegheny’s claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge were not.  The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on February 1, 2011.

At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and future damages in the aggregate of between $228 million and $377 million.  Wolf Run and Hunter Ridge presented their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse under the contract and applicable law.  Wolf Run and Hunter Ridge presented evidence that Allegheny’s damages calculations were significantly inflated because it did not seek to determine damages as of the time of the breach and in some instances artificially assumed future nondelivery or did not take into account the apparent requirement to supply coal in the future.  On May 2, 2011, the trial court entered a Memorandum and Verdict determining that Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force majeure.  The trial court awarded total damages and interest in the amount of $104.1 million, which consisted of $13.8 million for past damages, and $90.3 million for future damages.  ICG and Allegheny filed post-verdict motions in the trial court and on August 23, 2011, the court denied the parties’ motions.  The court entered a final judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest.

The parties appealed the lower court’s decision to the Superior Court of Pennsylvania.  On August 13, 2012, the Superior Court of Pennsylvania affirmed the award of past damages, but ruled that the lower court should have calculated future damages as of the date of breach, and remanded the matter back to the lower court with instructions to recalculate that portion of the award. On November 19, 2012, Allegheny filed a Petition for Allowance of Appeal with the Supreme Court of Pennsylvania and Wolf Run and Hunter Ridge filed an Answer.  On July 2, 2013, the Supreme Court of Pennsylvania denied the Petition of Allowance.  As this action finalized the past damage award, Wolf Run paid $15.6 million for the past damage amount, including interest, to Allegheny in July 2013.  The court held a hearing on this matter on November 5, 2014 and on February 16, 2015 awarded Allegheny $7.5 million plus interest for the future damages.  On April 6, 2015, the parties entered into a settlement agreement pursuant to which Wolf Run agreed to pay $15 million and both parties agreed to release and discharge the other party from any further contractual liability. As a result, the Company accrued an additional $2.8 million during the first quarter of 2015 to bring the total amount accrued up to the settlement amount which was paid during April 2015. The expense associated with the accrual is reflected in the line item “Cost of sales”.

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In addition, the Company is a party to numerous claims and lawsuits with respect to various matters. As of December 31, 20152017 and 2014,2016, the Company had accrued $2.8$0.2 million and $22.3$2.2 million, respectively, for all legal matters, including $2.8$0.2 million and $10.1$2.2 million, respectively, classified as current.  The ultimate resolution of any such legal matter could result in outcomes which may be materially different from amounts the Company has accrued for such matters.


The Company has unconditional purchase obligations relating to purchases of coal, materials and supplies and capital commitments, other than reserve acquisitions, and is also a party to transportation capacity commitments. The future commitments under these agreements total $94.6 million in 2016, $25.4 million in 2017, $10.6$97.2 million in 2018, $11.3 million in 2019, $11.6 million in 2020 and $11.1 millionis immaterial thereafter.  During the years ended December 31, 2015, 2014 and 2013, the Company fulfilled its commitments under agreements containing unconditional obligations. The Company recognized expense relating to transportation capacity agreements of $52.9 million, $36.5 million, and $12.0$1.6 million during the yearsperiod January 1 through October 1, 2016; and $52.9 million during the year ended December 31, 2015, 2014 and 2013, respectively.



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26. Subsequent Events

Filing Under Chapter 11 of the United States Bankruptcy Code


On January 11, 2016 (the “Petition Date”), the Company and substantially all of its wholly owned domestic subsidiaries (the “Filing Subsidiaries” and, together with the Company, the “Debtors”) filed voluntary petitions for reorganization (collectively, the “Bankruptcy Petitions”) under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Missouri (the “Court”). The Debtor’s Chapter 11 Cases (collectively, the “Chapter 11 Cases”) are being jointly administered under the caption In re Arch Coal, Inc., et al. Case No. 16-40120 (lead case). Each Debtor will continue to operate its business as a “debtor in possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Court.

The filing of the Bankruptcy Petitions constituted an event of default that acceleratedFebruary 13, 2018, the Company’s obligations under the documents governing eachboard of its 7.00% senior notes due 2019, 9.875% senior notes due 2019, 8.00% senior secured second lien notes due 2019, 7.25% senior notes due 2020, 7.25% senior notes due 2021 (together, the “senior notes”) and senior secured first lien term loan due 2018 (the “Existing Credit Agreement”) (collectively with the senior notes, the “Debt Instruments”), all as further described in Note 14, “Debt and Financing Arrangements.”   Immediately after filing the Bankruptcy Petitions, the Company began notifying all known current or potential creditors of the Debtors of the bankruptcy filings.

Additionally, on the Petition Date, the New York Stock Exchange (the “NYSE”) determined that the Company’s common stock was no longer suitable for listing pursuant to Section 8.02.01D of the NYSE continued listing standards and tradingdirectors announced an increase in the Company’s quarterly dividend to $0.40 per common stock was suspended on  January 11, 2016.   We expect that the existingshare from $0.35 per common stockshare. The next quarterly cash dividend payment of the Company will be extinguished upon the Company’s emergence from Chapter 11 and existing equity holders will not receive consideration in respect of their equity interests.

On the Petition Date, the Debtors filed a number of motions with the Court generally designed to stabilize their operations and facilitate the Debtors’ transition into Chapter 11. Certain of these motions sought authority from the Court for the Debtors to make payments upon, or otherwise honor, certain pre-petition obligations (e.g., obligations related to certain employee wages, salaries and benefits and certain vendors and other providers essential to the Debtors’ businesses). The Court has entered orders approving the relief sought in these motions.

Pursuant to Section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against the Debtors, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Debtors’ property. Subject to certain exceptions under the Bankruptcy Code, the filing of the Debtors’ Chapter 11 Cases also automatically stayed the continuation of most legal proceedings, including the third party litigation matters described under Item 3, “Legal Proceedings,” or the filing of other actions against or on behalf of the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of the Debtors’ bankruptcy estates, unless and until the Court modifies or lifts the automatic stay as to any such claim.  Notwithstanding the general

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application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers.

As required by the Bankruptcy Code, the U.S. Trustee for the Eastern District of Missouri appointed an official committee of unsecured creditors (the “Creditors’ Committee”) on January 25, 2016. The Creditors’ Committee represents all unsecured creditors of the Debtors and has a right$0.40 per common share is scheduled to be heardpaid on all matters that come before the Court.

Restructuring Support Agreement

In connection with the filingMarch 15, 2018 to stockholders of the Bankruptcy Petitions, the Company entered into a Restructuring Support Agreement, dated as of January 10, 2016 (the “Restructuring Support Agreement”), among the Debtors and holders of over 50% of the Company’s first lien term loans under the Existing Credit Agreement (the “Supporting First Lien Creditors”), providing that the Supporting First Lien Creditors will support a restructuring of the Debtors, subject to the following terms and conditions contemplated therein, among others:

·                                  existing common stock of the Company would likely be extinguished upon the Company’s emergence from Chapter 11, and existing equity holders would likely not receive consideration in respect of their equity interests;

·                                  claims against the Debtors arising under the DIP Facility (as defined below) would be paid in full in cash or receive such other treatment as may be consented to by the holders of such claims;

·                                  claims against the Debtors of holders of first lien term loans would be exchanged for (a) a combination of cash and $326.5 million (principal amount) of new first lien debt that would be issued by the reorganized Company and (b) 100% of the common stock of the reorganized Company outstanding on the effective date of the plan, subject to dilution on account of a proposed new management incentive plan and the distribution to unsecured creditors of any new common stock and warrants (as described below);

·                                  first lien term loan deficiency claims (subject to certain exceptions) as well as second lien notes, unsecured notes and general unsecured claims against the Debtors would be exchanged for either (1) common stock in the reorganized Company and warrants or (2) the value of the unencumbered assets of the Company, if any, after giving effect to certain other payments and claims;

·                                  either the Company’s existing accounts receivable securitization facility would be reinstated or a new letter of credit facility would be entered into by the Company, in either case on terms acceptable to Supporting First Lien Creditors holding more than 66 2/3% of the aggregate amount of the first lien term loans held by Supporting First Lien Creditors; and

·                                  the board of directors of the reorganized Company would consist of seven directors, at least one of whom would be independent, including the Company’s Chief Executive Officers and six directors selected by certain of the Company’s first-lien term lenders in consultation with the Company’s Chief Executive Officer.

The Restructuring Support Agreement, if utilized as the basis for a plan of reorganization, is expected to reduce the Company’s long-term debt by more than $4.5 billion.

We entered into an amendment to the Restructuring Support Agreement on February 25, 2016 (the “RSA Amendment”), which provides for the waiver of the termination event that would have occurred on February 25, 2016 as a result of the Debtors not having obtained Court approval of the assumption of the Restructuring Support Agreement within 45 days of the Petition Date. The Debtors had previously agreed, with the consent of the Majority Consenting Lenders under the Restructuring Support Agreement, to adjourn the Court hearing on the Restructuring Support Agreementrecord at the requestclose of the official committee of unsecured creditors appointed in the Debtors’ Chapter 11 cases. Pursuant to the RSA Amendment, unless otherwise agreed by the Majority Consenting Lenders, the Debtors are required to obtain Court approval of the assumption of the Restructuring Support Agreementbusiness on or before the date that is 90 days from the Petition Date.

The RSA Amendment also provides for a waiver of any termination event that otherwise would occur as a result of the dismissal of the Chapter 11 case of one of our subsidiaries following the sale of such subsidiary and a 45-day extension of the date after which the Debtors and the Majority Consenting Lenders may modify the proposed distributions to holders of unsecured claims if holders of more than $1.6125 billion of unsecured claims against the Debtors have not executed a restructuring support agreement substantially in the form of the Restructuring Support Agreement.

Securitization Agreement

On January 13, 2016, the Company agreed with its securitization financing providers (the “Securitization Financing Providers”) that, subject to certain amendments (the “Amendments”), they will continue the $200 million trade accounts receivable securitization facility provided to Arch Receivable Company, LLC, a non-debtor special-purpose entity that is a wholly owned subsidiary of the Company (“Arch Receivable”) (the “Securitization Facility”).

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Pursuant to the Amendments, which have been approved by the Court on a final basis, the Debtors agreed to a revised schedule of fees payable to the administrator and the Securitization Financing Providers.  The cost of an advance backstopping a letter of credit issued under the Securitization Facility is determined by two factors: (a) a program fee of 2.65% per year and payable on each settlement date to each Securitization Financing Provider deemed to have made such an advance and (b) the “discount,” which is calculated based on each Securitization Financing Provider’s costs, including its cost of the issuance and placement of short term promissory notes to fund such an advance.

In connection with the Securitization Facility, Arch Receivable has granted to the administrator (for the benefit of the securitization purchasers) a first priority security interest in all of its assets, including all outstanding accounts receivable generated by the Debtors from the sale of coal and sold through the Securitization Facility (including collections, proceeds and certain other interests related thereto) (the “Receivables”) and all proceeds thereof.

The agreements governing the Securitization Facility provide for the grant of analogous security interests by certain Debtors that generate Receivables from the sale of coal (such Debtors, the “Originators”). The agreements expressly state that the transfers of Receivables from the Originators to Arch and from Arch to Arch Receivable are intended to be true sales of the Receivables. However, if, against the intent of the parties (and notwithstanding entry of an order by the Court which provides that the transfers of the Receivables constitute true sales), any such transfer is recharacterized as a loan or extension of credit, each Originator has granted a first priority prepetition security interest in the Receivables and certain related collateral, pursuant to the agreements governing the Securitization Facility, for the ultimate benefit of the administrator and the Securitization Financing Providers (the “Liens”). The Debtors have agreed, in connection with the Amendments, to effectively extend such Liens to cover Receivables generated on or after the Petition Date.

The Originators do not guarantee the collection of Receivables that have been transferred to Arch Receivable. However, the Originators are obligated to reimburse Arch Receivable for inaccuracy of certain representations and warranties, dilution items with respect to Receivables and certain other limited indemnities (such obligations, the “Repayment Amounts”). Under the agreements governing the Securitization Facility, Arch Receivable is entitled to apply Repayment Amounts to amounts owed under the Securitization Facility.

Further, the Company has executed a performance guarantee through which it has promised to fulfill, or cause Arch Receivable, the designated servicer and each Originator to fulfill, each of their obligations under the agreements governing the Securitization Facility. In addition, as contemplated by the Amendments, the Originators have also executed a performance guarantee promising to fulfill obligations of all Originators under the agreements.

In addition, in connection with the Amendments, the Debtors have granted superpriority claims against the Debtors and in favor of Arch Receivable, the administrator and the Securitization Financing Providers in respect of certain of the Debtors’ obligations under the agreements governing the Securitization Facility, including the Repayment Amounts and certain other limited indemnification and other obligations of the Debtors under the agreements.

Debtor-In-Possession Financing

On January 21, 2016, the Superpriority Secured Debtor-in-Possession Credit Agreement as amended by the waiver and consent and Amendment No. 1, dated as of March 4, 2016, (the “DIP Credit Agreement”) was entered into by and among the Company, as borrower, certain of the Debtors, as guarantors  (the “Guarantors” and, together with the Company, the “Loan Parties”), the lenders from time to time party thereto (the “DIP Lenders”) and Wilmington Trust, National Association, as administrative agent and collateral agent for the DIP Lenders (in such capacities, the “DIP Agent”).

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The DIP Credit Agreement, which has been approved by the Court on a final basis, provides for a super-priority senior secured debtor-in-possession credit facility (the “DIP Facility”) consisting of term loans (collectively, the “DIP Term Loan”) in the aggregate principal amount of up to $275 million that may be funded in not more than two draws not later than six months after the effective date of the DIP Facility (such six month period, the “Availability Period”).  Any portion of the DIP Term Loan commitment that has not been funded on or prior to the end of the Availability Period will be permanently cancelled.

The maturity date of the DIP Facility is the earliest of (i) January 31, 2017, (ii) the date of the substantial consummation of a plan of reorganization that is confirmed pursuant to an order of the Court, (iii) the consummation of the sale of all or substantially all of the assets of the Loan Parties pursuant to Section 363 of the Bankruptcy Code and (iv) the date the obligations under the DIP Facility are accelerated pursuant to the terms of the DIP Credit Agreement.  Borrowings under the DIP Facility bear interest at an interest rate per annum equal to, at the Company’s option (i) LIBOR plus 9.00%, subject to a 1.00% LIBOR floor or (ii) the base rate plus 8.00%.

Obligations under the DIP Credit Agreement will be guaranteed on a super-priority senior secured basis by all existing and future wholly-owned domestic subsidiaries of Arch, and all newly created or acquired wholly-owned domestic subsidiaries of Arch, subject to customary limited exceptions.

The lenders under the DIP Credit Agreement will have a first priority lien on all encumbered and unencumbered assets of the Loan Parties (the “DIP Lien”), subject to a $75 million carve-out for super-priority claims relating to the Debtors’ bonding obligations, a customary professional fees carve-out and certain exceptions.

The Loan Parties are subject to certain financial maintenance covenants under the DIP Credit Agreement, including, without limitation, (i) maximum capital expenditures and (ii) minimum liquidity (defined as unrestricted cash and cash equivalents of the Company and its domestic subsidiaries (other than any securitization subsidiary or bonding subsidiary), plus withdrawable funds from brokerage accounts of the Company and its domestic subsidiaries (other than any securitization subsidiary or bonding subsidiary) plus any unused commitments that are available to be drawn by the Company pursuant to the terms of the DIP Credit Agreement) of (A) $300 million prior to the entry of the Final Order and (B) $500 million following the entry of the Final Order, in each case tested on a monthly basis.  The DIP Credit Agreement contains customary affirmative and negative covenants and representations for debtor-in-possession financings.  In addition to customary events of default for debtor-in-possession financings, the DIP Credit Agreement contains milestones relating to the Chapter 11 Cases and any failure to comply with such milestones constitutes an event of default.

The DIP Facility is subject to certain usual and customary prepayment events, including 100% of net cash proceeds of (i) debt issuances (other than debt permitted to be incurred under the terms of the DIP Credit Agreement), (ii) non-ordinary course asset sales or dispositions in excess of $50 million in the aggregate (with no individual asset sale or disposition in excess of $7.5 million) and (iii) any casualty event in excess of $50 million in the aggregate, subject to customary reinvestment rights, in each case to be applied to prepay the DIP Term Loan.  At a hearing held on February 23, 2016 in the Chapter 11 Cases, the Court approved the DIP Financing on a final basis, overruling the objections of the Creditors’ Committee and certain other parties who asserted, among other things, that the DIP Financing was unnecessary and argued that the Debtors should enter into an alternate debtor-in-possession financing facility proposed by certain members of the Creditors’ Committee.

Other Non-Bankruptcy Items

On February 1, 2016, a mining company that Arch Coal, Inc. leases coal reserves to in Kentucky announced plans to idle its mining operations related to those reserves.  At December 31, 2015, the Company had a net book value of $66.8 million on the approximate 22.0 million tons of reserves.  As a result, the company will record an impairment charge representing the remaining net book value of the reserves in the first quarter of 2016.

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27. Segment Information

The Company’s reportable business segments are based on the majortwo distinct lines of business, metallurgical coal producing basins in which the Company operatesand thermal coal, and may include a number of mine complexes. The Company manages its coal sales by coal basin,market, not by individual mining complex. Geology, coal transportation routes to customers, and regulatory environments also have a significant impact on the Company’s marketing and coal quality or type are characteristic to a basin, and, accordingly, market and contract pricing have developed by coal basin.operations management. Mining operations are evaluated based on theirAdjusted EBITDAR, per-ton cash operating costs (defined as including all mining costs but excludingexcept depreciation, depletion, amortization, accretion on asset retirement obligations, and pass-through transportation expenses), as well asand on other non-financial measures, such as safety and environmental performance. Adjusted EBITDAR is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDAR are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDAR 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. The Company uses Adjusted EBITDAR to measure the operating performance of its segments and allocate resources to the segments. Furthermore, analogous measures are used by industry analysts and investors to evaluate the Company’s operating performance. Investors should be aware that the Company’s presentation of Adjusted EBITDAR may not be comparable to similarly titled measures used by other companies. The Company reports its results of operations primarily through the following reportable segments are thesegments: Powder River Basin (PRB) segment withcontaining the Company’s primary thermal operations in Wyoming; and the Appalachia (APP)Metallurgical (MET) segment, withcontaining the Company’s metallurgical operations in West Virginia, Kentucky, Maryland and Virginia.  “All Other” includesVirginia, and the Other Thermal segment containing the Company’s coal miningsupplementary thermal operations in Colorado, and Illinois, and West Virginia. Periods presented in this note have been recast for comparability.

On September 14, 2017, the ADDCAR subsidiary (which was sold duringCompany closed on its’ definitive agreement to sell Lone Mountain Processing LLC, an operating mine complex within the first quarterCompany’s metallurgical coal segment. Through this transaction the Company divested all active operations in the states of 2014).

Kentucky and Virginia. For further information on the divestiture, please see Note 5 to the Consolidated Financial Statements, “Divestitures.”

Operating segment results for the yearsyear ended December 31, 2015, 20142017, the Successor period October 2 through December 31, 2016 and 2013the Predecessor periods January 1 through October 1, 2016 and the year ended December 31, 2015 are presented below. The Company measures its segments based on “adjusted earnings before interest, taxes, depreciation, depletion, amortization, accretion on asset retirements obligations, and amortizationreorganization items, net (Adjusted EBITDA)EBITDAR).” The Company’s management believes that Adjusted EBITDA presents a useful measure of our ability to service existing debt and incur additional debt based on ongoing operations.  Adjusted EBITDAEBITDAR does not reflect mine closure or impairment costs, since those are not reflected in the operating income reviewed by management. See Note 5,6, “Impairment Charges and Mine Closure Costs” for discussion of these costs. The Corporate, Other and Eliminations grouping includes these charges, as well as the change in fair value of coal derivatives and coal trading activities, net; corporate overhead; land management activities; other support functions; and the elimination of intercompany transactions.

The asset amounts below represent an allocation of assets consistent with the basis used for the Company’s incentive compensation plans. The amounts in Corporate, Other and Eliminations represent primarily corporate assets (cash, receivables, investments, plant, property and equipment) as well as unassigned coal reserves, above-market acquired sales contracts and other unassigned assets.

F-52






F- 59


Table of Contents

 

 

PRB

 

APP

 

All Other

 

Corporate,
Other and
Eliminations

 

Consolidated

 

Year Ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,448,440

 

$

834,606

 

$

290,214

 

$

 

$

2,573,260

 

Adjusted EBITDA

 

258,300

 

82,837

 

17,044

 

(108,064

)

250,117

 

Depreciation, depletion and amortization

 

176,257

 

156,273

 

40,768

 

6,047

 

379,345

 

Amortization of acquired sales contracts, net

 

(4,158

)

(4,653

)

 

 

(8,811

)

Total assets

 

1,648,916

 

843,583

 

310,949

 

2,303,290

 

5,106,738

 

Capital expenditures

 

22,535

 

20,599

 

11,135

 

64,755

 

119,024

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,490,377

 

$

1,108,358

 

$

338,384

 

$

 

$

2,937,119

 

Adjusted EBITDA

 

198,074

 

110,693

 

56,612

 

(85,236

)

280,143

 

Depreciation, depletion and amortization

 

168,522

 

205,732

 

40,125

 

4,369

 

418,748

 

Amortization of acquired sales contracts, net

 

(3,961

)

(9,433

)

207

 

 

(13,187

)

Total assets

 

1,772,230

 

3,379,834

 

339,809

 

2,937,850

 

8,429,723

 

Capital expenditures

 

44,305

 

23,638

 

12,993

 

66,350

 

147,286

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,482,812

 

$

1,145,801

 

$

385,744

 

$

 

$

3,014,357

 

Adjusted EBITDA

 

206,910

 

88,883

 

94,948

 

(138,595

)

252,146

 

Depreciation, depletion and amortization

 

171,324

 

202,952

 

45,741

 

6,425

 

426,442

 

Amortization of acquired sales contracts, net

 

(3,656

)

(10,364

)

4,563

 

 

(9,457

)

Total assets

 

1,841,835

 

3,971,764

 

402,922

 

2,773,672

 

8,990,193

 

Capital expenditures

 

9,784

 

167,759

 

23,122

 

96,319

 

296,984

 


(In thousands) PRB MET Other Thermal 
Corporate,
Other and
Eliminations
 Consolidated
Successor Year EndedDecember 31, 2017          
Revenues $1,024,197
 $887,839
 $396,504
 $16,083
 $2,324,623
Adjusted EBITDAR 158,882
 243,616
 102,006
 (86,747) 417,757
Depreciation, depletion and amortization 36,349
 70,896
 13,588
 1,631
 122,464
Accretion on asset retirement obligation 20,160
 2,000
 2,161
 5,888
 30,209
Total Assets 390,665
 548,476
 134,397
 906,094
 1,979,632
Capital expenditures 6,212
 32,678
 11,901
 8,414
 59,205
Successor PeriodOctober 2 through December 31, 2016          
Revenues $275,703
 $200,377
 $97,382
 $2,226
 $575,688
Adjusted EBITDAR 55,765
 30,819
 31,159
 (23,246) 94,497
Depreciation, depletion and amortization 9,949
 18,287
 3,911
 457
 32,604
Accretion on asset retirement obligation 5,049
 528
 540
 1,517
 7,634
Total assets 446,775
 576,793
 129,602
 983,427
 2,136,597
Capital expenditures 934
 13,329
 684
 267
 15,214
Predecessor PeriodJanuary 1 through October 1, 2016          
Revenues $726,747
 $437,069
 $213,052
 $21,841
 $1,398,709
Adjusted EBITDAR 113,185
 11,851
 31,448
 (69,181) 87,303
Depreciation, depletion and amortization 100,151
 55,311
 32,310
 3,809
 191,581
Accretion on asset retirement obligation 16,940
 1,765
 1,988
 3,628
 24,321
Total assets 456,711
 619,154
 131,173
 916,791
 2,123,829
Capital expenditures 612
 17,296
 3,895
 60,631
 82,434
Predecessor Year EndedDecember 31, 2015    
      
Revenues  $1,448,440
 $637,941
 $428,809
 $58,070
 $2,573,260
Adjusted EBITDAR 281,039
 70,450
 42,734
 (110,426) 283,797
Depreciation, depletion and amortization 176,257
 133,463
 47,786
 21,839
 379,345
Accretion on asset retirement obligation 22,156
 2,267
 2,658
 6,599
 33,680
Total assets 1,648,916
 772,439
 366,610
 2,253,916
 5,041,881
Capital expenditures 21,228
 24,787
 11,277
 61,732
 119,024


F- 60


A reconciliation of segment lossesAdjusted EBITDAR to consolidated lossincome (loss) from continuing operations before income taxes follows:

 

 

Year Ended December 31,

 

 

 

2015

 

2014

 

2013

 

Adjusted EBITDA

 

$

250,117

 

$

280,143

 

$

252,146

 

Depreciation, depletion and amortization

 

(379,345

)

(418,748

)

(426,442

)

Amortization of acquired sales contracts, net

 

8,811

 

13,187

 

9,457

 

Asset impairment costs

 

(2,628,303

)

(24,113

)

(220,879

)

Goodwill impairment

 

 

 

(265,423

)

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

(116,343

)

 

 

Settlement of UMWA legal claims

 

 

 

(12,000

)

Interest expense, net

 

(393,549

)

(383,188

)

(374,664

)

Nonoperating expense

 

(27,910

)

 

(42,921

)

Loss from continuing operations before income taxes

 

$

(3,286,522

)

$

(532,719

)

$

(1,080,726

)

F-53

  SuccessorPredecessor
(In thousands) Year Ended December 31, 2017 October 2 through December 31, 2016January 1 through October 1, 2016 Year Ended December 31, 2015
        
Income (loss) before income taxes $203,195
 $34,605
$1,237,455
 $(3,286,522)
Interest expense, net 24,256
 10,754
133,235
 393,549
Depreciation, depletion and amortization 122,464
 32,604
191,581
 379,345
Accretion on asset retirement obligations 30,209
 7,634
24,321
 33,680
Amortization of sales contracts, net 53,985
 796
(728) (8,811)
Asset impairment and mine closure costs 
 
129,267
 2,628,303
Losses from disposed operations resulting from Patriot Coal bankruptcy 
 

 116,343
Gain on sale of Lone Mountain Processing, Inc. (21,297) 

 
Net loss resulting from early retirement of debt and debt restructuring 2,547
 
2,213
 27,910
Reorganization items, net 2,398
 759
(1,630,041) 
Fresh start coal inventory fair value adjustment 
 7,345

 
Adjusted EBITDAR $417,757
 $94,497
$87,303
 $283,797


F- 61




28. Quarterly Selected Financial Data (unaudited)

 

 

March 31

 

June 30

 

September 30

 

December 31

 

 

 

(a)

 

(a)

 

(a)

 

(a)

 

 

 

(In thousands, except per share data)

 

Year Ended December 31, 2015

 

 

 

 

 

 

 

 

 

Revenues

 

$

677,005

 

$

644,462

 

$

688,544

 

563,249

 

Gross profit (loss)

 

$

14,256

 

$

(16,507

)

$

47,275

 

(44,964

)

Asset impairment and mine closure costs

 

$

 

$

19,146

 

$

2,120,292

 

488,865

 

Loss from operations

 

$

(19,712

)

$

(69,546

)

$

(2,236,772

)

$

(539,033

)

Net loss

 

$

(113,195

)

$

(168,103

)

$

(1,999,476

)

$

(632,368

)

Diluted loss per common share

 

$

(5.32

)

$

(7.93

)

$

(93.91

)

$

(29.70

)

 

 

March 31

 

June 30

 

September 30

 

December 31

 

 

 

(a)

 

(a) (b)

 

(a) (b)

 

(a) (b)

 

 

 

(In thousands, except per share data)

 

Year Ended December 31, 2014

 

 

 

 

 

 

 

 

 

Revenues

 

$

735,971

 

$

713,776

 

$

742,180

 

$

745,192

 

Gross profit (loss)

 

$

(49,842

)

$

(6,350

)

$

(5,851

)

$

32,264

 

Asset impairment and mine closure costs

 

$

 

$

1,512

 

$

5,060

 

$

17,541

 

Loss from operations

 

$

(73,123

)

$

(35,805

)

$

(35,300

)

$

(5,303

)

Net loss

 

$

(124,140

)

$

(96,860

)

$

(97,218

)

$

(240,135

)

Diluted loss per common share

 

$

(5.85

)

$

(4.57

)

$

(4.58

)

$

(11.31

)



Year Ended December 31, 2017March 31 June 30 September 30 December 31
        
(In thousands, except per share data)       
        
Revenues$600,975
 $549,866
 $613,538
 560,244
Gross profit$85,747
 $62,577
 $65,100
 62,937
Income from operations$66,264
 $42,692
 $72,489
 $50,951
Reorganization items, net$(2,828) $(21) $(43) $494
Net income$51,668
 $37,160
 $68,351
 $81,271
Diluted income per common share$2.03
 $1.48
 $2.83
 $3.64

 PredecessorSuccessor
Year Ended December 31, 2016March 31 June 30 September 30 October 1October 2 through December 31, 2016
 (a) (b) (a) (b) (b) (b) 
(In thousands, except per share data)        
         
Revenues$428,106
 $420,298
 $550,305
 $
$575,688
Gross profit (loss)$(53,325) $(56,469) $31,042
 $
$64,458
Asset impairment and mine closure costs$85,520
 $43,701
 $46
 $
$
Income (loss) from operations$(158,412) $(110,521) $11,795
 $
$46,118
Reorganization items, net$(3,875) $(21,271) $(20,904) $1,676,091
$(759)
Net income (loss)$(206,702) $(175,887) $(51,421) $1,676,091
$33,449
Diluted income (loss) per common share$(9.71) $(8.26) $(2.41) $78.66
$1.31


(a) Challenging coal markets resulted in impairment charges relating to leased mineral reserves, prepaid mining and other operations,royalties, investments in equity method subsidiaries and prepaid mining royaltiesseverance expense in 2015 and 2014.2016. See further discussion in Note 5,6, “Impairment Charges and Mine Closure Costs “ and Note 10, “Equity Method Investments and Membership Interests in Joint Ventures.Ventures.


(b) The Company determined that it would not realize the benefitfiled for bankruptcy on January 11, 2016 and subsequently emerged on October 5, 2016. See further discussion in Note 3, “Emergence from federalBankruptcy and state net operating losses it generated in 2014, based on projections of future taxable income, and as a result, recorded a valuation allowance against net operating losses of $23.8. million, $18.3 million, $15.8 million and $807.2 million in the second, third and fourth quarters of 2014, respectively.

Fresh Start Accounting29. Supplemental Consolidating Financial Information.”

Pursuant to the indentures governing Arch Coal, Inc.’s senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present consolidating financial information for (i) the Company, (ii) the issuer of the senior notes, (iii) the guarantors under the senior notes, and (iv) the entities which are not guarantors under the senior notes (Arch Receivable Company, LLC and the Company’s subsidiaries outside the United States):

F-54






F- 62



Table of Contents

Condensed Consolidating Statements of Operations and Comprehensive Income

Year Ended December 31, 2015

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Revenues

 

$

 

$

2,573,260

 

$

 

$

 

$

2,573,260

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

22,378

 

2,186,804

 

 

(2,749

)

2,206,433

 

Depreciation, depletion and amortization

 

3,775

 

375,568

 

2

 

 

379,345

 

Amortization of acquired sales contracts, net

 

 

(8,811

)

 

 

(8,811

)

Change in fair value of coal derivatives and coal trading activities, net

 

 

(1,583

)

 

 

(1,583

)

Asset impairment and mine closure costs

 

15,437

 

2,612,866

 

 

 

2,628,303

 

Losses from disposed operations resulting from Patriot Coal bankruptcy

 

116,343

 

 

 

 

116,343

 

Selling, general and administrative expenses

 

69,384

 

25,737

 

5,725

 

(2,063

)

98,783

 

Other operating expense (income), net

 

5,869

 

13,021

 

(4,192

)

4,812

 

19,510

 

 

 

233,186

 

5,203,602

 

1,535

 

 

5,438,323

 

Loss from investment in subsidiaries

 

(2,574,565

)

 

 

2,574,565

 

 

Loss from operations

 

(2,807,751

)

(2,630,342

)

(1,535

)

2,574,565

 

(2,865,063

)

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(478,432

)

(26,284

)

(4,916

)

111,653

 

(397,979

)

Interest and investment income

 

27,510

 

82,881

 

5,692

 

(111,653

)

4,430

 

 

 

(450,922

)

56,597

 

776

 

 

(393,549

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss resulting from early retirement of debt and debt restructuring

 

(27,910

)

 

 

 

(27,910

)

Loss from continuing operations before income taxes

 

(3,286,583

)

(2,573,745

)

(759

)

2,574,565

 

(3,286,522

)

Provision for (benefit from) income taxes

 

(373,441

)

 

61

 

 

(373,380

)

Net loss

 

(2,913,142

)

(2,573,745

)

(820

)

2,574,565

 

(2,913,142

)

Total comprehensive loss

 

$

(2,918,198

)

$

(2,579,601

)

$

(820

)

$

2,580,421

 

$

(2,918,198

)

F-55



Table of Contents

Condensed Consolidating Statements of Operations and Comprehensive Income

Year Ended December 31, 2014

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Revenues

 

$

 

$

2,937,119

 

$

 

$

 

$

2,937,119

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

3,016

 

2,566,572

 

 

(3,395

)

2,566,193

 

Depreciation, depletion and amortization

 

5,154

 

413,559

 

35

 

 

418,748

 

Amortization of acquired sales contracts, net

 

 

(13,187

)

 

 

(13,187

)

Change in fair value of coal derivatives and coal trading activities, net

 

 

(3,686

)

 

 

(3,686

)

Asset impairment and mine closure costs

 

3,642

 

20,471

 

 

 

24,113

 

Selling, general and administrative expenses

 

79,902

 

29,739

 

6,626

 

(2,044

)

114,223

 

Other operating income, net

 

(4,480

)

(15,726

)

(4,987

)

5,439

 

(19,754

)

 

 

87,234

 

2,997,742

 

1,674

 

 

3,086,650

 

Loss from investment in subsidiaries

 

(13,085

)

 

 

13,085

 

 

Loss from operations

 

(100,319

)

(60,623

)

(1,674

)

13,085

 

(149,531

)

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(463,823

)

(26,137

)

(4,259

)

103,273

 

(390,946

)

Interest and investment income

 

31,389

 

74,511

 

5,131

 

(103,273

)

7,758

 

 

 

(432,434

)

48,374

 

872

 

 

(383,188

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(532,753

)

(12,249

)

(802

)

13,085

 

(532,719

)

Provision for (benefit from) income taxes

 

25,600

 

 

34

 

 

25,634

 

Net loss

 

(558,353

)

(12,249

)

(836

)

13,085

 

(558,353

)

Total comprehensive loss

 

$

(592,804

)

$

(34,439

)

$

(836

)

$

35,275

 

$

(592,804

)

F-56



Table of Contents

Condensed Consolidating Statements of Operations and Comprehensive Income

Year Ended December 31, 2013

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Revenues

 

$

 

$

3,014,357

 

$

 

$

 

$

3,014,357

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

9,117

 

2,657,583

 

 

(3,564

)

2,663,136

 

Depreciation, depletion and amortization

 

5,949

 

420,458

 

35

 

 

426,442

 

Amortization of acquired sales contracts, net

 

 

(9,457

)

 

 

(9,457

)

Change in fair value of coal derivatives and coal trading activities, net

 

 

7,845

 

 

 

7,845

 

Asset impairment and mine closure costs

 

78,150

 

142,729

 

 

 

220,879

 

Goodwill impairment

 

 

265,423

 

 

 

265,423

 

Selling, general and administrative expenses

 

88,820

 

39,825

 

7,038

 

(2,235

)

133,448

 

Other operating income, net

 

4,209

 

(34,856

)

(5,370

)

5,799

 

(30,218

)

 

 

186,245

 

3,489,550

 

1,703

 

 

3,677,498

 

Loss from investment in subsidiaries

 

(328,889

)

 

 

328,889

 

 

Income (loss) from operations

 

(515,134

)

(475,193

)

(1,703

)

328,889

 

(663,141

)

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(449,614

)

(24,747

)

(4,214

)

97,308

 

(381,267

)

Interest and investment income

 

30,285

 

68,248

 

5,378

 

(97,308

)

6,603

 

 

 

(419,329

)

43,501

 

1,164

 

 

(374,664

)

Other non-operating expense

 

 

 

 

 

 

 

 

 

 

 

Net loss resulting from early retirement of debt

 

(42,921

)

 

 

 

(42,921

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(977,384

)

(431,692

)

(539

)

328,889

 

(1,080,726

)

Provision for (benefit from) income taxes

 

(335,552

)

 

54

 

 

(335,498

)

Loss from continuing operations

 

(641,832

)

(431,692

)

(593

)

328,889

 

(745,228

)

Income from discontinued operations, net of tax

 

 

103,396

 

 

 

103,396

 

Net Loss

 

(641,832

)

(328,296

)

(593

)

328,889

 

(641,832

)

Total comprehensive income (loss)

 

$

(587,633

)

$

(304,278

)

$

(593

)

$

304,871

 

$

(587,633

)

F-57



Table of Contents

Condensed Consolidating Balance Sheets

December 31, 2015

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

337,646

 

$

100,428

 

$

12,707

 

$

 

$

450,781

 

Short term investments

 

200,192

 

 

 

 

200,192

 

Restricted cash

 

 

 

97,542

 

 

97,542

 

Receivables

 

12,463

 

3,153

 

124,581

 

(4,430

)

135,767

 

Inventories

 

 

196,720

 

 

 

196,720

 

Other

 

83,017

 

38,794

 

969

 

 

122,780

 

Total current assets

 

633,318

 

339,095

 

235,799

 

(4,430

)

1,203,782

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

7,747

 

3,610,869

 

 

413

 

3,619,029

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

4,887,905

 

 

 

(4,887,905

)

 

Intercompany receivables

 

 

2,253,312

 

 

(2,253,312

)

 

Note receivable from Arch Western

 

675,000

 

 

 

(675,000

)

 

Other

 

39,302

 

243,806

 

819

 

 

283,927

 

Total assets

 

$

6,243,272

 

$

6,447,082

 

$

236,618

 

$

(7,820,234

)

$

5,106,738

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,495

 

$

119,633

 

$

3

 

$

 

$

128,131

 

Accrued expenses and other current liabilities

 

162,268

 

170,575

 

1,037

 

(4,430

)

329,450

 

Current maturities of debt

 

5,096,460

 

10,750

 

 

 

5,107,210

 

Total current liabilities

 

5,267,223

 

300,958

 

1,040

 

(4,430

)

5,564,791

 

Long-term debt

 

 

30,953

 

 

 

30,953

 

Intercompany payables

 

2,043,308

 

 

210,005

 

(2,253,313

)

 

Note payable to Arch Coal

 

 

675,000

 

 

(675,000

)

 

Asset retirement obligations

 

1,005

 

395,654

 

 

 

396,659

 

Accrued pension benefits

 

12,390

 

14,983

 

 

 

27,373

 

Accrued postretirement benefits other than pension

 

79,826

 

19,984

 

 

 

99,810

 

Accrued workers’ compensation

 

24,247

 

88,023

 

 

 

112,270

 

Deferred income taxes

 

 

 

 

 

 

Other noncurrent liabilities

 

59,976

 

58,847

 

348

 

 

119,171

 

Total liabilities

 

7,487,975

 

1,584,402

 

211,393

 

(2,932,743

)

6,351,027

 

Stockholders’ equity (deficit)

 

(1,244,703

)

4,862,680

 

25,225

 

(4,887,491

)

(1,244,289

)

Total liabilities and stockholders’ equity (deficit)

 

$

6,243,272

 

$

6,447,082

 

$

236,618

 

$

(7,820,234

)

$

5,106,738

 

F-58



Table of Contents

Condensed Consolidating Balance Sheets

December 31, 2014

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

572,185

 

$

150,358

 

$

11,688

 

$

 

$

734,231

 

Short term investments

 

248,954

 

 

 

 

248,954

 

Restricted cash

 

 

 

5,678

 

 

5,678

 

Receivables

 

9,656

 

15,933

 

211,043

 

(4,615

)

232,017

 

Inventories

 

 

190,253

 

 

 

190,253

 

Other

 

89,211

 

41,455

 

952

 

 

131,618

 

Total current assets

 

920,006

 

397,999

 

229,361

 

(4,615

)

1,542,751

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

10,470

 

6,442,623

 

2

 

363

 

6,453,458

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in subsidiaries

 

7,464,221

 

 

 

(7,464,221

)

 

Intercompany receivables

 

 

 

2,021,110

 

 

(2,021,110

)

 

Note receivable from Arch Western

 

675,000

 

 

 

(675,000

)

 

Other

 

131,884

 

300,058

 

1,572

 

 

433,514

 

Total assets

 

$

9,201,581

 

$

9,161,790

 

$

230,935

 

$

(10,164,583

)

$

8,429,723

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

23,394

 

$

156,664

 

$

55

 

$

 

$

180,113

 

Accrued expenses and other current liabilities

 

85,899

 

220,017

 

1,095

 

(4,615

)

302,396

 

Current maturities of debt

 

27,625

 

9,260

 

 

 

36,885

 

Total current liabilities

 

136,918

 

385,941

 

1,150

 

(4,615

)

519,394

 

Long-term debt

 

5,084,839

 

38,646

 

 

 

 

5,123,485

 

Intercompany payables

 

1,817,755

 

 

203,355

 

(2,021,110

)

 

Note payable to Arch Coal

 

 

675,000

 

 

(675,000

)

 

Asset retirement obligations

 

981

 

397,915

 

 

 

398,896

 

Accrued pension benefits

 

5,967

 

10,293

 

 

 

16,260

 

Accrued postretirement benefits other than pension

 

4,430

 

28,238

 

 

 

32,668

 

Accrued workers’ compensation

 

9,172

 

85,119

 

 

 

94,291

 

Deferred income taxes

 

422,809

 

 

 

 

422,809

 

Other noncurrent liabilities

 

50,919

 

102,461

 

386

 

 

153,766

 

Total liabilities

 

7,533,790

 

1,723,613

 

204,891

 

(2,700,725

)

6,761,569

 

Stockholders’ equity

 

1,667,791

 

7,438,177

 

26,044

 

(7,463,858

)

1,668,154

 

Total liabilities and stockholders’ equity

 

$

9,201,581

 

$

9,161,790

 

$

230,935

 

$

(10,164,583

)

$

8,429,723

 

F-59



Table of Contents

Condensed Consolidating Statements of Cash Flows

Year Ended December 31, 2015

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Cash provided by (used in) operating activities

 

$

(445,136

)

$

314,535

 

$

86,234

 

$

 

$

(44,367

)

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(1,108

)

(117,916

)

 

 

(119,024

)

Additions to prepaid royalties

 

 

(5,871

)

 

 

(5,871

)

Proceeds from disposals and divestitures

 

 

2,191

 

 

 

2,191

 

Purchases of short term investments

 

(246,735

)

 

 

 

(246,735

)

Proceeds from sales of short term investments

 

290,205

 

 

 

 

290,205

 

Proceeds from sales of equity investments and securities

 

 

2,259

 

 

 

2,259

 

Withdrawals (deposits) of restricted cash

 

 

 

(91,864

)

 

(91,864

)

Investments in and advances to affiliates

 

(913

)

(10,589

)

 

 

(11,502

)

Cash provided by (used in) investing activities

 

41,449

 

(129,926

)

(91,864

)

 

(180,341

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Payments on term loan

 

(19,500

)

 

 

 

(19,500

)

Net payments on other debt

 

(2,692

)

(8,640

)

 

 

(11,332

)

Expenses related to debt restructuring

 

(27,910

)

 

 

 

(27,910

)

Transactions with affiliates, net

 

219,250

 

(225,899

)

6,649

 

 

 

Cash provided by (used in) financing activities

 

169,148

 

(234,539

)

6,649

 

 

(58,742

)

Increase (decrease) in cash and cash equivalents

 

(234,539

)

(49,930

)

1,019

 

 

(283,450

)

Cash and cash equivalents, beginning of period

 

572,185

 

150,358

 

11,688

 

 

734,231

 

Cash and cash equivalents, end of period

 

$

337,646

 

$

100,428

 

$

12,707

 

$

 

$

450,781

 

F-60



Table of Contents

Condensed Consolidating Statements of Cash Flows

Year Ended December 31, 2014

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Cash provided by (used in) operating activities

 

$

(324,688

)

$

305,048

 

$

(13,942

)

$

 

$

(33,582

)

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(2,700

)

(144,586

)

 

 

(147,286

)

Additions to prepaid royalties

 

 

(7,317

)

 

 

(7,317

)

Proceeds from disposals and divestitures

 

57,625

 

4,733

 

 

 

62,358

 

Purchases of short term investments

 

(211,929

)

 

 

 

(211,929

)

Proceeds from sales of short term investments

 

205,611

 

 

 

 

205,611

 

Proceeds from sales of investments in equity securities

 

9,464

 

 

 

 

9,464

 

Withdrawals (deposits) of restricted cash

 

 

 

(5,678

)

 

(5,678

)

Investments in and advances to affiliates

 

(2,541

)

(14,116

)

 

 

(16,657

)

Cash provided by (used in) investing activities

 

55,530

 

(161,286

)

(5,678

)

 

(111,434

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Payments on term loan

 

(19,500

)

 

 

 

(19,500

)

Net payments on other debt

 

(1,258

)

(4,437

)

 

 

(5,695

)

Debt financing costs

 

(2,219

)

 

(2,300

)

 

(4,519

)

Dividends paid

 

(2,123

)

 

 

 

(2,123

)

Other

 

(15

)

 

 

 

(15

)

Transactions with affiliates, net

 

67,125

 

(89,385

)

22,260

 

 

 

Cash provided by (used in) financing activities

 

42,010

 

(93,822

)

19,960

 

 

(31,852

)

Increase (decrease) in cash and cash equivalents

 

(227,148

)

49,940

 

340

 

 

(176,868

)

Cash and cash equivalents, beginning of period

 

799,333

 

100,418

 

11,348

 

 

911,099

 

Cash and cash equivalents, end of period

 

$

572,185

 

$

150,358

 

$

11,688

 

$

 

$

734,231

 

F-61



Table of Contents

Condensed Consolidating Statements of Cash Flows

Year Ended December 31, 2013

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Cash provided by (used in) operating activities

 

$

(632,060

)

$

637,193

 

$

50,609

 

$

 

$

55,742

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(3,320

)

(293,664

)

 

 

(296,984

)

Proceeds from disposals and divestitures

 

 

433,453

 

 

 

433,453

 

Proceeds from sales-leaseback transaction

 

 

34,919

 

 

 

34,919

 

Investments in and advances to affiliates

 

(5,451

)

(10,321

)

 

512

 

(15,260

)

Purchases of short term investments

 

(213,726

)

 

 

 

(213,726

)

Proceeds from sales of short term investments

 

194,537

 

 

 

 

194,537

 

Additions to prepaid royalties

 

 

(14,947

)

 

 

(14,947

)

Change in restricted cash

 

3,453

 

 

 

 

3,453

 

Cash provided by (used in) investing activities

 

(24,507

)

149,440

 

 

512

 

125,445

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Contributions from parent

 

 

512

 

 

(512

)

 

Proceeds from term loan and senior notes

 

644,000

 

 

 

 

644,000

 

Payments to retire debt

 

(628,660

)

 

 

 

(628,660

)

Payments on term loan

 

(17,250

)

 

 

 

(17,250

)

Net payments on other debt

 

(6,324

)

(512

)

 

 

(6,836

)

Debt financing costs

 

(19,864

)

 

(625

)

 

(20,489

)

Dividends paid

 

(25,475

)

 

 

 

(25,475

)

Transactions with affiliates, net

 

838,160

 

(786,683

)

(51,477

)

 

 

Cash provided by (used in) financing activities

 

784,587

 

(786,683

)

(52,102

)

(512

)

(54,710

)

Increase in cash and cash equivalents

 

128,020

 

(50

)

(1,493

)

 

126,477

 

Cash and cash equivalents, beginning of period

 

671,313

 

100,468

 

12,841

 

 

784,622

 

Cash and cash equivalents, end of period

 

$

799,333

 

$

100,418

 

$

11,348

 

$

 

$

911,099

 

F-62



Arch Coal, Inc. and Subsidiaries

Valuation and Qualifying Accounts

 

 

 

 

Additions

 

 

 

 

 

 

 

 

 

 

 

(Reductions)

 

 

 

 

 

 

 

 

 

Balance at

 

Charged to

 

Charged to

 

 

 

Balance at

 

 

 

Beginning of

 

Costs and

 

Other

 

 

 

End of

 

 

 

Year

 

Expenses

 

Accounts

 

Deductions (a)

 

Year

 

 

 

(In thousands)

 

Year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Reserves deducted from asset accounts:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable and other receivables

 

$

159

 

$

7,683

 

$

 

$

 

$

7,842

 

Current assets — supplies and inventory

 

6,625

 

431

 

(b)

1,065

 

5,991

 

Deferred income taxes

 

270,251

 

865,148

 

 

 

1,135,399

 

Year ended December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Reserves deducted from asset accounts:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable and other receivables

 

$

775

 

$

 

$

 

$

616

 

$

159

 

Current assets — supplies and inventory

 

8,446

 

580

 

(76

)(b)

2,325

 

6,625

 

Deferred income taxes

 

43,322

 

226,929

 

 

 

270,251

 

Year ended December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Reserves deducted from asset accounts:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable and other receivables

 

$

1,043

 

$

346

 

$

 

$

614

 

$

775

 

Current assets — supplies and inventory

 

12,589

 

503

 

(2,274

)

2,372

 

$

8,446

 

Deferred income taxes

 

34,663

 

8,659

 

 

 

$

43,322

 


   Additions      
   (Reductions)      
 Balance at Charged to Charged to   Balance at
 Beginning of Costs and Other   End of
 Year Expenses Accounts 
Deductions (a)
 Year
 (In thousands)
          
Year Ended December 31, 2017         
Reserves deducted from asset accounts:         
Accounts receivable and other receivables$
       $
Current assets — supplies and inventory
 365
 (17)
(b) 
87
 261
Deferred income taxes1,021,553
 (410,982)     610,571
Successor         
October 2 through December 31, 2016         
Reserves deducted from asset accounts:
        
Accounts receivable and other receivables$
 $
 $
 $
 $
Current assets — supplies and inventory
 
 
 
 
Deferred income taxes1,033,982
 (12,429) 
 
 1,021,553
Predecessor         
January 1 through October 1, 2016         
Reserves deducted from asset accounts:         
Accounts receivable and other receivables$7,842
 $
 $
 $7,842
 $
Current assets — supplies and inventory5,991
 844
 (5,060)
(c) 
1,775
 
Deferred income taxes1,135,399
 (101,417) 

 
 1,033,982
Year ended December 31, 2015         
Reserves deducted from asset accounts:         
Accounts receivable and other receivables$159
 $7,683
 $
 $
 $7,842
Current assets — supplies and inventory6,625
 431
 
 1,065
 5,991
Deferred income taxes270,251
 865,148
 
 
 1,135,399
(a)     Reserves utilized, unless otherwise indicated.

(b)    Disposition of subsidiaries

F-63


(c)    Fresh start accounting adjustment

F- 63