Arch Coal (ACI)

 

The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification^tm (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the United States for financial statements of interim and annual periods ending after September 15, 2009. References to authoritative accounting principles after the effective date will reference the Codification and not the previous accounting guidance.

 

On January 1, 2009, the Company changed its presentation of noncontrolling interest in subsidiaries, pursuant to new guidance in the Consolidation topic of the Codification, which requires that a noncontrolling interest (previously referred to as minority interest) in a consolidated subsidiary be displayed in the consolidated balance sheet as a separate component of equity and the amount of net income attributable to the noncontrolling interest be included in consolidated net income on the face of the consolidated statement of income. Because the noncontrolling interest in Arch Western is redeemable, it is presented in the “mezzanine” between liabilities and equity. This change resulted in a decrease in other liabilities of $8.9 million as of December 31, 2008 from what was previously reported for the reclassification of the noncontrolling interest in Arch Western. For the year ended December 31, 2008 and 2007 this change resulted in an increase in other operating income, net and in net income of $0.9 million and $1.0 million, respectively, from what was previously reported for the amount of income attributable to the noncontrolling interest in Arch Western.

 

On January 1, 2009, the Company adopted the new disclosure requirements of the Derivatives and Hedging topic of the Codification. The new disclosures include qualitative disclosures about objectives for using derivatives, tabular disclosures and the gross fair value of derivative instruments, gains and losses from derivative instruments by type of contract, and the locations of these amounts in the interim and annual financial statements. See Note 7, “Derivative Instruments” for the disclosures required.

 

On January 1, 2009, the Company adopted amendments to the Earnings Per Share topic of the Codification. The amendments clarify whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in computing earnings per share under the two-class method. The amendments require retrospective adjustments to prior-period financial statements; however the amendments had no effect on basic or diluted earnings per share for the years ended December 31, 2009, 2008 and 2007.

 

New authoritative guidance related to the accounting for business combinations became effective on January 1, 2009 for business combinations occurring after that date. The new provisions of the Business Combinations topic of the Codification clarify and amend the accounting guidance for the acquirer’s recognition and measurement of the assets acquired, liabilities assumed and any noncontrolling interest in the acquiree in a business combination.

 

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“Statement No. 157”) prospectively for the Company’s financial instruments. Statement No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements under other accounting pronouncements that require or permit fair value measurements. The issuance of FSP FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”) deferred the effective date of Statement No. 157, for one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company will adopt FSP FAS 157-2 prospectively on January 1, 2009.

 

Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“Statement No. 159”) became effective January 1, 2008. Statement No. 159 permits entities the choice to measure certain financial instruments and other items at fair value. The Company has not elected to measure any additional financial instruments or other items at fair value.

 

On January 1, 2008, the Company adopted Staff Position FIN 39-1, Amendment of FASB Interpretation 39 (“FSP FIN 39-1”). FSP FIN 39-1 permits a reporting entity to offset fair value amounts recognized for the right to reclaim or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The Company did not elect to net amounts related to cash collateral with the fair value of derivatives with the same counterparty. The Company had a current asset for the right to reclaim cash collateral of $6.6 million at December 31, 2008 and had a current liability for the obligation to return cash collateral of $3.0 million at December 31, 2007.

 

In September 2008, the FASB issued Staff Position FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (“FSP FAS 133-1 and FIN 45-4”), which became effective in December 2008. FSP FAS 133-1 and FIN 45-4 is intended to improve disclosures about credit derivatives and guarantees, primarily the disclosure of the current status of the payment/performance risk of the guarantee, and to clarify the effective date of Statement No. 161. The Company has included the required disclosure related to the payment/performance risk of its guarantees in Note 20, “Guarantees” below.

 

In October 2008, the FASB issued Staff Position FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP FAS 157-3”), effective upon issuance. FSP FAS 157-3 clarifies the application of FASB Statement No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial

 

On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN 48, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position.

 

Upon adoption of FIN 48, the Company increased its liability for unrecognized tax benefits by $1.0 million, including interest and penalties of $0.2 million, which was recorded as a reduction of the beginning balance of retained earnings. Total unrecognized tax benefits were $3.2 million at the adoption date, all of which would affect the effective tax rate if recognized. The Company will continue to recognize interest and penalties related to income tax matters in income tax expense.

 

 

On January 1, 2007, the Company adopted Financial
Accounting Standards Board (“FASB”) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(“FIN 48”). FIN 48 prescribes a
recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. Under
FIN 48, a company can recognize the benefit of an income
tax position only if it is more likely than not (greater than
50%) that the tax position will be sustained upon tax
examination, based solely on the technical merits of the tax
position.

 

Upon adoption of FIN 48, the Company increased its
liability for unrecognized tax benefits by $1.0 million,
including interest and penalties of $0.2 million, which was
recorded as a reduction of the beginning balance of retained
earnings. Total unrecognized tax benefits were $3.2 million
at the adoption date, all of which would affect the effective
tax rate if recognized. The Company will continue to recognize
interest and penalties related to income tax matters in income
tax expense.