Acquisition of Shoal Creek Mine

On December 3, 2018, the Company completed an acquisition of the Shoal Creek metallurgical coal mine, preparation plant and supporting assets located in Alabama (Shoal Creek Mine) from Drummond Company, Inc. for a purchase price of $387.4 million. The purchase price was funded with available cash on hand and reflected customary purchase price adjustments. The acquisition expands the Company’s metallurgical mining platform to serve seaborne coal customers.

The acquisition excluded legacy liabilities other than reclamation and the Company is not responsible for other liabilities arising out of or relating to the operation of the Shoal Creek Mine prior to the acquisition date, including with respect to employee benefit plans and post-employment benefits. In connection with completing the acquisition, a new collective bargaining agreement was reached with the union-represented workforce that eliminates participation in the multi-employer pension plan and replaces it with a 401(k) retirement plan.

The preliminary purchase accounting allocations have been recorded in the accompanying consolidated financial statements as of, and for the period subsequent to the acquisition date. Subsequent to December 31, 2018, the Company agreed to pay an additional $2.4 million, which is reflected as a current liability in the table below, to settle a working capital adjustment. The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed that were recognized at the acquisition and control date (in millions):



Inventories	$	39.7
Property, plant, equipment and mine development	364.7
Current liabilities	(6.5		)
Asset retirement obligations	(10.5		)
Total purchase price	$	387.4

Determining the fair value of assets acquired and liabilities assumed required judgment and the utilization of independent valuation experts, and included the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items. Due to the unobservable inputs to the valuation, the fair value would be considered Level 3 in the fair value hierarchy.

The Company is evaluating the mine plan, assessing the equipment and inventories, and reviewing coal reserve studies on the Shoal Creek Mine, the outcome of which will determine the fair value allocated to the asset retirement obligation, coal reserve assets, and equipment. The final valuation of the net assets acquired is expected to be finalized once those assessments and third-party valuation appraisals are completed. In connection with the acquisition, the Company recorded a contract based intangible liability of $3.5 million to reflect the fair value of a coal supply agreement. The liability was amortized to income in January 2019 and the related contract was renegotiated on market terms.

The Shoal Creek Mine contributed revenues of $12.8 million and less than $0.1 million of net income from December 4, 2018 through December 31, 2018. Such results are included in the consolidated statements of operations and are reported in the Seaborne Metallurgical Mining segment. This excludes acquisition costs recorded during the year ended December 31, 2018 of $7.4 million, which primarily consisted of professional fees. These acquisition costs are recorded in the “Acquisition costs related to Shoal Creek Mine” line item in the consolidated statements of operations.

As a result of Peabody's reorganization and change in reporting entity as described in Note 2. “Emergence from the Chapter 11 Cases and Fresh Start Reporting,” the following unaudited pro forma financial information presents the combined results of operations of the Company and the Shoal Creek Mine, on a pro forma basis, as though the acquisition was completed on April 2, 2017. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and the Shoal Creek Mine constituted a single entity during those periods or that may be attained in the future.



	Successor
	Year Ended December 31, 2018		April 2 through December 31, 2017
	(Dollars in millions, except per share data)
Revenue	$	6,008.4	$	4,506.2
Income from continuing operations, net of income taxes	826.6		783.3
Basic earnings per share from continuing operations	$	5.84	$	4.37
Diluted earnings per share from continuing operations	$	5.75	$	4.33

The pro forma income from continuing operations, net of income taxes includes adjustments to operating costs to reflect the additional expense for the estimated impact of the fair value adjustment for coal inventory, a reduction in postretirement benefit costs resulting from the new collective bargaining agreement described above, and the estimated impact on depreciation, depletion and amortization for the fair value adjustment for property, plant and equipment (including coal reserve assets). On a pro forma basis, the acquisition would have had no impact on taxable income due to the Company’s federal net operating losses (NOLs), as further described in Note 12. “Income Taxes.”