Filed Pursuant to Rule 424(b)(3)
File Nos. 333-59073
333-59073-01 to
333-59073-51
P&L COAL HOLDINGS CORPORATION
SUPPLEMENT NO. 1 TO MARKET-MAKING PROSPECTUS DATED
OCTOBER 21, 1998
THE DATE OF THIS SUPPLEMENT IS NOVEMBER 17, 1998
ON NOVEMBER 13, 1998, P&L COAL HOLDINGS CORPORATION FILED THE
ATTACHED QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
- ------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ---------------------
Commission File Number 333-59073
- --------------------------------------------------------
P&L COAL HOLDINGS CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4004153
- ----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Market Street, St. Louis, Missouri 63101-1826
- -----------------------------------------------------------------------------
<PAGE>
(Address of principal executive offices) (Zip Code)
(314) 342-3400
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 X No
----- ------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENT OF CONDENSED CONSOLIDATED OPERATIONS
FOR THE QUARTER AND PERIOD ENDED SEPTEMBER 30, 1998
(In thousands)
Quarter Period
Ended Ended
Sept. 30, 1998 Sept. 30, 1998
---------------- ----------------
REVENUES
Sales $ 537,387 $ 791,134
Other revenues 20,111 29,031
----------------- ----------------
Total revenues 557,498 820,165
OPERATING COSTS AND EXPENSES
Operating costs and expenses 464,534 677,281
Depreciation, depletion and amortization 51,783 77,474
Selling and administrative expenses 16,790 25,748
----------------- ----------------
OPERATING PROFIT 24,391 39,662
Interest expense (52,692) (75,846)
Interest income 6,726 7,753
----------------- ----------------
LOSS BEFORE INCOME TAXES (21,575) (28,431)
Income tax benefit (6,903) (8,472)
------------------ ----------------
NET LOSS $ (14,672) $ (19,959)
================== ================
See accompanying notes to unaudited condensed
consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
September 30, March 31,
1998 1998
---------------- ----------------
(in thousands) (in dollars)
Current assets
Cash and cash equivalents $ 326,250 $ 1
Accounts receivable, less allowance
for doubtful accounts of $9,665 and
$0, respectively 346,473 -
Materials and supplies 62,233 -
Coal inventory 173,029 -
Assets from trading and price risk
management activities 825,241 -
Other current assets 22,503 -
---------------- ----------------
Total current assets 1,755,729 1
Property, plant, equipment and mine
development, net of accumulated
depreciation, depletion and
amortization of $1,626,220
and $0, respectively 4,657,674 -
Investments and other assets 531,426 -
---------------- ----------------
Total assets $ 6,944,829 $ 1
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 73,876 $ -
Income taxes payable 18,010 -
Deferred income taxes 3,153 -
Liabilities from trading and price
risk management activities 473,322 -
Accounts payable and accrued expenses 731,075 -
---------------- ----------------
Total current liabilities 1,299,436 -
Long-term debt, less current maturities 2,304,422 -
Deferred income taxes 873,869 -
Accrued reclamation and other
environmental liabilities 460,744 -
Workers' compensation obligations 222,415 -
Accrued postretirement benefit costs 996,575 -
Obligation to industry fund 62,662 -
Other noncurrent liabilities 278,396 -
---------------- ----------------
Total liabilities 6,498,519 -
Stockholders' equity:
Preferred Stock - $.01 per share par value;
September 30, 1998 - 10,000,000 shares
<PAGE>
authorized, 5,000,000 shares issued and
outstanding; March 31, 1998 zero shares
authorized, issued or outstanding 50 -
Common Stock - $.01 per share par value; September
30, 1998 - 25,000,000 shares authorized,
16,000,000 shares issued and outstanding; March 31,
1998 - 1,000 shares authorized, 1 share issued and
outstanding 160 1
Additional paid-in capital 479,790 -
Accumulated other comprehensive loss (13,731) -
Accumulated deficit (19,959) -
---------------- ----------------
Total stockholders' equity 446,310 1
---------------- ----------------
Total liabilities and stockholders'
equity $ 6,944,829 $ 1
================ ================
See accompanying notes to unaudited condensed
consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENT OF CONDENSED CONSOLIDATED CASH FLOWS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (19,959)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation, depletion and amortization 77,474
Deferred income taxes (13,652)
Amortization of debt discount and debt issuance costs 6,133
Net loss on property and equipment disposals 32
Net gain on contract restructuring (592)
Changes in current assets and liabilities,
excluding effects of acquisitions:
Accounts receivable 96,398
Materials and supplies 2,155
Coal inventory 22,025
Other current assets 17,068
Accounts payable and accrued expense (114,570)
Income taxes payable 15,428
Net assets from trading and price risk management activities (6,836)
Accrued reclamation and related liabilities (1,516)
Workers' compensation obligations 676
Accrued postretirement benefit costs 3,239
Obligation to industry fund (1,004)
Royalty prepayment 135,903
Other, net (12,819)
-----------------
Net cash provided by operating activities 205,583
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and mine development (82,464)
Acquisition of P&L Coal subsidiaries,
net of $70,359 cash acquired (1,994,635)
Proceeds from contract restructuring 3,881
Proceeds from property and equipment disposals 5,170
-----------------
Net cash used in investing activities (2,068,048)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (154,542)
Proceeds from short-term borrowings and long-term debt 1,863,498
Net capital contribution 480,000
Net change in due to/from affiliates 88
-----------------
Net cash provided by financing activities 2,189,044
Effect of exchange rate changes on cash and cash equivalents (329)
-----------------
Net increase in cash and cash equivalents 326,250
Cash and cash equivalents at beginning of period -
-----------------
Cash and cash equivalents at end of period $ 326,250
=================
See accompanying notes to unaudited condensed
consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
consolidated operations and balance sheets of P&L Coal Holdings Corporation
("P&L Coal"), also known as Peabody Group. These financial statements include
the subsidiaries of Peabody Holding Company, Inc. ("Peabody Holding
Company"), Gold Fields Mining Corporation ("Gold Fields") which owns Lee
Ranch Coal Company ("Lee Ranch"), Citizens Power LLC ("Citizens Power") and
Peabody Resources Holdings Pty Ltd. ("Peabody Resources"), an Australian
company (collectively, the "Company"). Through May 19, 1998, the Company was
a wholly owned indirect subsidiary of The Energy Group, PLC ("The Energy
Group"). Effective May 20, 1998, the Company was acquired by P&L Coal, which
at the time was wholly owned by Lehman Merchant Banking Partners II and its
affiliates ("Lehman Merchant Banking"), an investment fund affiliated with
Lehman Brothers Inc. The transaction was part of the sale of The Energy Group
to Texas Utilities Company. P&L Coal, a holding company with no direct
operations and nominal assets other than its investment in its subsidiaries,
was formed by Lehman Merchant Banking on February 27, 1998 for the purpose of
acquiring the Company and had no significant activity until the acquisition.
The accompanying condensed consolidated financial statements at September 30,
1998 and for the quarter and period ended September 30, 1998, and the notes
thereto, are unaudited. However, in the opinion of management, these
financial statements reflect all adjustments necessary for a fair
presentation of the results of the periods presented. The results of
operations for the period ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
Prior to the acquisition, "P&L Coal Group" represented the combined
operations of the same subsidiaries currently owned by P&L Coal. The
financial statements should be read in connection with P&L Coal Group's
audited financial statements as of March 31, 1998.
(2) Comprehensive Income
Effective with the quarter ended June 30, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires that noncash
changes in stockholders' equity be combined with net income and reported in a
new financial statement category entitled "comprehensive income." Adoption of
SFAS No. 130 had no impact on the results of the Company's operations. The
following table sets forth the components of comprehensive loss for the
quarter and period ended September 30, 1998 (in thousands):
Quarter ended Period ended
September 30, September 30,
1998 1998
-------------- -------------
Net loss $ (14,672) $ (19,959)
Foreign currency translation adjustment (6,024) (13,731)
-------------- -------------
Comprehensive loss $ (20,696) $ (33,690)
============== =============
<PAGE>
(3) Commitments and Contingencies
Environmental claims have been asserted against a subsidiary of the Company
at 17 sites in the United States. Some of these claims are based on the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, and on similar state statutes. The majority of these sites are
related to activities of former subsidiaries of the Company.
The Company's policy is to accrue environmental cleanup-related costs of a
noncapital nature when those costs are believed to be probable and can be
reasonably estimated. The quantification of environmental exposures requires
an assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information
available related to specific sites, the assessment stage of each site
investigation, preliminary findings and the length of time involved in
remediation or settlement. For certain sites, the Company also assesses the
financial capability of other potentially responsible parties and, where
allegations are based on tentative findings, the reasonableness of the
Company's apportionment.
The Company has not anticipated any recoveries from insurance carriers or
other potentially responsible third parties in its Consolidated Balance
Sheets. The liabilities for environmental cleanup-related costs recorded in
the Consolidated Balance Sheet at September 30, 1998 were $67.7 million. This
amount represents those costs that the Company believes are probable and
reasonably estimable. In the event that future remediation expenditures are
in excess of amounts accrued, management does not anticipate that they will
have a material adverse effect on the financial position, results of
operations or liquidity of the Company.
In addition, the Company at times becomes a party to claims, lawsuits,
arbitration proceedings and administrative procedures in the ordinary course
of business. Management believes that the ultimate resolution of pending or
threatened proceedings will not have a material effect on the financial
position, results of operations or liquidity of the Company.
(4) Indebtedness
As of September 30, 1998, the Company had total indebtedness of $2,378.3
million, consisting of the following:
(In millions)
8.875% Senior Notes due 2008 ("Senior Notes") $ 398.8
9.625% Senior Subordinated Notes due 2008 ("Senior
Subordinated Notes") 498.6
Term loans under Senior Credit Facilities 867.5
5.000% Subordinated Note 205.4
Non-Recourse Debt 301.0
Other 107.0
----------
$ 2,378.3
==========
The Senior Credit Facilities include a Revolving Credit Facility that
provides for aggregate borrowings of up to $150.0 million and letters of
credit of up to $330.0 million. As of September 30, 1998, the Company had no
<PAGE>
borrowings outstanding under the Revolving Credit Facility. Interest rates on
the revolving loans under the Revolving Credit Facility are based on the Base
Rate (as defined in the Senior Credit Facilities), or LIBOR (as defined in
the Senior Credit Facilities) at the Company's option. On October 1, 1998,
the Company entered into two interest rate swaps to fix the interest cost on
$500 million of long-term debt outstanding under the Term Loan Facility. The
Company will pay a fixed rate of approximately 7.0% on $300 million of such
long-term debt for a period of three years, and on $200 million of such
long-term debt for two years. The Revolving Credit Facility commitment
matures in fiscal year 2005.
The Company made an optional prepayment of $50 million on the Senior Credit
Facilities in July 1998, which it applied against Term Loan B mandatory
payments in order of maturity, and a mandatory payment of $2.5 million on
Term Loan A in September 1998. The following table sets forth the
amortization schedule for the Senior Credit Facilities after giving effect to
the payments:
(In millions)
Amortization Term Loan A Term Loan B
------------ ----------- -----------
Fiscal Year:
1999 $ 5.00 $ -
2000 13.75 -
2001 18.75 -
2002 42.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
---------- ----------
$ 267.50 $ 600.00
========== ==========
The indentures governing the Senior Notes and Senior Subordinated Notes
permit the Company and its Restricted Subsidiaries (which include all
subsidiaries of the Company except Citizens Power and its subsidiaries) to
incur additional indebtedness, including secured indebtedness, subject to
certain limitations. In addition, among other customary restrictive
covenants, the indentures prohibit the Company and its Restricted
Subsidiaries from creating or otherwise causing any encumbrance or
restriction on the ability of any Restricted Subsidiary that is not a
Guarantor to pay dividends or to make certain other upstream payments
to the Company or any of its Restricted Subsidiaries. The Revolving Credit
Facility and related Term Loan Facility also contain certain restrictions and
limitations including but not limited to financial covenants that will
require the Company to maintain and achieve certain levels of financial
performance and limit the payment of cash dividends and similar restricted
payments. In addition, the Senior Credit Facilities prohibit the Company from
allowing its Restricted Subsidiaries (which include all Guarantors) to create
or otherwise cause any encumbrance or restriction on the ability of any such
Restricted Subsidiary to pay any dividends or make certain other upstream
payments subject to certain exceptions. The Company was in compliance with
all of the restrictive covenants of its loan agreements as of September 30,
1998.
<PAGE>
(5) Business Combinations
The acquisition by the Company was funded through borrowings by the Company
pursuant to a $920.0 million senior secured term facility, the offerings of
$400.0 million aggregate principal amount of Senior Notes and $500.0 million
aggregate principal amount of Senior Subordinated Notes, an equity
contribution to P&L Coal by Lehman Merchant Banking of $400.0 million, and an
equity contribution of $80.0 million from other parties, including Lehman
Brothers Inc. Such amounts were used to pay $2,065.0 million for the equity
of the Company, repay debt, increase cash balances and pay transaction fees
and expenses incurred with the acquisition. P&L Coal also entered into a
$480.0 million senior revolving credit facility to provide for the Company's
working capital requirements following the acquisition. The final purchase
price is subject to adjustment to the extent that total assets less current
liabilities and long-term debt as of March 31, 1998 differ from certain
projected balances. This adjustment is not expected to be material to the
purchase price and is still under review by the parties.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, the cost to acquire the Company has been allocated
to the assets acquired and liabilities assumed according to their respective
estimated fair values. The preliminary estimated fair values were determined
based on management's estimates.
The final purchase price allocation is dependent upon certain valuations that
have not progressed to a stage where there is sufficient information to make
a final allocation. With respect to several valuations, the Company is
awaiting additional information that it has arranged to obtain in order to
finalize its estimates. The Company intends to continue with its internal
reviews regarding asset and liability valuations and also has arranged to
obtain independent appraisals and surveys, as appropriate. In addition, the
Company has requested actuarial valuations to support the final adjustments
to its employee-related liabilities.
The purchase accounting adjustments presented below are preliminary, subject
to finalization of the purchase price, final management review and fair value
determination. Adjustments to the preliminary allocation would likely result
in changes to amounts assigned to property, plant, equipment and mine
development (including land and coal interests) and, accordingly, could
impact depletion, depreciation and amortization charged to future periods.
Although not expected to be material, the full impact of the final allocation
is not known.
Below are the Company's historical balance sheet at May 19, 1998, the
preliminary purchase accounting adjustments and the preliminary opening
balance sheet. The historical balance sheet has been adjusted to include the
effects of the financing transactions described above.
<PAGE>
Historical
Adjusted for
Effects of Purchase
Financing Accounting Preliminary
May 19, 1998 Adjustments May 19, 1998
------------- ------------- --------------
(In millions)
ASSETS
Total current assets $ 2,243.6 $ (11.5) $ 2,232.1
Property, plant, equipment
and mine development, net 3,668.2 897.9 4,566.1
Investments and other assets 600.9 91.0 691.9
------------- ------------- -------------
Total assets $ 6,512.7 $ 977.4 $ 7,490.1
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 1,801.2 $ 20.0 $ 1,821.2
Long-term debt,
less current maturities 2,287.8 34.9 2,322.7
Deferred income taxes 662.1 229.8 891.9
Other noncurrent liabilities 1,849.2 125.1 1,974.3
------------- ------------- -------------
Total liabilties 6,600.3 409.8 7,010.1
Total stockholders' equity (87.6) 567.6 480.0
------------- ------------- --------------
Total liabilities and
stockholders' equity $ 6,512.7 $ 977.4 $ 7,490.1
============= ============= ==============
The preliminary opening balance sheet reflects the acquisition at a purchase
price of $2,065.0 million. Preliminary purchase accounting adjustments
resulted in a net increase in total assets of $977.4 million. Adjustments to
the preliminary allocation during the current quarter were not material.
Various assets and liabilities were adjusted to reflect their estimated fair
value. The majority of the excess purchase price is reflected as adjustments
to the fair value assigned to various land and coal interests, and the
Company does not anticipate recording any goodwill as a result of the
acquisition. The impact of the preliminary adjustments results in an
additional deferred income tax liability of $229.8 million.
The preliminary purchase accounting adjustments include a $40.0 million
liability for estimated costs associated with a restructuring plan resulting
from the business combination. The estimate is comprised of costs associated
with exiting certain activities and consolidating and restructuring certain
management and administrative functions and includes costs resulting from a
plan to involuntarily terminate or relocate employees. As of September 30,
1998, the Company has finalized its involuntary termination and employee
relocation plan and continues to finalize the cost of exiting certain
business activities. Costs associated with the exit and restructuring plans
are being charged against the liability as incurred. The net cash outlays and
non-cash costs charged against the liability through September 30, 1998 total
approximately $16.8 million and $2.3 million, respectively. The Company
expects the majority of the remaining charges to occur within the next six
months. If the ultimate amount of cost expended is less than the amount
recorded as a liability, the excess will reduce the cost of the acquisition.
Any amount of cost exceeding the amount recorded as a liability will be
recorded as an additional element of the cost of the acquisition if
determined within the allocation period and, thereafter, will be included as
a charge to earnings in the period in which the adjustment is determined.
<PAGE>
The following unaudited pro forma results of operations for the quarter and
periods ended September 30, 1998 and 1997 assume the acquisition had occurred
at the beginning of each fiscal year. The pro forma results of the Company
would be as follows (dollars in thousands):
Period Six Months
Ended Ended
September 30, September 30,
1998 1997
------------- --------------
Total revenues $ 1,112,573 $ 1,144,697
Operating profit 40,502 121,188
Income (loss) before income taxes (54,283) 22,986
Net income (loss) (42,897) 15,834
Guarantor Information
In accordance with the indentures governing the Senior Notes and Senior
Subordinated Notes, certain wholly owned U.S. subsidiaries of the Company
have fully and unconditionally guaranteed the debt associated with the
purchase on a joint and several basis. Separate financial statements and
other disclosures concerning the Guarantor Subsidiaries are not presented
because management believes that such information is not material to
investors. The following condensed historical financial statement information
is provided for such Guarantor/Non-guarantor Subsidiaries.
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Total
revenues $ - $ 519,104 $ 38,394 $ - $ 557,498
Costs and
expenses:
Operating
costs and
expenses - 435,611 28,923 - 464,534
Depreciation,
depletion and
amortization - 44,290 7,493 - 51,783
Selling and
administrative
expenses - 16,392 398 - 16,790
Interest
expense 49,560 2,368 764 - 52,692
Interest
income (1,193) (5,443) (90) - (6,726)
------------ ----------- ------------ ------------ ------------
Income
(loss)
before
income
taxes (48,367) 25,886 906 - (21,575)
Income tax
provision
(benefit) (12,098) 3,962 1,233 - (6,903)
------------ ----------- ------------ ------------ ------------
Net income
(loss) $ (36,269) $ 21,924 $ (327) $ - $ (14,672)
============ =========== ============ ============ ============
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
Period Ended September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Total
revenues $ - $ 753,837 $ 66,328 $ - $ 820,165
Costs and
expenses:
Operating
costs and
expenses - 633,040 44,241 - 677,281
Depreciation,
depletion and
amortization - 66,339 11,135 - 77,474
Selling and
administrative
expenses - 25,105 643 - 25,748
Interest
expense 69,261 5,525 1,060 - 75,846
Interest
income (1,836) (5,817) (100) - (7,753)
------------ ----------- ------------ ------------ ------------
Income
(loss)
before
income
taxes (67,425) 29,645 9,349 - (28,431)
Income tax
provision
(benefit) (17,108) 4,950 3,686 - (8,472)
------------ ----------- ------------ ------------ ------------
Net income
(loss) $ (50,317) $ 24,695 $ 5,663 $ - $ (19,959)
============ =========== ============ ============ ============
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets
September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash and
cash
equivalents $ - $ 261,809 $ 64,441 $ - $ 326,250
Accounts
receivable 951 221,888 123,634 - 346,473
Receivables
from affiliates,
net - - - - -
Inventories - 197,011 38,251 - 235,262
Assets from
trading and
price risk
management
activities - - 825,241 - 825,241
Other current
assets - 13,415 9,088 - 22,503
----------- ------------ ------------ ------------ ------------
Total current
assets 951 694,123 1,060,655 - 1,755,729
Property, plant,
equipment and
mine development
at cost - 5,736,788 547,106 - 6,283,894
Less accumulated
depreciation,
depletion
and amortization - (1,435,613) (190,607) - (1,626,220)
----------- ------------ ------------ ------------ ------------
- 4,301,175 356,499 - 4,657,674
Investments and
other assets 2,462,074 304,274 104,026 (2,338,948) 531,426
----------- ------------ ------------ ------------ ------------
Total assets $ 2,463,025 $ 5,299,572 $ 1,521,180 $ (2,338,948) $ 6,944,829
=========== ============ ============ ============ ============
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term
borrowings
and current
maturities
of long-term
debt $ 10,000 $ 21,635 $ 42,241 $ - $ 73,876
Payable to
affiliates, net 82,463 (79,443) (3,020) - -
Income taxes
payable 6,778 5,648 5,584 - 18,010
Liabilities from
trading and
price risk
management
activities - - 473,322 - 473,322
Accounts payable
and accrued
expenses 136,115 426,294 171,819 - 734,228
----------- ------------ ------------ ------------ -----------
Total current
liabilities 235,356 374,134 689,946 - 1,299,436
Long-term debt,
less current
maturities 1,781,359 181,285 341,778 - 2,304,422
Deferred income
taxes - 813,334 60,535 - 873,869
Other noncurrent
liabilities - 2,006,375 14,417 - 2,020,792
----------- ------------ ------------ ------------ -----------
Total
liabilities 2,016,715 3,375,128 1,106,676 - 6,498,519
Stockholders'
equity 446,310 1,924,444 414,504 (2,338,948) 446,310
----------- ------------ ------------ ------------ -----------
Total
liabilities
and
stockholders'
equity $2,463,025 $5,299,572 $1,521,180 $ (2,338,948) $ 6,944,829
=========== ============ =========== ============ ===========
<PAGE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
Period Ended September 30, 1998
(In thousands)
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
Net cash provided
by (used in)
operating
activities $ (68,617) $ 271,259 $ 2,941 $ - $ 205,583
----------- ------------ ------------ ------------ ------------
Additions to
property, plant,
equipment and
mine
development - (53,989) (28,475) - (82,464)
Acquisitions of
P&L Coal
Subsidiaries (1,994,635) - - - (1,994,635)
Proceeds from
contract
restructuring - 3,881 - - 3,881
Proceeds from
property and
equipment
disposals - 5,002 168 - 5,170
----------- ------------ ------------ ------------ ------------
Net cash used in
investing
activities (1,994,635) (45,106) (28,307) - (2,068,048)
Payments of
long-term debt (52,500) (76,324) (25,718) - (154,542)
Proceeds from
short-term bor-
rowings and Long-
term debt 1,817,390 - 46,108 - 1,863,498
Net capital
contribution 398,000 - 82,000 - 480,000
Dividends paid
Net change in
due to/from
affiliates (22,489) 76,677 (54,100) - 88
----------- ------------ ------------ ------------ ------------
Net cash provided
by financing
activities 2,140,401 353 48,290 - 2,189,044
Effect of exchange
rate changes on
cash and cash
equivalents - - (329) - (329)
----------- ------------ ------------ ------------ ------------
<PAGE>
Net increase in
cash and cash
equivalents 77,149 226,506 22,595 - 326,250
Cash and cash
equivalents at
beginning of
period - - - - -
----------- ------------ ------------ ------------ ------------
Cash and cash
equivalents at
end of period $ 77,149 $ 226,506 $ 22,595 $ - $ 326,250
=========== =========== =========== =========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The table presented below summarizes the results of operations and cash flows
for the Company and the "Predecessor Company" (P&L Coal Group) for the
periods presented. The discussion is based on a comparison of the results of
P&L Coal for the quarter and period ended September 30, 1998 versus the P&L
Coal Group results for the three and six-month periods ended September 30,
1997.
The results of operations and cash flows for the period ended September 30,
1998 may not be directly comparable to the other periods indicated as a
result of the effects of restatement of assets and liabilities to their
estimated fair market value in accordance with the application of purchase
accounting pursuant to Accounting Principles Board Opinion No. 16.
Company Predecessor Company
---------------------------- -------------------------------------------
Three Months For The Three Months Six Months
Ended Period Ended Period Ended Ended
September 30, September 30, April 1, 1998 September 30, September 30,
to
1998 1998 May 19, 1998 1997 1997
------------- ------------- -------------- ------------- --------------
Tons sold
(In millions)
44.3 64.8 22.7 42.1 83.5
============== ============= ============== ============= ==============
(In thousands)
Revenues:
Sales
$ 537,387 $ 791,134 $ 280,680 $ 503,345 $ 1,022,910
Other
revenues 20,111 29,031 11,728 53,812 121,787
------------- ------------- -------------- ------------- --------------
Total
revenues 557,498 820,165 292,408 557,157 1,144,697
Operating
costs and
expenses 533,107 780,503 285,036 485,333 1,005,418
------------- ------------- -------------- ------------- --------------
Operating
profit
$ 24,391 $ 39,662 $ 7,372 $ 71,824 $ 139,279
============= ============= ============== ============= ==============
<PAGE>
Net income
(loss
$ (14,672) $ (19,959) $ 476 $ 48,519 $ 95,828
============= ============= ============== ============= ==============
Other Data:
EBITDA (1
$ 76,174 $ 117,136 $ 33,590 $ 126,478 $ 245,165
============= ============= ============== ============= ==============
Cash provided
by (used in):
Operating activities
$ 205,583 $ (30,558) $ 50,242
Investing activities
(2,068,048) (19,248) (75,060)
Financing activities
2,189,044 23,636 26,293
========== ========== ===========
(1) EBITDA is defined as income before deducting net interest expense,
income taxes, depreciation, depletion and amortization and excludes any
non-cash compensation expense related to management stock transactions.
EBITDA has been reduced by costs associated with reclamation, retiree
health care and workers' compensation. EBITDA is not a substitute for
operating income, net income and cash flow from operating activities as
determined in accordance with generally accepted accounting principles
as a measure of profitability or liquidity. EBITDA is presented as
additional information because management believes it to be a useful
indicator of the Company's ability to meet debt service and capital
expenditure requirements. Because EBITDA is not calculated identically
by all companies, the presentation herein may not be comparable to other
similarly titled measures of other companies.
The amounts presented include EBITDA for Citizens Power of ($4.4
million), $1.6 million, ($1.3 million), ($1.2 million) and $1.3 million
for the quarter ended September 30, 1998, the period ended September 30,
1998, the period from April 1 to May 19, 1998, the quarter ended
September 30, 1997 and the six months ended September 30, 1997,
respectively.
For purposes of the comparisons to prior year operating results, the results
of operations and cash flows for the period ended September 30, 1998 reflect
the results of P&L Coal from April 1 to September 30, 1998 (the Company
acquired P&L Coal Group on May 19, 1998 and prior to such date had no
separate operations) and the results of P&L Coal Group for April 1 to May 19,
1998.
Sales. For the second quarter ended September 30, 1998, the Company had sales
of $537.4 million, an increase of $34.1 million, or 6.8%, compared to the
second quarter ended September 30, 1997. For the period ended September 30,
1998, sales increased $48.9 million, or 4.8%, over the prior six-month
period. The increase for both periods was primarily due to an increase in
brokered tons, as a result of the Company's strategy to become more active in
coal trading. Revenues from brokered tons increased $33.0 million on a
quarterly basis, and $53.3 million for the period ended September 30, 1998.
Sales related to domestic mining activities experienced significant
improvements for both periods at Southern Appalachia and Southwest regions as
a result of production efficiencies, but these improvements were offset by
<PAGE>
decreases in revenues relating to Australia caused by adverse weather
conditions and weaker demand.
Other Revenues. Other revenues declined $33.7 million versus the second
quarter ended September 30, 1997, primarily as a result of $18.9 in lower
mining services revenues in Australia and a $9.6 million gain recognized in
the prior year from a coal supply contract restructuring. Other revenues also
declined $81.0 million for the six-month period, mainly due to $38.7 million
in lower revenues from coal supply contract restructurings and $35.7 million
in lower mining services revenues in Australia.
Operating Profit. Operating profit for the quarter ended September 30, 1998
was $24.4 million, compared with $71.8 million for the prior-year quarter.
This decrease of $47.4 million was primarily due to the following: $14.2
million of actuarial gains in the prior year associated with certain
employee-related liabilities that are non-recurring as a result of purchase
accounting, a $9.6 million gain in the prior year from the restructuring of a
coal supply contract, $5.9 million lower results from Australia due to
declining mining services projects, unfavorable exchange rates and poor
weather conditions, $3.8 million in lower power trading and price risk
management activities by Citizens Power, and $3.5 million of additional
depletion and amortization associated with purchase accounting adjustments to
write-up the Company's net assets to fair value and higher operating
expenses.
Operating profit declined $92.2 million to $47.0 million for the six-month
period, primarily due to a $38.7 million gain in the prior year from a coal
supply contract restructuring, $27.3 million of prior year actuarial gains, a
decline in operating profit from Australia of $12.2 million due to declining
mining services projects, unfavorable exchange rates and poor weather
conditions, $5.3 million of additional depletion and amortization associated
with purchase accounting and $2.9 million in lower profit from energy
contract restructuring transactions.
Interest Expense. Interest expense increased $43.7 million to $52.7 million
for the quarter ended September 30, 1998, and increased $61.9 million
compared to the six months ended September 30, 1997. This increase is the
result of the borrowings necessary to fund the acquisition of the P&L Coal
Group on May 19, 1998.
Income Taxes. The Company's effective tax rate for the quarter and period
ended September 30, 1998 was 32.0% and 17.5%, respectively. The effective tax
rate is primarily impacted by two factors - the percentage depletion tax
deduction utilized by the Company and its U.S. subsidiaries that creates an
alternative minimum tax (AMT) situation, and the level of contribution by the
Australian business to the consolidated results of operations, which is taxed
at a higher rate than the U.S. Based upon these factors, the Company
anticipates that adjustments to the effective tax rate will be necessary on a
quarterly basis.
Liquidity and Capital Resources
Net cash provided by operating activities was $175.0 million, which is
comprised mainly of a royalty prepayment (see discussion below) and a
non-cash addition for depreciation, depletion and amortization, partially
offset by working capital changes.
<PAGE>
Net cash used in investing activities was $2,087.3 million, primarily
consisting of $103.1 million of capital expenditures and $2,065.0 for the
acquisition of P&L Coal Group. The Company had $82.6 million of committed
capital expenditures (primarily related to coal reserves and mining
machinery) at September 30, 1998. It is anticipated these capital
expenditures will be funded through available cash and credit facilities.
Net cash provided by financing activities was $2,212.7 million, reflecting a
$480.0 million equity contribution and $1,817.4 million in borrowings to fund
the acquisition. The Company also repaid $174.0 of long-term debt during the
period, including $50.0 million in prepayments and $2.5 million in scheduled
payments on acquisition debt.
On September 30, 1998, the Company received $135.9 million as prepayment of
non-recoupable advance royalty payments related to certain leased coal
reserves in New Mexico pursuant to a prepayment agreement signed on the same
date. The Company also received an interest in a coal reserve lease and other
related mining and contracts rights with an estimated fair value of $27.5
million. No gain or loss was recognized from the transaction since the net
present value of the future royalties was previously recognized as an asset.
The Company has five qualified single employer defined benefit pension plans,
which the Pension Benefit Guaranty Corporation ("PBGC") calculated as being
underfunded using PBGC methodology. As a result, the Company has entered into
an agreement with the PBGC to alleviate the underfunding of the Company's
pension plans, pursuant to which the Company has agreed to: (i) accelerate
minimum funding payments of $9.6 million that the Company would otherwise
have been required to make during fiscal 1999, (ii) make certain
contributions in excess of such minimum funding and (iii) provide a letter of
credit to support a fraction of the pension plans' unfunded liabilities. The
fair market value of the plans' assets was $468.7 million at March 31, 1998,
the date of the last actuarial valuation determination. The pension funding
assumptions included a 9.0% return on plan assets. Future funding and pension
expense could be adversely impacted by changes in the rate of return on plan
assets from those assumed in the actuarial valuation determination.
As of September 30, 1998, the Company had total indebtedness of $2,378.3
million, consisting of the following:
(In millions)
8.875% Senior Notes due 2008 ("Senior Notes") $ 398.8
9.625% Senior Subordinated Notes due 2008 ("Senior
Subordinated Notes") 498.6
Term loans under Senior Credit Facilities 867.5
5.000% Subordinated Note 205.4
Non-Recourse Debt 301.0
Other 107.0
----------
$ 2,378.3
==========
The Senior Credit Facilities include a Revolving Credit Facility that
provides for aggregate borrowings of up to $150.0 million and letters of
credit of up to $330.0 million. As of September 30, 1998, the Company had no
borrowings outstanding under the Revolving Credit Facility. Interest rates on
the revolving loans under the Revolving Credit Facility are based on the Base
Rate (as defined in the Senior Credit Facilities), or LIBOR (as defined in
<PAGE>
the Senior Credit Facilities) at the Company's option. On October 1, 1998,
the Company entered into two interest rate swaps to fix the interest cost on
$500 million of long-term debt outstanding under the Term Loan Facility. The
Company will pay a fixed rate of approximately 7.0% on $300 million of such
long-term debt for a period of three years, and on $200 million of such
long-term debt for two years. The Revolving Credit Facility commitment
matures in fiscal year 2005. The Company made an optional prepayment of $50
million on the Senior Credit Facilities in July 1998, which it applied
against Term Loan B mandatory payments in order of maturity, and a mandatory
payment of $2.5 million on Term Loan A in September 1998. The following table
sets forth the amortization schedule for the Senior Credit Facilities after
giving effect to the payments:
(In millions)
Amortization Term Loan A Term Loan B
------------ ------------- -------------
Fiscal Year:
1999 $ 5.00 $ -
2000 13.75 -
2001 18.75 -
2002 42.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
---------- ----------
$ 267.50 $ 600.00
========== ==========
The indentures governing the Senior Notes and Senior Subordinated Notes
permit the Company and its Restricted Subsidiaries (which include all
subsidiaries of the Company except Citizens Power and its subsidiaries) to
incur additional indebtedness, including secured indebtedness, subject to
certain limitations. In addition, among other customary restrictive
covenants, the indentures prohibit the Company and its Restricted
Subsidiaries from creating or otherwise causing any encumbrance or
restriction on the ability of any Restricted Subsidiary that is not a
Guarantor to pay dividends or to make certain other upstream payments to the
Company or any of its Restricted Subsidiaries. The Revolving Credit Facility
and related Term Loan Facility also contain certain restrictions and
limitations including but not limited to financial covenants that will
require the Company to maintain and achieve certain levels of financial
performance and limit the payment of cash dividends and similar restricted
payments. In addition, the Senior Credit Facilities prohibit the Company from
allowing its Restricted Subsidiaries (which include all Guarantors) to create
or otherwise cause any encumbrance or restriction on the ability of any such
Restricted Subsidiary to pay any dividends or make certain other upstream
payments subject to certain exceptions. The Company was in compliance with
all of the restrictive covenants of its loan agreements as of September 30,
1998.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires the recognition of all derivatives as assets or liabilities
within the balance sheet, and requires both the derivatives and the
<PAGE>
underlying exposure to be recorded at fair value. Any gain or loss resulting
from changes in fair value will be recorded as part of the results of
operations, or as a component of comprehensive income or loss, depending upon
the intended use of the derivative. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company is
evaluating the requirements of this Statement and has not yet determined the
impact of adoption on the financial statements.
Impact of Year 2000 Issue. Some of the Company's older computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognizes
a date using "00" as the year 1900 rather than the Year 2000. This could
cause a system failure or miscalculations resulting in disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the Year 2000 and thereafter. The Company has
undertaken a company-wide Year 2000 compliance project, staffed with a
diverse team of personnel representing all levels of the organization. The
Company also retained an outside consulting firm to assist in the assessment
and assist in ensuring the proper project structure to address the Year 2000
issue. With respect to information technology ("IT") systems, the assessment
is complete. The Company is now in the remediation phase of the project
whereby it is updating or replacing existing applications. The testing and
implementation phases of the project will occur in calendar 1998 and 1999.
Additionally, the Company is also conducting an assessment of its non-IT
technology which consists primarily of embedded technology at the Company's
mining facilities (e.g., security systems, mine monitoring systems, plant
operating systems, coal loading and scale facilities, equipment, etc.). The
Company has also established another task force to address the Year 2000
embedded technology concerns for those applications outside the main frame
systems. The Company is in the assessment phase and plans to have site
readiness action plans for remediation and testing completed by June 1999.
Finally, the Company is conducting an assessment of Year 2000 exposures
related to the Company's suppliers. The Company has identified its key
suppliers and has sent out a request for information on their Year 2000
compliance status. The Company has dedicated resources to monitor these
parties' progress as they address the Year 2000 issue. Additional requests
will be sent, responses will be tracked and contingency plans will be
developed as required to address potential failures of these parties to be
prepared for the Year 2000.
The total cost of the project associated with the Year 2000 issue is
estimated at approximately $6.5 million (21% of the IT budget for fiscal year
1999), which includes $1.4 million for the purchase of new software and
hardware that will be capitalized and $5.1 million that will be expensed as
incurred. To date, the Company has incurred approximately $1.3 million
primarily for assessment of the Year 2000 issue and development of a
modification plan. The Company believes that the total costs associated with
modifying its current systems will not have a material adverse effect on its
results of operations or financial position.
Software modifications are estimated to be 52% complete and the goal of
management is to have all systems and equipment Year 2000 ready by October
<PAGE>
1999. The Company believes that with modifications to existing software and
conversion to new software, the Year 2000 issue will not present significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed in a timely fashion, the
Year 2000 issue could have a material impact on the operations of the
Company. The costs of the project and the date on which the Company believes
it will complete the appropriate modifications to deal with the Year 2000
Issue are based on management's best estimates, which were derived utilizing
numerous assumptions of future events. However, there can be no assurance
that these estimates will be achieved. The Company currently does not have a
Year 2000 contingency plan; however, the Company intends to develop one in
1999.
Forward Looking Statements. This quarterly report and certain press releases
and statements the Company makes from time to time include statements of the
Company's and management's expectations, intentions, plans and beliefs that
constitute "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 and are intended to come within the safe harbor protection provided by
those sections. Forward looking statements involve risks and uncertainties,
and a variety of factors could cause actual results to differ materially from
the Company's current expectations, including but not limited to: market
conditions and fluctuations in the demand for coal as an energy source,
weather conditions, the continued availability of long-term coal supply
contracts, railroad performance, foreign currency translation, changes in the
government regulation of the mining industry, risks inherent to mining,
changes in the Company's leverage position, the ability to successfully
implement operating strategies, the impact of Year 2000 compliance by the
Company or those entities with which the Company does business and other
factors discussed in the Company's filings with the Securities and Exchange
Commission.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to such forward
looking statements that may be made to reflect events or circumstances after
the date hereof, or thereof, as the case may be, or to reflect the occurrence
of anticipated events.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See the Exhibit Index at page 18 of this report.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
P&L COAL HOLDINGS CORPORATION
Date: November 12, 1998 By:/s/George J. Holway
--------------------------------------
George J. Holway
Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item
601
of Regulation S-K.
Exhibit
No. Description of Exhibit
- ------ ----------------------
3.1 Amended and Restated Certificate of Incorporation of P&L Coal Holdings
Corporation (Incorporated by reference to Exhibit 3.1 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.2 By-Laws of P&L Coal Holdings Corporation (Incorporated by reference to
Exhibit 3.2 of the Company's Form S-4 Registration Statement No.
333-59073).
10.9 Royalty Prepayment Agreement by and among Peabody Natural Resources
Company, Gallo Finance Company and Chaco Energy Company, dated
September 30, 1998 (Incorporated by reference to Exhibit 10.9 of the
Company's quarterly report on Form 10-Q for the quarterly period ended
September 30, 1998).
27 Financial Data Schedule (Previously filed electronically with the SEC
only).
