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These excerpts taken from the ACI 10-K filed Mar 1, 2010. 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,
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circumstances, and information available at the reporting date.
A valuation allowance may be recorded to reflect the amount of
future tax benefits that management believes are not likely to
be realized. We reassess our ability to realize our 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 appropriate valuation allowance, we
take into account expected future taxable income and available
tax planning strategies. If future taxable income is lower than
expected or if expected tax planning strategies are not
available as anticipated, we may record additional valuation
allowance through income tax expense in the period such
determination is made.
The discussion below presents the sensitivity of the market
value of our financial instruments to selected changes in market
rates and prices. The range of changes reflects our view of
changes that are reasonably possible over a one-year period.
We manage our commodity price risk for our non-trading,
long-term coal contract portfolio through the use of long-term
coal supply agreements, and to a limited extent, through the use
of derivative instruments. At current production levels, we have
expected uncommitted volumes of 5 million to 8 million
tons in 2010, with an additional 13 million tons committed
but not yet priced. In 2011, we have expected uncommitted
volumes of 70 million to 80 million tons, with an
additional 20 million tons committed but not yet priced. In
2012, we have expected uncommitted volumes of 100 million
to 110 million tons, with an additional 20 million
tons committed but not yet priced.
We are 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, 2009. With
respect to our coal trading portfolio at December 31, 2009,
the potential for loss of future earnings resulting from
changing coal prices was insignificant. The timing of the
estimated future realization of the value of the trading
portfolio is 62% in 2010 and 38% in 2011.
We monitor and manage market price risk for our trading
activities with a variety of tools, including Value at Risk
(VaR), position limits, escalating 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.
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.
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. 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 2009, VaR ranged from under $0.1 million to
$0.8 million. The linear mean of each daily VaR was
$0.3 million. The final VaR at December 31, 2009 was
$0.1 million. During 2008, VaR ranged from
$0.3 million to $4.2 million. The linear mean of each
daily VaR was $2.1 million. The final VaR at
December 31, 2008 was $0.5 million.
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We are also exposed to the risk of fluctuations in cash flows
related to our purchase of diesel fuel. The Company purchases
approximately 50 to 60 million gallons of diesel fuel
annually in its operations, including the effect of the
acquisition of the Jacobs Ranch operations. To reduce the
volatility in the price of diesel fuel for its operations, the
Company uses forward physical diesel purchase contracts, as well
as heating oil swaps and purchased call options. At
December 31, 2009, the Company had protected the price of
approximately 55% of its expected purchases for fiscal year
2010, the majority which was accomplished through the use of the
derivative instruments noted above. Since the changes in the
price of heating oil are highly correlated to changes in the
price of the hedged diesel fuel purchases, the heating oil swaps
and purchased call options qualify for cash flow hedge
accounting. Accordingly, changes in the fair value of the
derivatives are recorded through other comprehensive income,
with any ineffectiveness recognized immediately in income. At
December 31, 2009, a $0.25 per gallon decrease in the price
of heating oil would result in an approximate $8.5 million
increase in our expense in 2010 resulting from heating oil
derivatives, which would be offset by a decrease in the cost of
our physical diesel purchases.
We are exposed to market risk associated with interest rates due
to our existing level of indebtedness. At December 31,
2009, $1.6 billion of our outstanding debt had fixed
interest rates, primarily our 8.75% Senior Notes and our
6.75% Senior Notes. At December 31, 2009,
$253.5 million of our outstanding borrowings have interest
rates that fluctuate based on changes in the respective market
rates. A one percentage point increase in the interest rates
related to these borrowings would result in an annualized
increase in interest expense of $2.5 million, based on
borrowing levels at December 31, 2009.
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.
None.
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, 2009. 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 internal control over financial reporting that occurred
during our fiscal quarter ended December 31, 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
We incorporate by reference the report 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, of this Annual Report on
Form 10-K.
None.
Income
Taxes
Deferred income taxes are provided for temporary differences
arising from differences between the financial statement amount
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. 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
its overall deferred tax position. See Note 9,
“Taxes” for further disclosures about income taxes.
These excerpts taken from the ACI 10-K filed Feb 27, 2009. 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. A valuation
allowance may be recorded to reflect the amount of future tax
benefits that management believes are not likely to be realized.
We reassess our ability to realize our 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 appropriate valuation allowance, we take into
account expected future taxable income and available tax
planning strategies. If future taxable income is lower than
expected or if expected tax planning strategies are not
available as anticipated, we may record additional valuation
allowance through income tax expense in the period such
determination is made.
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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. A valuation allowance may be recorded to reflect the amount of future tax benefits that management believes are not likely to be realized. We reassess our ability to realize our 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 appropriate valuation allowance, we take into account expected future taxable income and available tax planning strategies. If future taxable income is lower than expected or if expected tax planning strategies are not available as anticipated, we may record additional valuation allowance through income tax expense in the period such determination is made.
Table of ContentsIncome
Taxes
Deferred income taxes are provided for temporary differences
arising from differences between the financial statement amount
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. 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
its overall deferred tax position.
Income Taxes Deferred income taxes are provided for temporary differences arising from differences between the financial statement amount 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. 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 its overall deferred tax position. These excerpts taken from the ACI 10-K filed Feb 29, 2008. 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 expected 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. In determining the
appropriate valuation allowance, the Company considers projected
realization of tax benefits based on expected levels of future
taxable income, available tax planning strategies and its
overall deferred tax position.
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 expected 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. In determining the appropriate valuation allowance, the Company considers projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and its overall deferred tax position. This excerpt taken from the ACI 10-K filed Mar 1, 2007. 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 expected to be in effect when the
related taxes are expected to be paid or recovered.
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