Arch Coal (ACI)

 

Coal supply agreements (sales contracts) 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 sales contracts are 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. The net book value of the Company’s above-market sales contracts was $78.3 million and $3.2 million at December 31, 2009 and 2008, respectively, $44.4 million and $0.4 million of which were classified as current. Current amounts are recorded in other current assets in the accompanying consolidated balance sheets and noncurrent amounts are recorded in other assets in the accompanying consolidated balance sheets. The net book value of the below-market sales contracts was $36.6 million and $0.3 million at December 31, 2009 and 2008, respectively, $9.7 million and $0.3 million of which were classified as current. Current amounts are recorded in accrued expenses and noncurrent amounts are recorded in other noncurrent liabilities in the accompanying consolidated balance sheets. The increase in the amounts during 2009 was the result of the acquisition of the Jacobs Ranch mining complex discussed in Note 3, “Business Combinations.” Based upon expected shipments under these contracts in the next five years, the Company anticipates annual amortization expense (income) of acquired sales contracts of $35.7 million in 2010, $18.6 million in 2011, $0 in 2012, $(5.1) million in 2013 and $(5.1) million in 2014.