Filed Pursuant to Rule 424(b)(3)
File Nos. 333-59073
333-59073-01 to
333-59073-51
P&L COAL HOLDINGS CORPORATION
SUPPLEMENT NO. 2 TO MARKET-MAKING PROSPECTUS DATED
AUGUST 2, 1999
THE DATE OF THIS SUPPLEMENT IS NOVEMBER 8, 1999
ON NOVEMBER 4, 1999, P&L COAL HOLDINGS CORPORATION FILED THE
ATTACHED REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission File Number 333-59073
--------------------------------------------------------
P&L COAL HOLDINGS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4004153
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Market Street, St. Louis, Missouri 63101-1826
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 342-3400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
----- ------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(In thousands)
Predecessor
Company
---------------
Quarter Ended Quarter Ended Six Months Ended Period Ended Period Ended
September 30, September 30, September 30, September 30, May 19,
1999 1998 1999 1998 <F1> 1998
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales $ 621,638 $ 535,860 $ 1,224,003 $ 780,877 $ 278,930
Other revenues 26,354 21,638 54,665 39,288 13,478
--------------- --------------- --------------- --------------- ---------------
Total revenues 647,992 557,498 1,278,668 820,165 292,408
OPERATING COSTS AND EXPENSES
Operating costs and expenses (523,846) (464,534) (1,035,195) (677,281) (246,801)
Depreciation, depletion and
amortization (60,803) (51,783) (125,299) (77,474) (26,218)
Selling and administrative
expenses (20,679) (16,790) (41,167) (25,748) (12,017)
--------------- --------------- --------------- --------------- ---------------
OPERATING PROFIT 42,664 24,391 77,007 39,662 7,372
Interest expense (51,057) (52,692) (100,852) (75,846) (4,222)
Interest income 1,084 6,726 2,095 7,753 1,667
--------------- --------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (7,309) (21,575) (21,750) (28,431) 4,817
Income tax (provision) benefit 196 6,903 2,480 8,472 (4,341)
Minority interests (1,626) - (3,121) - -
--------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (8,739) $ (14,672) $ (22,391) $ (19,959) $ 476
=============== =============== =============== =============== ===============
<FN>
<F1> Includes results for the six months ended September 30, 1998; however, P&L
Coal Holdings Corporation had no activity for the period April 1, 1998 to
May 19, 1998. See accompanying notes to unaudited condensed consolidated
financial statements.
</FN>
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, March 31,
1999 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 126,312 $ 194,078
Accounts receivable, less allowance for doubtful accounts of $177 for both periods 384,172 312,748
Materials and supplies 52,791 53,978
Coal inventory 192,816 195,919
Assets from power trading activities 955,359 1,037,300
Other current assets 78,073 38,438
--------------- ---------------
Total current assets 1,789,523 1,832,461
Property, plant, equipment and mine development, net of accumulated depreciation,
depletion and amortization of $307,090 and $193,492, respectively 4,800,458 4,797,945
Investments and other assets 391,544 393,525
--------------- ---------------
Total assets $ 6,981,525 $ 7,023,931
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt $ 91,028 $ 72,404
Income taxes payable 6,054 7,308
Liabilities from power trading activities 547,623 638,062
Accounts payable and accrued expenses 701,178 627,734
--------------- ---------------
Total current liabilities 1,345,883 1,345,508
Long-term debt, less current maturities 2,433,182 2,469,975
Deferred income taxes 770,768 780,175
Accrued reclamation and other environmental liabilities 506,584 498,032
Workers' compensation obligations 209,238 207,544
Accrued postretirement benefit costs 966,136 956,714
Obligation to industry fund 62,267 63,107
Other noncurrent liabilities 179,568 183,736
--------------- ---------------
Total liabilities 6,473,626 6,504,791
Minority interests 28,962 23,910
Stockholders' equity:
Preferred Stock - $0.01 per share par value; 10,000,000 shares authorized,
5,000,000 shares issued and outstanding 50 50
Common Stock - Class A, $0.01 per share par value; 30,000,000 shares authorized,
19,000,000 shares issued and outstanding 190 190
Common Stock - Class B, $0.01 per share par value; 3,000,000 shares authorized,
708,767 shares issued and outstanding 7 7
Additional paid-in capital 484,772 484,772
Employee stock loans (2,965) (2,331)
Accumulated other comprehensive income 9,083 2,333
Retained earnings (accumulated deficit) (12,182) 10,209
Treasury shares, at cost: 5,155 Class B shares as of September 30, 1999 (18) -
--------------- ---------------
Total stockholders' equity 478,937 495,230
--------------- ---------------
Total liabilities and stockholders' equity $ 6,981,525 $ 7,023,931
=============== ===============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(In thousands)
Predecessor
Company
---------------
Six Months Ended Period Ended Period Ended
September 30, September 30, May 19,
1999 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (22,391) $ (19,959) $ 476
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 125,299 77,474 26,218
Deferred income taxes (11,908) (13,652) 2,835
Amortization of debt discount and debt issuance costs 8,362 6,133 1,379
Net (gain) loss on property and equipment disposals (2,914) 32 (328)
Net gain on coal contract restructuring (750) (592) -
Minority interests 3,121 - -
Changes in current assets and liabilities, excluding effects
of acquisitions:
Accounts receivable (71,577) 96,398 (132,065)
Materials and supplies 1,234 2,155 881
Coal inventory 11,520 22,025 (2,807)
Other current assets (39,336) 17,068 (10,701)
Accounts payable and accrued expenses 72,145 (114,570) 87,814
Income taxes payable (695) 15,428 1,234
Net assets from power trading activities (8,498) (6,836) 5,289
Accrued reclamation and related liabilities (8,697) (1,516) (1,622)
Workers' compensation obligations 1,694 676 (2,156)
Accrued postretirement benefit costs 9,422 3,239 6,092
Obligation to industry fund (840) (1,004) (2,379)
Royalty prepayment - 135,903 -
Other, net (18,226) (12,819) (10,619)
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 46,965 205,583 (30,459)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and mine development (89,323) (82,464) (20,950)
Acquisitions, net (30,239) (1,994,635) -
Contribution from minority interests 704 - -
Proceeds from coal contract restructuring 750 3,881 328
Proceeds from property and equipment disposals 4,252 - 1,374
Proceeds from sale-leaseback transactions 24,245 5,170 -
--------------- --------------- ---------------
Net cash used in investing activities (89,611) (2,068,048) (19,248)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term borrowings 7,165 29,743 -
Proceeds from long-term debt 8,291 1,833,755 53,597
Payments of long-term debt (39,655) (154,542) (19,423)
Capital contribution - 480,000 -
Dividends paid to stockholders - - (173,330)
Dividends paid to minority interests (1,093) - -
Proceeds from affiliated loan - 88 141,000
Advances from affiliates - - 21,693
--------------- --------------- ---------------
Net cash provided by (used in) financing activities (25,292) 2,189,044 23,537
Effect of exchange rate changes on cash and cash equivalents 172 (329) (292)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (67,766) 326,250 (26,462)
Cash and cash equivalents at beginning of period 194,078 - 96,821
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 126,312 $ 326,250 $ 70,359
=============== =============== ===============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
P&L COAL HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
consolidated operations and balance sheets of P&L Coal Holdings Corporation (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. 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 Brothers Merchant Banking Partners II L. P.
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 as of and for the
quarter and six months ended September 30, 1999 and for the quarter and period
ended September 30, 1998, and the notes thereto, are unaudited. However, in the
opinion of management, these financial statements reflect all adjustments
necessary for a fair presentation of the results of the periods presented. The
results of operations for the quarter and six months ended September 30, 1999
are not necessarily indicative of the results to be expected for the full year.
(2) Reclassifications
Certain amounts in the prior periods have been reclassified to conform with the
report classifications for the six months ended September 30, 1999, with no
effect on previously reported operating results or stockholders' equity.
(3) Comprehensive Income
The following table sets forth the components of comprehensive loss for the
quarter and six months ended September 30, 1999, and the quarter and period
ended September 30, 1998 (in thousands):
<TABLE>
Quarter Ended Quarter Ended Six Months Ended Period Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss $ (8,739) $ (14,672) $ (22,391) $ (19,959)
Foreign currency translation adjustment (5,718) (6,024) 6,750 (13,731)
--------------- --------------- --------------- ---------------
Comprehensive loss $ (14,457) $ (20,696) $ (15,641) $ (33,690)
=============== =============== =============== ===============
</TABLE>
(4) Restructuring Liability
In conjunction with the acquisition of P&L Coal Group, the Company established a
$39.4 million liability for estimated costs associated with a restructuring plan
resulting from the business combination. The estimate was comprised of costs
associated with exiting certain activities ("exit plan") and consolidating and
restructuring certain management and administrative functions ("restructuring
plan") and includes costs resulting from a plan to terminate or relocate
employees. Costs associated with the restructuring and exit plans are being
charged against the liability as incurred. The total costs charged against the
liability for the quarter and six months ended September 30, 1999 are $2.4
million and $5.3 million, respectively. The cumulative net cash outlays and
non-cash costs charged against the liability through September 30, 1999 are as
follows (in thousands):
<TABLE>
Cash Outlays Non-cash Costs Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Restructuring plan $ 24,000 $ - $ 24,000
Exit plan 6,519 3,648 10,167
--------------- --------------- ---------------
$ 30,519 $ 3,648 $ 34,167
=============== =============== ===============
</TABLE>
<PAGE>
If the ultimate amount of cost expended is less than the remaining liability of
$5.2 million, the excess will further reduce the cost of the acquisition. Any
amount of cost exceeding the amount recorded as a liability will be included as
a charge to operations in the period in which the adjustment is determined.
(5) Business Segments
The Company's industry and geographic data for continuing operations are as
follows:
<TABLE>
(In thousands)
Quarter Ended Quarter Ended Six Months Ended Period Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
U.S. Mining $ 585,590 $ 518,309 $ 1,171,488 $ 752,884
Non U.S. Mining 56,671 36,867 98,271 56,071
Other 5,731 2,322 8,909 11,210
--------------- --------------- --------------- ---------------
$ 647,992 $ 557,498 $ 1,278,668 $ 820,165
=============== =============== =============== ===============
Operating profit (loss):
U.S. Mining $ 32,545 $ 22,660 $ 61,530 $ 29,197
Non U.S. Mining 11,846 7,429 22,184 10,806
Other (1,727) (5,698) (6,707) (341)
--------------- --------------- --------------- ---------------
$ 42,664 $ 24,391 $ 77,007 $ 39,662
=============== =============== =============== ===============
Revenues:
United States $ 591,321 $ 520,631 $ 1,180,397 $ 764,094
Foreign 56,671 36,867 98,271 56,071
--------------- --------------- --------------- ---------------
$ 647,992 $ 557,498 $ 1,278,668 $ 820,165
=============== =============== =============== ===============
Operating profit:
United States $ 30,818 $ 16,962 $ 54,823 $ 28,856
Foreign 11,846 7,429 22,184 10,806
--------------- --------------- --------------- ---------------
$ 42,664 $ 24,391 $ 77,007 $ 39,662
=============== =============== =============== ===============
</TABLE>
(6) Commitments and Contingencies
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.
The Company's policy is to accrue environmental cleanup-related costs of a
noncapital nature when those costs are believed to be probable and can be
reasonably estimated. The quantification of environmental exposures requires an
assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For certain sites, the Company also assesses the financial
capability of other potentially responsible parties and, where allegations are
based on tentative findings, the reasonableness of the Company's apportionment.
The Company has not anticipated any recoveries from insurance carriers or other
potentially responsible third parties in its Consolidated Balance Sheets. The
liabilities for environmental cleanup-related costs recorded in the Consolidated
Balance Sheet at September 30, 1999 were $57.3 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 results of operations or financial position 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 adverse effect on the results of
operations or financial position of the Company.
<PAGE>
(7) Supplemental Guarantor/Non-guarantor Financial 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.
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended September 30, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - 500,414 $ 149,369 $ (1,791) $ 647,992
Costs and expenses:
Operating costs and expenses - (418,402) (107,235) 1,791 (523,846)
Depreciation, depletion and
amortization - (44,792) (16,011) - (60,803)
Selling and administrative
expenses - (17,085) (3,594) - (20,679)
Interest expense (33,862) (12,197) (4,998) - (51,057)
Interest income - 976 108 - 1,084
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (33,862) 8,914 17,639 - (7,309)
Income tax (provision) benefit 10,130 (3,576) (6,358) - 196
Minority interests - - (1,626) - (1,626)
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (23,732) $ 5,338 $ 9,655 $ - $ (8,739)
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended September 30, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $ 519,104 $ 38,394 $ - $ 557,498
Costs and expenses:
Operating costs and expenses - (435,611) (28,923) - (464,534)
Depreciation, depletion and
amortization - (44,290) (7,493) - (51,783)
Selling and administrative
expenses - (16,392) (398) - (16,790)
Interest expense (49,560) (2,368) (764) - (52,692)
Interest income 1,193 5,443 90 - 6,726
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (48,367) 25,886 906 - (21,575)
Income tax (provision) benefit 12,098 (3,962) (1,233) - 6,903
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (36,269) $ 21,924 $ (327) $ - $ (14,672)
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Six Months Ended September 30, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $ 1,004,627 $ 277,322 $ (3,297) $ 1,278,668
Costs and expenses:
Operating costs and expenses - (838,574) (199,918) 3,297 (1,035,195)
Depreciation, depletion and
amortization - (94,845) (30,454) - (125,299)
Selling and administrative
expenses - (33,831) (7,336) - (41,167)
Interest expense (78,056) (14,513) (8,283) - (100,852)
Interest income - 1,905 190 - 2,095
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (78,056) 24,785 31,521 - (21,750)
Income tax (provision) benefit 21,107 (7,474) (11,153) - 2,480
Minority interests - - (3,121) - (3,121)
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (56,949) $ 17,311 $ 17,247 $ - $ (22,391)
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Period Ended September 30, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $ 753,837 $ 66,328 $ - $ 820,165
Costs and expenses:
Operating costs and expenses - (633,040) (44,241) - (677,281)
Depreciation, depletion and
amortization - (66,339) (11,135) - (77,474)
Selling and administrative
expenses - (25,105) (643) - (25,748)
Interest expense (69,261) (5,525) (1,060) - (75,846)
Interest income 1,836 5,817 100 - 7,753
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (67,425) 29,645 9,349 - (28,431)
Income tax (provision) benefit 17,108 (4,950) (3,686) - 8,472
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (50,317) $ 24,695 $ 5,663 $ - $ (19,959)
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheet
As of September 30, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 20 $ 71,511 $ 54,781 $ - $ 126,312
Accounts receivable 732 241,126 167,829 (25,515) 384,172
Inventories - 184,799 60,808 - 245,607
Assets from power trading
activities - - 955,359 - 955,359
Other current assets 342 49,311 28,420 - 78,073
--------------- --------------- --------------- --------------- ---------------
Total current assets 1,094 546,747 1,267,197 (25,515) 1,789,523
Property, plant, equipment and mine
development - at cost - 4,344,435 763,113 - 5,107,548
Less accumulated depreciation, depletion
and amortization - (248,034) (59,056) - (307,090)
--------------- --------------- --------------- --------------- ---------------
- 4,096,401 704,057 - 4,800,458
Investments and other assets 1,943,792 1,448,121 155,085 (3,155,454) 391,544
--------------- --------------- --------------- --------------- ---------------
Total assets $ 1,944,886 $ 6,091,269 $ 2,126,339 $ (3,180,969) $ 6,981,525
=============== =============== =============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 20,367 $ 21,601 $ 49,060 $ - $ 91,028
Payable to affiliates, net (329,407) 331,152 (1,745) - -
Income taxes payable - - 6,054 - 6,054
Liabilities from power trading
activities - - 547,623 - 547,623
Accounts payable and accrued 67,364 427,527 231,802 (25,515) 701,178
--------------- --------------- --------------- --------------- ---------------
Total current liabilities (241,676) 780,280 832,794 (25,515) 1,345,883
Long-term debt, less current
maturities 1,707,625 177,551 548,006 - 2,433,182
Deferred income taxes - 701,786 68,982 - 770,768
Other noncurrent liabilities - 1,884,756 39,037 - 1,923,793
--------------- --------------- --------------- --------------- ---------------
Total liabilities 1,465,949 3,544,373 1,488,819 (25,515) 6,473,626
Minority interests - - 28,962 - 28,962
Stockholders' equity 478,937 2,546,896 608,558 (3,155,454) 478,937
--------------- --------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 1,944,886 $ 6,091,269 $ 2,126,339 $ (3,180,969) $ 6,891,525
=============== =============== =============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheet
As of March 31, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ - $ 130,861 $ 63,217 $ - $ 194,078
Accounts receivable - 220,287 107,770 (15,309) 312,748
Inventories - 202,749 47,148 - 249,897
Assets from power trading
activities - - 1,037,300 - 1,037,300
Other current assets - 24,293 14,145 - 38,438
--------------- --------------- --------------- --------------- ---------------
Total current assets - 578,190 1,269,580 (15,309) 1,832,461
Property, plant, equipment and mine
development - at cost - 4,298,203 693,234 - 4,991,437
Less accumulated depreciation,
depletion and amortization - (158,295) (35,197) - (193,492)
--------------- --------------- --------------- --------------- ---------------
- 4,139,908 658,037 - 4,797,945
Investments and other assets 2,461,362 1,464,147 158,912 (3,690,896) 393,525
--------------- --------------- --------------- --------------- ---------------
Total assets $ 2,461,362 $ 6,182,245 $ 2,086,529 $ (3,706,205) $ 7,023,931
=============== =============== =============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 19,670 $ 21,666 $ 31,068 $ - $ 72,404
Payable to affiliates, net 152,364 (151,199) (1,165) - -
Income taxes payable - 229 7,079 - 7,308
Liabilities from power trading - - 638,062 - 638,062
Accounts payable and accrued expenses 56,562 440,331 146,150 (15,309) 627,734
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 228,596 311,027 821,194 (15,309) 1,345,508
Long-term debt, less current
maturities 1,737,536 173,364 559,075 - 2,469,975
Deferred income taxes - 711,932 68,243 - 780,175
Other noncurrent liabilities - 1,886,337 22,796 - 1,909,133
--------------- --------------- --------------- --------------- ---------------
Total liabilities 1,966,132 3,082,660 1,471,308 (15,309) 6,504,791
Minority interests - - 23,910 - 23,910
Stockholders' equity 495,230 3,099,585 591,311 (3,690,896) 495,230
--------------- --------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 2,461,362 $ 6,182,245 $ 2,086,529 $ (3,706,205) $ 7,023,931
=============== =============== =============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
For the Six Months Ended September 30, 1999
(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 $ (58,463) $ 70,474 $ 34,954 $ - $ 46,965
--------------- --------------- --------------- --------------- ---------------
Additions to property, plant,
equipment and mine development - (70,630) (18,693) - (89,323)
Acquisition, net - - (30,239) - (30,239)
Contribution from minority
interests - - 704 - 704
Proceeds from coal contract
restructuring - 750 - - 750
Proceeds from property and
equipment disposals - 3,773 479 - 4,252
Proceeds from sale-leaseback
transactions - 24,245 - - 24,245
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing activities - (41,862) (47,749) - (89,611)
--------------- --------------- --------------- --------------- ---------------
Change in short-term borrowings - - 7,165 - 7,165
Proceeds from long term debt - - 8,291 - 8,291
Payments of long-term debt (30,000) (59) (9,596) - (39,655)
Dividends paid to minority interests - - (1,093) - (1,093)
Net change in due to/from affiliates 88,483 (87,903) (580) - -
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities 58,483 (87,962) 4,187 - (25,292)
Effect of exchange rate changes
on cash and equivalents - - 172 - 172
--------------- --------------- --------------- --------------- ---------------
Net increase (decrease) in cash and
equivalents 20 (59,350) (8,436) - (67,766)
Cash and cash equivalents at
beginning of period - 130,861 63,217 - 194,078
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents at end
of period $ 20 $ 71,511 $ 54,781 $ - $ 126,312
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
For the Period Ended September 30, 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 $ (68,617) $ 271,259 $ 2,941 $ - 4 205,583
--------------- --------------- --------------- --------------- ---------------
Additions to property, plant,
equipment and mine development - (53,989) (28,475) - (82,464)
Acquisitions, net (1,994,635) - - - (1,994,635)
Proceeds from coal contract
restructuring - 3,881 - - 3,881
Proceeds from sale-leaseback
transactions - 5,002 168 - 5,170
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing
activities (1,994,635) (45,106) (28,307) - (2,068,048)
--------------- --------------- --------------- --------------- ---------------
Change in short-term borrowings - - 29,743 - 29,743
Proceeds from long-term debt 1,817,390 - 16,365 - 1,833,755
Payments of long-term debt (52,500) (76,324) (25,718) - (154,542)
Capital contribution 398,000 - 82,000 - 480,000
Net change in due to/from (22,489) 76,677 (54,100) - 88
--------------- --------------- --------------- --------------- ---------------
Net cash provided by financing
activities 2,140,401 353 48,290 - 2,189,044
Effect of exchange rate changes
on cash and equivalents - - (329) - (329)
--------------- --------------- --------------- --------------- ---------------
Net increase in cash and cash
equivalents 77,149 226,506 22,595 - 326,250
Cash and cash equivalents at
beginning of period - - - - -
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents at end
of period $ 77,149 $ 226,506 $ 22,595 $ - $ 326,250
=============== =============== =============== =============== ===============
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
For purposes of comparison to prior year operating results, the results of
operations and cash flows for the six months ended September 30, 1998 reflect
the results of the Company from April 1 to September 30, 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 from April 1 to
May 19, 1998.
The results of operations and cash flows for the period ended September 30, 1999
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.
<TABLE>
Quarter Ended Quarter Ended Six Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998 <F1>
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(In thousands)
Revenues:
Sales $ 621,638 $ 535,860 $ 1,224,003 $ 1,059,807
Other revenues
26,354 21,638 54,665 52,766
--------------- --------------- --------------- ---------------
Total revenues
647,992 557,498 1,278,668 1,112,573
Operating costs and expenses
(605,328) (533,107) (1,201,661) (1,065,539)
--------------- --------------- --------------- ---------------
Operating profit
42,664 24,391 77,007 47,034
Interest expense
(51,057) (52,692) (100,852) (80,068)
Interest income
1,084 6,726 2,095 9,420
--------------- --------------- --------------- ---------------
Loss before income taxes
(7,309) (21,575) (21,750) (23,614)
Income tax benefit
196 6,903 2,480 4,131
Minority interests
(1,626) - (3,121) -
--------------- --------------- --------------- ---------------
Net loss $ (8,739) $ (14,672) $ (22,391) $ (19,483)
=============== =============== =============== ===============
Other Data:
EBITDA <F2> $ 103,467 $ 76,174 $ 202,306 $ 150,726
Cash provided by (used in):
Operating activities $ 46,965 $ 175,124
Investing activities (89,611) (2,087,296)
Financing activities (25,292) 2,212,581
Tons sold (In millions) 47.9 42.4 94.5 83.8
<FN>
<F1> Represents the combination of the results of operations for the period from
May 20, 1998 to September 30, 1998 with those of the Predecessor Company
for the period from April 1 to May 19, 1998.
<F2> EBITDA is defined as income before deducting net interest expense, income
taxes, minority interests 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 a $4.4 million loss, a $3.2 million loss and $0.4
million profit for the quarter ended September 30, 1998, the six months
ended September 30, 1999 and the six months ended September 30, 1998,
respectively. Citizens Power had EBITDA of zero for the quarter ended
September 30, 1999.
</FN>
</TABLE>
<PAGE>
Sales. Sales increased $85.7 million for the three months ended September 30,
1999 to $621.6 million, an increase of 16.0%. The current year results include
sales from Black Beauty Coal Company (Black Beauty) of $84.3 million, which was
accounted for under the equity method (and included as "Other Revenues") in the
prior year. The Company increased its ownership interest in Black Beauty to
81.7% effective January 1, 1999. In addition, sales in Australia increased $19.2
million based upon higher customer demand and the acquisition of the Moura Mine.
Overall sales volume increased 13.0% to 47.9 million tons for the three months
ended September 30, 1999, primarily as a result of the inclusion of Black
Beauty's 4.5 million tons in the current year and higher coal sales volumes in
Australia. U.S. sales excluding Black Beauty declined $4.6 million as compared
to the prior quarter, with improved pricing in the Powder River Basin more than
offset by lower production due to operational difficulties, and weak demand and
pricing in Appalachia. Sales from brokerage and trading activities declined
$13.1 million, mainly due to the expiration of third party brokerage agreements.
For the six month period, sales increased $164.2 million, or 15.5%, with $164.9
million of the increase attributable to Black Beauty. Sales in Australia
increased $20.6 million as a result of 27.1% higher sales volumes, partially
offset by a decrease of $17.9 million in the U.S. due to the operational
difficulties and weak demand in Appalachia offsetting higher pricing in the
Powder River Basin. Sales volumes increased 12.8% to 94.5 million tons on a
year-to-date basis, including 8.7 million tons at Black Beauty.
Other Revenues. Other revenues increased $4.8 million for the three month
period, due to the completion of a power contract restructuring by Citizens
Power during the second quarter and higher coal royalty income.
For the six months ended September 30, 1999, other revenues increased $1.9
million as a result of higher coal royalty income that was partially offset by
lower revenues at Citizens Power on a year-to-date basis.
Operating Profit. Operating profit for the second quarter increased $18.3
million to $42.7 million. At the U.S. mining locations, operating profit
improved $13.1 million, which includes an increase related to Black Beauty's
consolidated results of $6.9 million. The remainder of the increase in the U.S.
mining operations was due to higher productivity and lower costs in the Midwest
and improved pricing in the Powder River Basin, partially offset by lower
profitability in the Southwest due to lower production to reduce coal
inventories. In addition, unfavorable operating difficulties in Appalachia were
partially offset by the recognition of $4.6 million as a credit for Black Lung
excise tax overpayments on export shipments in prior periods. Operating profit
in Australia increased $4.4 million, primarily as a result of higher volumes and
lower repair and maintenance expenses, while Citizens Power's operating profit
increased $4.3 million due to improved power contract restructuring results.
For the six months ended September 30, 1999, operating profit increased $30.0
million over the prior year, or 63.8%. Operating profit in the U.S. increased
$36.6 million, including a $12.4 million increase associated with Black Beauty,
lower costs and higher productivity in the Midwest and improved pricing at
Powder River, partially offset by lower profitability due to the inventory
reductions in the Southwest discussed above. In addition, the Midwest operations
include a $5.1 million reduction in reclamation costs as a result of receiving
regulatory approval for a less costly reclamation plan at a Midwestern mine
during the first quarter of fiscal year 2000, and the Appalachian operations
include $4.6 million of excise tax credits recognized as discussed above.
Operating profit in Australia for the six months ended September 30, 1999
increased $8.4 million as a result of higher sales volumes, lower than
anticipated repair and maintenance expenses, and the inclusion of the results of
operations of the Moura Mine that was acquired during the second quarter.
Citizens Power experienced a decline of $3.6 million, due to lower trading gains
and power contract restructuring activity compared to the prior year.
Interest Expense. Interest expense increased $20.9 million over the prior six
month period, as the prior year period only includes indebtedness from the May
20, 1998 acquisition date forward.
Income Taxes. The Company's effective book income tax rate for the quarter and
six months ended September 30, 1999 was 2.7% and 11.4%, respectively, as
compared to 32.0% and 17.5% for the corresponding periods of fiscal year 1999.
The prior year income tax provision reflects higher deferred tax expense as a
result of the reduction in the deferred tax asset related to employee
liabilities (without a corresponding current tax benefit). 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.
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities was $47.0 million for the first half
of fiscal year 2000, a decrease of $128.1 million. The prior year results
include the monetization of a royalty stream that resulted in a prepayment of
$135.9 million.
Excluding acquisitions, net cash used in investing activities improved $33.3
million, mainly as a result of higher proceeds from asset sales, and
sale-leaseback transactions. The prior year results also include the acquisition
of the Predecessor Company for approximately $2 billion, while the current year
results include the acquisition of the Moura Mine in Australia for $30.2
million. As of September 30, 1999, the Company had $112.0 million of committed
capital expenditures that are primarily related to coal reserves and mining
equipment. It is anticipated these capital expenditures will be funded through
available cash and credit facilities.
Net cash used in financing activities for the six months ended September 30,
1999 was $25.3 million, as compared to the prior year's proceeds of $2.2
billion. The prior year results include the financing of the acquisition of the
Predecessor Company of $1.8 billion and the related equity contribution of
$480.0 million, while the current year results include borrowings to fund the
Moura acquisition.
As of September 30, 1999, the Company had total indebtedness of $2,524.2
million, consisting of the following:
(In millions)
Term loans under senior credit facilities $ 810.0
9.625% Senior Subordinated Notes due 2008
("Senior Subordinated Notes") 498.7
8.875% Senior Notes due 2008 ("Senior Notes") 398.9
Non-Recourse Debt (Citizens Power) 325.9
5.000% Subordinated Note (Peabody Holding Company) 195.2
Senior unsecured notes under various agreements
(Black Beauty Coal Company) 107.1
Project finance facility (Peabody Resources) 73.2
Bank loan facility (Black Beauty Coal Company) 36.3
Capital lease obligations 26.2
Other 52.7
---------------
$ 2,524.2
===============
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. The Company had no borrowings outstanding under the Revolving
Credit Facility during either period. 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 ending October 1, 2001, and on $200 million of such
long-term debt for two years ending October 1, 2000. The Revolving Credit
Facility commitment matures in fiscal year 2005.
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.
<PAGE>
The following table sets forth the amortization schedule for the Senior Credit
Facilities:
(In millions)
Term Loan A Term Loan B
--------------- ----------------
Fiscal Year:
2000 $ - $ -
2001 - -
2002 22.50 -
2003 68.75 -
2004 93.75 -
2005 25.00 64.00
2006 - 408.25
2007 - 127.75
--------------- ---------------
$ 210.00 $ 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 Company was in compliance with all of the restrictive covenants
of its loan agreements as of September 30, 1999.
Other
Mine Suspensions. In July 1999, the Company announced the suspension of
operations at the Marissa Operating Unit in Illinois effective October 1999. The
Marissa Operating Unit, which shipped 4.4 million tons of coal in fiscal year
1999, has been unsuccessful in attempts to secure additional business after its
principal customer began shifting its supply to lower-sulfur coal from the
Company's Powder River operations. However, the Company is attempting to
identify additional sources of revenue that would allow the mine to continue to
operate. The Company does not anticipate a material adverse impact on its
results of operations or financial position from the mine suspension.
In addition, in October 1999 the Company provided notices to employees at the
Lynnville and Hawthorn mines in Indiana that each of the mines would suspend
operations on or before December 31, 1999. The suspension of operations at these
locations is not anticipated to materially affect the consolidated results of
operations or financial position, as the Company anticipates these mines'
primary customers will purchase coal from Black Beauty Coal Company. Finally,
the Company is evaluating the possibility of closing other mines due to market
conditions. Such suspensions are not expected to have a material adverse impact
on the Company's results of operations or financial condition.
Status of West Virginia Mountaintop Mining. On October 20, 1999, the U.S.
District Court for the Southern District of West Virginia issued a permanent
injunction against the West Virginia Department of Environmental Protection in a
mountaintop-mining lawsuit. As interpreted by the Director of the Department of
Environmental Protection, the injunction prohibits the Department from approving
any new permits that would authorize the placement of excess spoil in
intermittent and perennial streams for the primary purpose of waste disposal.
The Department also interpreted the injunction to affect certain existing coal
refuse ponds, sediment ponds and mountaintop mining operations.
The Department has filed an appeal of the decision with the Fourth Circuit Court
of Appeals. On October 29, 1999, the District Court issued a stay of its
decision pending a resolution of the appeal. The Company does not believe this
court order will have any immediate effect on its West Virginia mines. The
Company is analyzing the potential long-term impact on its mines and coal
reserves.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued 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. The Financial Accounting
Standards Board recently issued SFAS No. 137, which defers the effective date of
SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15,
2000 (effective April 1, 2001 for the Company). The Company is evaluating the
requirements of this Statement and has not determined the impact of adoption on
the consolidated financial statements.
<PAGE>
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 - The Company believes it has taken the
necessary steps, including contingency planning, to be prepared for the arrival
of the Year 2000. The Company does not anticipate any material adverse financial
impacts to its business from the "Year 2000 Issue". However, while the Company's
Year 2000 efforts have included communication with its critical business
partners, the Company cannot provide a representation on behalf of these third
parties.
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 $5.8
million, which includes $2.4 million for the purchase of new software and
hardware that will be capitalized and $3.4 million that will be expensed as
incurred. To date, the Company has incurred approximately $5.3 million primarily
for assessment of the Year 2000 issue, development of a modification plan, and
correcting non-compliant items. The Company believes that the total costs
associated with these modifications will not have a material adverse effect on
its results of operations or financial position. However, the costs of the
project are based on management's best estimates, which were derived utilizing
numerous assumptions.
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 and 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.
The Company's Contingency Plans - The Company has developed and will continue to
refine comprehensive contingency plans 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.
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Navajo Nation
On June 18, 1999, The Navajo Nation served the Company's subsidiaries, Peabody
Holding Company, Inc., Peabody Coal Company and Peabody Western Coal Company,
with a complaint that had been filed in the U. S. District Court for the
District of Columbia. Other defendants in the litigation are two utilities, two
current employees and one former employee. The Navajo Nation has alleged sixteen
claims including civil Racketeer Influenced and Corrupt Organizations Act, or
RICO, claims, fraud and tortious interference with contractual relationships.
The plaintiff is seeking various remedies including actual damages of at least
$600 million which could be trebled under the RICO counts, punitive damages of
at least $1 billion, a determination that Peabody Western Coal Company's two
coal leases for the Kayenta and Black Mesa mines have terminated due to the
failure of a condition and a reformation of the two coal leases to adjust the
royalty rate to 20%. All defendants have filed a Motion to Dismiss the
complaint. The Company believes this matter will be resolved without a material
adverse effect on its financial condition or results of operations.
Minerals Management Service
The Minerals Management Service (MMS) issued a preliminary administrative
decision in August 1992, determining that a subsidiary of the Company,
subsequently merged into Powder River Coal Company, had underpaid royalties owed
to the federal government. On October 15, 1999, the Company signed a settlement
agreement with the federal government on all civil claims related to the
dispute. The Company agreed to pay $11 million in two installments, which will
be charged against a previously established reserve.
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.
The Company's policy is to accrue environmental cleanup-related costs of a
noncapital nature when those costs are believed to be probable and can be
reasonably estimated. The quantification of environmental exposures requires an
assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For certain sites, the Company also assesses the financial
capability of other potentially responsible parties and, where allegations are
based on tentative findings, the reasonableness of the Company's apportionment.
The Company has not anticipated any recoveries from insurance carriers or other
potentially responsible third parties in its Consolidated Balance Sheets. The
liabilities for environmental cleanup-related costs recorded in the Consolidated
Balance Sheet at September 30, 1999 were $57.3 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 results of operations or financial position 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 adverse effect on the results of
operations or financial position of the Company.
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: November 4, 1999 By: /s/ RICHARD A. NAVARRE
----------------------------------------------
Richard A. Navarre
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 (Incorporated by reference to
Exhibit 3.1 of the Company's Form 10-Q for the third
quarter ended December 31, 1998).
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).
27 Financial Data Schedule (filed electronically with the SEC only).
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations as of
September 30, 1999 and for the six months then ended, and is qualified in its
entirety by reference to such financial statements.
[/LEGEND]
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] MAR-31-2000
[PERIOD-END] SEP-30-1999
[CASH] 126,312
[SECURITIES] 0
[RECEIVABLES] 384,349
[ALLOWANCES] 177
[INVENTORY] 245,607
[CURRENT-ASSETS] 1,789,523
[PP&E] 5,107,548
[DEPRECIATION] 307,090
[TOTAL-ASSETS] 6,981,525
[CURRENT-LIABILITIES] 1,345,883
[BONDS] 2,433,182
[PREFERRED-MANDATORY] 0
[PREFERRED] 50
[COMMON] 197
[OTHER-SE] 478,690
[TOTAL-LIABILITY-AND-EQUITY] 6,981,525
[SALES] 1,224,003
[TOTAL-REVENUES] 1,278,668
[CGS] 1,035,195
[TOTAL-COSTS] 1,035,195
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 100,852
[INCOME-PRETAX] (21,750)
[INCOME-TAX] (2,480)
[INCOME-CONTINUING] (22,391)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (22,391)
[EPS-BASIC] 0
[EPS-DILUTED] 0
</TABLE>
