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 December 31, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-59073
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P&L COAL HOLDINGS CORPORATION
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(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
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(Address of principal executive offices) (Zip Code)
(314) 342-3400
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(Registrant's telephone number, including area code)
N/A
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(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.
X Yes No
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<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 DECEMBER 31, 1998
(In thousands)
Quarter Period
Ended Ended
Dec. 31, 1998 Dec. 31, 1998*
--------------- ---------------
REVENUES
Sales $ 546,620 $ 1,327,497
Other revenues 35,984 75,272
--------------- ---------------
Total revenues 582,604 1,402,769
OPERATING COSTS AND EXPENSES
Operating costs and expenses 460,042 1,137,323
Depreciation, depletion and amortization 53,124 130,598
Selling and administrative expenses 18,353 44,101
--------------- ---------------
OPERATING PROFIT 51,085 90,747
Interest expense (47,369) (123,215)
Interest income 4,686 12,439
--------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 8,402 (20,029)
Income tax provision (benefit) 3,284 (5,188)
--------------- ---------------
NET INCOME (LOSS) $ 5,118 $ (14,841)
=============== ===============
* Includes results of operations for the nine-month period ended December 31,
1998; however, P&L Coal Holdings Corporation had no activity from April 1
to May 19, 1998.
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31
1998 1998
------------ ------------
(in thousands) (in dollars)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 267,106 $ 1
Accounts receivable, less allowance for doubtful accounts of
$93 and $0, respectively 435,641 -
Materials and supplies 63,466 -
Coal inventory 176,418 -
Assets from power trading activities 770,793 -
Other current assets 21,632 -
------------ ------------
Total current assets 1,735,056 1
Property, plant, equipment and mine development, net of accumulated
depreciation, depletion and amortization of $1,675,693 and $0, respectively 4,599,708 -
Investments and other assets 530,885 -
------------ ------------
Total assets $ 6,865,649 $ 1
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt $ 58,274 $ -
Income taxes payable 21,930 -
Deferred income taxes 3,153 -
Liabilities from power trading activities 433,631 -
Accounts payable and accrued expenses 736,875 -
------------ ------------
Total current liabilities 1,253,863 -
Long-term debt, less current maturities 2,305,614 -
Deferred income taxes 866,965 -
Accrued reclamation and other environmental liabilities 463,352 -
Workers' compensation obligations 222,063 -
Accrued postretirement benefit costs 1,002,248 -
Obligation to industry fund 61,709 -
Other noncurrent liabilities 226,087 -
------------ ------------
Total liabilities 6,401,901 -
Stockholders' equity:
Preferred Stock - $.01 per share par value; December 31, 1998 - 10,000,000
shares authorized, 5,000,000 shares issued and outstanding; March 31,
1998 - no shares authorized, issued or outstanding 50 -
Common Stock - Class A, $.01 per share par value; December 31, 1998 - 30,000,000
shares authorized, 16,000,000 shares issued and outstanding; March 31, 1998
- 1,000 shares authorized, 1 share issued and outstanding 160 1
Common Stock - Class B, $.01 per share par value; December 31, 1998 - 3,000,000
shares authorized, 554,125 shares issued and outstanding; March 31, 1998 -
no shares authorized, issued or outstanding 5 -
Additional paid-in capital 483,709 -
Accumulated other comprehensive loss (5,335) -
Accumulated deficit (14,841) -
------------ ------------
Total stockholders' equity 463,748 1
------------ ------------
Total liabilities and stockholders' equity $ 6,865,649 $ 1
============ ============
</TABLE>
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENT OF CONDENSED CONSOLIDATED CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(In thousands)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (14,841)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization 130,598
Deferred income taxes (23,066)
Amortization of debt discount and debt issuance costs 12,273
Net gain on contract restructuring (5,300)
Stock compensation 3,924
Changes in current assets and liabilities, excluding effects of acquisitions:
Accounts receivable 21,091
Materials and supplies 1,079
Coal inventory 20,034
Other current assets 5,167
Accounts payable and accrued expenses (84,729)
Income taxes payable 19,152
Net assets from power trading activities (2,079)
Accrued reclamation and related liabilities 760
Workers' compensation obligations 324
Accrued postretirement benefit costs 8,912
Obligation to industry fund (1,957)
Royalty prepayment 135,903
Other, net (8,394)
------------
Net cash provided by operating activities 218,851
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and mine development (133,514)
Acquisition of P&L Coal subsidiaries, net of $70,359 cash acquired (1,994,635)
Proceeds from contract restructuring 3,889
Proceeds from property and equipment disposals 8,392
------------
Net cash used in investing activities (2,115,868)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (197,909)
Proceeds from short-term borrowings and long-term debt 1,883,169
Net capital contribution 480,000
Other (940)
------------
Net cash provided by financing activities 2,164,320
Effect of exchange rate changes on cash and cash equivalents (197)
------------
Net increase in cash and cash equivalents 267,106
Cash and cash equivalents at beginning of period -
------------
Cash and cash equivalents at end of period $ 267,106
============
</TABLE>
<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 (the
"Company"), 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 "Predecessor Company" or "P&L Coal Group"). Through May 19, 1998, the
Predecessor Company was a wholly owned indirect subsidiary of The Energy Group,
PLC ("The Energy Group"). Effective May 20, 1998, the Predecessor Company was
acquired by the Company, 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 Holdings
Corporation, 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 Predecessor
Company and had no significant activity until the acquisition.
The accompanying condensed consolidated financial statements at December 31,
1998 and for the quarter and period ended December 31, 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
December 31, 1998 are not necessarily indicative of the results to be expected
for the full year.
Prior to the acquisition, the Predecessor Company represented the combined
operations of the same subsidiaries currently owned by the Company. 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 income (loss) for the
quarter and period ended December 31, 1998 (in thousands):
Quarter ended Period ended
December 31, December 31,
1998 1998
--------- ---------
Net income (loss) $ 5,118 $(14,841)
Foreign currency translation adjustment 8,396 (5,335)
--------- ---------
Comprehensive income (loss) $ 13,514 $(20,176)
========= =========
(3) Commitments and Contingencies
Legal Proceedings
Eastern Enterprises
On November 1, 1993, Eastern Enterprises filed suit in the U.S. District Court
for the District of Massachusetts against the Social Security Administration and
the Combined Fund claiming that the Coal Act, as applied to Eastern Enterprises,
violated the due process and taking clauses of the Fifth Amendment. In 1994,
Eastern Enterprises filed a third party complaint against Peabody Holding
Company, Eastern Associated and Eastern Associated's parent company, Coal
Properties Corp., seeking indemnification or contribution with respect to any
liability that Eastern Enterprises may have under the Coal Act. Eastern
Enterprises claimed that the amount of its Coal Act liabilities was
approximately $100 million.
The District Court held in 1996 that the Coal Act was constitutional. Eastern
Enterprises filed an appeal with the First Circuit Court of Appeals, which
affirmed the district court's decision. The U.S. Supreme Court accepted Eastern
Enterprises' petition for certiorari on the constitutional claims. In a
plurality decision issued on June 26, 1998, the Supreme Court found that the
Coal Act as applied to Eastern Enterprises violated the takings clause of the
Fifth Amendment. The UMWA beneficiaries that were assigned to Eastern
Enterprises will continue to receive retiree health care benefits from the
Combined Fund.
<PAGE>
Peabody Holding Company has had discussions with Eastern Enterprises regarding
the third-party complaint. Eastern Enterprises has advised Peabody Holding
Company that it is unwilling to dismiss the third-party complaint and intends to
seek reimbursement for its attorneys fees and prejudgment interest which could
amount to approximately $5 million. The Company continues to believe that the
matter will be resolved without a material adverse effect on its financial
condition or results of operation.
Public Service Company of Colorado
In August 1996, Seneca Coal Company ("Seneca") filed a demand for arbitration in
accordance with the terms of an Amended Revised Coal Supply Agreement dated
December 1, 1971 (the "1971 Agreement") between Seneca and three electric
utilities, Public Service Company of Colorado, Salt River Project Agricultural
Improvement District and PacifiCorp (the "Hayden Participants"). The Hayden
Participants own the Hayden Electric Generating Station at Hayden, Colorado. The
arbitration demand requested the entry of an award for Seneca and against the
Hayden Participants for amounts attributable to final reclamation, mine
decommissioning and environmental monitoring of the Seneca mine and life
insurance and post-retirement health care costs ("post-mine closure costs").
In September 1996, the Hayden Participants filed a complaint for declaratory
judgment in the District Court for the City and County of Denver seeking a
judicial declaration that they were not responsible for post-mine closure costs
as a matter of law. The Hayden Participants also requested declaratory and other
relief with respect to other claims against Seneca.
The arbitration provision in the 1971 Agreement limits the jurisdiction of the
arbitrators to resolution of disputed issues of fact but the arbitrators are to
determine the arbitrability of any dispute in the first instance. Accordingly,
Seneca filed a motion to stay the judicial proceedings with respect to the issue
of responsibility under the 1971 Agreement for post-mine closure costs pending
the outcome of the arbitration. The District Court granted the motion in January
1997.
The arbitration hearing is scheduled to take place in March of 1999. A decision
from the arbitrators is expected later in 1999. The District Court's application
of legal principles to the facts as found by the arbitrators would take place
thereafter. The Company continues to believe that the dispute will be resolved
without a material adverse effect on its financial condition or results of
operation.
Macquarie Generation
In September 1997, Peabody Resources filed a lawsuit against Macquarie
Generation in the Supreme Court of New South Wales, Commercial Division, seeking
damages for certain coal deliveries which were not paid by Macquarie Generation
and for a declaratory judgment regarding the assignment to Macquarie Generation
of two long-term CSAs for the Ravensworth and Narama mines. The contracts expire
in 2001 and 2012, respectively. Macquarie Generation later agreed that the two
contracts were properly assigned to it. Macquarie Generation subsequently filed
a cross-claim against Peabody Resources alleging that Peabody Resources breached
the labor escalation provisions in the CSAs, committed misrepresentations
regarding the labor costs and violated the Australian trade practices and fair
trading laws in relation to the Narama contract. Macquarie Generation sought to
terminate or rescind the Narama CSA and has sought damages from Peabody
Resources for alleged breaches of both contracts. Even though the Company
continued to deliver coal, Macquarie Generation unilaterally reduced the price
that it is paying for coal deliveries under the Narama contract. A trial
regarding these issues began on September 7, 1998 and concluded on September 25,
1998. On September 22, 1998, Macquarie Generation withdrew its breach of
contract claims.
The Supreme Court of New South Wales issued a decision on November 19, 1998
rejecting Macquarie Generation's claims to terminate the coal supply agreement
for the Narama mine. The Court also rejected Macquarie Generation's claim for
damages. The Court ordered Macquarie Generation to pay Peabody Resources the
portion of the price that it had unilaterally withheld with interest. Macquarie
Generation has made that payment to Peabody Resources and is paying Peabody
Resources for deliveries of coal at the contract prices. Macquarie Generation
has filed an appeal of the decision. The Company continues to believe that the
matter will be resolved without a material adverse effect on its financial
condition or results of operation.
Environmental Claims
Environmental claims have been asserted against a subsidiary of the Company at
18 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.
<PAGE>
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 December 31, 1998 were $67.1 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.
Other
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 December 31, 1998, the Company had total indebtedness of $2,363.9 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 840.0
5.000% Subordinated Note 208.0
Non-Recourse Debt 297.7
Other 120.8
---------
$ 2,363.9
=========
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 December 31, 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 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 $25 million on the Senior Credit
Facilities in December 1998, which it applied against Term Loan A mandatory
payments in order of maturity, and a mandatory payment of $2.5 million on Term
Loan A. The Company also made a $50.0 million optional prepayment on the Senior
Credit Facilities in August 1998, which it applied against Term Loan B mandatory
payments in order of maturity. 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 $ - $ -
2000 - -
2001 10.00 -
2002 42.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
--------- ---------
$ 240.00 $ 600.00
========= =========
<PAGE>
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 (subject to certain
exceptions). 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
December 31, 1998.
(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 the Company 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. The Company 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, 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. The Company expects to reflect its final purchase price
allocation in its March 31, 1999 financial statements. 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>
<TABLE>
Historical
Adjusted for
Effects of Purchase
Financing Accounting Preliminary
May 19, 1998 Adjustments May 19, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
(In millions)
ASSETS
Total current assets $ 2,447.3 $ (11.5) $ 2,435.8
Property, plant, equipment and mine development, net 3,642.6 897.9 4,540.5
Investments and other assets 626.5 91.0 717.5
-------------- -------------- --------------
Total assets $ 6,716.4 $ 977.4 $ 7,693.8
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 1,931.9 $ 20.0 $ 1,951.9
Long-term debt, less current maturities 2,360.8 34.9 2,395.7
Deferred income taxes 662.1 229.8 891.9
Other noncurrent liabilities 1,849.2 125.1 1,974.3
-------------- -------------- --------------
Total liabilities 6,804.0 409.8 7,213.8
Total stockholders' equity (87.6) 567.6 480.0
-------------- -------------- --------------
Total liabilities and stockholders' equity $ 6,716.4 $ 977.4 $ 7,693.8
============== ============== ==============
</TABLE>
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 additional 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 December 31, 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 December 31, 1998 total approximately $23.0 million and
$3.6 million, respectively. The Company expects the majority of the charges to
have been incurred by the end of the fiscal year. 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.
The following unaudited pro forma results of operations for the quarter and
periods ended December 31, 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):
Nine Months Nine Months
Ended Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Total revenues $ 1,695,177 $ 1,696,529
Operating profit 91,587 166,768
Income (loss) before income taxes (45,881) 20,251
Net loss (37,779) (565)
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>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $ 536,674 $ 45,930 $ - $ 582,604
Costs and expenses:
Operating costs and expenses - 431,694 28,348 - 460,042
Depreciation, depletion and amortization - 45,376 7,748 - 53,124
Selling and administrative expenses - 19,319 (966) - 18,353
Interest expense 47,437 (586) 518 - 47,369
Interest income (639) (3,431) (616) - (4,686)
-------------- -------------- --------------- -------------- --------------
Income (loss) before income taxes (46,798) 44,302 10,898 - 8,402
Income tax provision (benefit) (8,673) 7,526 4,431 - 3,284
-------------- -------------- --------------- -------------- --------------
Net income (loss) $ (38,125) $ 36,776 $ 6,467 $ - $ 5,118
============== ============== =============== ============== ==============
</TABLE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
Period Ended December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $ 1,290,511 $ 112,258 $ - $ 1,402,769
Costs and expenses:
Operating costs and expenses - 1,064,734 72,589 - 1,137,323
Depreciation, depletion and amortization - 111,715 18,883 - 130,598
Selling and administrative expenses - 44,424 (323) - 44,101
Interest expense 116,698 4,939 1,578 - 123,215
Interest income (2,475) (9,248) (716) - (12,439)
-------------- -------------- --------------- -------------- --------------
Income (loss) before income taxes (114,223) 73,947 20,247 - (20,029)
Income tax provision (benefit) (25,781) 12,476 8,117 - (5,188)
-------------- -------------- --------------- -------------- --------------
Net income (loss) $ (88,442) $ 61,471 $ $ 12,130 $ - $ (14,841)
============== ============== =============== ============== ==============
</TABLE>
<PAGE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets
December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ - $ 210,939 $ 56,167 $ - $ 267,106
Accounts receivable 1,590 234,284 199,767 - 435,641
Receivables from affiliates, net - - - - -
Inventories - 198,083 41,801 - 239,884
Assets from power trading activities - - 770,793 - 770,793
Other current assets - 11,729 9,903 - 21,632
-------------- -------------- --------------- -------------- --------------
Total current assets 1,590 655,035 1,078,431 - 1,735,056
Property, plant, equipment and mine
development - at cost - 5,675,209 600,192 - 6,275,401
Less accumulated depreciation, depletion
and amortization - (1,463,890) (211,803) - (1,675,693)
-------------- -------------- --------------- -------------- --------------
- 4,211,319 388,389 - 4,599,708
Investments and other assets 2,506,571 303,423 112,344 (2,391,453) 530,885
-------------- -------------- --------------- -------------- --------------
Total assets $ 2,508,161 $ 5,169,777 $ 1,579,164 $ (2,391,453) $ 6,865,649
============== ============== =============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ - $ 21,484 $ 36,790 $ - $ 58,274
Payable to affiliates, net 173,740 (174,209) 469 - -
Income taxes payable 7,699 4,916 9,315 - 21,930
Liabilities from power trading activities - - 433,631 - 433,631
Accounts payable and accrued expenses 106,150 395,079 238,799 - 740,028
-------------- -------------- --------------- -------------- --------------
Total current liabilities 287,589 247,270 719,004 - 1,253,863
Long-term debt, less current maturities 1,756,824 191,161 357,629 - 2,305,614
Deferred income taxes - 811,485 55,480 - 866,965
Other noncurrent liabilities - 1,957,323 18,136 - 1,975,459
-------------- -------------- --------------- -------------- --------------
Total liabilities 2,044,413 3,207,239 1,150,249 - 6,401,901
Stockholders' equity 463,748 1,962,538 428,915 (2,391,453) 463,748
-------------- -------------- --------------- -------------- --------------
Total liabilities and stockholders'
equity $ 2,508,161 $ 5,169,777 $ 1,579,164 $(2,391,453) $ 6,865,649
============== ============== ================ ============= ==============
</TABLE>
<PAGE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
Period Ended December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
Activities $ (129,339) $ 338,737 $ 9,453 $ - $ 218,851
-------------- -------------- --------------- -------------- --------------
Additions to property, plant, equipment and
mine development - (80,369) (53,145) - (133,514)
Acquisitions of P&L Coal Subsidiaries (1,994,635) - - - (1,994,635)
Proceeds from contract restructuring - 3,889 - - 3,889
Proceeds from property and equipment
disposals - 7,783 609 - 8,392
-------------- -------------- --------------- -------------- --------------
Net cash used in investing activities (1,994,635) (68,697) (52,536) - (2,115,868)
Payments of long-term debt (158,583) (1,154) (38,172) - (197,909)
Proceeds from short-term borrowings and
long-term debt 1,817,390 - 65,779 - 1,883,169
Net capital contribution 398,000 - 82,000 - 480,000
Net change in due to/from affiliates 67,167 (57,947) (10,160) - (940)
-------------- -------------- --------------- -------------- --------------
Net cash provided by (used in) financing
activities 2,123,974 (59,101) 99,447 - 2,164,320
Effect of exchange rate changes on cash and
cash equivalents - - (197) - (197)
-------------- -------------- --------------- -------------- --------------
Net increase in cash and cash equivalents - 210,939 56,167 - 267,106
Cash and cash equivalents at beginning of
period - - - - -
-------------- -------------- --------------- -------------- --------------
Cash and cash equivalents at end of period $ - $ 210,939 $ 56,167 $ - $ 267,106
============== ============== =============== ============== ==============
</TABLE>
(6) Subsequent Event
In February 1999, the Company signed definitive agreements to acquire an
additional 38.3% interest in Black Beauty Coal Company (Black Beauty), raising
its ownership interest to 81.7%. Black Beauty, which has eight mines in Indiana
and three mines in southern Illinois, had revenues of $350 million and $315
million in 1998 and 1997, respectively.
The transaction is subject to certain contingencies, including approval by both
the Company's and Black Beauty's lenders. Management expects the closing to take
place prior to the end of the Company's fiscal year.
The Company previously accounted for its investment in Black Beauty on the
equity method. Black Beauty will be included in the Company's consolidated
results of operations as of the effective date of the acquisition.
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 the Company
for the quarter and period ended December 31, 1998 versus the Predecessor
Company results for the three and nine-month periods ended December 31, 1997.
The results of operations and cash flows for the period ended December 31, 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.
<PAGE>
<TABLE>
Predecessor Predecessor
Company Company Company Company
---------------- ---------------- ---------------- --------------------------------
Three Months Nine Months
Ended Period Ended For the Period Ended
December 31, December 31, April 1, 1998 - December 31,
1998 1997 1998 May 19, 1998 1997
---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Tons sold (In millions) 43.4 39.4 105.5 21.7 120.7
================ ================ ================ =============== ===============
(In thousands)
Revenues:
Sales $ 546,620 $ 509,942 $ 1,327,497 $ 278,930 $ 1,526,470
Other revenues 35,984 41,890 75,272 13,478 170,059
---------------- ---------------- ---------------- --------------- ---------------
Total revenues 582,604 551,832 1,402,769 292,408 1,696,529
Operating costs and expenses 531,519 497,959 1,312,022 285,036 1,503,377
---------------- ---------------- ---------------- --------------- ---------------
Operating profit $ 51,085 53,873 $ 90,747 $ 7,372 $ 193,152
================ ================ ================ =============== ===============
Net income (loss) $ 5,118 $ 23,003 $ (14,841) $ 476 $ 118,831
================ ================ ================ =============== ===============
Other Data:
EBITDA (1) $ 104,209 $ 103,377 $ 221,345 $ 33,590 $ 348,542
Non-cash stock compensation 3,924 - - - -
---------------- ---------------- ---------------- --------------- --------------
EBITDA, excluding non-cash
stock compensation $ 108,133 $ 103,377 $ 221,345 $ 33,590 $ 348,542
================ ================ ================ =============== ===============
Cash provided by (used in):
Operating activities $ 218,851 $ (30,558) $ 52,625
Investing activities (2,115,868) (19,248) (102,088)
Financing activities 2,164,320 23,636 15,074
================ =============== ===============
</TABLE>
(1) EBITDA is defined as income before deducting net interest expense, income
taxes, and depreciation, depletion and amortization. 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 ($0.7 million), $10.1
million, $1.0 million, ($1.3 million) and $11.4 million for the quarter
ended December 31, 1998, the quarter ended December 31, 1997, the period
ended December 31, 1998, the period from April 1 to May 19, 1998 and the
nine months ended December 31, 1997, respectively.
For purposes of the comparisons to prior year operating results, the results of
operations and cash flows for the period ended December 31, 1998 reflect the
results of the Company from April 1 to December 31, 1998 (the Company acquired
the Predecessor Company on May 19, 1998 and prior to such date had no separate
operations) and the results of the Predecessor Company for April 1 to May 19,
1998.
Sales. For the third quarter ended December 31, 1998, the Company had sales of
$546.6 million, an increase of $36.7 million, or 7.2%, compared to the third
quarter ended December 31, 1997. This increase is due to a continued increase in
brokered coal sales ($29.0 million higher in the third quarter versus the prior
year), an increase of $10.2 million due to higher demand in the Powder River
Basin from a continued customer shift toward low sulfur coal in order to comply
with Phase II of the Clean Air Act, and $5.1 million higher revenues from
improved production performance in the Southern Appalachian region versus the
prior year. These increases were partially offset by a decrease in the Midwest
of $12.4 million due to a temporary delay in shipments caused by a customer's
unit outage for maintenance, and by a previous settlement reached with a
customer that resulted in higher revenue in the prior year. In addition, the
Company has experienced lower prices in the steam and metallurgical markets in
the Northern and Southern Appalachia regions as a result of global oversupply
conditions.
For the period ended December 31, 1998, sales increased 5.2%, or $80.0 million,
over the prior nine month period primarily due to an increase in brokered coal
activity ($78.4 million) and an $18.0 million improvement in U.S. mining
operations based upon the higher demand and operating efficiencies discussed
above, partially offset by a $16.4 million decrease in revenues in Australia due
to weaker demand and the effects of foreign currency translation.
<PAGE>
Other Revenues. Other revenues declined $5.9 million as compared to the third
quarter ended December 31, 1997 due to $9.8 million in lower revenues at
Citizens Power, partially offset by the monetization of a royalty stream in
October 1998 that resulted in an increase in other revenues of $3.9 million.
Other revenues decreased $81.3 million versus the prior nine month period,
mainly due to the timing of contract restructurings and a decrease of $42.2
million in mining services revenues in Australia. Prior year other revenues
included $38.7 million in revenues from contract restructurings, versus only
$5.3 million for the nine month period ended December 31, 1998.
Operating Profit. Operating profit was $51.1 million for the third quarter ended
December 31, 1998, as compared to $53.9 million in the prior year. Operating
profit in the U.S. mining operations increased $21.4 million primarily as a
result of productivity improvements in nearly every operating region and volume
increases at Powder River. However, Citizens Power experienced a decline of
$11.6 million primarily due to the timing of asset restructurings. In addition,
the prior year results included $12.9 million of actuarial gains associated with
certain employee-related liabilities that are non-recurring. Other items
affecting the current period results include: $3.9 million in compensation
expense associated with the grant of 554,125 shares of Class B common stock to
certain members of management in conjunction with the May 19, 1998 acquisition
of the Company, $3.7 million in additional profit as a result of the successful
resolution of billing disputes in Australia, changes in U.S. employee benefits
that resulted in an accrual reduction of $3.3 million, a reduction in cost from
a multiemployer benefit plan refund of $2.6 million, a reduction in reclamation
accruals of $2.7 million due to improved equipment efficiencies and the royalty
monetization and contract restructuring discussed above.
For the nine-month period, operating profit declined $95.1 million to $98.1
million. Operating profit from the U.S. mining operations improved by $18.3
million during the period, mainly as a result of production efficiencies in the
Appalachian regions and volume improvements at Powder River. However, Citizens
Power experienced a $14.5 million decrease for the period due to reduced asset
restructuring income, trading losses and increased overhead costs. Operating
profit from Australia declined $8.5 million due to weak demand, lower mining
services revenues and unfavorable exchange rates. The prior year results also
included a $38.7 million gain in the prior year from a coal supply contract
restructuring and $40.2 million of reductions to estimated liabilities. Current
year results of operations include $8.8 million of additional depletion and
amortization associated with purchase accounting adjustments to write-up the
Company's net assets to fair value.
Interest Expense. Interest expense increased $39.0 million for the third quarter
and $100.8 million for the period ended December 31, 1998. This increase is the
result of the borrowings necessary to fund the acquisition on May 19, 1998, and
higher borrowings in Australia to fund the construction of a new mine.
Income Taxes. The Company's effective tax rate for the quarter and period ended
December 31, 1998 was 39.1% and 5.6%, 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 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 $188.3 million, which is comprised
mainly of a $135.9 million royalty prepayment that occurred during the second
quarter of fiscal year 1999 and a non-cash addition for depreciation, depletion
and amortization, partially offset by working capital changes.
Net cash used in investing activities was $2,135.1 million, primarily consisting
of $154.2 million of capital expenditures and $2,065.0 for the acquisition of
the Predecessor Company. The Company had $87.0 million of committed capital
expenditures (primarily related to coal reserves and mining machinery) at
December 31, 1998. It is anticipated these capital expenditures will be funded
through available cash and credit facilities. The Company is also seeking to
identify investments that will provide future earnings growth. In that regard,
the Company signed definitive agreements in February 1999 to acquire an
additional 38.3% interest in Black Beauty Coal Company (Black Beauty), raising
the Company's ownership percentage to 81.7%. The acquisition, which will be
funded out of existing working capital, is subject to certain contingencies,
including approval by both the Company's and Black Beauty's lenders.
Net cash provided by financing activities was $2,188.0 million, reflecting a
$480.0 million equity contribution and $1,817.4 million in borrowings to fund
the acquisition. In addition, the Company has borrowed approximately $119.4
million to fund domestic capital expenditures, the construction of a new mine in
Australia and working capital requirements. The Company repaid $217.3 million of
long-term debt during the period, including $75.0 million in prepayments and
$5.0 million in scheduled payments on acquisition debt.
<PAGE>
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 December 31, 1998, the Company had total indebtedness of $2,363.9 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 840.0
5.000% Subordinated Note 208.0
Non-Recourse Debt 297.7
Other 120.8
---------
$ 2,363.9
=========
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 December 31, 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 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 $25 million on the Senior Credit
Facilities in December 1998, which it applied against Term Loan A mandatory
payments in order of maturity, and a mandatory payment of $2.5 million on Term
Loan A. The Company also made a $50.0 million optional prepayment on the Senior
Credit Facilities in August 1998, which it applied against Term Loan B mandatory
payments in order of maturity. 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 $ - $ -
2000 - -
2001 10.00 -
2002 42.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
--------- ---------
$ 240.00 $ 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 (subject to certain
exceptions). 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
December 31, 1998.
<PAGE>
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 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 (effective April 1, 2000 for the Company). 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. The Company is preparing for the impact of the
arrival of the Year 2000 on its business, as well as on the businesses of its
customers, suppliers and business partners. The "Year 2000 Issue" is a term used
to describe the problems created by systems that are unable to accurately
interpret dates after December 31, 1999. These problems are derived
predominantly from the fact that many software programs have historically
categorized the "year" in a two-digit format. The Year 2000 Issue creates
potential risks for the Company, including potential problems in the Company's
products as well as in the Information Technology ("IT") and non-IT systems that
the Company uses in its business operations. The Company may also be exposed to
risks from third parties with whom the Company interacts who fail to adequately
address their own Year 2000 Issues.
The Company's State of Readiness - In 1998, the Company organized a company-wide
Year 2000 compliance project, staffed with a diverse team of personnel
representing all levels of the organization and 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. In addition, the Company
completed an assessment and identified portions of its software which will have
to be modified or replaced so that its computer systems will function properly
with respect to dates in the Year 2000 and thereafter. With respect to IT
systems, an assessment was completed and the Company is now in the remediation,
testing and implementation phases of the project whereby it is updating or
replacing existing applications. These phases of the project began in calendar
1998 and will continue in calendar 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 is in the assessment and remediation phases and plans to have sites Year
2000 ready by October 1999.
Software modifications are estimated to be 62% complete and the goal of
management is to have all systems and equipment Year 2000 ready by October 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.
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 Costs to Address the Company's Year 2000 Issues - The total cost of the
project associated with the Year 2000 issue is estimated at approximately $9.1
million (29% of the IT budget for fiscal year 1999), which includes $1.9 million
for the purchase of new software and hardware that will be capitalized and $7.2
million that will be expensed as incurred. To date, the Company has incurred
approximately $2.4 million primarily for assessment of the Year 2000 issue,
development of a modification plan, and fixing noncompliant programs. 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.
The Risks of the Company's Year 2000 Issues - There can be no assurance that the
Company will be completely successful in its efforts to address Year 2000
Issues. If some of the Company's systems are not Year 2000 compliant, the
Company could suffer a disruption of operations (including delivery of coal
pursuant to sales contracts) or other negative consequences, including, but not
limited to, diversion of resources, damage to the Company's reputation and
increased litigation, any of which could materially adversely affect the
Company's results of operations or financial position.
The Company is also dependent on third parties such as its customers, suppliers,
service providers and other business partners. If these or other third parties
with whom the Company conducts business fail to adequately address Year 2000
Issues, the Company could experience a negative impact on its results of
operations or financial position. For example, the failure of carriers, power
generators and/or telecommunications companies to have Year 2000 compliant
internal systems could impact the Company's production and/or shipment of coal.
<PAGE>
The Company's Contingency Plans - The Company is in the process of developing a
comprehensive contingency plan to address situations that may result if the
company or any of the third parties upon which the Company is dependent is
unable to achieve Year 2000 readiness. This effort is ongoing and will continue
to be evaluated as new information becomes available.
Year 2000 Cautionary Statement - Year 2000 issues are widespread and complex.
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.
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: coal and power
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 1. Legal Proceedings.
Eastern Enterprises
On November 1, 1993, Eastern Enterprises filed suit in the U.S. District Court
for the District of Massachusetts against the Social Security Administration and
the Combined Fund claiming that the Coal Act, as applied to Eastern Enterprises,
violated the due process and taking clauses of the Fifth Amendment. In 1994,
Eastern Enterprises filed a third party complaint against Peabody Holding
Company, Eastern Associated and Eastern Associated's parent company, Coal
Properties Corp., seeking indemnification or contribution with respect to any
liability that Eastern Enterprises may have under the Coal Act. Eastern
Enterprises claimed that the amount of its Coal Act liabilities was
approximately $100 million.
The District Court held in 1996 that the Coal Act was constitutional. Eastern
Enterprises filed an appeal with the First Circuit Court of Appeals, which
affirmed the district court's decision. The U.S. Supreme Court accepted Eastern
Enterprises' petition for certiorari on the constitutional claims. In a
plurality decision issued on June 26, 1998, the Supreme Court found that the
Coal Act as applied to Eastern Enterprises violated the takings clause of the
Fifth Amendment. The UMWA beneficiaries that were assigned to Eastern
Enterprises will continue to receive retiree health care benefits from the
Combined Fund.
Peabody Holding Company has had discussions with Eastern Enterprises regarding
the third-party complaint. Eastern Enterprises has advised Peabody Holding
Company that it is unwilling to dismiss the third-party complaint and intends to
seek reimbursement for its attorneys fees and prejudgment interest which could
amount to approximately $5 million. The Company continues to believe that the
matter will be resolved without a material adverse effect on its financial
condition or results of operation.
Public Service Company of Colorado
In August 1996, Seneca Coal Company ("Seneca") filed a demand for arbitration in
accordance with the terms of an Amended Revised Coal Supply Agreement dated
December 1, 1971 (the "1971 Agreement") between Seneca and three electric
utilities, Public Service Company of Colorado, Salt River Project Agricultural
Improvement District and PacifiCorp (the "Hayden Participants"). The Hayden
Participants own the Hayden Electric Generating Station at Hayden, Colorado. The
arbitration demand requested the entry of an award for Seneca and against the
Hayden Participants for amounts attributable to final reclamation, mine
decommissioning and environmental monitoring of the Seneca mine and life
insurance and post-retirement health care costs ("post-mine closure costs").
In September 1996, the Hayden Participants filed a complaint for declaratory
judgment in the District Court for the City and County of Denver seeking a
judicial declaration that they were not responsible for post-mine closure costs
as a matter of law. The Hayden Participants also requested declaratory and other
relief with respect to other claims against Seneca.
<PAGE>
The arbitration provision in the 1971 Agreement limits the jurisdiction of the
arbitrators to resolution of disputed issues of fact but the arbitrators are to
determine the arbitrability of any dispute in the first instance. Accordingly,
Seneca filed a motion to stay the judicial proceedings with respect to the issue
of responsibility under the 1971 Agreement for post-mine closure costs pending
the outcome of the arbitration. The District Court granted the motion in January
1997.
The arbitration hearing is scheduled to take place in March of 1999. A decision
from the arbitrators is expected later in 1999. The District Court's application
of legal principles to the facts as found by the arbitrators would take place
thereafter. The Company continues to believe that the dispute will be resolved
without a material adverse effect on its financial condition or results of
operation.
Macquarie Generation
In September 1997, Peabody Resources filed a lawsuit against Macquarie
Generation in the Supreme Court of New South Wales, Commercial Division, seeking
damages for certain coal deliveries which were not paid by Macquarie Generation
and for a declaratory judgment regarding the assignment to Macquarie Generation
of two long-term CSAs for the Ravensworth and Narama mines. The contracts expire
in 2001 and 2012, respectively. Macquarie Generation later agreed that the two
contracts were properly assigned to it. Macquarie Generation subsequently filed
a cross-claim against Peabody Resources alleging that Peabody Resources breached
the labor escalation provisions in the CSAs, committed misrepresentations
regarding the labor costs and violated the Australian trade practices and fair
trading laws in relation to the Narama contract. Macquarie Generation sought to
terminate or rescind the Narama CSA and has sought damages from Peabody
Resources for alleged breaches of both contracts. Even though the Company
continued to deliver coal, Macquarie Generation unilaterally reduced the price
that it is paying for coal deliveries under the Narama contract. A trial
regarding these issues began on September 7, 1998 and concluded on September 25,
1998. On September 22, 1998, Macquarie Generation withdrew its breach of
contract claims.
The Supreme Court of New South Wales issued a decision on November 19, 1998
rejecting Macquarie Generation's claims to terminate the coal supply agreement
for the Narama mine. The Court also rejected Macquarie Generation's claim for
damages. The Court ordered Macquarie Generation to pay Peabody Resources the
portion of the price that it had unilaterally withheld with interest. Macquarie
Generation has made that payment to Peabody Resources and is paying Peabody
Resources for deliveries of coal at the contract prices. Macquarie Generation
has filed an appeal of the decision. The Company continues to believe that the
matter will be resolved without a material adverse effect on its financial
condition or results of operation.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See the Exhibit Index at page 21 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: February 12, 1999 By: /s/ GEORGE J. HOLWAY
---------------------------------------
George J. Holway
Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
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 Second Amended and Restated Certificate of Incorporation of P&L
Coal Holdings Corporation.
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).
10.10 1998 Stock Purchase and Option Plan for Key Employees of P&L Coal
Holdings Corporation.
27 Financial Data Schedule (filed electronically with the SEC only).
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
P&L COAL HOLDINGS CORPORATION
P&L COAL HOLDINGS CORPORATION (the "Corporation"), a
corporation organized and existing under the laws of the State of Delaware, DOES
HEREBY CERTIFY:
1. The name of the corporation is P&L Coal Holdings
Corporation. The date of the filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was February 27, 1998 under
the name of P&L Coal Holdings Corporation, and the date of the filing of its
Amended and Restated Certificate of Incorporation with the Secretary of State of
Delaware was May 15, 1998 under the name of P&L Coal Holdings Corporation.
2. This Second Amended and Restated Certificate of
Incorporation has been duly adopted in accordance with Sections 103, 242 and 245
of the General Corporation Law of the State of Delaware. The Corporation has
received payment for its stock.
3. The Board of Directors of the Corporation, pursuant to a
unanimous written action in lieu of a meeting pursuant to Section 141(f) of the
General Corporation Law of the State of Delaware, adopted resolutions proposing
and declaring advisable that the Corporation amend and restate its Amended and
Restated Certificate of Incorporation to read in its entirety as follows:
FIRST: The name of the Corporation is P&L Coal Holdings
Corporation.
SECOND: The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock that the
Corporation shall have the authority to issue is 43,000,000 shares, consisting
of 30,000,000 shares of Class A Common Stock, par value $0.01 per share (the
"Class A Common Stock"), 3,000,000 shares of Class B Common Stock, par value
$0.01 per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock"), and 10,000,000 shares of Non-Convertible,
Exchangeable Preferred Stock, par value of $0.01 per share (the "Preferred
Stock"). Set forth below with respect to each type of stock of the Corporation
is a statement of the voting powers and the designations, preferences, rights,
qualifications, limitations and restrictions thereof:
A. Class A Common Stock.
1. Voting Rights. Except as may otherwise be required by law,
each holder of Class A Common Stock (together with the holders of Class
B Common Stock and the holders of Preferred Stock) shall have one vote
in respect of each share of Class A Common Stock held on all matters
voted upon by the stockholders of the Corporation.
2. Dividends. The holders of Class A Common Stock (together
with the holders of Class B Common Stock and the holders of Preferred
Stock) shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors of the Corporation ratably
in proportion to the number of shares of Class A Common Stock (and
Class B Common Stock and Preferred Stock) held by them.
3. Distributions. Subject to the limitations set forth in
Section C.3 of this Article FOURTH, in the event of any Liquidation
Event, following Payment in Full of the Preference Amount to the
holders of Preferred Stock, the holders of Class A Common Stock shall
be entitled to receive all of the remaining Available Assets ratably in
proportion to the number of shares of Class A Common Stock held by them
until they receive Payment in Full of the Preference Amount. If such
remaining Available Assets shall be insufficient to distribute to the
holders of shares of Class A Common Stock the Payment in Full of the
Preference Amount to which they are entitled (after Payment in Full of
the Preference Amount to the holders of shares of Preferred Stock), the
holders of shares of Class A Common Stock shall share ratably in any
distribution of Available Assets in proportion to the number of shares
of Class A Common Stock held by them. After Payment in Full of the
Preference Amount to the holders of shares of Preferred Stock pursuant
to Section C.3, to the holders of shares of Class A Common Stock
pursuant to this Section A.3 and to the holders of shares of Class B
Common Stock pursuant to Section B.3, the holders of Class A Common
Stock shall be entitled (together with the holders of Class B Common
Stock and the holders of Preferred Stock) to receive any remaining
Available Assets ratably in proportion to the number of shares of Class
A Common Stock (and Class B Common Stock and Preferred Stock) held by
them.
B. Class B Common Stock.
1. Voting Rights. Except as may otherwise be required by law,
each holder of Class B Common Stock (together with the holders of Class
A Common Stock and the holders of Preferred Stock) shall have one vote
in respect of each share of Class B Common Stock held on all matters
voted upon by the stockholders of the Corporation.
2. Dividends. The holders of Class B Common Stock (together
with the holders of the Class A Common Stock and the holders of
Preferred Stock) shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors of the Corporation
ratably in proportion to the number of shares of Class B Common Stock
(and Class A Common Stock and Preferred Stock) held by them.
3. Distributions. Subject to the limitations set forth in
Sections A.3 and C.3 of this Article FOURTH, in the event of any
Liquidation Event, following Payment in Full of the Preference Amount
to the holders of Preferred Stock and the holders of Class A Common
Stock, the holders of Class B Common Stock shall be entitled to receive
all of the remaining Available Assets ratably in proportion to the
number of shares of Class B Common Stock held by them until they
receive Payment in Full of the Preference Amount. If such remaining
Available Assets shall be insufficient to distribute to the holders of
shares of Class B Common Stock the Payment in Full of the Preference
Amount to which they are entitled (after Payment in Full of the
Preference Amount to the holders of shares of Class A Common Stock and
the holders of Preferred Stock), the holders of shares of Class B
Common Stock shall share ratably in any distribution of Available
Assets in proportion to the number of shares of Class B Common Stock
held by them. After Payment in Full of the Preference Amount to the
holders of shares of Preferred Stock pursuant to Section C.3, to the
holders of shares of Class A Common Stock pursuant to Section A.3 and
to the holders of shares of Class B Common Stock pursuant to this
Section B.3, the holders of Class B Common Stock shall be entitled
(together with the holders of Class A Common Stock and the holders of
Preferred Stock) to receive any remaining Available Assets ratably in
proportion to the number of shares of Class B Common Stock (and Class A
Common Stock and Preferred Stock) held by them.
4. Conversion.
a. Immediately following the earliest of (i) the ninth
anniversary of the initial issuance of shares of Class B Common Stock,
(ii) the consummation of a Change of Control, an Initial Public
Offering or a Recapitalization Event and (iii) the date of an election
by the Board of Directors of the Corporation to convert the outstanding
shares of Class B Common Stock into Class A Common Stock, all of the
shares of Class B Common Stock shall be converted, without action on
the part of any holder thereof, into the same number of shares of Class
A Common Stock.
b. Each conversion of shares of Class B Common Stock into the
same number of shares of Class A Common Stock shall be completed by the
surrender of the certificate or certificates representing the shares
(the "Shares for Conversion") converted at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may from time to time designate by notice in writing to the
holders of Class B Common Stock) at any time during normal business
hours. Such conversion shall be deemed to have been effected as of the
open of business on the first business day immediately following the
date of the event giving rise to the conversion pursuant to this
Section B.4 (the "Class B Conversion Date"). From and after the Class B
Conversion Date, (i) the rights of the holder of the Shares for
Conversion in respect thereof will cease (other than the right to
receive any dividend or other distribution that has been declared by
the Board of Directors of the Corporation to be payable on or following
the Class B Conversion Date to holders of record of the class of Common
Stock of which the Shares for Conversion are a part on a date prior to
the Class B Conversion Date), (ii) the person or persons in whose name
or names the certificate or certificates for the shares to be issued
(the "Converted Shares") upon such conversion of the Shares for
Conversion shall be deemed to have become the holder or holders of
record of the Converted Shares represented thereby and (iii) any
certificate or certificates representing the Shares for Conversion
shall thereafter, and without any action on the part of holder thereof,
be deemed to represent the shares of Class A Common Stock into which
they are convertible.
c. Promptly after the Class B Conversion Date, the Corporation
will issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates for the Converted Shares
issuable upon conversion.
d. The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of issuance upon the conversion of Class
B Common Stock as provided herein, the maximum number of shares as
shall then be issuable upon the conversion of all then outstanding
shares of Class B Common Stock.
e. If the Corporation in any manner subdivides or combines the
outstanding shares of Class A Common Stock or Class B Common Stock, the
outstanding shares of the other class will be proportionately
subdivided or combined.
f. The issuance of certificates representing Converted Shares
will be made without charge to the holders of such shares for any
issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and issuance; provided
that the holder of such Converted Shares shall be responsible for any
transfer taxes due in connection with the conversion thereof. The
Corporation will not close its books against the transfer of its Common
Stock in any manner which would interfere with the timely conversion of
any class of Common Stock.
C. Preferred Stock. Subject to the limitations and modifications set
forth below, each share of Preferred Stock shall have the voting powers and the
designations, preferences, rights, qualifications, limitations and restrictions
of a share of Common Stock.
1. Voting Rights. Each holder of a share of Preferred Stock
shall have the same voting rights as the holder of a share of Common
Stock, and all holders of shares of Preferred Stock shall vote as a
single class with all holders of shares of Common Stock, and not as a
separate class, upon all matters in which the holders of the Common
Stock are entitled to vote.
2. Dividends. The holders of the shares of Preferred Stock
(together with the holders of any Common Stock) shall be entitled to
receive such dividends as may be declared from time to time by the
Board of Directors of the Corporation ratably in proportion to the
number of shares of Preferred Stock (and Common Stock) held by them.
3. Distributions. In the event of any Liquidation Event, the
holders of Preferred Stock shall be entitled to receive all of the
Available Assets ratably in proportion to the number of shares of
Preferred Stock held by them, in priority to any distribution to the
holders of Common Stock, until such holders of Preferred Stock receive
Payment in Full of the Preference Amount. If the Available Assets shall
be insufficient to distribute to the holders of shares of Preferred
Stock the Payment in Full of the Preference Amount to which they are
entitled, the holders of shares of Preferred Stock shall share ratably
in any distribution of Available Assets in proportion to the number of
shares of Preferred Stock held by them. After Payment in Full of the
Preference Amount to the holders of shares of Preferred Stock pursuant
to the foregoing provisions and to the holders of shares of Class A
Common Stock pursuant to Section A.3 and to the holders of shares of
Class B Common Stock pursuant to Section B.3 of this Article FOURTH,
the holders of Preferred Stock shall be entitled (together with the
holders of Common Stock) to receive any remaining Available Assets
ratably in proportion to the number of shares of Preferred Stock (and
Common Stock) held by them.
4. Exchange.
a. At any time and from time to time, the Corporation
may exchange, at the option of the Corporation in its sole
discretion, in whole or in part, the shares of Preferred
Stock, share for share, into shares of Class A Common Stock.
b. The Corporation may exercise the right to exchange
shares of Preferred Stock into shares of Class A Common Stock
by resolution of the Board of Directors to that effect (which
may specify an event or events upon which such exercise and
exchange will be effective).
c. On the date for the exchange of the shares of
Preferred Stock into shares of Class A Common Stock (the
"Exchange Date"), such shares of Preferred Stock (the
"Exchanged Shares") shall be exchanged, share for share, for
shares of Class A Common Stock. As a condition of receipt of
the certificate or certificates representing such Class A
Common Stock, each holder of Exchanged Shares must surrender
the certificate or certificates representing the Exchanged
Shares to the Corporation. Each surrendered certificate shall
be canceled and retired promptly after receipt by the
Corporation and the capital stock evidenced thereby may be
reissued by the Corporation.
d. From and after the Exchange Date, (i) the rights
of the holders of Exchanged Shares in respect thereof will
cease (other than the right to receive any dividend or other
distribution that has been declared by the Board of Directors
of the Corporation to be payable on or following the Exchange
Date to holders of record of Preferred Stock on a date prior
to the Exchange Date), (ii) the person or persons in whose
name or names the certificate or certificates for the
Exchanged Shares were issued shall be deemed to have become
the holder or holders of record of an equivalent number of
shares of Class A Common Stock and (iii) any certificate or
certificates representing Exchanged Shares shall thereafter,
and without any action on the part of the holder thereof, be
deemed to represent an equivalent number of shares of Class A
Common Stock.
e. If the Corporation in any manner subdivides or
combines the outstanding shares of Class A Common Stock or
Preferred Stock, the outstanding shares of the other class
will be proportionately subdivided or combined.
f. The Corporation shall at all times reserve and
keep available out of its authorized and unissued Class A
Common Stock, solely for the purpose of effecting the exchange
of the Preferred Stock, such number of shares of Class A
Common Stock as shall from time to time be sufficient to
effect the exchange of all then outstanding shares of
Preferred Stock. The Corporation shall from time to time,
subject to and in accordance with the laws of Delaware,
increase the authorized amount of Class A Common Stock if at
any time the number of authorized shares of Class A Common
Stock remaining unissued shall not be sufficient to permit the
exchange at such time of all then outstanding shares of
Preferred Stock.
5. Redemption.
a. At any time during the six-month period
immediately following the issuance of shares of Preferred
Stock by the Corporation and from time to time during such
period, the Corporation may redeem, at the option of the
Corporation in its sole discretion, in whole or in part, the
shares of Preferred Stock for a price of $20 per share without
interest thereon (the "Redemption Price").
b. The Corporation may exercise the right to redeem
shares of Preferred Stock by resolution of the Board of
Directors to that effect (which may specify an event or events
upon which such exercise and redemption will be effective).
c. On the date for the redemption of the shares of
Preferred Stock (the "Redemption Date"), the full Redemption
Price shall become payable in cash for the shares of Preferred
Stock being redeemed on such Redemption Date (the "Redeemed
Shares"). As a condition of payment of the Redemption Price,
each holder of Redeemed Shares must surrender the certificate
or certificates representing the Redeemed Shares to the
Corporation. Each surrendered certificate shall be canceled
and retired promptly after receipt by the Corporation and the
capital stock evidenced thereby may be reissued by the
Corporation.
d. On the Redemption Date, unless the Corporation
defaults in the payment in full of the Redemption Price, all
rights of holders of the Redeemed Shares shall terminate
(other than the right to receive any dividend or other
distribution that has been declared by the Board of Directors
of the Corporation to be payable on or following the
Redemption Date to holders of record of Preferred Stock on a
date prior to the Redemption Date and the right to receive the
Redemption Price).
e. If the Corporation in any manner subdivides or
combines the outstanding shares of Preferred Stock, the
Redemption Price will be adjusted proportionately.
D. Certain Definitions. For purposes of this Article FOURTH,
the following terms shall have the following meanings:
"Available Assets" means (i) in the case of a Business
Combination, all cash, securities and other assets to be received by
stockholders of the Corporation pursuant thereto and (ii) in the case
of any other Liquidation Event, all assets of the Corporation, tangible
and intangible, of whatever kind available for distribution to
stockholders.
"Business Combination" means any acquisition of the
Corporation by means of merger or other form of corporate
reorganization in which outstanding shares of the Corporation are
exchanged for cash, securities or other consideration issued or given,
or caused to be issued or given, by the acquiring corporation or its
subsidiary (other than a mere reincorporation transaction).
"Change of Control" shall mean an acquisition of all or
substantially all of the direct and indirect assets of the Company and
its subsidiaries (by merger, consolidation, stock or asset sale or
otherwise), whereby immediately following any such transaction (i) the
Lehman Fund and its affiliates own, in the aggregate less than 50% of
the Corporation's outstanding voting securities that the Lehman Fund
owned in the aggregate immediately following the consummation of the
transactions pursuant to the Purchase Agreement, dated as of March 2,
1998, by and between the Corporation and The Energy Group PLC
(excluding the anticipated sell down of approximately $75 million to
occur subsequent to such consummation) or (ii) any Person individually
owns more of the Corporation's then outstanding voting securities
entitled to vote generally than is owned in the aggregate by the Lehman
Fund and its affiliates.
"Initial Public Offering" shall mean the initial sale of
shares of any class of the Corporation's stock to the public pursuant
to an effective registration statement (other than a registration
statement on Form S-4 or S-8 or any similar or successor form) filed
under the Securities Act of 1933, as amended, which results in an
active trading market of the lesser of 25% of the outstanding shares of
the Corporation's Common Stock and a $250 million float in the
marketplace. There shall be deemed to be an "active trading market" if
the Corporation's Common Stock is listed or quoted on a national
exchange or the NASDAQ National Market.
"Lehman Fund" means Lehman Brothers Merchant Banking Partners
II L.P., Lehman Brothers Offshore Investment Partners II L.P., LB I
Group Inc., Lehman Brothers Capital Partners III, L.P., Lehman Brothers
Capital Partners IV, L.P. and Lehman Brothers MBG Partners 1998 (A)
L.P., collectively.
"Liquidation Event" means any of the following: (i) any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, (ii) any Business Combination, or (iii) a sale or
disposition by the Corporation or any subsidiary of the Corporation, if
any, of all or substantially all of the assets of the Corporation or
such subsidiary (if, with respect to such subsidiary, the assets so
sold would have constituted all or substantially all of the assets of
the Corporation if the assets were held directly by the Corporation).
"Payment in Full of the Preference Amount" is deemed to have
been made at such time as the holders of the shares of Preferred Stock,
Class A Common Stock or Class B Common Stock, as the case may be, shall
have received in respect of each such share an aggregate amount of
cash, or securities or other assets, or any combination thereof, with a
fair market value equal to $20 in connection with a Liquidation Event
(without giving effect to prior unrelated dividends or distributions),
and in the event that the Corporation in any manner subdivides or
combines the outstanding shares of Class A Common Stock or Preferred
Stock, such Payment in Full of the Preference Amount shall be adjusted
accordingly.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, limited liability company,
unincorporated association, joint venture or other entity of whatever
nature.
"Recapitalization Event" shall mean a recapitalization,
reorganization, stock dividend or other special corporate restructuring
which results in an extraordinary distribution to the stockholders of
cash and/or securities through the use of leveraging or otherwise but
which does not result in a Change of Control.
FIFTH: The Board of Directors of the Corporation, acting by
the affirmative vote of a majority of the directors then in office, may alter,
amend or repeal the Bylaws of the Corporation.
SIXTH: The number of directors of the Corporation shall be
determined in the manner provided in the Bylaws of the Corporation.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the Bylaws of the Corporation may provide. The
books of the Corporation may be kept outside the State of Delaware at such place
or places as may be designated by the Board of Directors or in the Bylaws of the
Corporation.
EIGHTH: Unless and except to the extent that the Bylaws of
the Corporation shall so require, the election of the directors of the
Corporation need not be by written ballot.
NINTH: Notwithstanding the provisions of Section 228 of the
General Corporation Law of the State of Delaware, the stockholders of the
Corporation may take action by written consent only if all of the stockholders
entitled to vote on the matter sign such consent. This Article NINTH may not be
amended without the unanimous consent of all stockholders entitled to vote on
the matter.
TENTH: To the fullest extent permitted by the laws of the
State of Delaware:
A. The Corporation shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(brought in the right of the Corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal, including
appeals, by reason of the fact that such person is or was a director or officer
of the Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, limited liability company or other enterprise, for and against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals. Notwithstanding the preceding sentence, the Corporation shall
be required to indemnify a person described in such sentence in connection with
any action, suit or proceeding (or part thereof) commenced by such person only
if the commencement of such action, suit or proceeding (or part thereof) by such
person was authorized by the Board of Directors of the Corporation. The
Corporation may indemnify any person (and such person's heirs, executors or
administrators) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (brought in the
right of the Corporation or otherwise), whether civil, criminal, administrative
or investigative, and whether formal or informal, including appeals, by reason
of the fact that such person is or was an employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise, for and against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals.
B. The Corporation shall promptly pay expenses incurred by any person
described in the first sentence of Section A. of this Article TENTH in defending
any action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding, including appeals, upon presentation of appropriate
documentation.
C. The Corporation may purchase and maintain insurance on behalf of any
person described in Section A. of this Article TENTH against any liability
asserted against such person, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article TENTH or otherwise.
D. The provisions of this Article TENTH shall be applicable to all
actions, claims, suits or proceedings made or commenced after the adoption
hereof, whether arising from acts or omissions to act occurring before or after
its adoption. The provisions of this Article TENTH shall be deemed to be a
contract between the Corporation and each director or officer who serves in such
capacity at any time while this Article TENTH and the relevant provisions of the
laws of the State of Delaware and other applicable law, if any, are in effect,
and any repeal or modification hereof shall not affect any rights or obligations
then existing with respect to any state of facts or any action, suit or
proceeding then or theretofore existing, or any action, suit or proceeding
thereafter brought or threatened based in whole or in part on any such state of
facts. If any provision of this Article TENTH shall be found to be invalid or
limited in application by reason of any law or regulation, it shall not affect
the validity of the remaining provisions hereof. The rights of indemnification
provided in this Article TENTH shall neither be exclusive of, nor be deemed in
limitation of, any rights to which an officer, director, employee or agent may
otherwise be entitled or permitted by contract, this Second Amended and Restated
Certificate of Incorporation, vote of stockholders or directors or otherwise, or
as a matter of law, both as to actions in such person's official capacity and
actions in any other capacity while holding such office, it being the policy of
the Corporation that indemnification of any person whom the Corporation is
obligated to indemnify pursuant to the first sentence of Section A. of this
Article TENTH shall be made to the fullest extent permitted by law.
E. For purposes of this Article TENTH, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
ELEVENTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
4. In Lieu of a meeting and vote of the stockholders, the
stockholders have given written consent to such amendment and restatement of the
Amended and Restated Certificate of Incorporation of the Corporation in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Second
Amended and Restated Certificate of Incorporation this 12th day of November
1998.
P&L COAL HOLDINGS CORPORATION
By: /s/ Irl F. Engelhardt
-----------------------------
Name: Irl F. Engelhardt
Title: Chairman and Chief
Executive Officer
1998 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
P&L COAL HOLDINGS CORPORATION
1 Purpose of Plan
The 1998 Stock Purchase and Option Plan for Key Employees of P&L Coal
Holdings Corporation and Subsidiaries (the "Plan") is designed:
(a) to promote the long term financial interests and growth of P&L Coal
Holdings Corporation (the "Company") and its subsidiaries by attracting and
retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of the Company's
business;
(b) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and
(c) to further the alignment of interests of participants with those of
the stockholders of the Company through opportunities for increased stock, or
stock-based, ownership in the Company.
2 Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "Active Trading Market" shall mean, as to the Company's Common
Stock, that the Company's Common Stock is listed or quoted on a national
exchange or the NASDAQ National Market.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Change of Control" shall mean an acquisition of all or
substantially all of the direct and indirect assets of the Company and its
Subsidiaries (by merger, consolidation, recapitalization event, stock or asset
sale or otherwise), whereby immediately following any such transaction (i) the
Lehman Fund owns, in the aggregate, less than 50 percent of the Company's
outstanding voting securities that the Lehman Fund owned (excluding the sell
down of approximately $75 million anticipated to occur after the Closing Date or
(ii) any Person individually owns more of the Company's then outstanding voting
securities entitled to vote generally than is owned in the aggregate by the
Lehman Fund and its affiliates.
(d) "Class B Stock" shall mean the $.01 par value Company stock which
shall have voting rights and other attributes similar to Common Stock, except
that Common Stock will have a liquidation preference. Class B Stock shall be
converted to Common Stock upon a Change of Control, an IPO or a Recapitalization
Event.
(e) "Closing Date" shall mean May 19, 1998.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Compensation Committee of the Board of
Directors.
(h) "Common Stock" shall mean the $.01 par value common stock of the
Company which may be authorized but unissued, or issued and reacquired.
(i) "Employee" shall mean a person, including an officer, in the
regular full-time employment of the Company or one of its Subsidiaries who, in
the opinion of the Committee, is, or is expected to be, involved with the
management, growth or protection of some part or all of the business of the
Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" shall mean (i) prior to a Public Offering, the
fair market value of the equity of the Company, as determined by the Board of
Directors in good faith, taking into account all relevant factors, including the
Company's historic financial performance, its business prospects and recent
sales or valuations of similar companies; (ii) after a Public Offering, the
average of the closing prices of the shares of Common Stock for the 20 trading
days immediately preceding the determination date; provided, however, at the
time of the Public Offering, the offering price per share of Common Stock; and
(iii) notwithstanding the foregoing, in the event of a Change in Control, the
per share value of equity based on amounts paid in the Change of Control.
(l) "Grant" shall mean an award made to a Participant under this Plan,
including an award of Options and/or Purchase Stock, as such term is defined in
paragraph 5(b) hereof.
(m) "Grant Agreement" shall mean an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
Grants pursuant to the Plan.
<PAGE>
(n) "Lehman Fund" shall mean the initial purchasers listed on the
signature pages to the Stockholders Agreement dated as of the Closing Date
between the Participant and the Company and any other entity owned or controlled
directly or indirectly by Lehman Brothers Holdings, Inc.
(o) "Option" shall mean an option to purchase shares of the Common
Stock which may be an "Incentive Stock Option" or a "Non-Qualified Stock
Option", as such terms are defined in paragraph 5(a) hereof.
(p) "Participant" shall mean an Employee, or other person having a
relationship with the Company or one of its Subsidiaries, to whom one or more
Grants have been made and such Grants have not all been forfeited or terminated
under the Plan, or a person to whom such Grant was transferred pursuant to a
trust provided for by the Grant Agreement; provided, however, that a
non-employee director of the Company or one of its Subsidiaries may not be a
Participant.
(q) "Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
(r) "Public Offering" shall mean the sale of shares of any class of the
Company's stock to the public pursuant to an effective registration statement
(other than a registration statement on Form S-4 or S-8 or any similar or
successor form) filed under the Securities Act of 1933 which results in an
Active Trading Market of the lesser of 25% of the outstanding shares of Common
Stock and an aggregate value of outstanding securities that are registered equal
to $250 million; provided, however, that the first such Public Offering shall be
called an "IPO".
(s) "Share" shall mean Common Stock or Class B Stock, as the case may
be.
(t) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations, or group of
commonly controlled corporations, other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3 Administration of Plan
(a) The Plan shall be administered by the Committee; provided, however,
that the members of the Committee shall qualify to administer the Plan for
purposes of Rule 16b-3 (and any other applicable rule) promulgated under Section
16(b) of the Exchange Act to the extent that the Company is subject to such
rule. The Committee may adopt its own rules of procedure, and action of a
majority of the members of the Committee taken at a meeting, or action taken
without a meeting by unanimous written consent, shall constitute action by the
Committee. The Committee shall have the power and authority to administer,
construe and interpret the Plan, to make rules for carrying it out and to make
changes in such rules. Any such interpretations, rules and administration shall
be consistent with the basic purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to
other senior officers of the Company its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe, except that only
the Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company, and the
officers and directors of the Company shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
Grants, and all members of the Committee shall be fully protected by the Company
with respect to any such action, determination or interpretation.
4 Eligibility
The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a relationship with the Company or any of its
Subsidiaries, and in such form and having such terms, conditions and limitations
as the Committee may determine consistent, however, with the terms of the Plan.
Grants may be made singly, in combination or in tandem. The terms, conditions
and limitations of each Grant under the Plan shall be set forth in a Grant
Agreement, in a form approved by the Committee; provided, however, that such
Grant Agreement shall contain provisions dealing with the treatment of Grants in
the event of the termination, death or disability of a Participant, and may also
include provisions concerning the treatment of Grants in the event of a Change
of Control of the Company.
5 Grants
(a) Stock Options - From time to time, the Committee, in its sole
discretion, will determine the forms and amounts of Options to be granted to
Participants. Such Options may take the following forms in the Committee's sole
discretion:
(i) Incentive Stock Options - These are Options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"). In addition to other restrictions contained in the Plan, an Option
granted under this Paragraph 5(a)(i), (A) may not be exercised more than 10
years after the date it is granted, (B) may not have an option price less than
the Fair Market Value of Common Stock on the date the Option is granted, (C)
must otherwise comply with Code Section 422, and (D) must be designated as an
"Incentive Stock Option" by the Committee. The maximum aggregate Fair Market
Value of Common Stock (determined at the time of grant) with respect to which
Incentive Stock Options granted to any Participant under the Plan and incentive
stock options granted to such Participant under any other plan maintained by the
Company or a Subsidiary become first exercisable in any calendar year is
$100,000. Payment of the Option price shall be made in cash or in Shares, or a
combination thereof, in accordance with the terms of the Plan, the Grant
Agreement, and of any applicable guidelines of the Committee in effect at the
time.
(ii) Non-Qualified Stock Options - These are Options which are
not designated by the Committee as "Incentive Stock Options". At the time of the
Grant the Committee shall determine, and shall include in the Grant Agreement or
other Plan rules, the Option exercise period, the Option price, and such other
conditions or restrictions on the Grant or exercise of the Option as the
Committee deems appropriate. In addition to other restrictions contained in the
Plan, an Option granted under this Paragraph 5(a)(ii), may not be exercised more
than 10 years after the date it is granted. Payment of the Option price shall be
made in cash or in Shares, or a combination thereof, in accordance with the
terms of the Plan, the Grant Agreement and of any applicable guidelines of the
Committee in effect at the time.
Options may be granted prior to the effective date of the Plan (as
determined pursuant to Paragraph 13 herein); provided, however, that no Option
shall be exercisable prior to the date of the approval of the Plan by the
stockholders of the Company; provided, further, that such approval will occur
within 12 months of adoption of the Plan by the Board of Directors for the
purpose of granting Incentive Stock Options.
(b) Purchase Stock - The Committee, in its sole discretion, may grant a
Participant the right to purchase Class B Stock ("Purchase Stock") at such price
as is determined by the Committee.
6 Limitations and Conditions
(a) Subject to adjustments under Paragraphs 8 and 9 hereof, the number
of shares of authorized Common Stock available under this Plan shall be
4,027,800 shares as of the effective date of the Plan. The number of shares of
authorized Class B Stock available under this Plan shall be 742,268 shares as of
the effective date of the Plan. Unless restricted by applicable law, Shares
related to Grants that are forfeited, terminated, cancelled or expire
unexercised, shall immediately become available to be subject to Grants.
(b) No Grants shall be made under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants made on or before the
expiration of the Plan may extend beyond such expiration. At the time a Grant is
made or amended or the terms or conditions of a Grant are changed, the Committee
may provide for limitations or conditions on such Grant.
(c) Nothing contained herein shall affect the right of the Company to
terminate any Participant's employment at any time or for any reason.
(d) Other than as specifically provided in the forms of Subscription
Agreement and Stockholders Agreement attached hereto as Exhibits A and B with
regard to the death of a Participant, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void. No such benefit
shall, prior to receipt thereof by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements, or torts of the
Participant.
(e) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Company in respect of any Shares purchasable
in connection with any Grant unless and until certificates representing any such
Shares have been issued by the Company to such Participants.
(f) No election as to benefits or exercise of Options may be made
during a Participant's lifetime by anyone other than the Participant except by a
legal representative appointed for or by the Participant.
(g) Absent express provisions to the contrary, any Grant under this
Plan shall not be deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Company or its Subsidiaries and
shall not affect any benefits under any other benefit plan of any kind now or
subsequently in effect under which the availability or amount of benefits is
related to level of compensation. This Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
(h) Unless the Committee determines otherwise, no benefit or promise
under the Plan shall be secured by any specific assets of the Company or any of
its Subsidiaries, nor shall any assets of the Company or any of its Subsidiaries
be designated as attributable or allocated to the satisfaction of the Company's
obligations under the Plan.
7 Transfers and Leaves of Absence
For purposes of the Plan, unless the Committee determines otherwise:
(a) a transfer of a Participant's employment without an intervening period of
separation among the Company and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the Company
or any Subsidiary during such leave of absence.
8 Adjustments
In the event of any change in the outstanding Common Stock or Class B
Stock by reason of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization, consolidation or merger, Change of Control,
or similar event, the Committee shall adjust appropriately the number of Shares
subject to Grants under the Plan and make such other revisions as it deems are
equitably required.
9 Change of Control
Unless otherwise provided in the Grant Agreement, in its absolute
discretion, and on such terms and conditions as it deems appropriate, coincident
with or after any Grant, the Committee may provide that such Grant cannot be
exercised after a Change of Control of the Company, and if the Committee so
provides, it shall also provide, either by the terms of such Grant or by a
resolution adopted prior to the occurrence of such Change of Control that such
Grants will be cashed out at the Change of Control price or that such Grant
shall be exercisable as to all Shares subject thereto prior to such Change of
Control, notwithstanding anything to the contrary herein (but subject to the
provisions of Paragraph 6(b)) and that, upon the occurrence of such event, such
Grant shall terminate and be of no further force or effect; provided, however,
that the Committee may also provide, in its absolute discretion, that even if
the Grant shall remain exercisable after any such event, from and after such
event, any such Grant shall be exercisable only for the kind and amount of
securities and/or other property, or the cash equivalent thereof, receivable as
a result of such event by the holder of a number of Shares for which such Grant
could have been exercised immediately prior to such event.
10 Amendment and Termination
The Committee shall have the authority to make such amendments to any
terms and conditions applicable to outstanding Grants as are consistent with
this Plan provided that, except for adjustments under Paragraph 8 or 9 hereof,
no such action shall modify such Grant in a manner adverse to the Participant
without the Participant's consent.
The Board of Directors may amend, suspend or terminate the Plan except
that no such action, other than an action under Paragraph 8 or 9 hereof, may be
taken which would, without shareholder approval, increase the aggregate number
of Shares subject to Grants under the Plan, decrease the exercise or purchase
price of outstanding Grants, change the requirements relating to the Committee
or extend the term of the Plan, but only to the extent such shareholder approval
would be required by Rule 16b-3 at a time when the Company is subject to Section
16(b) of the Exchange Act.
11 Foreign Grants and Rights
The Committee may make Grants to Employees or other persons
having a relationship with the Company or one of its Subsidiaries who are
subject to the laws of nations other than the United States, which Grants may
have terms and conditions that differ from the terms thereof as provided
elsewhere in the Plan for the purpose of complying with foreign laws.
12 Withholding Taxes
The Company shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to deliver Shares upon the exercise of an Option or
payment for Purchase Stock that the Participant pay to the Company such amount
as may be requested by the Company for the purpose of satisfying any liability
for such withholding taxes. Any Grant Agreement may provide that the Participant
may elect, in accordance with any conditions set forth in such Grant Agreement,
to pay a portion or all of such withholding taxes in Shares.
13 Effective Date and Termination Dates
The Plan shall be effective on and as of the date of its approval by
the stockholders of the Company and shall terminate ten years later, subject to
earlier termination by the Board of Directors pursuant to Paragraph 10.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statement of operations as of December 31, 1998 and for the period
then ended, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 267,106
<SECURITIES> 0
<RECEIVABLES> 435,734
<ALLOWANCES> 93
<INVENTORY> 239,884
<CURRENT-ASSETS> 1,735,056
<PP&E> 6,275,401
<DEPRECIATION> 1,675,693
<TOTAL-ASSETS> 6,865,649
<CURRENT-LIABILITIES> 1,253,863
<BONDS> 2,305,614
0
50
<COMMON> 165
<OTHER-SE> 463,533
<TOTAL-LIABILITY-AND-EQUITY> 6,865,649
<SALES> 1,327,497
<TOTAL-REVENUES> 1,402,769
<CGS> 1,267,921
<TOTAL-COSTS> 1,267,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,215
<INCOME-PRETAX> (20,029)
<INCOME-TAX> (5,188)
<INCOME-CONTINUING> (14,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,841)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
