<PAGE>
<PAGE>
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. 4 TO MARKET-MAKING PROSPECTUS DATED
AUGUST 2, 1999
THE DATE OF THIS SUPPLEMENT IS JUNE 28, 2000
ON JUNE 28, 2000, P&L COAL HOLDINGS CORPORATION FILED THE
ATTACHED ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
MARCH 31, 2000
<PAGE>
<PAGE>
========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2000
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
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 342-3400
------------------------------------------------------------------------
Registrant's telephone number, including area code
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in any amendment to
this Form 10-K. [X]
========================================================================
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS.
OVERVIEW
We are the world's largest coal company. In addition to being the
world's largest producer and marketer of coal, we are engaged in coal
and emission allowance trading, coal contract restructurings,
transportation services and we generate revenues from our substantial
property holdings. During the past decade, we have transformed from a
largely high sulfur, high-cost coal producer to a producer and marketer
of predominantly low sulfur, low-cost coal from operations in the United
States and Australia.
For the year ended March 31, 2000, we sold 190.3 million tons of coal
worldwide. These products were used to generate more than 9% of the
electricity in the United States and more than 2.5% of the world's
electricity. Our share of the U.S. coal market was approximately 16.0%
in calendar 1999. We have approximately 10.0 billion tons of proven and
probable coal reserves, the largest reserve base of any coal-producing
company in the United States.
We currently own interests in more than 35 active mines in the United
States and Australia, and also sell coal produced by third-party
contractors and suppliers. In fiscal year 2000, we produced
approximately 62% of our coal in the Western United States, 32% from the
eastern half of the United States and 6% from Australia. Peabody's coal
production in the Western United States has grown from 37 million tons
in 1990 to 118 million tons in fiscal year 2000. Our highly productive
western operations produce low sulfur coal that utilities utilize to
comply with the more stringent standards resulting from the Clean Air Act.
Our large and diverse customer base includes more than 300 electricity
generating plants and industrial customers in the United States as well
as steam and metallurgical coal customers in 17 other countries. In
fiscal year 2000, we supplied 93% of our United States production to
United States electric utilities, 4% to the export market and 3% to the
United States industrial sector.
HISTORY
Peabody, Daniels and Co. was founded in 1883 as a retail coal supplier,
entering the mining business in 1888 as Peabody & Co. with our first
mine in Illinois. In 1926, Peabody Coal Company was listed on the
Chicago Stock Exchange and, beginning in 1949, on the New York Stock
Exchange. In 1955, Peabody Coal Company, primarily an underground mine
operator, merged with Sinclair Coal Company, a major surface mining
company. In 1968, Peabody Coal Company was acquired by Kennecott Copper
Company. In 1977, it was sold to Peabody Holding Company, which was
formed by a consortium of companies.
In July 1990, Hanson acquired Peabody Holding Company. In February 1997,
Hanson spun off its energy-related businesses, including Eastern Group
and Peabody Holding Company, into The Energy Group, plc. The Energy Group
was a publicly traded company in the United Kingdom and its American
Depository Receipts (ADR's) were publicly traded on the New York Stock
Exchange. On May 19, 1997, The Energy Group, through Peabody, purchased
Citizens Power, a leading power marketer.
On May 19, 1998, Lehman Brothers Merchant Banking Partners II L.P., an
affiliate of Lehman Brothers Inc. purchased Peabody Holding Company and its
affiliates, Peabody Resources Limited (Peabody Resources) and Citizens
Power LLC, now collectively called the Peabody Group. The transaction
coincided with the purchase by Texas Utilities of the remainder of The
Energy Group.
During the 1980s, Peabody grew through expansion and acquisition,
opening the North Antelope Mine in Wyoming's coal-rich Powder River
Basin in 1983 and the Rochelle Mine in 1985. In 1984, we acquired the
West Virginia coal properties of ARMCO Steel and the following year
purchased Coal Properties Corp. and Eastern Associated Coal Corp., which
included seven operating mines and substantial low sulfur coal reserves
in West Virginia.
2
<PAGE>
<PAGE>
From 1993 to 2000, we made 16 major acquisitions. In 1993, interests in
three mines in New South Wales, Australia, were acquired from Costain
Group in anticipation of the growing Pacific Rim market for coal. The
properties included 100% ownership of the Ravensworth Mine, a 50%
interest in the Narama Mine and a 28.75% interest in the Warkworth Mine,
subsequently raised to 43.75%. We also subsequently developed a fourth
mine, Bengalla, which began shipments in early 1999. Our interest in
the Bengalla joint venture was raised from 35% to 37% in 1998 and to
40% in 2000.
In 1993 we also acquired the Lee Ranch Mine in New Mexico. The following
year, we purchased a one-third ownership in Black Beauty Coal Company
(Black Beauty), Indiana's largest coal producer. We increased our
interest in Black Beauty to 43.3% in February 1998 and to 81.7% in
January 1999. Black Beauty acquired Catlin Coal Company in 1999 and
acquired an additional 25% of Arclar Coal Company in 2000.
In 1994, we acquired the Caballo and Rawhide mines in Wyoming's Powder
River Basin from Exxon Coal USA Inc. This acquisition, along with the
expansion of the North Antelope and Rochelle Mines, positioned Peabody
as the leading producer in the Powder River Basin, the nation's largest
and fastest growing coal region. Our sales volume from the Powder River
Basin increased from 31 million tons in 1993 to 96 million tons in
fiscal year 2000.
In August 1999, we purchased a 55% interest in the Moura Mine in
Queensland, Australia. The Moura Mine supplies a range of steam and
metallurgical coals to Asia-Pacific customers and operates a coalbed
methane extraction operation.
Since 1990, our coal sales volume has grown from approximately
93 million annual tons to approximately 190 million annual tons,
an increase of 104%.
OUR BUSINESSES
COMMERCIAL OPERATIONS
Our sales and marketing operations, Peabody COALSALES and Peabody
COALTRADE, sell coal produced by our large, diverse portfolio of
operations, broker coal sales of other producers to third parties (both
as a principal and as an agent), trade coal and emission allowances, and
provide coal contract restructuring services and transportation services.
Total coal sales volume for fiscal year 2000 was 190.3 million tons.
RESOURCE MANAGEMENT
We hold approximately 10.0 billion of proven and probable coal reserves
worldwide. Our Resource Management group constantly reviews this reserve
base to generate revenues through the sale of non-strategic coal
reserves and surface land. In addition, revenue is generated through
royalties from coal reserves leased to third parties, and farm income
from surface land under third party contracts. The Resource Management
group is also actively pursuing opportunities in the area of coalbed
methane extraction in the United States through a new subsidiary,
Peabody Natural Gas, LLC.
3
<PAGE>
<PAGE>
MINING OPERATIONS
The following provides a description of the operating characteristics of
the principal mines and reserves of each of our United States and
Australian operating units and affiliates.
U. S. OPERATIONS
[MAP]
UNITED STATES
Within the United States, operations are divided into four operating
regions: Powder River Basin; Southwest; Appalachia; and Midwest.
POWDER RIVER BASIN OPERATIONS
We control approximately 3.5 billion tons of coal reserves in the
southern Powder River Basin, the largest and fastest growing major U.S.
coal-producing region. We own and manage three low sulfur, non-union
surface mining complexes in Wyoming that sold approximately 96.1 million
tons of coal in fiscal year 2000, or approximately 50% of our total coal
sales. The North Antelope/Rochelle and Caballo mines are serviced by
both major western railroads, the Burlington Northern/Santa Fe and Union
Pacific. The Rawhide Mine, which was idled in fiscal year 1999, is
serviced by the Burlington Northern/Santa Fe railroad only.
Our Wyoming Powder River Basin reserves are classified as surface
mineable, subbituminous coal with seam thickness varying from 70 to 105
feet. The sulfur content of the coal in current production ranges from
0.2% to 0.4% and the heat value ranges from 8,250 to 8,900 Btus per pound.
4
<PAGE>
<PAGE>
We also operate the Big Sky Mine in Montana in the northern Powder River
Basin. Coal from this mine is shipped to customers in the upper Midwest
by the Burlington Northern/Santa Fe railroad.
North Antelope/Rochelle
The North Antelope/Rochelle Mine is located 65 miles south of Gillette,
Wyoming. The mine is the largest surface mine and one of the most
productive in the United States, selling 69.3 million tons during fiscal
year 2000. The North Antelope/Rochelle Mine produces premium quality
coal with a sulfur content averaging 0.20% and a heat value ranging from
8,500 to 8,900 Btus per pound. It produces the lowest sulfur coal in the
United States, using a dragline along with five truck-and-shovel fleets
to uncover the coal.
Caballo
The Caballo Mine is located 20 miles south of Gillette, Wyoming. In
fiscal year 2000, it sold approximately 26.8 million tons of low sulfur
coal. Caballo is a truck and shovel operation with a coal handling
system that includes two 12,000-ton silos and two 11,000-ton silos.
Big Sky
The Big Sky Mine is located in the northern end of the Powder River
Basin near Colstrip, Montana and uses dragline mining equipment. The
mine sold 2.5 million tons of low sulfur coal in fiscal year 2000. The
coal is shipped by rail to several major electric utility customers in
the upper Midwestern United States. This mine is near the exhaustion of
its economically recoverable reserves and may be closed in the next
several years, depending upon market and mining conditions. Hourly
workers at the Big Sky Mine are members of the United Mine Workers
of America.
SOUTHWESTERN OPERATIONS
We own and manage two mines in Arizona and one each in Colorado and
New Mexico. Each supply low sulfur coal under long-term coal supply
agreements to electricity generating stations in the region. Together,
these mines sold 19.2 million tons of coal in fiscal year 2000.
Black Mesa
The Black Mesa Mine, which is located on the Navajo Nation and Hopi
Tribe reservations in Arizona, uses two draglines and sold 4.6 million
tons of coal in fiscal year 2000. Its coal is crushed, mixed with
water and then transported 273 miles through the underground Black Mesa
Pipeline to the Mohave Generating Station near Laughlin, Nevada operated
by Southern California Edison. The mine and the pipeline were designed
to deliver coal exclusively to the power plant, which has no other
source of coal. The Mohave coal supply agreement extends until 2005.
Hourly workers at this mine are members of the United Mine Workers of
America.
Kayenta
The Kayenta Mine is adjacent to the Black Mesa Mine and uses three
draglines in three mining areas. It sold approximately 8.5 million tons
of coal in fiscal year 2000. The coal is crushed, then carried
17 miles by conveyor belt to storage silos where it is loaded on to a
private rail line and transported 83 miles to the Navajo Generating
Station, operated by the Salt River Project near Page, Arizona. The mine
and the railroad were designed to deliver coal exclusively to the power
plant, which has no other source of coal. The Navajo coal supply
agreement extends until 2011. Hourly workers at this mine are members
of the United Mine Workers of America.
Seneca
The Seneca Mine near Hayden, Colorado shipped 1.4 million tons of low
sulfur coal in fiscal year 2000, operating with two draglines in two
separate mining areas. The mine's coal is hauled by truck to the nearby
Hayden Generating Station, operated by Public Service of Colorado, under
a coal supply agreement that extends until 2011. Hourly workers at this
mine are members of the United Mine Workers of America.
5
<PAGE>
<PAGE>
Lee Ranch Coal Company
The Lee Ranch Mine, located near Grants, New Mexico, sold approximately
4.7 million tons of low sulfur coal in fiscal year 2000. Lee Ranch
shipped the majority of its coal to two customers in Arizona and New
Mexico under coal supply agreements extending until 2010 and 2014,
respectively. Lee Ranch is a non-union surface mine that uses a
combination of dragline and truck-and-shovel mining techniques.
APPALACHIA OPERATIONS
We own and manage five operating units and related facilities in West
Virginia. In fiscal year 2000, these operations sold approximately
16.8 million tons of mid to low sulfur steam and metallurgical coal
to customers in the United States and abroad. Hourly workers at these
operations are members of the United Mine Workers of America.
Big Mountain/Robin Hood Operating Unit
The Big Mountain/Robin Hood Operating Unit is based near Prenter,
West Virginia. In fiscal year 2000, the Big Mountain No. 16 and Robin Hood
No. 9 mines sold approximately 2.3 million tons of steam coal. Both are
underground mines using continuous mining equipment. Processed coal is
loaded on the CSX railroad.
Harris Operating Unit
The Harris Operating Unit consists of the Harris No. 1 Mine near Bald
Knob, West Virginia, which sold approximately 3.0 million tons of low
sulfur coal in fiscal year 2000. This mine uses both longwall and
continuous mining equipment.
Rocklick Operating Unit and Contract Mines
The Rocklick preparation plant, located near Wharton, West Virginia,
processes coal produced by the Harris Mine and contract mining companies
from coal reserves that we control. This preparation plant shipped
approximately 6.2 million tons of steam and metallurgical coal in fiscal
year 2000 (including 3.0 million tons related to the Harris Operating
Unit). Processed coal is loaded at the plant site on the CSX railroad or
transferred via conveyor to our Kopperston loadout facility and loaded
on the Norfolk Southern railroad.
Wells Operating Unit
The Wells Operating Unit, in Boone County, West Virginia, sold
approximately 3.8 million tons of metallurgical and steam coal during
fiscal year 2000. The unit consists of the Lightfoot No. 2 Mine,
contract mines and the Wells Preparation Plant, located near Wharton,
West Virginia. The mine uses continuous miners to produce coal from
reserves we own. The Lightfoot No. 1 Mine closed on February 11, 1999
after depleting its mineable reserves. Processed coal is loaded on the
CSX railroad.
Federal No. 2 Mine
The Federal No. 2 Mine, near Fairview, West Virginia, uses longwall
mining equipment and shipped approximately 4.5 million tons of steam
coal in fiscal year 2000. Coal shipped from the Federal No. 2 Mine has a
sulfur content only slightly above that of low sulfur coal and has an
above average heating content - as a result, it is more marketable than
some other mid-sulfur coals. The mine is served jointly by the CSX and
Norfolk Southern railroads, through which processed coal is sold to a
variety of United States and Canadian electricity generating plants.
MIDWEST OPERATIONS
We own and operate six mines in the Midwestern United States, which
collectively sold 16.5 million tons of coal in fiscal year 2000.
Included are four underground and two surface mines, along with five
preparation plants and four barge loading facilities, located in western
Kentucky, southern Illinois and southwestern Indiana. Coal from these
mines is primarily shipped to electric utilities in the Midwest, while
some coal is sold to industrial customers that generate their own power.
Approximately 56% of the high sulfur coal sold from these mining
operations is shipped to electric generating stations equipped with
desulfurization units. Peabody Coal Company hourly workers are members
of the United Mine Workers of America; Patriot Coal Company operates
union-free.
6
<PAGE>
<PAGE>
We control 16 additional mines in the Midwestern United States through
our 81.7% joint venture interest in Black Beauty, as discussed below.
Camp Operating Unit
The Camp Operating Unit, located near Morganfield, Kentucky, operates
two underground mines and a large preparation and barge loading
facility. Together, these operations sold 6.6 million tons of coal in
fiscal year 2000. The Camp No. 1 Mine uses continuous mining equipment
with both continuous haulage systems and shuttle car haulage. The Camp
No. 11 Mine uses both longwall and continuous mining equipment. Most of
the production is sold under contract to TVA.
Hawthorn and Lynnville Operating Units
In December 1999, we suspended operations at the Hawthorn and Lynnville
Operating Units pending improved market conditions. The Hawthorn
Operating Unit near Carlisle, Indiana sold 2.2 million tons of coal in
fiscal year 2000. The Lynnville Operating Unit, near Lynnville, Indiana,
sold approximately 2.3 million tons of coal in fiscal year 2000.
Marissa Operating Unit
The Marissa Operating Unit, located near Marissa, Illinois, was closed
in October 1999 after the mine's primary customer shifted its supply to
lower-sulfur coal from our Powder River Basin operations. The Marissa
Operating Unit shipped 2.4 million tons of coal in fiscal year 2000.
Midwest Operating Unit
The Midwest Operating Unit near Graham, Kentucky, sold 1.1 million tons
of coal in fiscal year 2000. The unit includes the Martwick underground
mine, which uses continuous mining equipment, and the Gibraltar surface
mining operations. Coal from these mines is sold to under contract to TVA.
The unit is also responsible for managing closed and suspended mining
operations throughout Peabody's North American operations. These
properties are managed from bond release until final reclamation
requirements are met.
Patriot Coal Company
Patriot Coal Company operates Patriot, a surface mine, and Freedom, an
underground mine, in Henderson County, Kentucky, and sold approximately
1.9 million tons of coal in fiscal year 2000. The underground mine uses
continuous mining equipment, and the surface mine uses truck and shovel
equipment. Patriot Coal Company also operates a preparation plant and a
dock.
Black Beauty Coal Company
We also own 81.7% of Black Beauty, which operates 10 mines in Indiana
and also has interests in four mines in southern Illinois and two mines
in western Kentucky. Together these operations sold 19.8 million tons of
low, medium and high sulfur steam coal in fiscal year 2000. We purchased
a one-third interest in Black Beauty in 1994, and increased our interest
to 43.3% in 1998 and 81.7% in 1999. Black Beauty Resources, Inc., owned
by certain members of Black Beauty's management team, owns the remaining
interest.
Black Beauty's principal mines include Air Quality No. 1, a low sulfur
underground coal mine located near Monroe City, Indiana. In fiscal year
2000, Air Quality No.1 shipped 1.8 million tons of low sulfur coal.
Among other mines in Indiana, Black Beauty also operates Farmersburg, a
surface mine that produced 3.5 million tons of medium sulfur coal in
fiscal year 2000, the Francisco Mine, a 2.8 million ton per year surface
mine, and Somerville, a 2.0 million ton per year surface mine that is
under development.
Black Beauty owns a 75% equity interest in Sugar Camp Coal, LLC, a
3.5 million ton per year surface mine located in southern Illinois.
Sugar Camp owns a 100% interest in Arclar Coal Company, which operates
two underground mines in southern Illinois that sell 1.0 million tons
per year.
Black Beauty controls approximately 385 million tons of coal reserves,
including 100 million tons of reserves that are in compliance or near
compliance with the more stringent Clean Air Act restrictions.
7
<PAGE>
<PAGE>
AUSTRALIA
Through Peabody Resources, headquartered in Sydney, Australia, we own
interests in coal mining, coal trading and mining services in Australia.
Peabody Resources manages and owns interests in five surface coal mines
in the Hunter Valley, New South Wales, and one in the Bowen Basin in
Queensland. All operating mines use draglines as the primary overburden
stripping method to uncover coal seams. The mines sold 18.7 million tons
during fiscal year 2000, of which Peabody Resources' entitlement was
approximately 11.1 million tons. Approximately 53% of the coal is sold
domestically via term contracts, and 47% is exported to Asia-Pacific
markets, where coal consumption is expanding to satisfy growing
electricity demand. See further information regarding our Australian
operations in the financial statements at note 21 - "Segment
Information."
AUSTRALIAN MINING OPERATIONS
[MAP]
Ravensworth Mine
Located 12 miles northwest of Singleton, New South Wales, the
Ravensworth Mine is 100% owned and managed by Peabody Resources under
a contract that runs to the year 2001 and requires the production of
approximately 4.4 million tons per year from coal reserves owned by
Macquarie Generation. The coal is trucked from the pit to a crushing
plant and transported by overland conveyor to nearby Bayswater and
Liddell power stations. Peabody Resources also holds low sulfur coal
resources at Ravensworth West for future domestic supply.
Ravensworth East
During fiscal year 2000, Peabody Resources was awarded a contract with
Macquarie Generation to deliver 1.9 million tons per annum from January
2001 for three years from Ravensworth East. The coal reserves and
surface land were purchased as Swamp Creek Colliery from Pacific Power
via a competitive tender. Swamp Creek was a domestic mine that has been
on "care and maintenance" since operations ceased in 1991. The lease
acquired by Peabody Resources was renamed Ravensworth East. Coal will be
transported by overland conveyor to the nearby Bayswater and Liddell
Power Stations.
8
<PAGE>
<PAGE>
Narama Mine
The Narama Mine opened in January 1993 and is operated by Peabody
Resources as an extension of the adjacent Ravensworth facility using
similar mining techniques in the same coal seams. The Narama Joint
Venture, of which Peabody Resources owns 50%, holds a 20 year contract
extending through 2012 to supply approximately 2.3 million tons annually
to Macquarie Generation.
Warkworth Mine
Located 7 miles southwest of Singleton, the Warkworth Mine opened in
1981 and produces about 5.8 million tons per year of thermal and semi-
soft coking coal, primarily for export. Peabody Resources manages the
mine and owns 43.75% of the Warkworth Associates Joint Venture. The coal
is processed at Warkworth Mine's preparation plant and blended to
customer specifications before being transported by overland conveyor to
the Mount Thorley rail loop and then by rail to the Port of Newcastle.
Warkworth owns 13.9% of the Mount Thorley facility and 4.2% of the Port
of Newcastle Coal Loading Terminal. Warkworth has also entered into a
30-year supply agreement commencing in 2000 to produce and supply BDT
fuel (Beneficiated Dewatered Tailings) from a washery tailings facility
for sale to the adjacent Redbank Power Station that is under
construction.
Bengalla Mine
The Bengalla Mine is located near Muswellbrook, New South Wales and is
owned by the Bengalla Joint Venture, in which Peabody Resources holds a
40% interest, and manages the mine. Construction of the first stage of
the 6.6 million ton per year surface mine and facility was completed in
1999, with sales commencing in April 1999. The mine sold 2.5 million
tons in fiscal year 2000 and is expected to expand to 4.6 million tons
of thermal coal predominately for export in 2000. Coal is mined by
excavator and transported on site by overland conveyor to a modern coal
preparation plant and stockpiling facility. Coal is dispatched by rail
to domestic users or to the Port of Newcastle.
Moura Mine
Peabody Resources manages and owns a 55% interest in the Moura Mine
acquired in August 1999. The mine is located 115 miles by rail west
of the port of Gladstone, in Central Queensland. Moura has an annual
production capacity of 5.3 million tons, comprising 2.5 million tons
of semi-soft coking coal and 2.8 million tons of thermal coal. The
acquisition includes coal and coalbed methane operations, together with
leases for nearly 1.8 billion tons of surface and underground resources.
Coal is mined from a variety of locations over a 21-mile lease area.
Overburden is removed by the use of three electric powered draglines.
Front-end loaders, loading a fleet of coal haulers, carry out coal
recovery. Highwall mining techniques are also utilized for coal
extraction. Coal is conveyed to the coal preparation plant prior to
transportation by rail to the Clinton and Barney Point coal terminals
for export primarily to Japan and Korea. The coalbed methane operation
is steadily being built up to an annual output of 18 terrajoules to
supply markets across the state, and will ultimately enhance the
prospects of future underground mining at Moura.
Mining Services
Peabody Resources' Mining Services Division, based in Brisbane,
Queensland, provides specialist tunneling and underground contract-
mining services to the mining and civil engineering industries. The
Mining Services Division has been involved in underground development
work for a number of Australian projects, notably for leading mining
companies including BHP Minerals at Cannington, Western Mining
Corporation at Olympic Dam, Placer Pacific at Osborne, Plutonic
Resources Limited at Darlot, Amalg Resources at Eloise and civil
projects including a tunneling project through a joint venture with
Obayashi Corporation of Japan for the Brisbane City Council. In November
1999, Mining Services acquired the Archveyor highwall mining system. The
Archveyor uses continuous flexible haulage conveyors that are computer
controlled and monitored by one operator. The Archveyor system will
commence operation at the Moura Mine in mid-2000.
COALTRADE Australia
COALTRADE Australia based in Newcastle, New South Wales was established
in April 2000 to complement our existing U.S. coal trading operations
and our Australian export production sales.
9
<PAGE>
<PAGE>
The operations provide alternative commercial, logistical and product
solutions that are required in the rapidly expanding seaborne coal
market, particularly customers in the high growth areas of Japan, South
Korea, Southeast Asia and the Pacific Rim countries.
POWER MARKETING AND ELECTRICITY CONTRACT RESTRUCTURING
Our subsidiary, Citizens Power, headquartered in Boston, Massachusetts,
is engaged in electricity contract restructuring and electricity, gas
and oil trading. For purposes of our financing, Citizens Power and its
subsidiaries are unrestricted subsidiaries. Typically, Citizens Power
acts, through subsidiary companies, as a third party facilitator to
obtain non-recourse financing, the proceeds of which are used to
purchase, and then obtain lower cost replacement power for, long-term
electricity supply contracts between independent power producers and
electric utility companies. In May 2000, we signed a purchase and sale
agreement to sell Citizens Power to Edison Mission Energy. See further
discussion in "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LONG-TERM COAL SUPPLY AGREEMENTS
United States
We have a large portfolio of coal supply agreements. For the fiscal
year ended March 31, 2000, 86% of our sales volume was sold under
coal supply agreements. We currently have coal supply agreements totaling
approximately one billion tons of coal with terms ranging from one to
16 years and with an average volume-weighted remaining term of more than
4 years. In fiscal year 2000, we sold coal to more than 300 power plants
and industrial customers in the United States and Canada and exported to
17 other countries.
Contract Terms
Typically, customers enter into coal supply agreements to secure
reliable sources of coal at predictable prices, while we seek stable
sources of revenue to support the investments required to open, expand
and maintain or improve productivity at mines needed to supply such
contracts. The terms of coal supply agreements result from bidding and
extensive negotiations with customers. Consequently, the terms of such
contracts typically vary significantly in many respects, including price
adjustment features, price reopener terms, coal quality requirements,
quantity parameters, flexibility and adjustment mechanics, permitted
sources of supply, treatment of environmental constraints, extension
options and force majeure, termination and assignment provisions.
Price reopeners are present in most of the recently negotiated contracts
greater than three years in duration and usually occur midway through a
contract or every two to three years, depending upon the length of the
contract. Price reopeners allow the contract price to be renegotiated in
order to correspond with the market price prevailing at the time. If the
parties do not agree on a new price, the purchaser or seller often has
an option to terminate the contract.
Base prices are set at the start of a contract and are often adjusted at
quarterly or annual intervals for changes due to inflation and/or
changes in actual costs such as taxes, fees and royalties. The inflation
adjustments are measured by public indices, the most common of which is
the implicit price deflator for the gross domestic product as published
by the United States Department of Commerce.
Quality and volumes for the coal are stipulated in coal supply
agreements, and in some instances have the option to vary annual or
monthly volumes if necessary. Variations to the quality and volumes of
coal may lead to adjustments in the contract price. Coal supply
agreements typically stipulate procedures for quality control, sampling
and weighing. Most coal supply agreements contain provisions requiring
us to deliver coal within certain ranges for specific coal
characteristics such as heat content (Btus), sulfur, ash, grindability
and ash fusion temperature. Failure to meet these specifications can
result in economic penalties or termination of the contracts.
Contract provisions in some cases set out how coal volumes will be
temporarily reduced or delayed in the event of a force majeure,
including such events as strikes, adverse mining conditions or serious
transportation problems that affect the seller or unanticipated plant
outages that may affect the buyer. More recent contracts stipulate that
this tonnage can be made up by mutual agreement or at the discretion of
the buyer. Buyers often insert similar clauses covering changes in
environmental laws. We often negotiate the right to supply coal that
complies with a new environmental requirement to avoid contract
termination. Coal supply agreements typically contain termination
clauses if either party fails to comply with the terms and conditions of
the contract.
10
<PAGE>
<PAGE>
In certain contracts, we have a right of substitution, allowing us to
provide coal from different mines as long as the replacement coal is
within a certain specified quality and will be sold at the same
delivered cost. Contracts usually contain specified sampling locations:
in the Eastern United States, approximately 50% of customers require
that the coal is sampled and weighed at the destination, whereas in the
Western United States samples are usually taken at the shipping source.
Contract Expirations
Our coal supply agreements have an average volume-weighted remaining
term of more than 4 years. As our coal supply agreements expire, we
intend to negotiate new contracts in order to maintain our high
percentage of volume sold through coal supply agreements and low
percentage of volume sold into the spot market. When contracts expire, a
coal producer is exposed to the risk of selling coal into the spot
market, which may be subject to lower and more volatile prices, or to
closing the mine if follow-on business cannot be obtained.
The total sales commitments corresponding to the coal supply agreements
currently total approximately one billion tons of coal, assuming all the
contracts run through to their expiration date. Contracts for coal from
the mines in the Powder River Basin comprise approximately 52% of this
total commitment.
Australia
In fiscal year 2000, approximately 52% of Peabody Resources' 11.1 million
ton share of coal produced by Australian mines was sold under coal supply
agreements to the New South Wales power utility, Macquarie Generation.
The remainder was exported to Pacific Rim countries. Coal from the
Ravensworth, Ravensworth East and Narama mines is sold to Macquarie
Generation under contracts which expire in 2001, 2004 and 2012,
respectively. The contracts contain price adjustment provisions
based on the qualities of coal delivered and changes in indices of
mining costs.
All coal from the Warkworth and Moura mines is exported. Approximately
72% is sold under contracts, including contracts with the other joint
venture partners in Warkworth, and the remaining 28% is sold on the spot
market. Warkworth has now also entered into short-term domestic coal
supply agreements with Macquarie Generation and Delta Electricity, which
expire in 2003.
The Bengalla mine commenced the sale of coal in April 1999. The large
majority of coal from Bengalla is exported. Of the coal exported,
approximately 30% was sold under long-term contracts, while the
remaining 70% is sold on the spot market. It is anticipated that the mix
of contract and spot coal sold will change over the next few years as
Bengalla establishes its presence in the export coal market. Bengalla
does have a short-term domestic coal supply agreement with Macquarie
Generation, which represented approximately 10% of coal sold in the
current year. All coal from the Moura Mine, which was acquired in August
1999, is exported under contract. Peabody Resources' export contracts
for its Warkworth, Bengalla and Moura mines normally provide for annual
price renegotiations.
TRANSPORTATION
Coal for domestic consumption is generally sold at the mine and
transportation costs are normally borne by the purchaser. Export coal is
usually sold at the loading port, and coal producers are responsible for
shipment to the export coal-loading facility and the buyer pays the
ocean freight. Coal for electricity generation is purchased on the basis
of its delivered cost per million Btus. Most utilities arrange long-term
shipping contracts with rail or barge companies to assure stable
delivered costs.
Transportation is often a large component of the buyer's cost. Although
the cost of freight is absorbed by the customer, transportation cost is
still important to coal mining companies because the customer may choose
a supplier largely based on the cost of transportation.
According to RDI Coaldat, in 1999 approximately 92% of all U.S. coal was
shipped by rail or barge, making these modes the keys to domestic coal
distribution. Most coal mines are served by a single rail company, but
much of the Powder River Basin is served by two competing rail carriers,
the Burlington Northern/Santa Fe and the Union Pacific. Rail competition
in this major coal producing region is important, since rail costs
constitute up to 75% of the delivered cost of Powder River Basin coal in
remote markets. Rail rates for the Powder River Basin are lower when
evaluated on a ton-per-mile basis because the relatively flat and
straight rail routes out of the region allow heavily loaded trains to
operate with less manpower and locomotive power than rail routes in
other regions.
11
<PAGE>
<PAGE>
SALES AND MARKETING
Our subsidiaries, Peabody COALSALES and Peabody COALTRADE, undertake the
sales and marketing functions for our U.S. operating subsidiaries,
including exports from the United States. Peabody COALSALES acts as an
agent in the sale and marketing of the coal produced by each mining
subsidiary, and it generates profits through its brokering and agency
activities. Peabody COALTRADE buys and resells coal produced by a number
of third parties, and trades coal and sulfur dioxide emission allowance
forwards and options in the developing over-the-counter markets. As of
March 31, 2000, they had 57 employees located at five sites, including
personnel dedicated to performing market research, contract
administration and risk management activities. They annually prepare a
marketing plan that sets out the sales targets for the next five years
by region, coal type and markets. The strategic plan formulates and
concentrates the ongoing work carried out by the sales and marketing
teams to sell the mines' production through different sales and
marketing initiatives.
COMPETITION
The markets in which we sell our coal are highly competitive. The top
ten coal producers in the United States produce approximately 63% of
total domestic coal, although there are approximately 740 coal producers
in the United States. Our principal competitors in coal operations are
other large coal producers. Our largest competitors are Arch Coal, Inc.,
Kennecott Energy Co., RAG AG, CONSOL Energy Inc., AEI Resources, Inc.
and A.T. Massey Coal Company, which collectively produced approximately
40% of total United States coal production in 1999.
The markets in which we sell our coal are affected by a number of
factors beyond our control. Continued demand for our coal and the prices
obtained by us depend primarily on the coal consumption patterns of the
electricity industries in the United States and the Pacific Rim
countries, the availability, location (and therefore the cost of
transportation) and price of competing coal and alternative electricity
generation and fuel supply sources such as natural gas, oil, nuclear and
hydroelectric. Coal consumption patterns are affected primarily by the
demand for electricity, environmental and other governmental regulations
and technological developments. In recent years, there has been excess
coal production capacity due to increased development of large surface
mining operations in the Western United States, more efficient mining
equipment and techniques and reduced consumption of high sulfur coal. We
compete on the basis of coal quality, delivered price, customer service
and support and reliability.
SUPPLIERS
The main types of goods we purchase are mining equipment and replacement
parts, explosives, fuel, tires and lubricants. We also purchase coal
from third parties to satisfy some of our customer contracts. Purchases
of capital goods, materials and services are approximately 25% of our
annual revenue. The supplier base providing these goods has been
relatively consistent in recent years as we have many long established
relationships with our key suppliers.
Between 20% and 25% of goods and services are supplied by the top ten
suppliers, and some 60% of goods and services are provided by the top
100 suppliers. We do not have any supply arrangements with related
parties, and all transactions are carried out on an arm's length basis.
We consider all suppliers of a particular category of supplies to be
interchangeable and do not believe we are vulnerable to over-dependence
on any one supplier.
REGULATORY MATTERS
Our operations are subject to extensive regulation in the United States
and Australia regarding production, sale, distribution, health and
safety and environmental matters.
United States
The United States coal mining industry is subject to regulation by
federal, state and local authorities on matters such as employee health
and safety, permitting and licensing requirements, air quality
standards, water pollution, plant and wildlife protection, the
reclamation and restoration of mining properties after mining has been
completed, the discharge of materials into the environment, surface
subsidence from underground mining and the effects of mining on
groundwater quality and availability. In addition, the industry is
affected by significant legislation mandating certain benefits for
current and retired coal miners. Numerous federal, state and local
governmental permits and approvals are required for mining operations.
We believe that all permits currently required to conduct our
12
<PAGE>
<PAGE>
present mining operations have been obtained. We may be required to
prepare and present to federal, state or local authorities data
pertaining to the effect or impact that a proposed exploration for
or production of coal may have on the environment. Such requirements
could prove costly and time-consuming, and could delay commencing or
continuing exploration or production operations. Future legislation
and administrative regulations may emphasize the protection of the
environment and, as a consequence, our activities may be more closely
regulated. Such legislation and regulations, as well as future
interpretations and more rigorous enforcement of existing laws, may
require substantial increases in equipment and operating costs to us
and delays, interruptions or a termination of operations, the extent of
which cannot be predicted.
We endeavor to conduct our mining operations in compliance with all
applicable federal, state and local laws and regulations. However,
because of extensive and comprehensive regulatory requirements,
violations during mining operations occur from time to time in the
industry. None of the violations to date or the monetary penalties
assessed upon us have been material.
Mine Health and Safety
Stringent health and safety standards have been in effect since the Coal
Mine Health and Safety Act of 1969 was adopted by Congress. The Federal
Mine Health and Safety Act of 1977 significantly expanded the
enforcement of health and safety standards and imposed health and
safety standards on all aspects of mining operations.
Most of the states in which we operate have state programs for mine
health and safety regulation and enforcement. In combination, federal
and state health and safety regulation in the coal mining industry is
perhaps the most comprehensive and pervasive system for protection of
employee health and safety affecting any segment of United States
industry. While regulation has a significant effect on our operating
costs, our U.S. competitors are subject to the same degree of
regulation.
Our goal is to achieve excellent health and safety performance. We
measure our success in this area primarily through the use of accident
frequency rates. We believe that this goal is inherently tied to
achieving our productivity and financial goals. We seek to implement
this goal by: training employees in safe work practices; openly
communicating with employees; establishing, following and improving
safety standards; involving employees in establishing safety standards;
and recording, reporting and investigating all accidents, incidents and
losses to avoid reoccurrence.
Black Lung
Under the Black Lung Benefits Revenue Act of 1977 and the Black Lung
Benefits Reform Act of 1977, as amended in 1981, each coal mine operator
is required to secure payment of federal black lung benefits to
claimants who are current and former employees and to a trust fund for
the payment of benefits and medical expenses to claimants who last
worked in the coal industry prior to July 1, 1973. Less than 7% of the
miners currently seeking federal black lung benefits are awarded such
benefits by the federal government. The trust fund is funded by an
excise tax on production of up to $1.10 per ton for deep-mined coal and
up to $0.55 per ton for surface-mined coal; neither amount to exceed
4.4% of the sales price. This tax is passed on to the purchaser under
many of our coal supply agreements.
Legislation on black lung reform has been introduced in Congress. The
legislation would restrict the evidence that can be offered by a mining
company, establish a standard for evaluation of evidence that greatly
favors black lung claimants, allow claimants who have been denied
benefits at any time since 1981 to refile their claims for consideration
under the new law, make surviving spouse benefits significantly easier
to obtain and retroactively waive repayment of preliminarily awarded
benefits that are later determined to have been improperly paid. If this
or similar legislation is passed, the number of claimants who are
awarded benefits could significantly increase.
The U.S. Department of Labor has issued proposed amendments to the
regulations implementing the federal black lung laws which, among other
things, establish a presumption in favor of a claimant's treating
physician and limit a coal operator's ability to introduce medical
evidence regarding the claimant's medical condition. If final amendments
to the regulations are adopted that are similar to the proposed
amendments, the number of claimants who are awarded benefits could
significantly increase and the amounts of awards could significantly
increase.
13
<PAGE>
<PAGE>
Coal Industry Retiree Health Benefit Act of 1992
The Coal Industry Retiree Health Benefit Act of 1992, also known as the
Coal Act, was enacted to provide for the funding of health benefits for
certain United Mine Workers of America retirees. The Coal Act
established the Combined Fund into which "signatory operators" and
"related persons" are obligated to pay annual premiums for
beneficiaries. The Coal Act also created a second benefit fund for
miners who retired between July 21, 1992 and September 30, 1994 and
whose former employers are no longer in business. Companies that are
liable under the Coal Act must pay premiums to the Combined Fund. Annual
payments made by certain of our subsidiaries under the Coal Act totaled
$1.7 million in fiscal year 2000.
In October 1998, the Combined Fund sent a premium notice to all assigned
operators subject to the fund that included retroactive death benefit
and health benefit premiums dating back to February 1, 1993. On
November 13, 1998, ten employers (including two of our subsidiaries,
Peabody Coal Company and Eastern Associated Coal Corp.) challenged the
fund's retroactive rebilling in a lawsuit filed in the Northern District
Court of Alabama. Our subsidiaries' retroactive premium amounts to
approximately $1.3 million.
In 1996, the Combined Fund sued the Social Security Administration in
the District of Columbia seeking a declaration that the Social Security
Administration's original calculation of the per-beneficiary premium was
proper. Certain coal companies but not our subsidiaries intervened in
the lawsuit. On February 25, 2000, the federal District Court ruled in
favor of the Combined Fund. The Combined Fund has asked for an amended
order and that request is pending before the court. Once there is a
final order in the case, we anticipate that the intervenor coal
companies will appeal the court's decision. If this decision is upheld
on appeal, our subsidiaries will be required to pay an additional
premium to the Combined Fund of approximately $2.4 million.
Eastern Associated Coal Corp. and Peabody Coal Company filed a lawsuit
in the Western District of Kentucky against the Social Security
Administration asserting that the Social Security Administration had
improperly assigned, under the Coal Act, certain beneficiaries to us.
Subsequently, Peabody Coal and Eastern Associated moved for summary
judgment on the improper assignment of certain beneficiaries that was
granted by the federal District Court. The Social Security
Administration filed a motion seeking a final judgment. Peabody Coal and
Eastern Associated Coal Corp. believe that a final judgment has already
been issued by the federal District Court, and that the time to appeal
the District Court's decision has expired.
Environmental Laws
We are subject to various federal, state and foreign environmental laws.
These laws require approval of many aspects of coal mining operations,
and both federal and state inspectors regularly visit our mines and
other facilities to ensure compliance.
Surface Mining Control and Reclamation Act
The Surface Mining Control and Reclamation Act, which is administered by
the Office of Surface Mining Reclamation and Enforcement, establishes
mining and reclamation standards for all aspects of surface mining as
well as many aspects of deep mining. The Surface Mining Control and
Reclamation Act and similar state statutes, among other things, require
that mined property be restored in accordance with specified standards
and an approved reclamation plan. In addition, the Abandoned Mine Land
Fund, which is part of the Surface Mining Control and Reclamation Act,
imposes a fee on all current mining operations, the proceeds of which
are used to restore mines closed before 1977. The maximum tax is $0.35
per ton on surface-mined coal and $0.15 per ton on deep-mined coal.
The Surface Mining Control and Reclamation Act also requires that
comprehensive environmental protection and reclamation standards be met
during the course of, and upon completion of, mining activities. For
example, it requires us to restore a surface mine to the approximate
original contour as contemporaneously as practicable with surface coal
mining operations. A mine operator must submit a bond or otherwise
secure the performance of these reclamation obligations. Mine operators
must receive permits and permit renewals for surface mining operations
from the Office of Surface Mining Reclamation and Enforcement or, where
state regulatory agencies have adopted federally approved state programs
under the act, the appropriate state regulatory authority. We accrue for
the liability associated with all end-of-mine reclamation on a ratable
basis as the coal reserve is being mined. The estimated cost of
reclamation, and the corresponding accrual on our financial statements,
is adjusted annually.
All states in which our active mining operations are located have
achieved primary control of enforcement through approved state programs.
Although we do not anticipate significant permit issuance or renewal
problems, we cannot assure you that our permits will be renewed or
granted in the future or that permit issues will not adversely affect
operations. Under previous regulations of the act,
14
<PAGE>
<PAGE>
responsibility for any coal operator currently in violation of the act
could be imputed to other companies deemed, according to regulations, to
"own or control" the coal operator. Sanctions included being blocked
from receiving new permits and rescission or suspension of existing
permits. Because of a recent federal court action invalidating these
ownership and control regulations, the scope and potential impact of the
"ownership and control" requirements on us are unclear. The Office of
Surface Mining Reclamation and Enforcement has responded to the court
action by promulgating interim regulations, which more narrowly apply
the ownership and control standards to coal companies. Although the
federal action could have, by analogy, a precedential effect on state
regulations dealing with "ownership and control," which are in many
instances similar to the invalidated federal regulations, it is not
certain what impact the federal court decision will have on these state
regulations.
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
(overburden) 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. We do not
believe the court order will have any immediate effect on our West
Virginia mines.
In late 1999 certain members of Congress pursued legislation which would
have resolved the issues raised by the district court's decision. That
legislation did not pass in 1999 but we anticipate that similar
legislation will be introduced in 2000. We cannot predict whether any
such legislation will be passed by Congress in 2000.
The Clean Air Act
The Clean Air Act and the Clean Air Act Amendments, and corresponding
state laws that regulate the emissions of materials into the air, affect
coal mining operations both directly and indirectly. Direct impacts on
coal mining and processing operations may occur through Clean Air Act
permitting requirements and/or emission control requirements relating to
particulate matter, such as fugitive dust, including future regulation
of fine particulate matter measuring 10 micrometers in diameter or
smaller. The Clean Air Act indirectly affects coal mining operations by
extensively regulating the air emissions of sulfur dioxide and other
compounds, including nitrogen oxides, emitted by coal-fueled utility
power plants.
In July 1997, the Environmental Protection Agency adopted new, more
stringent National Ambient Air Quality Standards for very fine
particulate matter and ozone. As a result, some states will be required
to change their existing implementation plans to attain and maintain
compliance with the new air quality standards. Our mining operations and
utility customers are likely to be directly affected when the revisions
to the air quality standards are implemented by the states. State and
federal regulations relating to implementation of the new air quality
standards may restrict our ability to develop new mines or could require
us to modify our existing operations. The extent of the potential direct
impact of the new air quality standards on the coal industry will depend
on the policies and control strategies associated with the state
implementation process under the Clean Air Act, but could have a
material adverse effect on our financial condition and results of
operations. The Court of Appeals for the District of Columbia ruled in
May 1999 that the existing 10 micrometer particulate and new eight hour
ozone standards were invalid. The Court also ordered a new briefing on
the validity of the very fine particulate standard. The effect of this
decision on us and our customers is unknown at this time.
Title IV of the Clean Air Act Amendments places limits on sulfur dioxide
emissions from electric power generation plants. The limits set baseline
emission standards for such facilities. Reductions in such emissions
occurred in Phase I in 1995 and in Phase II in 2000 and apply to all
coal-fired power plants. The affected utilities have been able to meet
these requirements by, among other ways, switching to lower sulfur
fuels, installing pollution control devices, such as flue gas
desulfurization systems, which are known as "scrubbers", reducing
electricity generating levels or purchasing or trading sulfur dioxide
emission allowances. Emission sources receive these sulfur dioxide
emission allowances, which can be traded or sold to allow other units to
emit higher levels of sulfur dioxide. The effect of these provisions of
the Clean Air Act Amendments on us cannot be completely ascertained at
this time. We believe that implementation of Phase II has resulted in a
downward pressure on the price of higher sulfur coal, as additional
coal-burning utility power plants have complied with the restrictions of
Title IV.
15
<PAGE>
<PAGE>
The Clean Air Act Amendments also require utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone
nonattainment areas install reasonably available control technology for
nitrogen oxides, which are precursors of ozone. In addition, the
Environmental Protection Agency recently announced the final rules that
would require 19 Eastern states to make substantial reductions in
nitrogen oxide emissions. Installation of additional control measures
required under the final rules will make it more costly to operate coal-
fired utility power plants.
In accordance with Section 126 of the Clean Air Act, eight Northeastern
states filed petitions requesting the Environmental Protection Agency to
make findings and require decreases in nitrogen oxide emissions from
certain sources in certain upwind states that might contribute to ozone
nonattainment in the petitioning states. The Environmental Protection
Agency has granted four of the eight petitions finding that certain
sources are contributing to ozone non-attainment in certain of the
petitioning states and the Environmental Protection Agency has proposed
levels of nitrogen oxide control for the named sources. Our customers
are among the named sources and, implementation of the requirement to
install control equipment could impact the amount of coal supplied to
those customers if they decide to switch to other sources of fuel, which
would result in lower emission of nitrogen oxides. The Clean Air Act
Amendments provisions for new source review require utilities to install
the best available control technology if they make a major modification
to a facility that results in an increase in its potential to emit. The
Justice Department on behalf of the Environmental Protection Agency
filed seven lawsuits in November 1999, alleging that electric utilities
violated the new source review provisions of the Clean Air Act
Amendments at 29 power plants in the Midwest and South. The
Environmental Protection Agency issued an administrative order alleging
similar violations to the Tennessee Valley Authority affecting seven
plants and notices of violation for an additional eight plants owned by
the affected utilities. If the utilities are found guilty of the
violations, they could be subject to civil penalties and be required to
install the required control equipment or cease operations. Our
customers are among the named utilities and if found guilty, the fines
and requirements to install additional control equipment could impact
the amount of coal they would burn if the plant operating costs were to
increase to the point that the plants were operated less frequently.
A coalition of 40 utilities and power companies have petitioned the
U.S. Court of Appeals for the District of Columbia to review the
Environmental Protection Agency's decision to grant the four petitions.
The Clean Air Act Amendments set a national goal for the prevention of
any future and the remedying of any existing impairment of visibility in
156 national parks and wildlife areas across the country. Visibility in
these areas is to be returned to natural conditions by 2064 through
plans that must be developed by the states. The state plans may require
the application of "Best Available Retrofit Technology" after 2010 on
sources found to be contributing to visibility impairment of regional
haze in these areas. The control technology requirements could cause our
customers to install equipment to control sulfur dioxide and nitrogen
oxide emissions. The requirement to install control equipment could
impact the amount of coal supplied to those customers if they decide to
switch to other sources of fuel which use would result in lower emission
of sulfur oxides and nitrogen oxides.
In addition, the Clean Air Act Amendments require a study of utility
power plant emissions of certain toxic substances, including mercury,
and direct the Environmental Protection Agency to regulate these
substances, if warranted. In a recent report, the Environmental
Protection Agency indicated that although it plans to further study the
issue, it does not plan to make a decision whether regulate mercury
emissions from coal-fired power plants until December 2000. If the
Environmental Protection Agency decides to regulate mercury emissions
from power plants, the regulations would probably not take affect until
after 2007. Regardless of any action by the Environmental Protection
Agency, it is a possibility that future state regulatory or legislative
activity may seek to reduce mercury emissions and such requirements, if
enacted, could result in reduced use of coal if utilities switch to
other sources of fuel.
Clean Water Act
The Clean Water Act of 1972 affects coal mining operations by imposing
restrictions on effluent discharge into water. Regular monitoring,
reporting requirements and performance standards are preconditions for
the issuance and renewal of permits governing the discharge of
pollutants into water.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act, (RCRA) which was enacted in
1976, affects coal mining operations by imposing requirements for the
treatment, storage and disposal of hazardous wastes. Coal mining
operations covered by the Surface Mining Control and Reclamation Act
permits are exempted from regulation under the Resource Conservation
and Recovery Act by statute; however we cannot predict whether this
exclusion will continue.
16
<PAGE>
<PAGE>
The Resource Conservation and Recovery Act excludes certain large-volume
wastes generated primarily from the combustion of coal from being
regulated as a hazardous waste, pending a report to Congress and a
decision by the U.S. Environmental Protection Agency either to regulate
the coal combustion wastes as a hazardous waste under RCRA or deem such
regulation as unwarranted. The U.S. Environmental Protection Agency made
its report to Congress on March 1999 and determined in May 2000 not to
regulate coal wastes as a hazardous substance under RCRA. The
requirement to regulate coal combustion waste as a hazardous waste could
cause a switch to other lower ash fuels and reduce the amount of coal
used by electric generators.
Federal and State Superfund Statutes
The Comprehensive Environmental Response Compensation and Liability Act,
or Superfund, and similar state laws affect coal mining and hard rock
operations by creating liability for investigation and remediation in
response to releases of hazardous substances to the environment and for
damages to natural resources. Under Superfund, joint and several
liability may be imposed on waste generators, site owners and operators
and others regardless of fault.
Global Climate Change
The United States, Australia and over 160 other nations are signatories
to the 1992 Framework Convention on Climate Change which is intended to
limit emissions of greenhouse gases such as carbon dioxide. In December
1997 in Kyoto, Japan, the signatories to the convention established a
binding set of emission targets for developed nations. Although the
specific emission targets vary from country to country, the United
States would be required to reduce emissions to 93% of 1990 levels over
a five-year budget period from 2008 through 2012. Although the United
States has not ratified the emission targets and no comprehensive
regulations focusing on greenhouse gas emissions are in place, such
restrictions, whether through ratification of the emission targets or
other efforts to stabilize or reduce greenhouse gas emissions, could
adversely impact the price and demand for coal. According to the Energy
Information Administration's Annual Energy Outlook for 1998, coal
accounts for 36% of greenhouse gas emissions in the United States, and
efforts to control greenhouse gas emissions could result in reduced use
of coal if electric generators switch to lower carbon sources of fuel.
Australia
The Australian mining industry is regulated by Australian federal, state
and local governments with respect to environmental issues such as land
reclamation, water quality, air quality, dust control and noise,
planning issues such as approvals to expand existing mines or to develop
new mines, and health and safety issues. The Australian federal
government retains control over the level of foreign investment and
export approvals. Industrial relations are regulated under both federal
and state laws. Australian state governments also require coal companies
to post deposits or give other security against land which is being used
for mining, with those deposits being returned or security released
after satisfactory rehabilitation.
Mining and exploration in Australia is generally carried on under leases
or licenses granted by state governments. Mining leases, which are
typically for an initial term of up to 21 years (but which may be
reviewed), contain conditions relating to such matters as minimum annual
expenditures, restoration and rehabilitation. Surface rights are
typically acquired directly from landowners and, in the absence of
agreement, there is an arbitration provision in the mining law.
Environmental
Primary responsibility for environmental regulation in Australia is
vested in the State rather than the federal system. Each State and
Territory in Australia has its own environmental and planning regime for
the development of mines. In addition, each State and Territory also has
a specific Act dealing with mining in particular, regulating the
granting of mining licenses and leases. The mining legislation in each
State and Territory operates concurrently with environmental and
planning legislation. The mining legislation governs mining licenses and
leases, including the restoration of land, following the completion of
mining activities. Apart from the grant of rights to mine itself (which
are covered by the mining statutes), all licensing, permitting, consent
and approval requirements are contained in the various State and
Territory environmental and planning statutes.
17
<PAGE>
<PAGE>
The particular provisions of the various State and Territory
environmental and planning statutes vary depending upon the
jurisdiction. Despite the variation in particulars, each State and
Territory has a system involving at least two major phases. First,
obtaining the developmental application and, if that is granted,
obtaining the detailed operational pollution control licenses (which
authorize emissions up to a maximum level); and second, obtaining
pollution control approvals (which authorize the installation of
pollution control equipment and devices). In the first regulatory phase,
an application to a regulatory authority is filled. The relevant authority
will either grant a conditional consent, an unconditional consent, or deny
the application based on the details of the application and on any
submissions or objections lodged by members of the public. If the
developmental application is granted, the detailed pollution control
license may then be issued and such license may regulate emissions to the
atmosphere; emissions in waters; noise impacts including impacts from
blasting; dust impacts; the generation, handling, storage and transportation
of waste; and requirements for the rehabilitation and restoration of land.
Each State and Territory in Australia also has either a specific statute
or certain sections in other environmental and planning statutes
relating to the contamination of land and vesting powers in the various
regulatory authorities in respect of the remediation of contaminated
land. Those statutes are based on varying policies - the primary
difference between the statutes is that in certain States and
Territories, liability for remediation is placed upon the occupier of
the land, regardless of the culpability of that occupier for the
contamination. In other States and Territories, primary liability for
remediation is placed on the original polluter, whether or not the
polluter still occupies the land. If the original polluter cannot itself
carry out the remediation, then a number of the statutes contain
provisions which enable recovery of the costs of remediation from the
polluter as a debt.
Many of the environmental planning statutes across the States and
Territories contain "third party" appeal rights in relation,
particularly, to the first regulatory phase. This means that any party
has a right to take proceedings for a threatened or actual breach of the
statute, without first having to establish that any particular interest
of that person (other than as a member of the public) stands to be
affected by the threatened or actual breach.
Accordingly, in most States and Territories throughout Australia, mining
activities involve a number of regulatory phases. Following exploratory
investigations pursuant to a mining lease, the activity proposed to be
carried out must be the subject of an application for the activity or
development. This phase of the regulatory process, as noted above,
usually involves the preparation of extensive documents to constitute
the application, addressing all of the environmental impacts of the
proposed activity. It also generally involves extensive notification and
consultation with other relevant statutory authorities and members of
the public. Once a decision is made to allow a mine to be developed by
the grant of a development consent, permit or other approval, then a
formal mining lease can be obtained under the mining statute. In
addition, operational licenses and approvals can then be applied for and
obtained in relation to pollution control devices and emissions to the
atmosphere, to waters and for noise. The obtaining of licenses and
approvals, during the operational phase, generally does not involve any
extensive notification or consultation with members of the public, as
most of these issues are anticipated to be resolved in the first
regulatory phase.
Peabody is recognized as a leader in the field of environmental
stewardship and is a signatory to the Australian Federal Government's
Greenhouse Challenge Program and the Australian Minerals Industry Code
of Environmental Management. Annual independent environmental audits are
conducted at our mining operations to review our environmental
management systems to maintain environmental performance. Ravensworth,
Narama, Bengalla and Warkworth maintain ISO 14001 certification for
their respective environmental management systems.
OCCUPATIONAL HEALTH AND SAFETY
The combined effect of various State and Federal statutes requires an
employer to ensure that persons employed in a mine are safe from injury
by providing a safe working environment and systems of work; safety
machinery; equipment, plant and substances; and appropriate information,
instruction, training and supervision.
In recognition of the specialized nature of mining and mining
activities, specific occupational health and safety obligations have
been mandated under state legislation that deals specifically with the
coal mining industry. Mining employers, owners, directors and managers,
persons in control of work places, mine managers, supervisors and
employees are all subject to these duties.
It is mandatory for an employer to have insurance coverage in respect of
the compensation of injured workers; similar schemes are in effect
throughout Australia which are of a no fault nature and which provide
for benefits up to a prescribed level. The specific benefits vary from
jurisdiction to jurisdiction, but generally include the payment of
weekly compensation to an incapacitated employee,
18
<PAGE>
<PAGE>
together with payment of medical, hospital and related expenses. The
injured employee has a right to sue his or her employer for further
damages if a case of negligence can be established.
Safety performance at the coal mining operations continues to be well
below the average for Australian open cut mines with annual independent
audits conducted of our safety management systems.
DEREGULATION OF THE ELECTRIC UTILITY INDUSTRY
In October 1992, the Energy Policy Act of 1992 was enacted. To stimulate
competition in the electricity market, the Act gave wholesale suppliers
access to the transmission lines of United States electric utility
companies. In April 1996, the Federal Energy Regulatory Commission
issued the first of a series of orders establishing rules providing for
open access to electricity transmission systems. While the Federal
Energy Regulatory Commission proceeds to open access to wholesale
electric markets, individual states are proceeding with the opening of
retail access.
The pace of change differs significantly from state to state. To date,
22 states and the District of Columbia have enacted programs leading to
the deregulation of the retail electricity market; 20 other states are
considering such programs, and the U.S. Congress is considering federal
legislation. Due to the uncertainty around timing and implementation of
deregulation, it is difficult to predict the impact on individual
electric generators.
When ultimately implemented, full-scale deregulation of the power
industry will enable both industrial and residential customers to shop
for the lowest cost supply of power and the best service available. This
fundamental change in the power industry is expected to compel electric
utilities to be more aggressive in developing and defending market
share, to be more focused on their pricing and cost structures and to be
more flexible in reacting to changes in the market.
A possible consequence of the deregulation is anticipated downward
pressure on fuel prices. However, because coal-fired generation is
competitive with most other forms of generation, a competitive
electricity market may stimulate greater demand for coal to be burned in
plants with currently unused capacity. In 1999, for example, the average
cost of generating electricity in coal-based generating units was less
than one half the average cost of generating electricity in gas-fired
units, and coal-based generation accounted for more than one-half of all
electricity produced in the United States last year. Because of coal's
cost advantage and because some coal-based generating facilities are
underutilized in the current regulated electricity market, we estimate
that additional coal demand could arise if the electricity market were
rationalized and the most efficient coal-fired power plants were used to
their full capacity. Estimates of this additional demand for coal vary
between 100 and more than 200 million tons annually for the coal
industry as a whole.
Australia
In the early 1990's, the Australian Federal Government commenced
deregulation of the electricity market as part of Australia's ongoing
micro-economic reform.
The commencement of the National Electricity Market in 1998 was to
introduce competition in the wholesale supply and purchase of
electricity combined with an open access regime for the use of
electricity networks across the Eastern States of Australia.
Introduction of competition was to be achieved by restructuring the
supply industry into the separate elements of generation, transmission
and distribution, and retail supply; privatization of generation and
retail supply; and enhancement and extension of the Eastern States
interconnection of power systems.
Some States, in particular Victoria, have privatized power generation,
transmission and distribution, and retail supply as part of the ongoing
deregulation of the industry. In New South Wales the market is dominated
by incorporated government utilities.
EMPLOYEES
As of March 31, 2000, we and our consolidated joint ventures had
approximately 7,200 employees. Of these employees, approximately 5,900
worked in the United States and 1,300 worked in foreign countries.
19
<PAGE>
<PAGE>
Approximately 39% of our United States coal employees are affiliated
with organized labor unions, which accounts for approximately 26% of the
tons sold in the United States during fiscal year 2000. Relations with
organized labor are important to our success. Hourly workers at our
mines in Arizona, Colorado and Montana are represented by the United
Mine Workers of America under the Western Surface Agreement, which was
ratified in 1996 and is effective through August 31, 2000. Negotiations
for a successor labor agreement have not commenced. Union labor east of
the Mississippi is also represented by the United Mine Workers of
America but is subject to the National Bituminous Coal Wage Agreement.
On December 16, 1997, this five-year labor agreement effective from
January 1, 1998 to December 31, 2002, was ratified by the United Mine
Workers of America. The United Mine Workers of America have stated that
the union wishes to reopen the National Bituminous Coal Wage Agreement,
but no negotiations on a reopener have commenced.
The Australian coal mining industry is highly unionized and the majority
of workers employed at Peabody Resources are members of trade unions.
These employees are represented by three unions: the United Mine
Workers, which represents the production employees; and two unions that
represent the other staff. The miners at Warkworth Mine signed a three-
year labor agreement that expires in October 2002. The miners at
Ravensworth and Narama Mines have signed a further enterprise labor
agreement for two years that expires in May 2001. The labor agreement
for the Moura Mine is currently under negotiation.
The Australian Federal Government, as part of micro-economic reform, has
a Workplace Relations Strategy that seeks structural reform to encourage
enterprise focus and to facilitate enterprise agreements. Under the
legislation, Bengalla has commenced the employment of its workforce
under individual workplace agreements with each employee. These
agreements do not require ratification by a coal union.
ADDITIONAL INFORMATION
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and
other information with the Securities and Exchange Commission. You may
request copies of the filings, at no cost, by telephone at (314) 342-
3400 or by mail at: P&L Coal Holdings Corporation, 701 Market Street,
Suite 700, St. Louis, Missouri 63101, attention: Public Relations.
ITEM 2. PROPERTIES.
COAL RESERVES
We had an estimated 10.0 billion tons of proven and probable reserves as
of April 1, 2000, of which approximately 52% were low sulfur coal. We
own approximately 43% of these reserves and lease the remaining 57%.
Below is a table summarizing the locations and reserves of our major
operating units.
<TABLE>
<CAPTION>
PROVEN AND PROBABLE
RESERVES AS OF APRIL 1, 2000<F1>
(TONS IN MILLIONS)
---------------------------------------
OWNED LEASED TOTAL
OPERATING REGIONS LOCATIONS TONS TONS TONS
------------------------ ----------------------------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Powder River Basin Wyoming and Montana 244 3,234 3,478
Southwestern Arizona, Colorado and New Mexico 728 583 1,311
Appalachia West Virginia 315 510 825
Midwest Illinois, Indiana and Kentucky 3,028 877 3,905
Australia New South Wales and Queensland - 449 449
--------- ---------- ---------
Total 4,315 5,653 9,968
========= ========== =========
<FN>
<F1> Reserves have been adjusted to take into account losses involved
in producing a saleable product. The amounts include our share of
reserves in joint ventures.
</TABLE>
20
<PAGE>
<PAGE>
Reserve estimates are based on geological data assembled and analyzed by
our staff, which includes various geologists and engineers. The reserve
estimates are periodically updated to reflect production of coal from
the reserves and new drilling or other data received. Accordingly,
reserve estimates will change from time to time reflecting mining
activities, analysis of new engineering and geological data, changes in
reserve holdings, modification of mining methods and other factors.
Reserve information, including the quantity and quality (where
available) of reserves as well as production rates, surface ownership,
lease payments and other information relating to our coal reserve and
land holdings, is maintained through a computerized land management
system that we developed.
Our reserve estimates are predicated on information obtained from our
extensive drilling program, which totals nearly 500,000 individual drill
holes. Data from individual drill holes are compiled into a computerized
drill hole system from which the depth, thickness and, where core
drilling is used, the quality of the coal are determined. The density of
the drill pattern determines whether the reserves will be classified as
proven or probable. The drill hole data are then input into the
computerized land management system which overlays the geological data
with data on ownership or control of the mineral and surface interests
to determine the extent of the reserves in a given area. In addition, we
periodically engage independent mining and geological consultants to
review estimates of our coal reserves. The most recent of these reviews,
which was completed on October 1, 1996, includes a review of the procedures
used by us to prepare our internal reserve estimates, verifying the
accuracy of selected property reserve estimates and retabulating reserve
groups according to standard classifications of reliability.
We have numerous federal coal leases that are administered by the United
States Department of the Interior pursuant to the Federal Coal Leasing
Amendments Act of 1976. These leases cover our principal reserves in
Wyoming and other reserves in Montana and Colorado. Each of these leases
continues indefinitely provided there is diligent development of the
lease and continued operation of the related mine or mines. The Bureau
of Land Management has asserted the right to adjust the terms and
conditions of these leases, including rent and royalties, after the
first 20 years of their life and at ten yearly intervals thereafter.
Annual rents under our federal coal leases are now set at $3.08 per
acre. Production royalties on federal leases are set by statute at
12.5% of the gross proceeds of coal mined and sold for surface mined coal
and 8% for underground mined coal. Similar provisions govern three coal
leases with the Navajo and Hopi Indian tribes. These leases cover coal
contained in 65,000 acres of land in northern Arizona lying within the
boundaries of the Navajo National and Hopi Indian reservations. We also
lease coal from various state governments.
Private coal leases normally have terms of between 10 and 20 years, and
usually give us the right to renew the lease for a stated period or to
maintain the lease in force until the exhaustion of mineable and
merchantable coal contained on the relevant site. These private leases
provide for royalties to be paid to the lessor either as a fixed amount
per ton or as a percentage of the sales price. Many leases also require
payment of a lease bonus or minimum royalty, payable either at the time
of execution of the lease or in periodic installments.
The terms of private leases are normally extended by active production
on or near the end of the lease term. Leases containing undeveloped
reserves may expire or such leases may be renewed periodically. With a
portfolio of approximately 10 billion tons, we believe that we have
sufficient reserves to replace capacity from depleting mines for the
foreseeable future and that our reserve base is one of our strengths.
We believe that the current level of production at our major mines is
sustainable.
Consistent with industry practice, we conduct only limited investigation
of title to our coal properties prior to leasing. Title to lands and
reserves of the lessors or grantors and the boundaries of our leased
properties are not completely verified until such time as we prepare to
mine such reserves.
Mining and exploration in Australia is generally carried on under leases
or licenses granted by state governments. Mining leases, which are
typically for an initial term of up to 21 years (but which may be
renewed), contain conditions relating to such matters as minimum annual
expenditures, restoration and rehabilitation. Surface rights are
typically acquired directly from landowners and, in the absence of
agreement, there is an arbitration provision in the mining law.
Peabody Resources holds or has rights to coal mining leases at
Warkworth, Bengalla, Narama and Ravensworth East. Ravensworth is mined
under contract from coal reserves owned by Macquarie Generation.
Warkworth's mining lease has been renewed until 2023 with Bengalla and
Narama leases valid until 2017 and 2012, respectively. Development
consent for Ravensworth East was received in March 2000, and an
application for renewal for a 21-year period has been made. Peabody
Resources also holds an exploration license for Ravensworth West and has
applied for a mining lease. The Moura lease is valid until 2019.
21
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we are involved in legal proceedings arising in the
ordinary course of business. We believe we are adequately reserved for
these liabilities and that there is no individual case pending that
could have a material adverse effect on our financial condition or
results of operations. Our significant legal proceedings are discussed
below. Concurrent adverse resolution of such proceedings could have a
material effect on the financial condition and results of operations for
a particular interim or annual period.
Navajo Nation
On June 18, 1999, The Navajo Nation served our 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.
In March 2000, the Hopi Tribe filed a motion to intervene in this
lawsuit. The Hopi Tribe has alleged seven claims, including fraud. The
Hopi Tribe is seeking various remedies, including unspecified actual and
punitive damages, reformation of its coal lease and a termination of the
coal lease. The federal court has not ruled on the Hopi Tribe's motion.
We believe this matter will be resolved without a material adverse
effect on our financial condition or results of operations.
Salt River Project Agricultural Improvement and Power District
The Salt River Agricultural Improvement and Power District and the other
owners of the Navajo Generating Station, or Salt River, filed a lawsuit
on September 27, 1996 in the Superior Court of Maricopa County in
Arizona seeking a declaratory judgment that certain costs relating to
final reclamation, environmental monitoring work and mine
decommissioning, and costs relating to life insurance and retiree health
care benefits are not recoverable by our subsidiary, Peabody Western
Coal Company, under the terms of a coal supply agreement dated February
18, 1977. The contract expires in 2011.
Peabody Western filed a Motion to Compel Arbitration of these claims,
which was partially granted by the trial court. The trial court ruled
that the mine decommissioning costs were subject to arbitration but that
the retiree health care costs were not subject to arbitration. Peabody
Western has filed an appeal of the order denying arbitration of the
retiree health care costs with the Arizona Court of Appeals, which was
denied by the Court. Peabody Western then filed an appeal with the
Arizona Supreme Court, which was denied. Peabody Western and Salt River
will arbitrate the mine decommissioning costs issue and will litigate
the retiree health care costs issue.
If Salt River is successful in the arbitration and litigation, our
financial condition and results of operations may be adversely affected.
However, based on our preliminary evaluation of the issues and the
potential impact on us, and while the outcome of litigation and
arbitration is subject to uncertainties, we believe that the matter will
be resolved without a material adverse affect on our financial condition
or results of operations.
Southern California Edison Company
In response to a demand for arbitration by one of our subsidiaries,
Peabody Western Coal Company ("Peabody Western"), Southern California
Edison Company and the other owners of the Mohave Generating Station, or
Edison, filed a lawsuit on June 20, 1996 in the Superior Court of
Maricopa County, Arizona. The lawsuit sought a declaratory judgment that
mine decommissioning costs and retiree health care costs are not
recoverable by Peabody Western under the terms of a coal supply
agreement dated May 26, 1976. The contract will expire in 2005.
22
<PAGE>
<PAGE>
Peabody Western filed a Motion to Compel Arbitration, which was granted
by the trial court. Edison appealed this order to the Arizona Court of
Appeals, which denied its appeal. Edison appealed the order to the
Arizona Supreme Court which remanded the case to the Arizona Court of
Appeals and ordered the appellate court to determine whether the trial
court was correct in determining that Peabody Western's claims are
arbitrable. The Arizona Court of Appeals ruled that neither mine
decommissioning costs nor retiree health care costs are to be arbitrated
and that both issues were to be resolved in litigation. The matter has
been remanded back to the Superior Court of Maricopa County, Arizona
where a trial has been set for April 2001.
If Edison is successful in the matter, our financial condition and
results of operations may be adversely affected. However, based on a
preliminary evaluation of the issues and the potential impact on us, we
believe that the matter will be resolved without a material adverse
affect on our financial condition or results of operations.
Public Service Company of Colorado
In August 1996, Seneca Coal Company, a subsidiary of Peabody Coal
Company, filed a demand for arbitration in accordance with the terms of
an Amended Revised Coal Supply Agreement dated December 1, 1971 between
Seneca and three electric utilities, Public Service Company of Colorado,
Salt River Project Agricultural Improvement District and PacifiCorp, or
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. Subsequent to the arbitration, Seneca Coal
Company and the Hayden Participants negotiated a termination of their
coal supply agreement and resolution of all outstanding disputes between
them. At that same time, the Hayden Participants negotiated a new coal
supply agreement with a term through 2011 with Peabody COALSALES
Company, a company affiliated with Seneca Coal Company.
Macquarie Generation
In September 1997, our subsidiary, 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 coal
supply agreements 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 coal supply agreements, 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 coal supply agreement and had
sought damages from Peabody Resources for alleged breaches of both
contracts. Even though we 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. Macquarie Generation abandoned any
basis to a 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, which is scheduled to be heard in July 2000 by the New South
Wales Court of Appeals. We continue to believe that the matter will be
resolved without a material adverse effect on our financial condition or
results of operations.
Minerals Management Service
The Minerals Management Service issued a preliminary administrative
decision in August 1992, determining that a subsidiary of ours,
subsequently merged into Powder River Coal Company, had underpaid
royalties owed to the federal government. On October 15, 1999, we signed
a settlement agreement with the federal government on all civil claims
related to the dispute. We paid $11.0 million in two installments, which
was charged against a previously established reserve.
23
<PAGE>
<PAGE>
Saline Valley Conservancy District
Saline Valley Conservancy District filed a lawsuit against our
subsidiary, Peabody Coal Company, on April 5, 1999 in the Circuit Court
of Saline County, Illinois. Saline Valley alleges that Peabody Coal
Company's coal refuse pits at the closed Eagle No. 2 mine in Saline
County, Illinois constitute a public and private nuisance and a
trespass, and that Peabody Coal Company engaged in various negligent
acts at the coal refuse pits. Saline Valley is seeking up to
$124 million of compensatory damages, $125 million of punitive damages
and injunctive relief. Peabody Coal Company has removed the case to the
United States District Court for the Southern District of Illinois. The
trial has been set for April 2001.
In addition, the state of Illinois has filed an administrative complaint
against Peabody Coal Company alleging that our coal refuse pits have
violated state water pollution control laws and regulations. The state
is seeking daily fines from Peabody Coal Company for these alleged
violations. We believe this matter will be resolved without a material
adverse effect on our financial condition or results of operations.
ENVIRONMENTAL
Federal and State Superfund Statutes
The Comprehensive Environmental Response, Compensation and Liability Act
and similar state laws create liability for investigation and
remediation in response to releases of hazardous substances in the
environment and for damages to natural resources. Under that legislation
and many state Superfund statutes, joint and several liability may be
imposed on waste generators, site owners and operators and others
regardless of fault.
Our subsidiary, Gold Fields, its predecessors and its former parent
company are or may become parties to environmental proceedings which
have commenced or may commence in the United States in relation to
certain sites previously owned or operated by those entities or
companies associated with them. We have agreed to indemnify Gold Fields'
former parent company for any environmental claims resulting from any
activities, operations or conditions that occurred prior to the sale of
Gold Fields to us. Gold Fields is currently involved in environmental
investigation or remediation at 10 sites and is a defendant in
litigation with private parties involving one site.
These 10 sites were formerly owned or operated by Gold Fields. The
Environmental Protection Agency has placed three of these sites on the
National Priorities List, promulgated pursuant to that legislation, and
one of the sites is on a similar state priority list. There are a number
of further sites in the United States that were previously owned or
operated by such companies that could give rise to environmental
proceedings in which Gold Fields could incur liabilities.
Where such sites were identified, independent environmental consultants
were employed in 1997 in order to assess the estimated total amount of
the liability per site and the proportion of those liabilities that Gold
Fields is likely to bear. The available information on which to base
this review was very limited since all of the sites except for three
sites (on which no remediation is currently taking place) are no longer
owned by Gold Fields. We have provisions of $57.7 million as of March
31, 2000 for the above environmental liabilities relating to Gold
Fields. Significant uncertainty exists as to whether these claims will
be pursued against Gold Fields in all cases, and where they are pursued,
the amount of the eventual costs and liabilities, which could be greater
or less than this provision. We believe that the remaining amount of the
provision is adequate to cover these environmental liabilities.
Although waste substances generated by coal mining and processing are
generally not regarded as hazardous substances for the purposes of that
legislation, some products used by coal companies in operations, such as
chemicals, and the disposal of such products are governed by the
statute. Thus, coal mines currently or previously owned or operated by
us, and sites to which we have sent waste materials, may be subject to
liability under that legislation and similar state laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
24
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
P&L Coal Holdings Corporation purchased its operating subsidiaries on
May 19, 1998, and prior to such date had no substantial operations. The
period ended March 31, 1999 is therefore a full fiscal year, but
includes results of operations only from May 20, 1998 forward. The prior
years' results of operations of the operating subsidiaries acquired are
defined as the "Predecessor Company" and are included for comparative
purposes. See other factors affecting the comparability of operating
results in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
(Tons sold in millions, dollars in thousands) PREDECESSOR COMPANY
----------------------------------------------------------
Period Period
From From Six
Year May 20, April 1, Year Months
Ended Total 1998 to 1998 to Ended Ended Year Ended
March 31, Fiscal March 31, May 19, March 31, March 31, September 30,
2000<F1> 1999<F2> 1999 1998 1998 1997 1996<F3> 1995
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
---------------------------
Revenues:
Sales $2,610,991 $2,249,887 $1,970,957 $ 278,930 $2,048,694 $1,000,419 $2,075,142 $2,087,656
Other Revenues 99,509 97,603 85,875 11,728 169,328 63,674 118,444 88,180
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenues 2,710,500 2,347,490 2,056,832 290,658 2,218,022 1,064,093 2,193,586 2,175,836
Operating Costs and
Expenses 2,517,263 2,171,921 1,890,588 281,333 1,957,210 961,998 2,844,882 1,930,224
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Profit (Loss) $ 193,237 $ 175,569 $ 166,244 $ 9,325 $ 260,812 $ 102,095 $ (651,296) $ 245,612
========== ========== ========== ========== ========== ========== ========== ==========
Income (Loss) from
Continuing Operations $ 118,570 $ 6,007 $ 3,767 $ 2,240 $ 158,895 $ 58,432 $ (446,282) $ 100,387
========== ========== ========== ========== ========== ========== ========== ==========
Income (Loss) from
Discontinued Operation $ (90,360) $ 4,678 $ 6,442 $ (1,764) $ 1,441 $ - $ - $ -
========== ========== ========== ========== ========== ========== ========== ==========
Net Income (Loss) $ 28,210 $ 10,685 $ 10,209 $ 476 $ 160,336 $ 58,432 $ (446,282) $ 100,387
========== ========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA:
-------------------
Working Capital $ (88,046) $ 486,953 $ 486,953 $ 374,492 $ 535,971 $ 167,076 $ (129,465) $ (104,310)
Total Assets 5,826,849 7,023,931 7,023,931 6,403,151 6,343,009 5,025,812 4,916,693 5,676,923
Recourse Debt 2,076,166 2,208,512 2,208,512 339,640 308,354 321,723 456,867 316,847
Non-Recourse Debt - 333,867 333,867 293,922 293,922 - - -
Stockholders'
Equity/Invested
Capital 508,426 495,230 495,230 1,497,374 1,687,842 1,676,786 1,383,655 1,650,975
OTHER DATA:
-----------
Tons Sold 190.3 176.0 154.3 21.7 167.5 81.4 163.0 151.0
EBITDA<F4> $ 443,019 $ 380,267 $ 345,426 $ 34,841 $ 460,981 $ 203,825 $ (453,443) $ 435,942
Net Cash Provided by (Used in):
Operating Activities 262,911 253,865 282,022 (28,157) 187,852 62,829 211,535 272,543
Investing Activities (185,384) (2,270,886) (2,249,336) (21,550) (136,033) (56,170) (105,640) (462,113)
Financing Activities (205,181) 2,184,818 2,161,281 23,537 (235,389) 94,178 15,987 178,993
Depreciation, Depletion
and Amortization 249,782 204,698 179,182 25,516 200,169 101,730 197,853 190,330
Capital Expenditures 178,754 195,394 174,520 20,874 165,514 76,460 152,106 188,006
<FN>
<F1> Results of operations for the year ended March 31, 2000 include
$144.0 million of income tax benefit associated with an increase
in the tax basis of a subsidiary's assets due to a change in
federal income tax regulations, and reclassification of the
results of operations and cash flows of Citizens Power LLC to
a discontinued operation.
<F2> For comparative purposes, the "Total Fiscal 1999" column has been
derived from adding the period ended March 31, 1999 with the
Predecessor Company results for the period ended May 19, 1998. The
effects of purchase accounting have not been reflected in the
results of the Predecessor Company.
<F3> Results of operations for the year ended September 30, 1996
include a one-time, non-cash charge of $890.8 million made
pursuant to SFAS No. 121, which had no effect on the Company's
cash flow.
<PAGE>
<F4> EBITDA is defined as income from continuing operations 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 our 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 similarly titled measures of other companies.
</TABLE>
25
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FACTORS AFFECTING COMPARABILITY
Discontinued Operations:
In May 2000, we signed a purchase and sale agreement with Edison Mission
Energy to sell Citizens Power, our subsidiary that markets and trades
electric power and energy-related commodity risk management products.
The anticipated loss from the sale of this subsidiary and the
monetization of non-trading assets ($78.3 million, net of income taxes),
has been reclassified in the results of operations and cash flows as a
discontinued operation for all periods presented. The fair value of the
net assets of Citizens Power has been reclassified to a single line in
the balance sheet entitled "Net assets of discontinued operations" in
the current year only.
Fiscal Year 2000 vs. Fiscal Year 1999:
Effective January 1, 2000, Black Beauty realigned its investment
structure and invested $6.6 million to increase its ownership interest
to obtain control of three of its Midwestern coal mining affiliates -
Sugar Camp Coal, LLC (Sugar Camp), Arclar Coal Company, LLC (Arclar) and
United Minerals Company, LLC (United Minerals). Prior to fiscal year
2000, interests in these affiliates were accounted for under the equity
method, as Black Beauty did not hold decision-making control over their
respective operations. However, effective January 1, 2000, Black Beauty
obtained decision-making control and began consolidating the affiliates
as of that date. In order to provide comparability to future periods, we
have elected to consolidate these affiliates as part of Black Beauty's
results of operations effective April 1, 1999.
The current year results also include the consolidated results of
operations for Black Beauty for 12 months as compared to only three
months in fiscal 1999. We increased our ownership interest in Black
Beauty from 43.3% to 81.7% effective January 1, 1999. We accounted for
our interest in Black Beauty under the equity method from April 1 to
December 31, 1998.
Fiscal Year 1999 vs. Fiscal Year 1998:
The results of operations and cash flows for the period ended March 31,
1999 reflects our results from April 1 to March 31 (we 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. In addition, the results of operations and cash
flows for the period ended March 31, 1999 may not be directly comparable
to the other period 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.
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED WITH TOTAL FISCAL 1999
Sales. For fiscal year 2000, sales increased $361.1 million, or 16.0%,
to $2.6 billion. The fiscal year results include an increase
attributable to Black Beauty of $428.9 million, which is principally
comprised of two amounts - the inclusion of Black Beauty's results for
an entire year ($264.1 million), and the consolidation of Sugar Camp,
Arclar and United Minerals on a retroactive basis ($164.8 million).
Sales in Australia increased $75.5 million over fiscal 1999, mainly
as a result of the acquisition of the Moura Mine in August 1999
($46.3 million), the opening of the Bengalla Mine in fiscal year 2000
($16.6 million) and higher customer demand. Powder River sales increased
$13.1 million, due mainly to a continuing improvement in pricing for the
ultra-low sulfur coal in the Powder River Basin. Offsetting these
increases were declines in the Midwest and Appalachia markets of
$68.1 million and $53.8 million, respectively. Both regions were negatively
impacted by mild winter weather that increased customer coal stockpiles,
causing lower demand and pricing. The Midwest region declined primarily
due to the closure and suspension of three high-sulfur mines in the
current year, while results in Appalachia were hampered by price
reductions for coal utilized by the export metallurgical market, and
operating difficulties related to longwall panel development delays and
adverse geological conditions. Finally, brokerage and trading revenues
declined $33.5 million, mainly due to expiring contracts.
Other Revenues. Other revenues improved $1.9 million compared to fiscal
1999. This increase is primarily due to a $13.0 million gain from a
contract restructuring, as Black Beauty executed the buyout of a
contract to provide capacity to meet a new long-term coal supply
agreement and a $3.9 million gain on the settlement of a contract
dispute in the fourth quarter of the current year, partially offset by
the exclusion of $7.5 million of equity income in affiliates now
consolidated by Black Beauty as discussed above. We cannot assure you we
will be able to realize similar gains from future coal contract
restructurings.
26
<PAGE>
<PAGE>
Selling and Administrative Expenses. Selling and administrative
expenses increased $15.6 million compared to fiscal 1999, to
$95.3 million. This increase is the result of the inclusion of a full
year of Black Beauty's operations vs. three months in the prior year (an
increase of $9.9 million) and full year consolidation of Black Beauty
affiliates previously mentioned.
Operating Profit. Operating profit was $193.2 million for the year
ended March 31, 2000, an increase of $17.6 million, or 10.0%. The impact
of Black Beauty on the current year results increased operating profit
$43.8 million, including a $13.0 million gain from the Black Beauty
contract restructuring previously mentioned.
Other regions showing year-over-year improvement were the Midwest
($15.0 million), Powder River ($13.2 million), and Australia ($12.8 million).
The Midwest improved over the prior year as a result of lower
reclamation costs occurring from a change in permitting requirements in
the current year ($5.1 million), improved productivity and higher volume
at the ongoing Midwestern operations, partially offset by lower volumes
due to the closure/suspension of three mines in the current year. Powder
River improved profit based upon higher pricing and higher demand for
coal from our lowest cost, most efficient operations in the Powder River
Basin. Australia experienced higher volumes due to higher customer
demand, the contribution of results from the Moura Mine acquisition and
the new Bengalla Mine, and higher profit from additional construction
projects in the current year at their Mining Services division.
Offsetting these increases were decreases in Appalachia ($32.1 million)
and Southwest ($4.1 million). Profitability in Appalachia was directly
impacted by soft market conditions and higher costs as a result of
longwall panel development delays. The decline in the Southwest region
is the result of higher operating expenses, primarily as a result of
higher repair and maintenance expenses than in fiscal 1999, offset
partially by higher volumes and a gain from the settlement of a customer
contractual dispute of $3.9 million. In addition, income from brokerage
and trading activities decreased $19.8 million, mainly as a result of
lower volumes that were directly related to contract expirations.
Finally, we experienced higher costs for past mining obligations due to
the current year cost of mine closure and suspension in the Midwest, and
$14.0 million in higher administrative costs as a result of the
inclusion of Black Beauty and its affiliates.
Interest Expense. Interest expense for the year ended March 31, 2000
was $205.1 million, an increase of $24.8 million, or 13.8%. Fiscal 1999
reflects acquisition-related indebtedness from the May 19, 1998
acquisition date forward. Also affecting the current year is the
inclusion of $12.6 million of additional interest associated with Black
Beauty.
Interest Income. Interest income decreased $15.8 million from fiscal
1999, to $4.4 million. The decrease is primarily attributable to
interest income from higher average cash balances held in fiscal 1999 in
anticipation of the Black Beauty acquisition that occurred late in the
prior fiscal year.
Income Taxes. For fiscal year 2000, we recorded an income tax benefit
of $141.5 million on a pretax loss from continuing operations of
$7.4 million, compared to income tax expense of $7.5 million on pretax
income from continuing operations of $15.4 million in fiscal 1999. The
current year amount reflects a $144.0 million income tax benefit associated
with an election to treat Peabody Natural Resources Company, a subsidiary
of ours, as a corporation rather than a partnership for federal income tax
purposes. This election, which became available through a change in tax
law that occurred in December 1999, resulted in an increase in the tax
basis in the entity's assets and eliminated the necessity for a deferred
tax liability that had reflected the excess of the book basis in that
subsidiary over the tax basis.
Our effective book income tax rate is primarily impacted by two factors
- the percentage depletion tax deduction utilized by us and our United
States 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
in the United States.
Loss From Discontinued Operations. In fiscal year 2000, the discontinued
operation had a net loss of $12.1 million, as compared to net income of
$4.7 million in fiscal 1999. The decrease is largely the result of a
decline in the number of power contract restructuring transactions
completed in fiscal year 2000 as compared to fiscal 1999. In addition,
the current year includes the estimated after-tax loss on disposal of
Citizens Power of $78.3 million.
27
<PAGE>
<PAGE>
TOTAL FISCAL 1999 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1998
Sales. For fiscal 1999, sales increased 9.8%, or $201.2 million, over
the prior twelve-month period. Excluding Black Beauty's results, sales
increased $120.5 million, or 5.9%. We experienced an increase of
$114.4 million in broker transactions, and had sales improvements in
the following United States mining operating regions - Powder River
($19.1 million), Southern Appalachia ($20.4 million) and the Southwest
region ($8.2 million).
The increase in brokered coal activity relates primarily to higher
export volumes, an increased emphasis on broker transactions, newly
added capacity for brokered shipments and the realization of a full year
of sales from agreements entered into late in fiscal 1998.
With respect to the United States mining operations, Powder River
experienced a 5.0% increase in sales volume from continued growth in
demand for coal from this region, while Southern Appalachia sales
volumes improved 13.0%, primarily due to longwall productivity increases
as a result of capital improvements. Sales increases in the Southwest
region are due mainly to improved pricing. Finally, the Midwest region
declined $21.9 million due to the depletion and closing of a surface
mine late in the prior fiscal year, lower shipments in the current year
caused by customer unit outages for maintenance, and higher prior year
sales due to a customer settlement.
Sales in Australia declined $28.3 million versus the prior year, due to
weaker demand, lower pricing and the effects of foreign currency
translation.
Other Revenues. Other revenues declined $71.7 million to $97.6 million
for fiscal 1999, due mainly to $44.0 million in lower revenues from coal
contract restructurings and $29.1 million in lower mining services
revenues from Australia. We cannot assure you we will be able to realize
similar gains from future coal contract restructurings.
Operating Profit. For fiscal 1999, operating profit declined $85.2
million to $175.6 million. Operating profit from the United States
mining operations improved by $59.9 million during the period, mainly as
a result of improved results at the Powder River, Southern Appalachia
and Southwest operating regions discussed above, and the inclusion of
Black Beauty as a consolidated entity beginning with the fourth quarter
of fiscal 1999. However, operating profit from Australia declined
$9.2 million due to lower demand and prices for coal, lower mining services
revenues and the effect of foreign currency translation.
Additionally, the prior year results included $44.0 million of actuarial
gains associated with certain employee-related liabilities that are
non-recurring, $44.0 million in higher gains from coal supply contract
restructurings mentioned above and $21.5 million in higher gains on the
sale of property, plant and equipment. Current year results of
operations include: $8.5 million of additional depletion and
amortization associated with purchase accounting adjustments to write-up
our net assets to fair value; $3.9 million of 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 Peabody; $3.7 million in additional profit as a result of
the successful resolution of billing disputes with a customer in
Australia; changes in United States employee benefits that resulted in
accrual reductions of $10.2 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 $3.9 million in additional income due to the
monetization of a royalty stream in October 1998.
Interest Expense. Interest expense increased $146.9 million for fiscal
1999. 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 the Bengalla Mine.
Income Taxes. Our effective book income tax rate for fiscal 1999 was
48.9%. The effective tax rate is primarily impacted by two factors - the
percentage depletion tax deduction utilized by us and our United States
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 in the
United States. The effective tax rate for fiscal 1999 reflects tax
expense in Australia not completely offset by tax benefits in the United
States.
Income From Discontinued Operations. Income from discontinued operations
was $4.7 million in fiscal 1999, as compared to income of $1.4 million
in fiscal year 1998. This increase is primarily related to a higher
volume of asset restructuring transactions in the current year, and
higher income from trading activities.
28
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For fiscal year 2000, net cash provided by operating activities was
$262.9 million, which includes $100.0 million in proceeds from the
securitization of a portion of our trade accounts receivable in
March 2000, and favorable cash flow from operations during the year.
In March 2000, we completed a transaction to establish an accounts
receivable securitization facility with a multi-seller commercial paper
conduit. Proceeds from the transaction totaled $100.0 million and were
applied to the repayment of long-term debt discussed above. The facility
is supported by $100.0 million in 364-day back-up bank lines that are
available to purchase accounts receivable if the conduit is unable to
access commercial paper markets. We pay funding costs based on the
discount or yield accrued on conduit commercial paper plus certain fees
and expenses.
Accounts receivable decreased $159.7 million from the prior year,
primarily due to the $100.0 million sale of receivables discussed above,
and the reclassification of Citizens Power's accounts receivable to "Net
assets of discontinued operations."
Assets from power trading activities and liabilities from power trading
activities were reduced to zero in the current year as a result of the
reclassification of Citizens Power to a discontinued operation.
Assets from coal and emission allowance activities and liabilities
from coal and emission allowance activities were $78.7 million and
$75.9 million, respectively, as of March 31, 2000. The increase in these
amounts is directly related to higher volumes of coal and emission
allowance trading in the current year, as we have substantially
increased our coal and emission allowance trading activity to respond
to changes and opportunities in the deregulated electricity market.
Deferred income taxes decreased $155.1 million compared to March 31,
1999. This decrease is primarily the result of the previously mentioned
income tax benefit.
Net cash used in investing activities was $185.4 million, primarily
consisting of $63.3 million in acquisitions during the year, including
$30.2 million for the Moura Mine and $8.0 million for an additional
3% interest in the Bengalla Mine in Australia, and $25.1 million related
to several smaller mines purchased by Black Beauty. We also had
$178.8 million of capital expenditures, a decrease of $16.6 million from
fiscal 1999. We had $110.5 million of committed capital expenditures
(primarily related to coal reserves and mining machinery) at March 31,
2000. It is anticipated these capital expenditures will be funded through
available cash and credit facilities which are discussed in more detail below.
Net cash used in financing activities was $205.2 million, as compared to
$2,184.8 million of cash provided by financing activities in fiscal
1999. In fiscal year 2000, we reduced total debt by $466.2 million after
considering the reclassification of $333.9 million of Citizens Power's
debt to "Net assets of discontinued operations." The remaining decrease
in total debt of $132.3 million relates to debt repayments during the
current year of $210.0 million ($150.0 million of optional prepayments
and other debt repayments of $60.0 million), partially offset by an
additional $48.5 million of long-term debt related to previously
unconsolidated affiliates of Black Beauty. Fiscal 1999 reflects a
$480.0 million capital contribution and $1,817.4 million in borrowings
to fund the acquisition of our Predecessor Company.
29
<PAGE>
<PAGE>
As of March 31, 2000, we had total indebtedness of $2,076.2 million,
consisting of the following:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Term loans under Senior Credit Facilities $ 690.0
9.625% Senior Subordinated Notes due 2008 ("Senior
Subordinated Notes") 498.7
8.875% Senior Notes due 2008 ("Senior Notes") 398.9
5.0% Subordinated Note 180.3
Senior unsecured notes under various agreements 99.3
Project finance facility 76.5
Capital lease obligations 27.9
Other 104.6
--------
$2,076.2
========
</TABLE>
The following table sets forth the mandatory prepayments of our
indebtedness as of March 31, 2000:
<TABLE>
<CAPTION>
(In millions)
Senior 5.0%
Fiscal Year Credit Facilities Subordinated Note Other Total
------------------- ----------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
2001 $ 20.0 $ 38.1 $ 58.1
2002 20.0 77.5 97.5
2003 20.0 41.7 61.7
2004 $ 85.0 20.0 38.8 143.8
2005 69.0 20.0 25.5 114.5
2006 and thereafter 536.0 140.0 924.6 1,600.6
----------------- ----------------- ------------ ------------
$690.0 $240.0 $1,146.2 $2,076.2
================= ================= ============ ============
</TABLE>
The Senior Credit Facilities include a Revolving Credit Facility that
provides for aggregate borrowings of up to $200 million and letters of
credit of up to $280 million. The Revolving Credit Facility commitment
matures in fiscal year 2005. We had no borrowings outstanding under the
Revolving Credit Facility during fiscal year 2000 or 1999. 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 our option. On
October 1, 1998, we entered into two interest rate swaps to fix the
interest cost on $500 million of long-term debt outstanding under the
Term Loan Facility. We 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. As a result, 72% of amounts outstanding
under the Senior Credit Facilities are fixed at approximately 7.0% as of
March 31, 2000.
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 us 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 us from allowing our 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.
30
<PAGE>
<PAGE>
The indentures governing the Senior Notes and Senior Subordinated Notes
permit us and our Restricted Subsidiaries (which include all of our
subsidiaries 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 us and our 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 us or any of our
Restricted Subsidiaries (subject to certain exceptions). We were in
compliance with all of the restrictive covenants of our loan agreements
as of March 31, 2000.
Certain of our subsidiaries maintain short term lines and other working
capital borrowing facilities. Total commitments under such subsidiary
facilities totaled $167 million and borrowings thereunder totaled $55
million at March 31, 2000. In addition, certain of our subsidiaries have
long-term debt outstanding under various agreements. These agreements
contain certain customary restrictive covenants including limitations on
additional debt, dividends and investments.
OTHER
Mine Closure. In October 1999, we suspended operations at our Marissa
Operating Unit in Illinois. The Marissa Operating Unit, which shipped
4.4 million tons of coal in fiscal 1999, had attempted to secure
additional business after its principal customer began shifting its
supply to lower-sulfur coal from our Powder River operations. These
efforts were unsuccessful, and as a result the mine was closed in
December 1999. We do not anticipate a material adverse impact on our
results of operations or financial position from the mine closure.
Mine Suspensions. In addition, we suspended operations at our Lynnville
and Hawthorn mines in Indiana in December 1999. The suspension of
operations at these locations is not anticipated to materially affect
the consolidated results of operations or financial position, as the
primary customers of these mines have signed long-term coal supply
agreements and will receive coal from another Peabody affiliate, Black
Beauty. We periodically evaluate the possibility of suspending other
mines due to market conditions. Such suspensions, if any, are not
expected to have a material adverse impact on our results of operations
or financial condition.
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 also 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 us). We are evaluating
the requirements of SFAS No. 133 and have not determined the impact of
adoption on the consolidated financial statements.
Year 2000 Issue. 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.
We have not experienced any significant impact on our systems or
operations as a result of the Year 2000 Issue. The total cost incurred
to prepare for the Year 2000 Issue was approximately $6.4 million, which
includes $2.3 million for the purchase of new software and hardware that
was capitalized and $4.1 million that was expensed as incurred.
In addition, we have not encountered any significant problems with third
parties such as our customers, suppliers, service providers and other
business partners. However, if these or other third parties with which
we conduct business experience lingering Year 2000 Issues, we could
experience a material adverse impact on our results of operations and
financial position.
FORWARD LOOKING STATEMENTS
This document, the annual report and certain press releases and
statements we make from time to time include statements of our and
management's expectations, intentions, plans and beliefs that constitute
"forward looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act 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 our current expectations, including but not limited to those
factors listed under "Risk Factors" and:
31
<PAGE>
<PAGE>
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 and
power generation industries; risks inherent to mining; changes in our
leverage position; and the ability to successfully implement operating
strategies.
RISK FACTORS
POSSIBILITY OF TERMINATION OF LONG-TERM COAL SUPPLY AGREEMENTS
A substantial portion of our sales are made pursuant to coal supply
agreements, which are important to the stability and profitability of
our operations. The execution of a satisfactory coal supply agreement is
frequently the basis on which we undertake the development of coal
reserves required to be supplied under the contract. Peabody has a large
portfolio of coal supply agreements. In fiscal year 2000, 86% of our
sales volume was sold under coal supply agreements. At March 31, 2000,
our coal supply agreements had terms ranging from one to 16 years and
had an average volume-weighted remaining term of more than 4 years.
Many of our coal supply agreements contain price reopener provisions
that provide for the contract price to be adjusted upward or downward at
specified times. Failure of the parties to agree on a price pursuant to
such reopener provisions may lead to early termination of the contracts.
Over the last few years, several of our coal supply agreements have been
renegotiated, bringing the contract prices closer to the then current
market prices, thus leading to a reduction in the revenues from such
contracts. A similar reduction in contract prices has also been
experienced in relation to the replacement of expiring contracts. The
coal supply agreements also typically contain force majeure provisions
allowing temporary suspension of performance by us or the customer
during the duration of certain events beyond the control of the affected
party. Most coal supply agreements contain provisions requiring us to
deliver coal within certain ranges for specific coal characteristics
such as Btus, sulfur, ash, grindability and ash fusion temperature.
Failure to meet these specifications could result in economic penalties
or termination of the contracts.
We restructure coal supply agreements in the normal course of business.
In connection with such restructurings, we recognized gains of
$13.0 million, $5.3 million and $49.3 million in fiscal years 2000, 1999
and 1998, respectively. We cannot assure you that we will be able to realize
such gains in connection with future coal supply agreement restructurings.
The operating profit margins realized by Peabody under coal supply
agreements depend on a variety of factors. In addition, price
adjustment, price reopener and other provisions may reduce the
insulation from any short-term coal price volatility provided by such
contracts. If a substantial portion of our coal supply agreements were
modified or terminated, we could be materially adversely affected to the
extent that we are unable to find alternate buyers for our coal at the
same level of profitability. Because the price of coal has declined in
recent years, some of our coal supply agreements are for prices above
current spot market prices. We cannot assure you that we will be able to
replace these contracts at the same prices or with similar profit
margins when they expire. In addition, certain coal supply agreements
are the subject of ongoing litigation and arbitration.
DEPENDENCE ON MAJOR CUSTOMERS
In fiscal year 2000, we derived 27% of our total coal revenues from
sales to our 5 largest customers, under 13 coal supply agreements that
expire in various years from 2000 to 2014. We are currently engaged in
discussions with several of these customers to either extend or enter
into new long-term agreements upon expiration of existing agreements. We
cannot assure you these customers either will extend or enter into new
long-term agreements or, in the absence of long-term agreements, that
they will continue to purchase the same amount of coal as they have in
the past or on terms, including pricing terms, as favorable to us as
under existing agreements. The concurrent loss of several coal supply
agreements, reductions in the amounts of coal that all five of these
customers purchase under those agreements, or the terms under which they
buy, could have a material adverse effect on our financial condition and
results of operations.
TRANSPORTATION RISKS
Coal producers depend upon rail, barge, trucking, overland conveyor and
other systems to provide access to markets. While customers typically
arrange and pay for transportation of coal from the mine to the point
of use, disruption of these transportation services because of
weather-related problems, strikes, lock-outs or other events could
temporarily impair our ability to supply coal to our customers and thus
could adversely affect our results of operations. For example, the high
volume of coal shipped from all southern Powder River Basin mines could
create temporary congestion on the rail system accessing that region.
32
<PAGE>
<PAGE>
Transportation costs represent a significant portion of the total cost
of coal, and as a result, the cost of delivery is a critical factor in a
customer's purchasing decision. Increases in transportation costs could
make coal a less competitive source of energy or could make certain of
our operations less competitive than other sources of coal. Such
increases could have a material adverse effect on our ability to compete
and on our financial condition and results of operations.
In Australia, we transport coal using the Hunter River Valley Railroad
and the coal loading terminal at the Port of Newcastle. The Port of
Newcastle has had problems with ship congestion in the past. Such
congestion could delay shipments from Peabody Resources' Warkworth and
Bengalla mines.
RISKS INHERENT TO MINING
Our mining operations are subject to conditions beyond our control which
can increase the cost of mining at particular mines for varying lengths
of time. These conditions include weather and natural disasters,
unexpected maintenance problems, key equipment failures, variations in
coal seam thickness, variations in the amount of rock and soil overlying
the coal deposit, variations in rock and other natural materials and
variations in geological and other conditions.
RESTRUCTURING OF AUSTRALIAN COAL INDUSTRY
The coal mining industry in Australia is going through a process of
restructuring in an effort to improve the industry's international
competitiveness. This restructuring is directed at improving workforce
flexibility through training workers to perform multiple tasks and
eliminating existing inflexibilities in work practices. Certain major
coal mining companies, including Peabody Resources, have also attempted
to employ non-union labor under individual contracts of employment.
While to date these changes have been accomplished without major
industrial disruption, we cannot assure you that this state of affairs
will continue or that further restructuring will not cause major work
stoppages in the future.
GOVERNMENT REGULATION OF THE MINING INDUSTRY
General. The coal mining industry is subject to regulation by federal,
state and local authorities on matters such as employee health and
safety, permitting and licensing requirements, air quality standards,
water pollution, plant and wildlife protection, reclamation and
restoration of mining properties after mining is completed, the
discharge of materials into the environment, surface subsidence from
underground mining and the effects that mining has on groundwater
quality and availability. In addition, the industry is affected by
significant legislation mandating certain benefits for current and
retired coal miners. Numerous governmental permits and approvals are
required for mining operations. We may be required to prepare and
present to federal, state or local authorities data pertaining to the
effect or impact that any proposed exploration for or production of coal
may have upon the environment. All requirements imposed by any such
authority may be costly and time-consuming and may delay commencement or
continuation of exploration or production operations. The possibility
exists that new legislation and/or regulations and orders may be adopted
which may materially adversely affect our mining operations, our cost
structure and/or our customers' ability to use coal. New legislation,
including proposals related to the protection of the environment which
would further regulate and tax the coal industry, may also require us or
our customers to change their operations significantly or incur
increased costs. Such factors and legislation, if enacted, could have a
material adverse effect on our financial condition and results of
operations.
Reclamation and Mine Closure Accruals. The Federal Surface Mining
Control and Reclamation Act of 1977 and similar state statutes require
that mine property be restored in accordance with specified standards
and an approved reclamation plan and require that we obtain and
periodically renew permits for mining operations. We accrue for the
costs of final mine closure over the estimated useful mining life of the
property and expense current mine disturbance as part of the ongoing
mining process. The establishment of the final mine closure reclamation
liability and the current disturbance is based upon permit requirements
and requires various estimates and assumptions, principally associated
with costs and production levels. Annually, we review our entire
environmental liability under the Surface Mining Control and Reclamation
Act of 1977 and makes necessary adjustments, including mine reclamation
plan and permit changes and revisions to costs and production levels to
optimize mining and reclamation efficiency. The economic impact of such
adjustments is recorded to the cost of coal sales. Although we believe
we are making adequate provisions for all expected reclamation and other
costs associated with mine closures, future operating results would be
adversely affected if such accruals were later determined to be
insufficient.
33
<PAGE>
<PAGE>
Impact of Clean Air Act Amendments on Coal Consumption. The Clean Air
Act and the Clean Air Act Amendments, and corresponding state laws that
regulate the emissions of materials into the air, affect coal mining
operations both directly and indirectly. Direct impacts on coal mining
and processing operations may occur through Clean Air Act permitting
requirements and/or emission control requirements relating to
particulate matter, such as fugitive dust, including future regulation
of fine particulate matter measuring 2.5 micrometers in diameter or
smaller. In July 1997, the United States Environmental Protection Agency
adopted new, more stringent National Ambient Air Quality Standards for
particulate matter and ozone. As a result, some states will be required
to change their existing implementation plans to attain and maintain
compliance with the new air quality standards. Because coal mining
operations emit particulate matter, our mining operations are likely to
be affected directly when the revisions to the air quality standards are
implemented by the states. State and federal regulations relating to
implementation of the new air quality standards may restrict our ability
to develop new mines or could require us to modify our existing
operations. The extent of the potential direct impact of the new air
quality standards on the coal industry will depend on the policies and
control strategies associated with the state implementation process
under the Clean Air Act, but could have a material adverse effect on our
financial condition and results of operations.
The Clean Air Act indirectly affects coal mining operations by
extensively regulating the air emissions of sulfur dioxide and other
compounds including nitrogen oxides emitted by coal-fueled utility power
plants. Title IV of the Clean Air Act Amendments places limits on sulfur
dioxide emissions from electric power generation plants. The limits set
baseline emission standards for such facilities. Reductions in such
emissions under Title IV of the Clean Air Act Amendments will occur in
two phases: (1) Phase I began in 1995 and applies only to certain
identified facilities; and (2) Phase II began in 2000 and applies to all
coal-fired power plants, including those subject to the 1995
restrictions. The affected utilities have been and may be able to meet
these requirements by, among other methods, switching to lower sulfur
coal or other low sulfur fuels, installing pollution control devices
such as scrubbers, reducing electricity generating levels or purchasing
excess sulfur dioxide emission allowances from other facilities. The
effect of these provisions of the Clean Air Act Amendments on us cannot
be fully determined at this time. We believe that implementation of
Phase II will likely exert a downward pressure on the price of higher
sulfur coal, as additional coal-burning utility power plants become
subject to the restrictions of Title IV. This price effect is expected
to result after the large surplus of sulfur dioxide emission allowances
which has accumulated in connection with Phase I has been reduced, and
before utilities electing to comply with Phase II by installing sulfur-
reduction technologies are able to implement such a compliance strategy.
The extent to which this expected price decrease will materially
adversely affect us will depend upon a number of factors, including our
ability to secure coal supply agreements for our coal reserves with
higher sulfur content.
The Clean Air Act Amendments also indirectly affect coal mining
operations by requiring utilities that currently are major sources of
nitrogen oxides in moderate or higher ozone nonattainment areas to
install reasonably available control technology for nitrogen oxides,
which are precursors of ozone. In addition, the recently issued,
stricter ozone air quality standards, as discussed above, are expected
to be implemented by the Environmental Protection Agency by 2003. On
September 24, 1998, the Environmental Protection Agency announced the
final rules governing nitrogen oxide emissions intended to reduce ozone
concentrations in Northeastern cities. The new rules require additional
nitrogen oxide reductions in 22 states, including reductions in nitrogen
oxide emissions from coal-fueled power plants located in Midwestern and
Southern states, sources purported to impact ozone in urban areas in the
Northeast. Installation of reasonably available control technology and
additional control measures required under the final rules will make it
more costly to operate coal-fired plants and, depending on the
requirements of individual state attainment plans and the development of
revised new source performance standards, could make coal a less
attractive fuel alternative in the planning and building of utility
power plants in the future. On September 16, 1998, the Environmental
Protection Agency issued a new rule governing nitrogen oxide emissions
from new sources. The rule limits nitrogen oxide emissions from new,
significantly modified or reconstructed boilers to amounts per megawatt-
hour of gross electric output. The rule requires expensive nitrogen
oxide emission control technology for such coal-fired boilers, which
could affect the competitiveness of coal as a fuel for electricity
generation in the future. Any reduction in coal's share of the capacity
for power generation could have a material adverse effect on our
business, financial condition and results of operations. The effect such
regulations or other requirements that may be imposed in the future
could have on the coal industry in general and on us in particular
cannot be predicted with certainty. We cannot assure you that the
implementation of the Clean Air Act Amendments, the new air quality
standards or any other future regulatory provisions will not materially
adversely affect us.
<PAGE>
Impact of the Framework Convention on Global Climate Change on the Coal
Industry. The United States, Australia and more than 160 other nations
are signatories to the 1992 Framework Convention on Global Climate
Change which is intended to limit or capture emissions of greenhouse
gases, such as carbon dioxide. In December 1997 in Kyoto, Japan, the
signatories to the Convention established a binding set of emission
targets for developed nations. Although the specific limits vary from
country to country, the United States would be required to reduce
emissions to 93% of 1990 levels over a five-year budget period from 2008
through 2012.
34
<PAGE>
<PAGE>
Although the United States has not ratified the emission targets and no
comprehensive regulations focusing on greenhouse gas emissions are in
place, efforts to control greenhouse gas emissions could result in
reduced use of coal if electric power generators switch to lower carbon
sources of fuel. It is unclear what impact, if any, greenhouse gas
restrictions may have on our operations. There is no guarantee, however,
that such restrictions, if established through regulation or
legislation, will not have a material adverse effect on our financial
condition and results of operations.
Impact of Federal and State Superfund Statutes on Coal Mining Operations
and Past Hard Rock Mining Operations. Risks of environmental liability
are inherent with respect to both current and past coal mining and hard
rock mining activities. The Comprehensive Environmental Response,
Compensation and Liability Act, or Superfund, and similar state laws
create liability for investigation and remediation in response to
releases of substances hazardous to the environment and for damages to
natural resources. Under the Comprehensive Environmental Response,
Compensation and Liability Act and many state Superfund statutes, joint
and several liability may be imposed on waste generators, site owners
and operators and others regardless of fault.
We assumed environmental obligations associated with certain former non-
coal mining operations of our subsidiary, Gold Fields, and our former
parent company. Gold Fields, its predecessors and its former parent
company are or may become parties to environmental proceedings which
have commenced or may commence in the United States in relation to
certain sites previously owned or operated by those entities or
companies associated with them. We have agreed to indemnify Gold Field's
former parent company for any environmental claims resulting from any
activities, operations or conditions that occurred prior to the sale of
Gold Fields to Peabody. Gold Fields is currently involved in
environmental investigation or remediation at 10 sites and is a
defendant in litigation with private parties involving one other site.
These sites were formerly owned or operated by Gold Fields. The
Environmental Protection Agency has placed three of these sites on the
National Priorities List, promulgated pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, and one of the
sites is on a similar state priority list. There are a number of other
sites in the United States which were previously owned or operated by
such companies and which could give rise to environmental proceedings in
which Gold Fields could incur liabilities.
Where such sites were identified, independent environmental consultants
were employed in 1997 in order to assess the estimated total amount of
the liability per site and the proportion of those liabilities that Gold
Fields is likely to bear. The available information on which to base
this review was very limited since all of the sites except for three
sites (on which no remediation is currently taking place) are no longer
owned by Gold Fields. We have provisions of $57.7 million as of March
31, 2000 for the above environmental liabilities relating to Gold
Fields. Significant uncertainty exists as to whether these claims will
be pursued against Gold Fields in all cases, and where they are pursued,
the amount of the eventual costs and liabilities, which could be greater
or less than this provision. We believe that the remaining amount of the
provision is adequate to cover these environmental liabilities.
Although waste substances generated by coal mining and processing are
generally not regarded as hazardous substances for the purposes of the
Comprehensive Environmental Response, Compensation and Liability Act,
some products used by coal companies in operations, such as chemicals,
and the disposal of such products are governed by the statute. Thus,
coal mines currently or previously owned or operated by us, and sites to
which we sent waste materials, may be subject to liability under the
Comprehensive Environmental Response, Compensation and Liability Act and
similar state laws. In addition to the Gold Fields liabilities
associated with the Comprehensive Environmental Response, Compensation
and Liability Act and similar state laws, our current and former coal
mining operations presently incur, and will continue to incur,
expenditures associated with the investigation and remediation of
environmental matters, including acid mine drainage, land subsidence,
underground storage tanks, solid and hazardous waste disposal and other
matters.
While we believe that we have identified costs likely to be incurred for
these environmental matters, and that those costs are not likely to have
a material adverse effect upon our financial condition or results of
operations, we cannot assure you that total costs and liabilities for
these environmental matters will not increase in the future. The
magnitude of such additional liabilities and the costs of complying with
these environmental laws cannot be predicted with certainty due to the
lack of specific information available with respect to many sites, the
potential for new or changed laws and regulations and for the
development of new remediation technologies and the uncertainty
regarding the timing of work with respect to particular sites. As a
result, we cannot assure you that material liabilities or costs related
to environmental matters will not be incurred in the future or that our
liquidity will not be adversely impacted by such environmental
liabilities or costs.
35
<PAGE>
<PAGE>
Black Lung and Workers' Compensation Obligations. Under the Black Lung
Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act of
1977, as amended in 1981, each coal mine operator is required to secure
payment of federal black lung benefits to claimants who are current and
former employees and to a trust fund for the payment of benefits and
medical expenses to claimants who last worked in the coal industry prior
to July 1, 1973. Less than 7% of the miners currently seeking federal
black lung benefits are awarded such benefits by the federal government.
The trust fund is funded by an excise tax on production of up to $1.10
per ton for deep-mined coal and up to $0.55 per ton for surface-mined
coal, neither amount to exceed 4.4% of the per ton sales price. This tax
is passed on to the purchaser under many of our coal supply agreements.
Legislation on black lung reform has been introduced in Congress. The
legislation would restrict the evidence that can be offered by a mining
company, establish a standard for evaluation of evidence that greatly
favors black lung claimants, allow claimants who have been denied
benefits at any time since 1981 to refile their claims for consideration
under the new law, make surviving spouse benefits significantly easier
to obtain and retroactively waive repayment of preliminarily awarded
benefits that are later determined to have been improperly paid. If this
or similar legislation is passed, the number of claimants who are
awarded benefits could significantly increase. We cannot assure you that
such legislation or other proposed changes in black lung legislation
will not have an adverse effect on us.
The United States Department of Labor has issued proposed amendments to
the regulations implementing the federal black lung laws which, among
other things, establish a presumption in favor of a claimant's treating
physician and limit a coal operator's ability to introduce medical
evidence regarding the claimant's medical condition. If adopted, the
amendments could have an adverse impact on us, the extent of which
cannot be accurately predicted.
REPLACEMENT AND RECOVERABILITY OF RESERVES
Our future success depends upon our ability to find, develop or acquire
additional coal reserves that are economically recoverable. Our
recoverable reserves will generally decline as reserves are depleted,
except to the extent that we conduct successful exploration and
development activities or acquire properties containing recoverable
reserves. To increase reserves and production, we must continue our
development, exploration and acquisition activities or undertake other
replacement activities. Our current strategy includes increasing our
reserve base through acquisitions of government and private leases,
producing properties and continued exploitation of our existing
properties. The federal government continually leases coal reserves
through a competitive bidding process. Companies such as Peabody may
nominate specific areas to be leased by the government by application.
Companies that have operations adjacent to these nominated lease areas
have advantages in the bid process since their mining infrastructure is
in place and they could avoid the cost of developing a new mine. Through
this process, in June 1998, we acquired an additional 532 million tons
of low sulfur coal reserves in a lease auction in the Powder River Basin
adjacent to our North Antelope/Rochelle Mine. We cannot assure you that
we will be able to continue successfully leasing additional reserves
from the government. Additionally, we cannot assure you that our planned
development and exploration projects and acquisition activities will
result in significant additional reserves or that we will have
continuing success developing additional mines. Most of our mining
operations are conducted on properties owned or leased by us. Because
title to most of our leased properties and mineral rights are not
thoroughly verified until a permit to mine the property is obtained, our
right to mine certain of our reserves may be materially adversely
affected if defects in title or boundaries exist. In addition, we cannot
assure you that we can successfully negotiate new leases from the
government or private parties or mining contracts for properties
containing additional reserves or maintain our leasehold interest in
properties on which mining operations are not commenced during the term
of the lease.
PRICE FLUCTUATIONS AND MARKETS
Our results of operations are highly dependent upon the prices received
for our coal. Although in fiscal 2000, 86% of our sales were made
pursuant to coal supply agreements, many of our coal supply agreements
contain price reopener provisions which provide for the contract price
to be adjusted upward or downward at specified times. Any significant
decline in prices for coal could have a material adverse effect on our
financial condition and results of operations, and quantities of
reserves recoverable on an economic basis. Should the industry
experience significant price declines from current levels or other
adverse market conditions, we may not be able to generate sufficient
cash flow from operations to meet our debt service obligations and make
planned capital expenditures.
The availability of a ready market for our coal production also depends
on a number of factors, including the demand and supply of low sulfur
coal and the availability of sulfur dioxide emission allowances.
36
<PAGE>
<PAGE>
COMPETITION
The coal industry is highly competitive, with numerous producers in all
coal producing regions. We compete with other large producers and
hundreds of small producers in the United States and abroad. Many of our
customers are also customers of our competitors. The markets in which we
sell our coal are highly competitive and affected by factors beyond our
control. Continued demand for our coal and the prices that we will be
able to obtain will depend primarily on coal consumption patterns of the
domestic electric utility industry, which in turn are affected by the
demand for electricity, coal transportation costs, environmental and
other governmental regulations and orders, technological developments
and the availability and price of competing alternative energy sources
such as oil, natural gas, nuclear energy and hydroelectric energy. In
addition, during the mid-1970s and early 1980s, a growing coal market
and increased demand for coal attracted new investors to the coal
industry and spurred the development of new mines and added production
capacity throughout the industry. Although demand for coal has grown
over the recent past, the industry has since been faced with
overcapacity, which in turn has increased competition and lowered
prevailing coal prices. Moreover, because of greater competition for
electricity and increased pressure from customers and regulators to
lower electricity prices, public utilities are lowering fuel costs and
requiring competitive prices on their purchases of coal.
UNIONIZATION OF LABOR FORCE
Approximately 39% of Peabody's and our joint venture's United States
coal employees, who accounted for 26% of our tons sold in the United
States in fiscal year 2000, are represented by the United Mine Workers
of America. The Australian coal mining industry is highly unionized and
the majority of workers employed at Peabody Resources are members of
trade unions. Certain of our competitors have non-union work forces.
Because of the increased risk of strikes and other work-related
stoppages in addition to higher labor costs which may be associated with
union operations in the coal industry, our non-unionized competitors may
have a competitive advantage in areas where they compete with our
unionized operations. If some or all of our current non-union operations
were to become unionized, we could incur an increased risk of work
stoppages, reduced productivity and higher labor costs. The ten month
long United Mine Workers of America strike in 1993 had a material
adverse effect on us. Our subsidiaries, Peabody Coal Company and Eastern
Associated Coal Corp., operate under a union contract which is in effect
through December 31, 2002 and our Peabody Western Coal Company
subsidiary operates under a union contract which is in effect through
August 31, 2000. Peabody Resources' Warkworth Mine operates under a
labor agreement that expires in October 2002. Peabody Resources'
Ravensworth and Narama mines entered into two-year labor agreements in
May 1999. The labor agreement for the Moura Mine is currently under
negotiation. We cannot assure you that our unionized labor will not go
on strike upon expiration of existing contracts.
SURETY BONDS
Federal and state laws require bonds to secure our obligations to
reclaim lands disturbed for mining, to pay federal and state workers'
compensation and to satisfy other miscellaneous obligations. As of March
31, 2000, we had outstanding surety bonds with third parties for post-
mining reclamation totaling $529.1 million. Furthermore, surety bonds
valued at an additional $78.7 million are in place for federal and state
workers' compensation obligations and other miscellaneous obligations.
These bonds are typically renewable on a yearly basis. We cannot assure
you that the surety bond holders will continue to renew the bonds or
refrain from demanding additional collateral upon such renewals.
Furthermore, as a result of the acquisition financings, we are highly
leveraged, making it questionable whether we will be able to continue
our self-bonding program and thus requiring us to obtain additional
third-party surety bonds. The failure to maintain or the inability to
acquire sufficient surety bonds, as required by state and federal law,
would have a material adverse effect on us. Such failure could result
from a variety of factors including the following: (1) lack of
availability, higher expense or unreasonable terms of new surety bonds;
(2) restrictions on the demand for collateral by current and future
third-party surety bond holders due to the terms of the indentures or
the senior credit facilities; and (3) the exercise by third-party surety
bond holders of their right to refuse to renew the surety.
SUBSTANTIAL LEVERAGE
We are highly leveraged and, at March 31, 2000, had total indebtedness
of $2,076.2 million, of which (1) $690.0 million consisted of
indebtedness under the senior credit facilities, (2) $398.9 million of
senior notes, (3) $498.7 million of senior subordinated notes, (4) a
$180.3 million, 5% coupon subordinated note, (5) $193.7 million in
borrowings of Black Beauty and (5) $111.5 million in borrowings by our
Australian subsidiary, including $76.5 million to fund the development
of the Bengalla Mine. In addition, we had available borrowings of up to
$312.1 million under our revolving credit facilities. We and our
Restricted Subsidiaries are permitted to incur additional indebtedness
in the future.
37
<PAGE>
<PAGE>
Our ability to pay principal and interest on each series of the notes
and to satisfy our other debt service obligations will depend upon the
future operating performance of our subsidiaries, which will be affected
by prevailing economic conditions in the markets they serve and other
factors, certain of which are beyond their control. Based upon the
current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under
the senior credit facilities, will be adequate to meet our future
liquidity needs for at least the next several years. We cannot assure
you that our business will generate sufficient cash flow from operations
or that future borrowings will be available under the senior credit
facilities in an amount sufficient to enable us to service our
indebtedness, including each series of the notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of the
principal of each series of the notes on or prior to maturity. We cannot
assure you that we will be able to effect any such refinancing on
commercially reasonable terms or at all.
The degree to which we are leveraged could have important consequences
to holders of each series of the notes, including, but not limited to:
(1) making it more difficult for us to satisfy our obligations with
respect to each series of the notes; (2) increasing our vulnerability to
general adverse economic and industry conditions; (3) limiting our
ability to obtain additional financing to fund future working capital,
capital expenditures, research and development or other general
corporate requirements; (4) requiring the dedication of a substantial
portion of our cash flow from operations to the payment of principal of,
and interest on, our indebtedness, thereby reducing the availability of
such cash flow to fund working capital, capital expenditures, research
and development or other general corporate purposes; (5) limiting our
flexibility in planning for, or reacting to, changes in our business and
the industries in which we compete; and (6) placing us at a competitive
disadvantage compared to less leveraged competitors. In addition, the
indentures and the senior credit facilities contain financial and other
restrictive covenants that limit our ability to, among other things,
borrow additional funds. Failure by us to comply with such covenants
could result in an event of default which, if not cured or waived, could
have a material adverse effect on us. In addition, the degree to which
we are leveraged could prevent us from repurchasing all of the notes
tendered to us upon the occurrence of a change of control.
DEPENDENCE ON KEY PERSONNEL
Our business is managed by a number of key personnel, the loss of which
could have a material adverse effect on us. In addition, as our business
develops and expands, we believe that our future success will depend
greatly on our continued ability to attract and retain highly skilled
and qualified personnel. We cannot assure you that key personnel will
continue to be employed by us or that we will be able to attract and
retain qualified personnel in the future. We currently have not obtained
key person life insurance to cover our executive officers. Failure by us
to retain or attract such key personnel could have a material adverse
effect on us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
TRADING ACTIVITIES
We market and trade coal, emission allowances and energy-related
commodities. We also market and trade electric power and energy-related
commodities and provide services to the electric power industry through
our subsidiary, Citizens Power, which as previously discussed is no
longer a component of continuing operations. These activities give rise
to market risk, which represents the potential loss that can be caused
by a change in the market value of a particular commitment. Market risks
are actively measured, monitored and controlled to ensure compliance
with management policies. Polices are in place that limit the amount of
total exposure we may enter into at any point in time. In addition, we
have implemented procedures that allow us to measure, monitor and
control all commitments and positions.
Coal and emission allowance trading is accounted for using the fair
value method, whereby financial instruments with third parties (such as
forwards, futures, options and swaps) are reflected at market value in
the consolidated financial statements.
NON-TRADING
Commodity price risk
We manage our commodity price risk for non-trading purposes through the
use of long-term coal supply agreements, rather than through the use of
derivative instruments. Approximately 86% of our sales volume was sold
under long-term coal supply agreements in fiscal year 2000.
38
<PAGE>
<PAGE>
Certain products used in our mining activities are subject to price
volatility. We use forward contracts to manage the volatility related to
this exposure. Commodity price risk associated with these products used
in our mining activities is not material to our consolidated financial
position, results of operations or liquidity.
Interest rate risk
We have exposure to changes in interest rates due to our existing level
of indebtedness. As of March 31, 2000, we had $1.2 billion of fixed-rate
borrowings and approximately $874 million of variable-rate borrowings
outstanding. To minimize our exposure to changes in interest rates, we
have entered into two interest rate swaps in the United States with a
total notional amount of $500 million, and one interest rate swap in
Australia with notional amount of $74 million.
Foreign currency risk
Our Australian subsidiary, Peabody Resources, utilizes the Australian
dollar as its functional currency. Peabody Resources exports coal to the
Asian market under United States dollar-denominated supply agreements,
creating exposure to fluctuations in exchange rates upon subsequent
translation of such export sales to United States dollars in the
consolidated financial statements. Peabody Resources utilizes a
combination of forward currency and option contracts to hedge the impact
of these exchange rate fluctuations.
Sensitivity analysis of market risks
Foreign currency risk
The net amount of our derivative financial instruments and foreign
currency transaction exposure of approximately $212 million, after
considering $215 million of existing foreign exchange contracts, has
been subjected to an assumed 10% appreciation and 10% depreciation in
the value of the Australian dollar versus the United States dollar over
a period not exceeding the average expected maturity of the related
foreign exchange contract. The resulting foreign exchange gain or loss
would be approximately $21 million.
Interest rate risk
After taking into account the interest rate swap transactions discussed
above, a one percentage point increase in interest rates would result in
an annualized increase to interest expense of approximately $3.0 million
on our variable-rate borrowings. With respect to our fixed-rate
borrowings, a one-percentage point increase in interest rates would
result in a $12.9 million decrease in the fair value of such borrowings.
39
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
Index to Financial Statements and Supplementary Data
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 41
Audited Financial Statements:
Statements of Operations - Year ended March 31, 2000, periods ended
March 31, 1999 and May 19, 1998 and year ended March 31, 1998 42
Balance Sheets - March 31, 2000 and 1999 43
Statements of Cash Flows - Year ended March 31, 2000, periods ended
March 31, 1999 and May 19, 1998 and year ended March 31, 1998 44
Statements of Changes in Stockholders' Equity/Invested Capital - Year ended
March 31, 2000, periods ended March 31, 1999 and May 19, 1998 and year
ended March 31, 1998 45
Notes to Financial Statements 46
</TABLE>
40
<PAGE>
<PAGE>
Report of Independent Auditors
Board of Directors
P&L Coal Holdings Corporation
We have audited the accompanying consolidated balance sheets of P&L Coal
Holdings Corporation (the Company) as of March 31, 2000 and 1999, and
the related consolidated statements of operations, changes in
stockholders' equity and cash flows of the Company for the year and
period then ended. We have also audited the combined statements of
operations, changes in invested capital and cash flows of P&L Coal Group
(the Predecessor Company) for the period ended May 19, 1998 and the year
ended March 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
P&L Coal Holdings Corporation at March 31, 2000 and 1999, the
consolidated results of operations and cash flows of the Company for the
year ended March 31, 2000 and the period ended March 31, 1999, and the
combined results of operations and cash flows of the Predecessor Company
for the period ended May 19, 1998 and the year ended March 31, 1998 in
conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
April 27, 2000
St. Louis, Missouri
41
<PAGE>
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<CAPTION>
PREDECESSOR COMPANY
------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUES
Sales $2,610,991 $1,970,957 $278,930 $2,048,694
Other revenues 99,509 85,875 11,728 169,328
---------- ---------- -------- ----------
Total revenues 2,710,500 2,056,832 290,658 2,218,022
OPERATING COSTS AND EXPENSES
Operating costs and expenses 2,178,664 1,643,718 244,128 1,695,216
Depreciation, depletion and amortization 249,782 179,182 25,516 200,169
Selling and administrative expenses 95,256 67,688 12,017 83,640
Net gain on property and
equipment disposals (6,439) - (328) (21,815)
---------- ---------- -------- ----------
OPERATING PROFIT 193,237 166,244 9,325 260,812
Interest expense 205,056 176,105 4,222 33,410
Interest income (4,421) (18,527) (1,667) (14,543)
---------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTERESTS (7,398) 8,666 6,770 241,945
Income tax provision (benefit) (141,522) 3,012 4,530 83,050
Minority interests 15,554 1,887 - -
---------- ---------- -------- ----------
INCOME FROM CONTINUING OPERATIONS 118,570 3,767 2,240 158,895
Discontinued operations:
(Income) loss from discontinued operations,
net of income tax provision (benefit) of ($1,297),
$6,035, ($189) and $7,143, respectively 12,087 (6,442) 1,764 (1,441)
Loss from disposal of discontinued operations,
net of income tax benefit of $31,188 78,273 - - -
---------- ---------- -------- ----------
NET INCOME $ 28,210 $ 10,209 $ 476 $ 160,336
========== ========== ======== ==========
See accompanying notes to financial statements.
</TABLE>
42
<PAGE>
<PAGE>
<TABLE>
P & L COAL HOLDINGS CORPORATION
BALANCE SHEETS
AS OF MARCH 31
(Dollars in thousands)
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 65,618 $ 194,078
Accounts receivable, less allowance of $1,233 and $177, respectively 153,021 312,748
Materials and supplies 48,809 53,978
Coal inventory 193,341 195,919
Assets from power trading activities - 1,037,300
Assets from coal and emission allowance trading activities 78,695 2,514
Deferred income taxes 49,869 8,496
Other current assets 43,192 27,428
---------- ----------
Total current assets 632,545 1,832,461
Property, plant, equipment and mine development
Land and coal interests 4,135,010 4,023,546
Building and improvements 350,284 316,163
Machinery and equipment 741,486 651,728
Less accumulated depreciation, depletion and amortization (411,270) (193,492)
---------- ----------
Property, plant, equipment and mine development, net 4,815,510 4,797,945
Net assets of discontinued operations 90,000 -
Investments and other assets 288,794 393,525
---------- ----------
Total assets $5,826,849 $7,023,931
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt $ 57,977 $ 72,404
Income taxes payable 13,594 7,308
Liabilities from power trading activities - 638,062
Liabilities from coal and emission allowance trading activities 75,883 12
Accounts payable and accrued expenses 573,137 627,722
---------- ----------
Total current liabilities 720,591 1,345,508
Long-term debt, less current maturities 2,018,189 2,469,975
Deferred income taxes 625,124 780,175
Accrued reclamation and other environmental liabilities 502,092 498,032
Workers' compensation obligations 212,260 207,544
Accrued postretirement benefit costs 971,186 956,714
Obligation to industry fund 64,737 63,107
Other noncurrent liabilities 162,979 183,736
---------- ----------
Total liabilities 5,277,158 6,504,791
Minority interests 41,265 23,910
Stockholders' equity
Preferred stock - $0.01 per share par value; 10,000,000 shares authorized,
5,000,000 shares issued and outstanding as of March 31, 2000 and 1999 50 50
Common stock - Class A, $0.01 per share par value; 30,000,000 shares authorized,
19,000,000 shares issued and outstanding as of March 31, 2000 and 1999 190 190
Common stock - Class B, $0.01 per share par value; 3,000,000 shares authorized,
746,329 shares issued and 684,473 shares outstanding as of March 31, 2000; 3,000,000
shares authorized and 708,767 shares issued and outstanding as of March 31, 1999 7 7
Additional paid-in capital 485,037 484,772
Employee stock loans (2,391) (2,331)
Accumulated other comprehensive income (loss) (12,667) 2,333
Retained earnings 38,419 10,209
Treasury shares, at cost: 61,856 Class B shares as of March 31, 2000 (219) -
---------- ----------
Total stockholders' equity 508,426 495,230
---------- ----------
Total liabilities and stockholders' equity $5,826,849 $7,023,931
========== ==========
See accompanying notes to financial statements.
</TABLE>
43
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
PREDECESSOR COMPANY
------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,210 $ 10,209 $ 476 $160,336
(Income) loss from discontinued operations 12,087 (6,442) 1,764 (1,441)
Loss from disposal of discontinued operations 78,273 - - -
-------- ---------- -------- --------
Income from continuing operations 118,570 3,767 2,240 158,895
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation, depletion and amortization 249,782 179,182 25,516 200,169
Deferred income taxes (157,803) (679) 2,835 65,508
Amortization of debt discount and debt issuance costs 18,911 16,120 1,379 11,205
Net gain on property and equipment disposals (6,439) - (328) (21,815)
Gain on coal contract restructurings (12,957) (5,300) - (49,270)
Minority interests 15,554 1,887 - -
Changes in current assets and liabilities, excluding
effects of acquisitions:
Sale of accounts receivable 100,000 - - -
Accounts receivable, net of sale 18,712 20,164 (9,768) (18,622)
Materials and supplies 5,227 3,620 881 (438)
Coal inventory 10,774 5,781 (2,807) (16,160)
Net assets from coal and emission allowance trading
activities (310) - - -
Other current assets (16,862) 7,459 (10,707) (10,607)
Accounts payable and accrued expenses (15,064) (50,373) (34,685) (3,226)
Income taxes payable 7,549 173 1,234 (12,447)
Accrued reclamation and related liabilities (18,233) (4,468) (1,622) (18,509)
Workers' compensation obligations 4,716 (10,449) (2,156) (23,106)
Accrued postretirement benefit costs 14,472 6,094 6,092 15,292
Obligation to industry fund 1,630 (3,619) (2,379) (26,771)
Royalty prepayment - 135,903 - -
Other, net (34,814) 25,661 (5,586) 16,932
-------- ---------- -------- --------
Net cash provided by (used in) continuing operations 303,415 330,923 (29,861) 267,030
Net cash provided by (used in) discontinued operations (40,504) (48,901) 1,704 (79,178)
-------- ---------- -------- --------
Net cash provided by (used in) operating activities 262,911 282,022 (28,157) 187,852
-------- ---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and mine development (178,754) (174,520) (20,874) (165,514)
Additions to advance mining royalties (25,292) (11,509) (2,302) (6,174)
Acquisitions, net (63,265) (2,110,400) - (58,715)
Investment in joint venture (4,325) - - -
Proceeds from coal contract restructurings 32,904 2,515 328 57,460
Proceeds from property and equipment disposals 19,284 11,448 1,374 37,723
Proceeds from sale-leaseback transactions 34,234 - - -
-------- ---------- -------- --------
Net cash used in continuing operations (185,214) (2,282,466) (21,474) (135,220)
Net cash provided by (used in) discontinued operations (170) 33,130 (76) (813)
-------- ---------- -------- --------
Net cash used in investing activities (185,384) (2,249,336) (21,550) (136,033)
-------- ---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings and long-term debt 22,026 1,870,778 53,597 269,391
Payments of short-term borrowings and long-term debt (209,985) (222,715) (19,423) (350,737)
Capital contribution - 480,000 - -
Distributions to minority interests (3,353) (3,080) - -
Dividends paid - - (173,330) (65,109)
Transactions with affiliates:
Loan to affiliate - - - (141,000)
Proceeds from affiliated loan - - 141,000 -
Advances from affiliates - - - 16,882
Repayments to affiliates - (3,647) - -
Invested capital transactions with affiliates - (30,369) - (55,176)
-------- ---------- -------- --------
Net cash provided by (used in) continuing operations (191,312) 2,090,967 1,844 (325,749)
Net cash provided by (used in) discontinued operations (13,869) 70,314 21,693 90,360
-------- ---------- -------- --------
Net cash provided by (used in) financing activities (205,181) 2,161,281 23,537 (235,389)
Effect of exchange rate changes on cash and cash equivalents (806) 111 (292) (718)
-------- ---------- -------- --------
Net increase (decrease) in cash and cash equivalents (128,460) 194,078 (26,462) (184,288)
Cash and cash equivalents at beginning of period 194,078 - 96,821 281,109
-------- ---------- -------- --------
Cash and cash equivalents at end of period $ 65,618 $ 194,078 $ 70,359 $ 96,821
======== ========== ======== ========
See accompanying notes to financial statements.
</TABLE>
44
<PAGE>
<PAGE>
<TABLE>
P&L COAL HOLDINGS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY / INVESTED CAPITAL
(Dollars in thousands)
<CAPTION>
Accumulated
Other
Compre-
Additional Employee hensive
Preferred Common Paid-in Stock Income
Stock Stock Capital Loans (Loss)
--------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
-------------------
March 31, 1997 $ - $ - $ - $ - $ (2,799)
Comprehensive income:
Net income - - - - -
Foreign currency
translation adjustment - - - - (39,385)
Comprehensive income
Dividend paid - - - - -
Net transactions
with affiliates - - - - -
---- ---- -------- ------- --------
March 31, 1998 - - - - (42,184)
Comprehensive loss:
Net income - - - - -
Foreign currency
translation adjustment - - - - (17,974)
Comprehensive loss
Dividend paid - - - - -
Net transactions
with affiliates - - - - -
---- ---- -------- ------- --------
May 19, 1998 $ - $ - $ - $ - $(60,158)
==== ==== ======== ======= ========
--------------------------------------------------------------------------------------------------------------------------------
May 20, 1998 $ - $ - $ - $ - $ -
Capital contribution 50 190 479,760 - -
Comprehensive income:
Net income - - - - -
Foreign currency
translation adjustment - - - - 4,128
Minimum pension liability
(net of $1,248 tax provision) - - - - (1,795)
Comprehensive income
Stock grants to employees - 5 3,919 (1,236) -
Stock purchases
by employees - 2 1,093 (1,095) -
---- ---- -------- ------- --------
March 31, 1999 50 197 484,772 (2,331) 2,333
Comprehensive income:
Net income - - - - -
Foreign currency
translation adjustment - - - - (16,795)
Minimum pension liability
(net of $1,248 tax benefit) - - - - 1,795
Comprehensive income
Stock grants to employees - - 265 (103) -
Loan repayments - - - 901 -
Additional loans - - - (858) -
Shares repurchased - - - - -
---- ---- -------- ------- --------
March 31, 2000 $ 50 $197 $485,037 $(2,391) $(12,667)
==== ==== ======== ======= ========
<PAGE>
<CAPTION>
Total
Stockholders'
Retained Invested Treasury Equity / Invested
Earnings Capital Stock Capital
-------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY
-------------------
March 31, 1997 $ - $1,679,585 $ - $1,676,786
Comprehensive income:
Net income - 160,336 - 160,336
Foreign currency
translation adjustment - - - (39,385)
----------
Comprehensive income 120,951
Dividend paid - (65,109) - (65,109)
Net transactions
with affiliates - (44,786) - (44,786)
------- ---------- ----- ----------
March 31, 1998 - 1,730,026 - 1,687,842
Comprehensive loss:
Net income - 476 - 476
Foreign currency
translation adjustment - - - (17,974)
----------
Comprehensive loss (17,498)
Dividend paid - (173,330) - (173,330)
Net transactions
with affiliates - 360 - 360
------- ---------- ----- ----------
May 19, 1998 $ - $1,557,532 $ - $1,497,374
======= ========== ===== ==========
------------------------------------------------------------------------------------------------------------
May 20, 1998 $ - $ - $ - $ -
Capital contribution - - - 480,000
Comprehensive income:
Net income 10,209 - - 10,209
Foreign currency
translation adjustment - - - 4,128
Minimum pension liability
(net of $1,248 tax provision) - - - (1,795)
----------
Comprehensive income 12,542
Stock grants to employees - - - 2,688
Stock purchases
by employees - - - -
------- ---------- ----- ----------
March 31, 1999 10,209 - - 495,230
Comprehensive income:
Net income 28,210 - - 28,210
Foreign currency
translation adjustment - - - (16,795)
Minimum pension liability
(net of $1,248 tax benefit) - - - 1,795
----------
Comprehensive income 13,210
Stock grants to employees - - - 162
Loan repayments - - - 901
Additional loans - - - (858)
Shares repurchased - - (219) (219)
------- ---------- ----- ----------
March 31, 2000 $38,419 $ - $(219) $ 508,426
======= ========== ===== ==========
See accompanying notes to financial statements.
</TABLE>
45
<PAGE>
<PAGE>
P & L COAL HOLDINGS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT WHERE NOTED AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the consolidated
balance sheets of P&L Coal Holdings Corporation (the "Company" or
"Peabody") as of March 31, 2000 and 1999, and the consolidated
results of operations and cash flows for the year ended March 31,
2000 and the period ended March 31, 1999. These financial
statements include the subsidiaries (collectively, known as the
"Predecessor Company") 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 Limited ("Peabody
Resources"), an Australian company. The combined financial
statements include the combined results of operations and cash
flows of the Predecessor Company from April 1, 1998 to May 19,
1998 and the fiscal year ended March 31, 1998.
Until 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 Brothers
Merchant Banking Partners II L.P. and its affiliates ("Lehman Brothers
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 Brothers
Merchant Banking on February 27, 1998 for the purpose of acquiring
the Predecessor Company and had no significant activity until the
acquisition.
Subsequent to March 31, 2000, the Company signed a purchase and
sale agreement with Edison Mission Energy to sell Citizens Power
(see note 3). Results of operations and cash flows have been
restated for all periods presented to properly reflect the
discontinued operation.
DESCRIPTION OF BUSINESS
The Company is principally engaged in the mining of coal for sale
primarily to electric utilities. The Company also markets and
trades coal and emission allowances.
NEW PRONOUNCEMENTS
Effective April 1, 1998, the Company adopted Statement of
Financial Accounting Standards (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 "accumulated other
comprehensive income."
The Company also adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," and SFAS No. 132,
"Employers' Disclosures About Pensions and Other Postretirement
Benefits" effective April 1, 1998. SFAS No. 131 and SFAS No. 132
address the disclosures required for the Company's operating
segments and employee benefit obligations, respectively.
The adoption of SFAS Nos. 130, 131 and 132 had no effect on the
Company's results of operations.
JOINT VENTURES
Joint ventures are accounted for using the equity method except
for undivided interests in Australia, which are reported using pro
rata consolidation whereby the Company reports its proportionate
share of assets, liabilities, income and expenses. All significant
intercompany transactions have been eliminated in consolidation.
The financial statements include the following asset and operating
amounts for Australian entities utilizing pro rata consolidation:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Total revenue $122,689 $ 72,057 $10,996 $76,406
Operating profit 17,038 18,767 3,695 17,731
Total assets 149,864 189,363
</TABLE>
46
<PAGE>
<PAGE>
Notes (continued)
ACCOUNTING FOR COAL AND EMISSION ALLOWANCE TRADING
The Company engages in risk management activities for both trading
and non-trading purposes. Activities for trading purposes,
generally consisting of coal and emission allowance trading, are
accounted for using the fair value method. Under such method, the
derivative commodity instruments (forwards, options and swaps)
with third parties are reflected at market value and are included
in "Assets and liabilities from coal and emission allowance
trading activities" in the consolidated balance sheets. In the
absence of quoted values, financial commodity instruments are
valued at fair value, considering the net present value of the
underlying sales and purchase obligations, volatility of the
underlying commodity, appropriate reserves for market and credit
risks and other factors, as determined by management. Subsequent
changes in market value are recognized as gains or losses in
"Other revenues" in the period of change.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to hedge the
impact of exchange rate fluctuations on anticipated future sales
as well as to hedge the impact of interest rate movements on
floating rate debt and certain commodity supplies. The Company's
Australian operations use forward currency contracts to manage
their exposure against foreign currency fluctuations on sales
denominated in U.S. dollars. These financial instruments are
accounted for using the deferral method. Changes in the market
value of these transactions are deferred until the gain or loss on
the underlying hedged item is recognized as part of the related
sales transaction. If the future sale is no longer anticipated,
the changes in market value of the forward currency contracts
would be recognized as an adjustment to revenue in the period of
change.
A portion of the Company's long-term indebtedness bears interest
at rates that fluctuate based upon certain indices. The Company
utilizes financial instruments, such as interest rate swap
agreements, to mitigate the impact of changes in interest rates on
a portion of its floating rate debt. Gains or losses on interest
rate swap agreements are recognized as they occur and are included
as a component of interest expense.
As a writer of options, the Company receives a premium where the
option is written and then bears the risk of unfavorable changes
in the price of the financial instruments underlying the option.
Forwards, swaps and over-the-counter options are traded in
unregulated markets.
Over-the-counter forwards, options and swaps are either liquidated
with the same counterparty or held to settlement date. For these
financial instruments, the unrealized gains or losses on financial
settlements, rather than the contract amounts, represent the
approximate future cash requirements. Realized gains and losses on
trading activities are recorded as part of "Other revenues" as
they occur. Physical settlements are recorded on a gross basis
within "Sales" and "Operating costs and expenses."
REVENUE RECOGNITION
The Company incurs certain "add-on" taxes and fees on coal sales.
Coal sales are reported including taxes and fees charged by
various federal and state governmental bodies. The Company
recognizes revenue from coal sales when title passes to the
customer.
OTHER REVENUES
Other revenues include royalties related to coal lease agreements,
earnings and losses from joint ventures, management fees, farm
income, contract restructuring payments, coal trading activities
and revenues from contract mining services. Royalty income
generally results from the lease or sub-lease of mineral rights to
third parties, with payments based upon a percentage of the
selling price or an amount per ton of coal produced. Certain
agreements require minimum annual lease payments regardless of the
extent to which minerals are produced from the leasehold. The
terms of these agreements generally range from specified periods
of 5 to 20 years, or can be for an unspecified period until all
reserves are depleted.
Revenues from coal trading activities are recognized for the
differences between contract and market prices.
47
<PAGE>
<PAGE>
Notes (continued)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost, which approximates
fair value. Cash equivalents consist of highly liquid investments
with original maturities of three months or less.
INVENTORIES
Materials and supplies and coal inventory are valued at the lower
of average cost or market. Coal inventory costs include labor,
supplies, equipment costs, operating overhead and other related
costs.
PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT
Property, plant, equipment and mine development are recorded at
cost. Interest costs applicable to major asset additions are
capitalized during the construction period, including $1.8 million
for the year ended March 31, 2000, $3.0 million for the period
ended March 31, 1999, $0.2 million for the period ended May 19,
1998 and $1.5 million for the year ended March 31, 1998.
Expenditures which extend the useful lives of existing plant and
equipment are capitalized. Maintenance and repairs are charged to
operating costs and expensed as incurred. Costs incurred to
develop coal mines or to expand the capacity of operating mines
are capitalized. Development costs incurred to maintain current
production capacity at a mine and exploration expenditures are
charged to expense as incurred. Certain costs to acquire computer
hardware and the development and/or purchase of software for
internal use are capitalized and depreciated over the estimated
useful lives.
Depletion of coal interests is computed using the units-of-
production method utilizing only proven and probable reserves in
the depletion base. Mine development costs are principally
amortized over the estimated lives of the mines using the
straight-line method. Depreciation of plant and equipment
(excluding life of mine assets) is computed using the straight-
line method over the estimated useful lives as follows:
Years
-----
Building and improvements 10 to 20
Machinery and equipment 2 to 30
Leasehold improvements Life of Lease
In addition, certain plant and equipment assets associated with
mining are depreciated using the straight-line method over the
estimated life of the mine, which varies from 3 to 24 years.
ACCRUED RECLAMATION AND OTHER ENVIRONMENTAL LIABILITIES
The Company records a liability for the estimated costs to reclaim
land as the acreage is disturbed during the ongoing surface mining
process. The estimated costs to reclaim support acreage and to
perform other related functions at both surface and underground
mines are recorded ratably over the lives of the mines. As of
March 31, 2000, the Company had $529.1 million in surety bonds
outstanding and $19.4 million in letters of credit to secure
reclamation. As of March 31, 1999, the Company had $534.9 million
in surety bonds outstanding related to reclamation. The amount of
reclamation self-bonding in certain states in which the Company
qualifies was $186.1 million and $240.5 million at March 31, 2000
and March 31, 1999, respectively.
Accruals for other environmental matters are recorded in operating
expenses when it is probable that a liability has been incurred
and the amount of the liability can be reasonably estimated.
Accrued liabilities are exclusive of claims against third parties
and are not discounted. In general, costs related to environmental
remediation are charged to expense. Environmental costs are
capitalized only to the extent they extend the life of the asset,
mitigate environmental contamination that has yet to occur, or are
incurred in preparing an asset for sale.
48
<PAGE>
<PAGE>
Notes (continued)
INCOME TAXES
Income taxes are accounted for using a balance sheet approach
known as the liability method. The liability method accounts for
deferred income taxes by applying statutory tax rates in effect at
the date of the balance sheet to differences between the book and
tax basis of assets and liabilities.
POSTEMPLOYMENT BENEFITS
The Company provides postemployment benefits to qualifying
employees, former employees and dependents under the provisions of
various benefit plans or as required by state, federal or
Australian law. The Company accounts for workers' compensation
obligations and other Company provided postemployment benefits on
the accrual basis of accounting.
CONCENTRATION OF CREDIT RISK AND MARKET RISK
The Company's power, coal and emission allowance trading and risk
management activities give rise to market risk, which represents
the potential loss caused by a change in the market value of a
particular commitment. Market risks are actively monitored to
ensure compliance with the risk management policies of the
Company. Policies are in place that limit the Company's total net
exposure at any point in time. Procedures exist which allow for
monitoring of all commitments and positions, with daily reporting
to senior management.
The Company's concentration of credit risk is substantially with
electricity producers and marketers and electric utilities. The
Company's policy is to independently evaluate each customer's
creditworthiness prior to entering into transactions and to
constantly monitor the credit extended. In the event that the
Company engages in a transaction with a counterparty that does not
meet its credit standards, the Company will protect its position
by requiring the counterparty to provide appropriate credit
enhancement. Counterparty risk with respect to interest rate swap
transactions is not considered to be significant based upon the
creditworthiness of the participating financial institutions.
Approximately 39 percent of the Company's U.S. coal employees are
affiliated with organized labor unions, which accounts for
approximately 26 percent of the tons sold in the U.S. during
fiscal year 2000. Hourly workers at the Company's mines in
Arizona, Colorado and Montana are represented by the United Mine
Workers' of America under the Western Surface Agreement, which was
ratified in 1996 and is effective through August 31, 2000. Union
labor east of the Mississippi is also represented by the United
Mine Workers of America but is subject to the National Bituminous
Coal Wage Agreement. On December 16, 1997, this five-year labor
agreement effective from January 1, 1998 to December 31, 2002, was
ratified by the United Mine Workers of America.
The Australian coal mining industry is highly unionized and the
majority of workers employed at Peabody Resources are members of
trade unions. These employees are represented by three unions: the
United Mine Workers, which represents the production employees;
and two unions that represent the other staff. The miners at
Warkworth Mine signed a three-year labor agreement that expires in
October 2002. The miners at Ravensworth and Narama Mines have
signed a further enterprise labor agreement for two years that
expires in May 2001. The labor agreement for the Moura Mine is
currently under negotiation.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be
generated by those assets under various assumptions are less than
the carrying amounts of those assets. Impairment losses are
measured by comparing the estimated fair value of the assets to
their carrying amount.
49
<PAGE>
<PAGE>
Notes (continued)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign affiliates are generally
translated at current exchange rates, and related translation
adjustments are reported as a component of comprehensive income.
Income statement accounts are translated at an average rate for
each period.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform
with the report classifications of the year ended March 31, 2000,
with no effect on previously reported net income or stockholders'
equity.
(2) BUSINESS COMBINATIONS
Peabody Resources
Effective August 20, 1999, Peabody Resources purchased a 55
percent interest in the Moura Mine in Queensland, Australia for
$30.2 million. The acquisition was accounted for as a purchase and
the operating results have been included in the Company's
financial statements since the date of acquisition using pro rata
consolidation. The acquisition includes the coal mining and
coalbed methane operations, along with 67 million tons of saleable
coal reserves and rights to more than 1.9 billion tons in place
surface and underground coal resources.
Black Beauty Coal Company
Effective January 1, 2000, Black Beauty Coal Company ("Black
Beauty"), a subsidiary of the Company, invested $6.6 million to
increase its ownership interest and obtain control of three of its
Midwestern coal mining affiliates - Sugar Camp Coal, LLC, Arclar
Coal Company, LLC and United Minerals Company, LLC. Prior to
fiscal year 2000, interests in these affiliates were accounted for
under the equity method, as Black Beauty did not hold decision-
making control over their respective operations. However,
effective January 1, 2000, Black Beauty obtained decision-making
control and began consolidating the affiliates as of that date. In
order to provide comparability to future periods, the Company has
elected to consolidate these affiliates as part of Black Beauty's
results of operations effective April 1, 1999.
Effective January 1, 1999, the Company purchased an additional
38.3 percent interest in Black Beauty, raising its ownership
percentage to 81.7 percent. Total consideration paid for the
additional interest was $150.7 million. The acquisition was
accounted for as a purchase and, accordingly, the operating
results of Black Beauty have been included in the Company's
financial statements since the effective date of acquisition.
Prior to the acquisition, the Company accounted for its ownership
using the equity method of accounting.
Effective January 1, 1998, the Predecessor Company purchased an
additional 10.0 percent interest in Black Beauty for $37.7 million
in cash, and as a result, increased its ownership in the
partnership to 43.3 percent.
P&L Coal Group
The acquisition of Peabody Group by the Company on May 19, 1998
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 Brothers Merchant Banking
of $400.0 million, and an equity contribution of $80.0 million
from other parties, including Lehman Brothers Holdings, Inc. Such
amounts were used to pay $2,003.6 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 acquisition was accounted for under the
purchase method of accounting.
50
<PAGE>
<PAGE>
Notes (continued)
The following unaudited pro forma results of operations assumed
the acquisitions had occurred as of April 1:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Total revenues $2,728,694 $2,765,979
Income (loss) before income taxes, minority interests
and discontinued operations (6,278) 7,736
Net income 28,916 236
</TABLE>
(3) DISCONTINUED OPERATIONS
Subsequent to March 31, 2000, the Company signed a purchase and
sale agreement with Edison Mission Energy to sell Citizens Power,
its wholly-owned subsidiary that engages in power trading and
power contract restructuring transactions. The estimated loss on
disposal of the entity is $109.5 million on a pretax basis
($78.3 million after-tax), which includes a provision for estimated
operating losses until disposal and estimated proceeds from the
monetization of non-trading assets concurrent with the disposal of
Citizens Power. The Company expects to complete the disposal
before the end of the next fiscal year.
The results of operations of Citizens Power have been reported
separately as a discontinued operation in the statements of
operations for all periods presented, and are summarized as
follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $ 17,225 $37,394 $ 1,750 $26,440
Income (loss) before income taxes (13,369) 12,477 (1,953) 8,584
Income tax provision (benefit) (1,297) 6,035 (189) 7,143
Net income (loss) from discontinued
operations (12,087) 6,442 (1,764) 1,441
</TABLE>
The fair value of net assets related to the discontinued operation
have been segregated in the March 31, 2000 consolidated balance
sheet and include the following:
Cash $ 41,222
Accounts receivable 46,339
Assets from power trading activities 908,256
Liabilities from power trading activities (524,366)
Other current liabilities (75,701)
Non-recourse debt (305,750)
--------
$ 90,000
========
(4) ACCOUNTS RECEIVABLE SECURITIZATION
In March 2000, the Company and a wholly-owned subsidiary
("Seller") entered into agreements with certain financial
institutions to establish a five-year receivables purchase
facility. Under the facility, up to $100.0 million of beneficial
interests in accounts receivable that have been contributed to the
Seller may be sold, without recourse, to a commercial paper
conduit ("Conduit"). Under the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of
51
<PAGE>
<PAGE>
Notes (continued)
Financial Assets and Extinguishments of Liabilities," the
transaction was recorded as a sale, with those accounts receivable
sold to the Conduit removed from the consolidated balance sheet.
The Seller is a separate legal entity and its assets are available
first and foremost to satisfy the claims of its creditors.
As of March 31, 2000, $100.0 million in beneficial interests were
sold to the Conduit under the facility. The Seller also maintained
a subordinated interest in $20.5 million of remaining accounts
receivable under the terms of the facility. Proceeds from the sale
were used to repay long-term debt.
(5) COAL INVENTORY
Coal inventory consisted of the following as of March 31:
2000 1999
-------- --------
Saleable coal $ 41,047 $ 50,293
Raw coal 18,400 23,299
Work in process 133,894 122,327
-------- --------
$193,341 $195,919
======== ========
Raw coal represents coal stockpiles that may be sold in current
condition or may be further processed prior to shipment to a
customer. Work in process consists of the average cost to remove
overburden above an unmined coal seam as part of the surface
mining process.
(6) LEASES
The Company leases equipment and facilities under various
noncancelable lease agreements. Certain lease agreements require
the maintenance of specified ratios and contain restrictive
covenants which limit indebtedness, subsidiary dividends,
investments, asset sales and other Company actions. Rental expense
under operating leases was $39.7 million for the year ended March
31, 2000, $34.6 million for the period ended March 31, 1999, $5.4
million for the period ended May 19, 1998 and $39.9 million for
the year ended March 31, 1998. The cost of property, plant,
equipment and mine development assets acquired under capital
leases was $31.2 million and $34.8 million at March 31, 2000 and
1999, respectively. The related accumulated amortization was $6.3
million and $2.2 million at March 31, 2000 and 1999, respectively.
The Company also leases coal reserves under agreements that
require royalties to be paid as the coal is mined. Total royalty
expense was $164.2 million for the year ended March 31, 2000,
$123.2 million for the period ended March 31, 1999, $17.3 million
for the period ended May 19, 1998 and $132.9 million for the year
ended March 31, 1998. Certain agreements also require minimum
annual royalties to be paid regardless of the amount of coal mined
during the year.
A substantial amount of the coal mined by the Company is produced
from reserves leased from the owner of the coal. One of the major
lessors is the U.S. government, from which the Company leases
substantially all of the coal which it mines in Wyoming, Montana
and Colorado under terms set by Congress and administered by the
U.S. Bureau of Land Management. The terms of these leases are
generally for an initial term of ten years but may be extended by
diligent development and mining of the reserve until all
economically recoverable reserves are depleted. The Company has
met the diligent development requirements for substantially all of
these federal leases either directly through production or by
including the lease as a part of a logical mining unit with other
leases upon which development has occurred. Annual production on
these federal leases must total at least 1 percent of the original
amount of coal in the entire logical mining unit. Royalties are
payable monthly at a rate of 12.5 percent of the gross realization
from the sale of the coal mined using surface mining methods and
at a rate of 8.0 percent of the gross realization for coal
produced using underground mining methods. The Company also leases
the coal production at its Arizona mines from The Navajo Nation
and the Hopi Tribe under leases that are administered by the U.S.
Department of the Interior. These leases expire once mining
activities cease. The royalty rates are also generally based upon
a percentage of the gross realization from the sale of coal. These
rates are subject to redetermination every ten years under the
terms of the leases. The remainder of the leased coal is generally
leased from state governments, land holding companies and various
individuals. The duration of these leases
52
<PAGE>
<PAGE>
Notes (continued)
varies greatly. Typically, the lease terms are automatically
extended as long as active mining continues. Royalty payments are
generally based upon a specified rate per ton or a percentage of
the gross realization from the sale of the coal.
In fiscal year 2000, the Company sold certain assets for $34.2
million and those assets were leased back under operating lease
agreements from the purchasers over a period of seven to 13 years.
No gains were recognized on these transactions. Each lease
agreement contains renewal options at lease termination and
purchase options at amounts approximating fair market value during
the lease and at lease termination.
Future minimum lease and royalty payments as of March 31, 2000 are
as follows:
<TABLE>
<CAPTION>
Capital Operating Coal
Fiscal Year Ending March 31 Leases Leases Reserves
----------------------------- ------- --------- --------
<S> <C> <C> <C>
2001 $ 6,873 $ 51,394 $ 38,559
2002 3,641 47,399 33,201
2003 3,560 41,473 31,407
2004 4,081 36,674 31,007
2005 2,378 30,988 8,930
2006 and thereafter 16,245 64,147 33,935
------- -------- --------
Total minimum lease payments 36,778 $272,075 $177,039
======== ========
Less interest 8,919
-------
Present value of minimum
capital lease payments $27,859
=======
</TABLE>
53
<PAGE>
<PAGE>
Nptes (continued)
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following
as of March 31:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Trade accounts payable $180,682 $211,993
Accrued payroll and related benefits 85,281 71,508
Accrued taxes other than income 76,841 77,839
Accrued health care 62,127 63,422
Accrued interest 46,166 41,219
Workers' compensation obligations 35,246 38,542
Accrued royalties 18,624 22,425
Accrued lease payments 11,188 11,536
Other accrued expenses 56,982 89,238
-------- --------
Total accounts payable and accrued expenses $573,137 $627,722
======== ========
</TABLE>
(8) INCOME TAXES
Pretax income (loss) from continuing operations consisted of:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations:
United States $(49,550) $(22,942) $4,134 $199,300
Non U.S. 42,152 31,608 2,636 42,645
-------- -------- ------ --------
$ (7,398) $ 8,666 $6,770 $241,945
======== ======== ====== ========
</TABLE>
54
<PAGE>
<PAGE>
Notes (continued)
Total income tax provision (benefit) from continuing operations
consisted of:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Current:
U.S. federal $ - $ - $ - $ -
Non U.S. 16,224 9,700 1,427 21,001
State 57 26 79 3,684
--------- ------- ------ -------
Total current 16,281 9,726 1,506 24,685
--------- ------- ------ -------
Deferred:
U.S. federal (124,807) (8,309) 1,904 61,288
Non U.S. (4,037) 2,026 - (5,457)
State (28,959) (431) 1,120 2,534
--------- ------- ------ -------
Total deferred (157,803) (6,714) 3,024 58,365
--------- ------- ------ -------
Total provision (benefit) $(141,522) $ 3,012 $4,530 $83,050
========= ======= ====== =======
</TABLE>
The deferred tax benefit for the year ended March 31, 2000
includes the effect of a change in tax regulations and statutes in
the current period which allowed the Company to make a tax
election to treat a wholly owned partnership as a corporation. The
election eliminated a $144.0 million deferred tax liability
previously recognized pursuant to the provisions of SFAS No. 109
on the "outside tax basis," which represents the tax effected
difference between the book value and the tax basis of the
investment in the partnership interest. The election allowed the
Company to treat the partnership as a corporation and look to the
"inside tax basis," which represents the tax effected difference
between the book value of the assets and liabilities recorded on
the balance sheet of the partnership and the tax basis of the
individual assets and liabilities. The Company recognized deferred
tax benefit of $144.0 million in the year ended March 31, 2000
related to this election.
The non U.S. tax deferred tax provision includes a benefit of
$3.2 million due to changes in the Australian tax rate from 36 percent
to 34 percent effective April 1, 2000. In addition, the Australian
rate is scheduled to change to 30 percent effective April 1, 2001.
55
<PAGE>
<PAGE>
Notes (continued)
The income tax rate on income (loss) from continuing operations
differed from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Federal statutory rate $ (2,590) $ 3,033 $2,369 $84,681
Changes in valuation allowance 31,907 16,386 6,012 14,280
Partnership tax basis election (144,028) - - -
Foreign earnings (2,566) 676 506 1,002
State income taxes, net of U.S. federal
tax benefit (6,458) (3,391) 2,881 4,047
Depletion (26,151) (13,320) (2,182) (20,794)
Other, net 8,364 (372) (5,056) (166)
--------- ------- ------ -------
$(141,522) $ 3,012 $4,530 $83,050
========= ======= ====== =======
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
consisted of the following as of March 31:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued long-term reclamation and mine closing liabilities $ 107,854 $ 104,777
Accrued long-term workers' compensation liabilities 92,778 99,776
Postretirement benefit obligations 402,747 401,994
Intangible tax asset and purchased contract rights 168,092 164,239
Tax credits and loss carryforwards 155,626 84,862
Obligation to industry fund 26,169 39,389
Others 136,471 79,986
---------- ----------
Total gross deferred tax assets 1,089,737 975,023
---------- ----------
Deferred tax liabilities:
Property, plant, equipment and mine development, principally due to
differences in depreciation, depletion and asset writedowns 1,385,195 1,226,002
Long-term debt, principally due to amortization of debt discount 24,704 19,756
Others 150,047 432,026
---------- ----------
Total gross deferred tax liabilities 1,559,946 1,677,784
---------- ----------
Valuation allowance (105,046) (68,918)
---------- ----------
Net deferred tax liability $ (575,255) $ (771,679)
========== ==========
</TABLE>
56
<PAGE>
<PAGE>
Notes (continued)
Deferred taxes consisted of the following as of March 31:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Current deferred income taxes $ 49,869 $ 8,496
Noncurrent deferred income taxes (625,124) (780,175)
--------- ---------
Net deferred tax liability $(575,255) $(771,679)
========= =========
</TABLE>
The Company's deferred tax assets include alternative minimum tax
("AMT") credits of $50.6 million and net operating loss ("NOL")
carryforwards of $105.0 million at March 31, 2000. The AMT credits
have no expiration date and the NOL carryforwards expire beginning
in the year 2019. The AMT credits and NOL carryforwards are offset
by a valuation allowance of $105.0 million.
The Company made U.S. federal tax payments totaling $0.3 million
for the year ended March 31, 2000 and $0.1 million for the year
ended March 31, 1998. No payments for U.S. federal taxes were made
for the periods ended March 31, 1999 or May 19, 1998. The Company
paid state and local income taxes totaling $0.6 million for the
year ended March 31, 2000, $0.7 million for the period ended March
31, 1999 and $0.8 million for the year ended March 31, 1998. No
state or local income tax payments were made for the period ended
May 19, 1998.
Non U.S. tax payments were $8.8 million for the year ended March
31, 2000, $11.9 million for the period ended March 31, 1999, $0.3
million for the period ended May 19, 1998 and $18.3 million for
the year ended March 31, 1998.
(9) SHORT-TERM BORROWINGS
Short-term borrowings were $9.9 million and $9.5 million at March
31, 2000 and 1999, respectively.
The Company maintains a Revolving Credit Facility that provides
for aggregate borrowings of up to $200.0 million and letters of
credit of up to $280.0 million. During the period ended March 31,
2000, 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. The
applicable rate was 8.9 percent at March 31, 2000. The Revolving
Credit Facility commitment matures in fiscal 2005.
At March 31, 2000, Peabody Resources maintained four 365-day
corporate debt facilities with several banks totaling $110.0
million in Australian dollars (approximately $66.7 million in U.S.
dollars). The interest rate is determined at the time of borrowing
based on the Bank Bill Swap Rate plus a margin. At March 31, 2000,
$9.9 million was outstanding and the effective annual interest
rate was 6.0 percent.
The amount of interest paid was $2.1 million for the year ended
March 31, 2000, $1.4 million for the period ended March 31, 1999,
$0.2 million for the period ended May 19, 1998 and $1.8 million
for the year ended March 31, 1998.
57
<PAGE>
<PAGE>
Notes (continued)
(10) LONG-TERM DEBT
Long-term debt consisted of the following as of March 31:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Term loans under Senior Credit Facilities $ 690,000 $ 840,000
9.625% Senior Subordinated Notes
("Senior Subordinated Notes") due 2008 498,747 498,649
8.875% Senior Notes ("Senior Notes") due 2008 398,971 398,887
Non-Recourse Debt (see note 3) - 333,867
5.0% Subordinated Note 180,335 190,567
Senior unsecured notes under various agreements 99,286 107,143
Project finance facility 76,539 66,588
Unsecured revolving credit agreement 44,721 45,400
Capital lease obligations 27,859 26,881
Other 49,773 24,876
---------- ----------
Total long-term debt 2,066,231 2,532,858
Less current maturities (48,042) (62,883)
---------- ----------
Long-term debt, less current maturities $2,018,189 $2,469,975
========== ==========
</TABLE>
The Senior Credit Facilities are secured by a first priority lien
on certain assets of the Company and its domestic subsidiaries.
During fiscal 2000, the Company made optional prepayments of
$150.0 million on the Senior Credit Facilities, which it applied
against mandatory Term Loan A and B payments in order of maturity.
The Senior Subordinated Notes are general unsecured obligations of
the Company and are subordinate in right of payment to all
existing and future senior debt (as defined), including borrowings
under the Senior Credit Facilities and the Senior Notes. The
Senior Notes are general unsecured obligations of the Company,
rank senior in right of payment to all subordinated indebtedness
(as defined) and rank equally in right of payment with all current
and future unsecured indebtedness of the Company.
The Company maintains two interest rate swap agreements to fix the
interest cost on $500.0 million of long-term debt outstanding
under the Term Loan Facility. The Company will pay a fixed rate of
approximately 7.0 percent on $300.0 million of such long-term
debt for a period of three years ending October 1, 2001, and on
$200.0 million of such long-term debt for two years ending October 1,
2000. The Company also has an interest rate swap agreement to fix
the interest cost on 90 percent of the project finance facility
for a period of ten years ending December 2010 at a fixed rate of
6.75 percent.
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 loans
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. At March 31, 2000, restricted net assets of
the Company's consolidated subsidiaries was $634.6 million.
58
<PAGE>
<PAGE>
Notes (continued)
The 5.0 percent Subordinated Note, which had an original face
value of $400.0 million, is recorded net of discount at an
effective annual interest rate of approximately 12.0 percent.
Interest and principal are payable each March 1 and scheduled
principal payments of $20.0 million per year are due from 2001
through 2006 with any unpaid amounts due March 1, 2007. The
5.0 percent Subordinated Note is expressly subordinated in right
of payment to all prior indebtedness (as defined), including
borrowings under the Senior Credit Facility and the Senior Notes.
The senior unsecured notes represent obligations of Black Beauty
and include $39.3 million of senior notes and three series of
notes with an aggregate principal amount of $60.0 million. The
senior notes bear interest at 9.2 percent, payable quarterly, and
are prepayable in whole or in part at any time, subject to certain
make-whole provisions. The three series of notes include Series A,
B and C Notes, totaling $45.0 million, $5.0 million, and
$10.0 million, respectively. The Series A Notes bear interest at an
annual rate of 7.5 percent and are due in fiscal 2008. The Series
B Notes bear interest at an annual rate of 7.4 percent and are due
in fiscal 2004. The Series C Notes bear interest at an annual rate
of 7.4 percent and are due in fiscal 2003.
Peabody Resources entered into a project finance facility in 1998
to finance the construction of its interest in the Bengalla Mine.
The facility, which is denominated in U.S. dollars, expires in
2010 and the maximum drawdown is $88.3 million. In accordance with
the facility agreement, the loan will be repaid from the net
proceeds derived from coal sales from the Bengalla Mine. There
were borrowings against the facility of $76.5 million and
$66.6 million as of March 31, 2000 and 1999, respectively, with
an effective annual interest rate of 6.75 percent.
At March 31, 2000, Black Beauty maintained a $100.0 million
revolving credit facility with several banks that matures on
February 28, 2002. Black Beauty may elect one or a combination of
interest rates on its borrowings; the effective annual interest
rate was 6.7 percent at March 31, 2000. Borrowings outstanding at
March 31, 2000 were $44.7 million. Quarterly commitment fees are
paid on the unused portion of the facility at a 0.15 percent rate.
Capital lease obligations are payable in installments through 2008
with a weighted average effective interest rate of 5.9 percent.
Other, principally notes payable, is due in installments through
2005 with a weighted average effective interest rate of 7.9 percent.
The aggregate amounts of long-term debt maturities subsequent to
March 31, 2000 are as follows:
2001 $ 48,042
2002 97,461
2003 61,741
2004 143,817
2005 114,533
2006 and thereafter 1,600,637
----------
$2,066,231
==========
The amount of interest paid was $196.9 million for the year ended
March 31, 2000, $138.8 million for the period ended March 31,
1999, $0.5 million for the period ended May 19, 1998 and $44.6
million for the year ended March 31, 1998.
59
<PAGE>
<PAGE>
Notes (continued)
(11) WORKERS' COMPENSATION OBLIGATIONS
The workers' compensation obligations consisted of the following
as of March 31:
2000 1999
-------- --------
Occupational disease costs $156,729 $154,311
Traumatic injury claims 89,355 90,361
State assessment taxes 1,422 1,414
-------- --------
Total obligations 247,506 246,086
Less current portion (35,246) (38,542)
-------- --------
Noncurrent obligations $212,260 $207,544
======== ========
Workers' compensation obligations consist of amounts accrued for
loss sensitive insurance premiums, uninsured claims, and related
taxes and assessments under traumatic injury and occupational
disease workers' compensation programs. As of March 31, 2000, the
Company had $78.7 million in surety bonds outstanding to secure
workers' compensation obligations.
In Australia, workers' compensation funds are either separately
administered industry funds or externally insured. Premiums are
paid as a percentage of salary and labor costs. The administration
of claims and the liability for payment of workers' compensation
is the responsibility of the industry fund or the insurance
company.
Certain subsidiaries of the Company are subject to the Federal
Coal Mine Health & Safety Act of 1969, and the related workers'
compensation laws in the states in which they operate. These laws
require the subsidiaries to pay benefits for occupational disease
resulting from coal workers' pneumoconiosis ("CWP"). The provision
for CWP claims (including projected claims costs and interest
discount accruals) was a charge of $12.0 million for the year
ended March 31, 2000, a charge of $11.1 million for the period
ended March 31, 1999, a benefit of $0.4 million for the period
ended May 19, 1998 and a benefit of $9.4 million for the year
ended March 31, 1998. The benefits recorded in prior years were
primarily attributable to favorable loss experience factors and
changes in certain actuarial assumptions.
The liability for occupational disease claims represents the
present value of known claims and an actuarially-determined
estimate of future claims that will be awarded to current and
former employees. The projections at March 31, 2000 were based on
a 7.125 percent per annum interest discount rate and a 3.5 percent
estimate for the annual rate of inflation, and the projections at
March 31, 1999 were based on a 7.25 percent per annum interest
discount rate and a 3.5 percent estimate for the annual rate of
inflation. Traumatic injury workers' compensation obligations are
estimated from both case reserves and actuarial determinations of
historical trends, discounted at approximately 7.125 and 7.25
percent per annum at March 31, 2000 and 1999, respectively.
60
<PAGE>
<PAGE>
Notes (continued)
(12) PENSION AND SAVINGS PLANS
Peabody Holding Company sponsors a defined benefit pension plan
covering substantially all salaried U.S. employees (the "Peabody
Plan"). A Peabody Holding Company subsidiary also has a defined
benefit pension plan covering eligible employees who are
represented by the United Mine Workers of America under the
Western Surface Agreement of 1996 (the "Western Plan"). Peabody
Holding Company and Gold Fields sponsor separate unfunded
supplemental retirement plans to provide senior management with
benefits in excess of limits under the federal tax law and
increased benefits to reflect a service adjustment factor. Powder
River Coal Company, a wholly owned subsidiary, sponsored a defined
benefit pension plan for its salaried employees that was merged
into the Peabody Plan effective January 1, 1999. Pension benefits
were not affected by the merger. Lee Ranch sponsors two defined
benefit pension plans, one which covers substantially all Lee
Ranch hourly employees (the "Lee Ranch Hourly Plan") and one which
covers substantially all Lee Ranch salaried employees (the "Lee
Ranch Salaried Plan"). Peabody Resources participates in a number
of superannuation funds and contributes on various percentages of
employee compensation. Members of the funds may voluntarily
contribute additional amounts to their accounts. Fund members are
variously entitled to benefits on retirement, withdrawal,
disability or death.
Benefits under the Peabody Plan and the Lee Ranch Salaried Plan
are computed based on the number of years of service and
compensation during certain years. Benefits under the Western Plan
are computed based on the number of years of service with the
subsidiary or other specified employers. Benefits under the Lee
Ranch Hourly Plan are computed based on job classification and
years of service.
Annual contributions to the plans are made as determined by
consulting actuaries based upon the Employee Retirement Income
Security Act of 1974 minimum funding standard. As a result of the
acquisition of the Predecessor Company, the Company entered into
an agreement with the Pension Benefit Guaranty Corporation which
requires the Company to maintain minimum funding requirements.
Assets of the plans are primarily invested in various marketable
securities, including U.S. government bonds, corporate obligations
and listed stocks. The funds are part of a master trust
arrangement managed by the Company.
Net periodic pension costs included the following components:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 9,773 $ 9,098 $2,323 $10,282
Interest cost on projected
benefit obligation 34,389 29,640 7,543 33,095
Expected return on plan assets (42,691) (48,546) (9,125) (50,755)
Other amortizations and deferrals (455) 12,083 - 16,135
------- ------- ------ -------
Net periodic pension costs $ 1,016 $ 2,275 $ 741 $ 8,757
======= ======= ====== =======
</TABLE>
During the period ended March 31, 1999, the Company made an
amendment to phase out the Peabody Plan beginning January 1, 2000.
This plan amendment resulted in a curtailment gain of $7.1
million. During the year ended March 31, 1998 early retirement and
reduction in force programs were offered to certain employees as
part of company-wide restructuring and cost reduction efforts. As
a result of the special termination benefits offered, a charge of
$0.6 million was recognized during the year ended March 31, 1998,
in accordance with SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits."
61
<PAGE>
<PAGE>
Notes (continued)
The following summarizes the change in benefit obligation, change
in plan assets and funded status of the Company's plans:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $492,867 $496,037
Service cost 9,773 9,098
Interest cost 34,389 29,640
Plan amendments - (5,803)
Benefits paid (28,506) (23,235)
Curtailments - (20,701)
Actuarial (gain) loss (49,328) 7,831
-------- --------
Benefit obligation at end of year 459,195 492,867
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 474,385 473,922
Actual return on plan assets 60,375 18,296
Employer contributions 1,522 5,402
Benefits paid (28,506) (23,235)
-------- --------
Fair value of plan assets at end of year 507,776 474,385
-------- --------
Funded status 48,581 (18,482)
Unrecognized actuarial (gain) loss (54,773) 12,262
Unrecognized prior service cost (benefit) (5,205) (5,683)
-------- --------
Accrued pension expense $(11,397) $(11,903)
======== ========
Amounts recognized in the balance sheets:
Prepaid benefit cost $ 2,832 $ 488
Accrued benefit liability (14,229) (15,434)
Additional minimum pension liability - 3,043
-------- --------
Net amount recognized $(11,397) $(11,903)
======== ========
</TABLE>
As of March 31, 2000, the only pension plans with accumulated
benefit obligation in excess of plan assets were the unfunded
supplemental retirement plans. The projected benefit obligation
and accumulated benefit obligation for those plans were
$13.2 million and $13.0 million, respectively. The projected benefit
obligation, accumulated benefit obligation, and the fair value of
plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $57.0 million, $56.9 million, and
$43.1 million, respectively, as of March 31, 1999.
The provisions of SFAS No. 87, "Employers' Accounting for
Pensions," require the recognition of an additional minimum
liability and related intangible asset to the extent that
accumulated benefits exceed plan assets. As of March 31, 2000, the
Company's pension plans' assets exceeded the accumulated benefit
obligation and therefore no additional minimum liability was
recorded. The $3.0 million adjustment recorded as of March 31,
1999, relating to the plans' underfunded status, was reversed in
the current year.
62
<PAGE>
<PAGE>
Notes (continued)
The assumptions used to determine the above projected benefit
obligation at the end of each fiscal period were as follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Discount rate 8.1% 7.125%
Rate of compensation increase 4.25% 3.75%
Expected rate of return on plan assets 9.0% 9.0%
</TABLE>
Certain subsidiaries make contributions to multiemployer pension
plans, which provide defined benefits to substantially all hourly
coal production workers represented by the United Mine Workers of
America other than those covered by the Western Plan. Benefits
under the United Mine Workers of America plans are computed based
on service with the subsidiaries or other signatory employers. The
amounts contributed to the plans and included in operating costs
were $0.3 million for the year ended March 31, 2000, $1.1 million
for the period ended March 31, 1999, $0.6 million for the period
ended May 19, 1998 and $4.9 million for the year ended March 31,
1998.
The Company sponsors savings and long-term investment plans for
eligible salaried U.S. employees. The Company matches between 50.0
and 75.0 percent of voluntary contributions up to a maximum
matching contribution between 3.0 and 4.5 percent of a
participant's salary. Effective January 1, 2001, the Company will
increase the matching contribution to a maximum of 6.0 percent of
a participant's salary. The expense for these plans was $4.2
million for the year ended March 31, 2000, $4.1 million for the
period ended March 31, 1999, $0.6 million for the period ended May
19, 1998 and $4.2 million for the year ended March 31, 1998.
The amount contributed and expensed by Peabody Resources to
superannuation funds was $5.1 million for the year ended March 31,
2000, $0.9 million for the period ended March 31, 1999, $0.4
million for the period ended May 19, 1998 and $2.9 million for the
year ended March 31, 1998.
(13) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company currently provides health care and life insurance
benefits to qualifying salaried and hourly retirees and their
dependents from defined benefit plans established by the Company.
Employees of Gold Fields are only eligible for life insurance
benefits as provided by the Company. Plan coverage for the health
and life insurance benefits is provided to future hourly retirees
in accordance with the applicable labor agreement. The Company
accounts for postretirement benefits using the accrual method.
Retirees of Peabody Resources are provided similar benefits by
plans sponsored by the Australian government. As a result, no
liability is recorded for this plan.
Net periodic postretirement benefits costs for each fiscal period
included the following components:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Service cost for benefits earned $ 4,835 $ 4,750 $ 897 $ 6,569
Interest cost on accumulated
postretirement benefit obligation 70,029 60,519 10,075 69,614
Prior service cost amortization (2,488) (625) (242) (10,071)
------- ------- ------- -------
Net periodic postretirement
benefit costs $72,376 $64,644 $10,730 $66,112
======= ======= ======= =======
</TABLE>
63
<PAGE>
<PAGE>
Notes (continued)
The following table sets forth the plans' combined funded status
reconciled with the amounts shown in the balance sheets:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,008,702 $ 995,265
Service cost 4,835 4,750
Interest cost 70,029 60,519
Plan amendments (1,097) (21,777)
Benefits paid (57,586) (49,088)
Actuarial (gain) loss (60,503) 19,033
----------- -----------
Benefit obligation at end of year 964,380 1,008,702
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year - -
Employer contributions 57,586 49,088
Benefits paid (57,586) (49,088)
----------- -----------
Fair value of plan assets at end of year - -
----------- -----------
Funded status (964,380) (1,008,702)
Unrecognized actuarial (gain) loss (41,420) 19,076
Unrecognized prior service cost (20,386) (21,777)
----------- -----------
Accrued postretirement benefit obligation $(1,026,186) $(1,011,403)
=========== ===========
</TABLE>
The assumptions used to determine the accumulated postretirement
benefit obligation at the end of each fiscal period were as
follows:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
------------------ ------------------
<S> <C> <C>
Discount rate 8.1% 7.125%
Salary increase rate for life insurance benefit 4.25% 3.75%
Health care trend rate:
Pre-65 6.95% down to 6.95% down to
4.75% over 4 years 4.75% over 4 years
Post-65 6.13% down to 6.13% down to
4.75% over 4 years 4.75% over 4 years
Medicare 5.68% down to 5.68% down to
4.75% over 4 years 4.75% over 4 years
</TABLE>
Assumed health care cost trend rates have a significant effect on
the amounts reported for health care plans. A one-percentage-point
change in the assumed health care cost trend would have the
following effects:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
Point Increase Point Decrease
--------------- ---------------
<S> <C> <C>
Effect on total service and interest cost components $ 9,648 $ (9,213)
Effect on postretirement benefit obligation $123,238 $(103,059)
</TABLE>
64
<PAGE>
<PAGE>
Notes (continued)
Retirees formerly employed by certain subsidiaries and their
predecessors, who were members of the United Mine Workers of
America, last worked before January 1, 1976 and were receiving
health benefits on July 20, 1992, receive health benefits provided
by the Combined Fund, a fund created by the Coal Industry Retiree
Health Benefit Act of 1992 (the "Coal Act"). The Coal Act requires
former employers (including certain subsidiaries of the Company)
and their affiliates to contribute to the Combined Fund according
to a formula. In addition, certain Federal Abandoned Mine Lands
funds will be used to pay benefits to orphaned retirees through
2004.
The Company has recorded an actuarially determined liability
representing the amounts anticipated to be due for the Combined
Fund. The "Obligation to industry fund" reflected in the balance
sheets at March 31, 2000 and 1999 was $64.7 million and
$63.1 million, respectively. The current portion related to this
obligation reflected in "Accounts payable and accrued expenses" in
the balance sheets at March 31, 2000 and 1999 was $5.1 million and
$9.2 million, respectively.
Expense of $2.6 million was recognized for the period ended March
31, 2000 which includes interest discount of $4.8 million, net of
the amortization of an actuarial gain of $2.2 million. Expense of
$4.5 million was recognized for the period ended March 31, 1999
due to the interest discount accrual. A benefit of $0.9 million
was recognized for the period ended May 19, 1998 which included
amortization of an actuarial gain of $1.7 million, net of the
interest discount accrual of $0.8 million. A benefit of
$15.9 million was recognized for the year ended March 31, 1998 which
included amortization of an actuarial gain of $21.4 million, net
of the interest discount accrual of $5.5 million.
The Coal Act also established a multiemployer benefit plan ("1992
Plan") which will provide medical and death benefits to persons
who are not eligible for the Combined Fund, whose employer and any
affiliates are no longer in business and who retired prior to
October 1, 1994. A prior labor agreement established the 1993
United Mine Workers of America Benefit Trust ("1993 Plan") to
provide health benefits for retired miners not covered by the Coal
Act. The 1992 Plan and the 1993 Plan qualify under SFAS No. 106 as
multiemployer benefit plans, which allows the Company to continue
to recognize expense as contributions are made. The amounts
expensed related to these funds were $1.7 million for the year
ended March 31, 2000, $0.7 million for the period ended March 31,
1999, $0.2 million for the period ended May 19, 1998 and
$4.5 million for the year ended March 31, 1998.
Pursuant to the provisions of the Coal Act and the 1992 Plan, the
Company is required to provide security in an amount equal to
three times the cost of providing health care benefits for one
year for all individuals receiving benefits from the 1992 Plan who
are attributable to the Company, plus all individuals receiving
benefits from an individual employer plan maintained by the
Company who are entitled to receive such benefits. In accordance
with the Coal Act and the 1992 Plan, the Company has outstanding
surety bonds at March 31, 2000 of $103.7 million. The surety bonds
represent security for the postretirement liability included on
the balance sheets.
In October 1999, Powder River announced changes in its medical
plan for active employees and retirees. Employees who retired
prior to December 31, 1999 were not affected by these changes. The
changes included: 90/10 coinsurance, maximum out-of-pocket limits,
copay for prescription drugs and mandatory generic drug usage. The
effect of the change on the salaried retiree health care liability
is $1.1 million. Powder River is recognizing the effect of the
plan amendment over nine years.
In January 1999, the Company adopted reductions to the salaried
employee medical coverage levels for employees retiring before
January 1, 2003. For employees retiring on or after January 1,
2003, the current medical plan is replaced with a medical premium
reimbursement plan. This plan change does not apply to Powder
River or Lee Ranch salaried employees. The change in the retiree
health care plan resulted in a $22.4 million reduction to the
salaried retiree health care liability. The Company is recognizing
the effect of the plan amendment over nine years beginning January
1, 1999. Therefore, the effect for the year ended March 31, 2000
and the three months ended March 31, 1999 was $2.5 million and
$0.6 million, respectively.
65
<PAGE>
<PAGE>
Notes (continued)
(14) 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 included costs resulting from a plan to
terminate or relocate employees. Costs associated with the
restructuring and exit plans have been charged against the
liability as incurred. The total costs charged against the
liability were $6.4 million for the year ended March 31, 2000 and
$28.8 million for the period ended March 31, 1999, of which
$3.6 million represented noncash charges associated with the exit
plan for the period ended March 31, 1999.
The exit plan was completed in the third quarter of fiscal year
2000 and the liability was reduced by $3.8 million at that time to
reflect the most recent cost estimates. This amount was recorded
as an adjustment to the cost of the acquisition. The majority of
the adjustment related to lower exit plan costs than originally
estimated. The $0.3 million remaining liability relates to
residual spending, including continuing lease costs at
administrative offices that were vacated as part of the
restructuring plan. If the ultimate amount of cost expended is
less than the $0.3 million remaining liability, the cost of the
acquisition will be further reduced.
The following table displays a rollforward of the restructuring
liability from the acquisition date to March 31, 2000:
<TABLE>
<CAPTION>
Adjustment to
May 19, 1998 March 31, 1999 Cost of March 31, 2000
Balance Charges Balance Charges Acquisition Balance
------------ -------- -------------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Restructuring plan $26,154 $(20,536) $ 5,618 $(4,409) $ (880) $329
Exit plan 13,214 (8,296) 4,918 (1,995) (2,923) -
------- -------- ------- ------- ------- ----
Total $39,368 $(28,832) $10,536 $(6,404) $(3,803) $329
======= ======== ======= ======= ======= ====
</TABLE>
(15) STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 10,000,000 authorized shares of $0.01 par value
preferred stock. The Board of Directors is authorized to issue any
or all of the preferred stock. Shares of preferred stock are
exchangeable into shares of Class A common stock upon resolution
by the Board of Directors.
COMMON STOCK
The Company has 30,000,000 authorized shares of $0.01 par value
Class A common stock, and 3,000,000 authorized shares of $0.01 par
value Class B common stock. Holders of the Class A and Class B
common stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders.
Subject to the rights of the holders of the preferred stock,
holders of Class A and Class B common stock are entitled to
ratably receive such dividends as may be declared by the Board of
Directors. In the event of liquidation, dissolution or winding up
of the Company, holders of the Class A common stock are entitled
to share ratably in the distribution of all assets remaining after
payment of liabilities, subject to the rights of the preferred
stockholders. Holders of Class B common stock have a junior
liquidation right to the holders of Class A common stock.
STOCK OPTION PLAN
Effective May 19, 1998, the Company adopted the "1998 Stock
Purchase and Option Plan for Key Employees of P&L Coal Holdings
Corporation" (the "Plan"), making 4,027,800 shares of the
Company's common stock available for grant. The Board of Directors
may provide such grants in the form of either non-qualified or
incentive stock options.
66
<PAGE>
<PAGE>
Notes (continued)
During the year ended March 31, 2000, the Company granted 201,625
options to purchase Class A common stock, 58,153 of which are
incentive stock options that vest at a rate of 20 percent for five
years (incentive options) and 143,472 of non-qualified stock
options that vest in full or in part at a rate of 20 percent per
year based upon the attainment of performance goals determined by
the Board of Directors (performance options). During the period
ended March 31, 1999, the Company granted 3,795,873 options to
purchase Class A common stock, 931,885 of which are incentive
options and 2,863,988 are performance options.
A summary of the outstanding options is as follows:
<TABLE>
<CAPTION>
Weighted Average
Weighted Average Fair Value of
Shares Exercise Price Options Granted
--------- ---------------- ----------------
<S> <C> <C> <C>
Beginning balance at May 19, 1998 -
Granted 3,795,873 $20.00 $6.60
Exercised - -
Forfeited - -
---------
Outstanding at March 31, 1999 3,795,873 20.00
Granted 201,625 20.00 6.60
Exercised - -
Forfeited (307,828) 20.00
---------
Outstanding at March 31, 2000 3,689,670 $20.00
========= ======
Options exercisable at:
March 31, 2000 348,589 $20.00
March 31, 1999 - -
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations
in accounting for the Plan. Accordingly, no compensation cost has
been recognized for non-qualified or incentive stock options
granted under the Plan. Had compensation cost been determined for
the Company's non-qualified or incentive stock options based on
the fair value at the grant dates consistent with the minimum
value method set forth under SFAS No. 123, "Accounting for Stock-
Based Compensation," the Company's net income would have decreased
by approximately $3.4 million and $3.3 million for the year ended
March 31, 2000 and the period ended March 31, 1999, respectively.
The weighted average fair value of options granted was $6.60 for
fiscal years 2000 and 1999. The fair value of fiscal year 2000 and
1999 options granted was estimated on each respective grant date
using the following assumptions: a risk-free interest rate of 5.7
percent, an expected life of seven years and a dividend yield of
zero percent. The weighted average remaining contractual life of
options outstanding as of March 31, 2000 was 8.3 years.
67
<PAGE>
<PAGE>
Notes (continued)
(16) COMPREHENSIVE INCOME
The after-tax components of accumulated other comprehensive income
(loss) are as follows:
<TABLE>
<CAPTION>
Total Accumulated
Foreign Currency Minimum Pension Other Comprehensive
Translation Adjustment Liability Adjustment Income/(Loss)
---------------------- -------------------- -------------------
<S> <C> <C> <C>
PREDECESSOR COMPANY
-------------------
Beginning balance March 31, 1997 $ (2,799) $ - $ (2,799)
Current period change (39,385) - (39,385)
-------- ------- --------
Ending balance March 31, 1998 (42,184) - (42,184)
Current period change (17,974) - (17,974)
-------- ------- --------
Ending balance May 19, 1998 $(60,158) $ - $(60,158)
======== ======= ========
------------------------------------------------------------------------------------------------------------------
Beginning balance May 20, 1998 $ - $ - $ -
Current period change 4,128 (1,795) 2,333
-------- ------- --------
Ending balance March 31, 1999 4,128 (1,795) 2,333
Current period change (16,795) 1,795 (15,000)
-------- ------- --------
Ending balance March 31, 2000 $(12,667) $ - $(12,667)
======== ======= ========
</TABLE>
The foreign currency translation adjustments are not currently
adjusted for income taxes since they relate to indefinite
investments in non-U.S. subsidiaries.
(17) RELATED PARTY TRANSACTIONS
For the year ended March 31, 1998, the Company paid a
$65.1 million dividend and provided a $141.0 million loan
to a subsidiary of The Energy Group with a five-year term
at a 5.0 percent interest rate.
(18) CONTRACT RESTRUCTURINGS
The Company has periodically agreed to terminate coal supply
agreements in return for payments by the customer. The amounts
included in "Other revenues" were $13.0 million for the year ended
March 31, 2000, $5.3 million for the period ended March 31, 1999
and $49.3 million for the year ended March 31, 1998. There were no
gains related to coal supply agreement terminations for the period
ended May 19, 1998.
(19) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company owns a 30.0 percent interest in a partnership that
leases a coal export terminal from the Peninsula Ports Authority
of Virginia under a 30-year lease that permits the partnership to
purchase the terminal at the end of the lease term for a nominal
amount. The partners have severally (but not jointly) agreed to
make payments under various agreements which in the aggregate
provide the partnership with sufficient funds to pay rents and to
cover the principal and interest payments on the floating-rate
industrial revenue bonds issued by the Peninsula Ports Authority,
and which are supported by letters of credit from a commercial
bank. The Company's reimbursement obligation to the commercial
bank is in turn supported by a letter of credit totaling $42.8 million.
In December 1999, the Company entered into a 49.0 percent interest
in a joint venture to develop and rehabilitate an underground mine
and prep plant facility. The partners have jointly and severally
agreed to guarantee the $28.8 million five-
68
<PAGE>
<PAGE>
Notes (continued)
year financing agreement provided by two commercial banks of which
49.0 percent ($14.1 million) is guaranteed by the Company. Principal
payments are due beginning December 1, 2000 at $0.3 million for
48 months with a final principal payment of $14.4 million due December
2005. Interest payments are due monthly and accrue at prime, which
was 9.0 percent at March 31, 2000.
Peabody Resources uses forward currency contracts to manage its
exposure against foreign currency fluctuations on sales
denominated in U.S. dollars. Realized gains and losses on these
contracts are recognized in the same period as the hedged
transactions. The Company had unrealized gains and (losses) of
($13.9 million) for the year ended March 31, 2000, $16.2 million
for the period ended March 31, 1999, $33.6 million for the period
ended May 19, 1998 and ($17.3 million) for the year ended March
31, 1998. The Company had forward currency contracts outstanding
at March 31, 2000 and 1999 of $215.0 million and $217.1 million,
respectively.
In the normal course of business, the Company is a party to
financial instruments with off-balance-sheet risk, such as bank
letters of credit, performance bonds and other guarantees, which
are not reflected in the accompanying balance sheets. Such
financial instruments are to be valued based on the amount of
exposure under the instrument and the likelihood of performance
being required. In the Company's past experience, virtually no
claims have been made against these financial instruments.
Management does not expect any material losses to result from
these off-balance-sheet instruments and, therefore, is of the
opinion that the fair value of these instruments is zero.
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," defines the fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, accounts receivable, receivables
from affiliates, and accounts payable and accrued expenses
have carrying values which approximate fair value due to the
short maturity or the financial nature of these instruments.
Notes payable fair value estimates are based on estimated
borrowing rates to discount the cash flows to their present
value. The 5.0 percent Subordinated Note carrying amount is
net of unamortized note discount.
Other noncurrent liabilities include a deferred purchase
obligation related to the prior purchase of a mine facility.
The fair value estimate is based on the same assumption as
notes payable.
Investments and other assets include certain notes
receivable with customers at various interest rates. Notes
receivable fair value estimates are based on estimated
borrowing rates to discount the cash flows to their present
values.
The carrying amounts and estimated fair values of the
Company's financial instruments are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable $ 10,620 $ 10,620 $ 4,754 $ 4,754
Interest rate swaps - 20,022 - 6,764
Long-term debt 2,066,231 1,943,440 2,532,858 2,629,601
Deferred purchase obligation 28,377 25,033 30,331 30,039
</TABLE>
69
<PAGE>
<PAGE>
Notes (continued)
The fair value of the financial instruments related to coal
trading activities as of March 31, 2000, which include energy
commodities, and average fair value of those instruments held are
set forth below:
Assets Liabilities
------- -----------
Forward contracts $75,797 $75,025
Option contracts 2,898 858
------- -------
Total $78,695 $75,883
======= =======
The approximate gross contract or notional amounts of financial
instruments are as follows:
Assets Liabilities
-------- -----------
Forward contracts $ 75,025 $ 58,968
Option contracts 147,206 116,010
The net gain arising from coal and emission allowance trading
activities was $1.3 million for the year ended March 31, 2000 and
$0.5 million for the period ended March 31, 1999. There was no net
gain or loss from coal and emission allowance trading activities
for the period ended May 19, 1998 and the year ended March 31,
1998. The change in unrealized gain from coal trading activities
for the year ended March 31, 2000 was $1.0 million.
(21) COMMITMENTS AND CONTINGENCIES
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 balance sheets. The undiscounted liabilities for
environmental cleanup-related costs recorded as part of "Other
noncurrent liabilities" at March 31, 2000 and 1999 were $57.7
million and $61.8 million, respectively. This amount represents
those costs that the Company believes are probable and reasonably
estimable.
On June 18, 1999, The Navajo Nation served our 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 percent. All defendants have filed a motion to dismiss the
complaint.
In March 2000, the Hopi Tribe filed a motion to intervene in this
lawsuit. The Hopi Tribe has alleged seven claims, including fraud.
The Hopi Tribe is seeking various remedies, including unspecified
actual and punitive damages, reformation of its coal lease and a
termination of the coal lease. The federal court has not ruled on
the Hopi Tribe's motion.
70
<PAGE>
<PAGE>
Notes (continued)
The Company believes this matter will be resolved without a
material adverse effect on the financial condition or results of
operations.
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.
At March 31, 2000, purchase commitments for capital expenditures
were approximately $110.5 million.
71
<PAGE>
<PAGE>
Notes (continued)
(22) SEGMENT INFORMATION
The Company operates primarily in the coal industry. "Other" data
represents an aggregation of the Company's other non-mining
entities including Gold Fields. Total assets for "Other" as of
March 31, 1999 includes amounts related to Citizens Power, a
discontinued operation. The Company's material operations outside
the U.S. are in Australia. The Company's industry and geographic
data for continuing operations are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------
Year Ended Period Ended Period Ended Year Ended
March 31, 2000 March 31, 1999 May 19, 1998 March 31, 1998
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
U.S. Mining $ 2,462,166 $ 1,903,214 $ 269,597 $ 1,987,719
Non U.S. Mining 244,347 145,687 20,882 224,053
Other 3,987 7,931 179 6,250
---------------- ---------------- --------------- ----------------
$ 2,710,500 $ 2,056,832 $ 290,658 $ 2,218,022
================ ================ =============== ================
Operating profit (loss):
U.S. Mining $ 140,699 $ 132,027 $ 6,929 $ 211,967
Non U.S. Mining 48,355 32,676 2,950 44,812
Other 4,183 1,541 (554) 4,033
---------------- ---------------- --------------- ----------------
$ 193,237 $ 166,244 $ 9,325 $ 260,812
================ ================ =============== ================
Depreciation, depletion
and amortization:
U.S. Mining $ 216,327 $ 155,220 $ 22,475 $ 169,623
Non U.S. Mining 33,455 23,962 3,041 30,546
---------------- ---------------- --------------- ----------------
$ 249,782 $ 179,182 $ 25,516 $ 200,169
================ ================ =============== ================
Total assets:
U.S. Mining $ 5,038,423 $ 5,141,661
Non U.S. Mining 527,771 494,123
Other 260,655 1,388,147
---------------- ----------------
$ 5,826,849 $ 7,023,931
================ ================
Revenues:
United States $ 2,466,153 $ 1,911,145 $ 269,776 $ 1,993,969
Non U.S. 244,347 145,687 20,882 224,053
---------------- ---------------- --------------- ----------------
$ 2,710,500 $ 2,056,832 $ 290,658 $ 2,218,022
================ ================ =============== ================
Operating profit:
United States $ 144,882 $ 133,568 $ 6,375 $ 216,000
Non U.S. 48,355 32,676 2,950 44,812
---------------- ---------------- --------------- ----------------
$ 193,237 $ 166,244 $ 9,325 $ 260,812
================ ================ =============== ================
Depreciation, depletion
and amortization:
United States $ 216,327 $ 155,220 $ 22,475 $ 169,623
Non U.S. 33,455 23,962 3,041 30,546
---------------- ---------------- --------------- ----------------
$ 249,782 $ 179,182 $ 25,516 $ 200,169
================ ================ =============== ================
Total assets:
United States $ 5,299,078 $ 6,529,808
Non U.S. 527,771 494,123
---------------- ----------------
$ 5,826,849 $ 7,023,931
================ ================
</TABLE>
72
<PAGE>
<PAGE>
Notes (continued)
(23) 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 holders of the
Senior Notes and the Senior Subordinated Notes. The following
condensed historical financial statement information is provided
for such Guarantor/Non-Guarantor Subsidiaries.
<TABLE>
Supplemental Condensed Statements of Consolidated Operations
For the Year Ended March 31, 2000
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $1,963,823 $ 777,165 $ (30,488) $2,710,500
Costs and expenses:
Operating costs and expenses - 1,651,477 557,675 (30,488) 2,178,664
Depreciation, depletion and amortization - 180,287 69,495 - 249,782
Selling and administrative expenses 1,251 72,093 21,912 - 95,256
Net gain on property and equipment
disposals - (6,034) (405) - (6,439)
Interest expense 174,949 73,330 21,080 (64,303) 205,056
Interest income (43,896) (23,933) (895) 64,303 (4,421)
----------- ------------ ------------- ------------ ------------
Income (loss) before income taxes and
minority interests (132,304) 16,603 108,303 - (7,398)
Income tax provision (benefit) (34,804) (136,307) 29,589 - (141,522)
Minority interests - - 15,554 - 15,554
Loss from discontinued operations,
net of income taxes - - 12,087 - 12,087
Loss from disposal of discontinued
operations, net of income taxes 783 77,490 - - 78,273
----------- ------------ ------------- ------------ -------------
Net income (loss) $ (98,283) $ 75,420 $ 51,073 $ - $ 28,210
=========== ============ ============= ============ =============
73
<PAGE>
<PAGE>
Notes (continued)
<CAPTION>
Supplemental Condensed Statements of Consolidated Operations
For the Period Ended March 31, 1999
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ - $1,829,438 $ 229,150 $ (1,756) $2,056,832
Costs and expenses:
Operating costs and expenses - 1,494,487 150,987 (1,756) 1,643,718
Depreciation, depletion and amortization - 150,584 28,598 - 179,182
Selling and administrative expenses 3,924 60,142 3,622 - 67,688
Interest expense 160,068 11,292 4,745 - 176,105
Interest income (5,716) (11,897) (914) - (18,527)
----------- ------------ ------------- ------------ ------------
Income (loss) before income taxes and
minority interest (158,276) 124,830 42,112 - 8,666
Income tax provision (benefit) (36,873) 31,213 8,672 - 3,012
Minority interest - - 1,887 - 1,887
Income from discontinued operations,
net of income taxes - - (6,442) - (6,442)
----------- ------------ ------------- ------------ ------------
Net income (loss) $(121,403) $ 93,617 $ 37,995 $ - $ 10,209
=========== ============ ============= ============ ============
</TABLE>
<TABLE>
Supplemental Condensed Statements of Combined Operations
For the Period Ended May 19, 1998
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------------
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Combined
-------------- ------------- ------------
<S> <C> <C> <C>
Total revenues $ 269,776 $ 20,882 $ 290,658
Costs and expenses:
Operating costs and expenses 229,711 14,417 244,128
Depreciation, depletion and amortization 22,475 3,041 25,516
Selling and administrative expenses 11,523 494 12,017
Net gain on property and equipment disposals (308) (20) (328)
Interest expense 3,856 366 4,222
Interest income (1,615) (52) (1,667)
-------------- ------------- ------------
Income before income taxes 4,134 2,636 6,770
Income tax provision 3,185 1,345 4,530
Loss from discontinued operations, net of income taxes - 1,764 1,764
-------------- ------------- ------------
Net income (loss) $ 949 $ (473) $ 476
============== ============= ============
74
<PAGE>
<PAGE>
Notes (continued)
<CAPTION>
Supplemental Condensed Statements of Combined Operations
For the Year Ended March 31, 1998
PREDECESSOR COMPANY
-------------------------------------------
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Combined
-------------- ------------- -----------
<S> <C> <C> <C>
Total revenues $1,993,969 $224,053 $2,218,022
Costs and expenses:
Operating costs and expenses 1,552,176 143,040 1,695,216
Depreciation, depletion and amortization 169,623 30,546 200,169
Selling and administrative expenses 78,249 5,391 83,640
Net (gain) loss on property and equipment disposals (22,079) 264 (21,815)
Interest expense 30,684 2,726 33,410
Interest income (13,984) (559) (14,543)
-------------- ------------- -----------
Income before income taxes 199,300 42,645 241,945
Income tax provision 74,649 8,401 83,050
Income from discontinued operations, net of income taxes - (1,441) (1,441)
-------------- ------------- -----------
Net income $ 124,651 $ 35,685 $160,336
============== ============= ===========
</TABLE>
75
<PAGE>
<PAGE>
Notes (continued)
<TABLE>
Supplemental Condensed Consolidated Balance Sheets
As of March 31, 2000
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 347 $ 45,931 $ 19,340 $ - $ 65,618
Accounts receivable 1,605 95,055 92,083 (35,722) 153,021
Inventories - 187,965 54,185 - 242,150
Assets from coal and emission allowance
trading activities - 78,695 - - 78,695
Deferred income taxes - 49,869 - - 49,869
Other current assets 1,282 14,351 27,559 - 43,192
------------ -------------- ------------- ------------ ------------
Total current assets 3,234 471,866 193,167 (35,722) 632,545
Property, plant, equipment and mine
development - at cost - 4,360,648 866,132 - 5,226,780
Less accumulated depreciation,
depletion and amortization - (323,870) (87,400) - (411,270)
------------ -------------- ------------- ------------ ------------
- 4,036,778 778,732 - 4,815,510
Net assets of discontinued operations 900 89,100 - - 90,000
Investments and other assets 1,883,781 1,444,307 208,095 (3,247,389) 288,794
------------ -------------- ------------- ------------ ------------
Total assets $1,887,915 $6,042,051 $1,179,994 $(3,283,111) $5,826,849
============ ============== ============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ - $ 21,122 $ 36,855 $ - $ 57,977
Payable to affiliates, net (284,294) 319,473 (35,179) - -
Income taxes payable - 521 13,073 - 13,594
Liabilities from coal and emission allowance
trading activities - 75,883 - - 75,883
Accounts payable and accrued expenses 76,066 416,505 116,288 (35,722) 573,137
------------ -------------- ------------- ------------ ------------
Total current liabilities (208,228) 833,504 131,037 (35,722) 720,591
Long-term debt, less current maturities 1,587,717 162,116 268,356 - 2,018,189
Deferred income taxes - 567,918 57,206 - 625,124
Other noncurrent liabilities - 1,873,508 39,746 - 1,913,254
------------ -------------- ------------- ------------ ------------
Total liabilities 1,379,489 3,437,046 496,345 (35,722) 5,277,158
Minority interests - - 41,265 - 41,265
Stockholders' equity 508,426 2,605,005 642,384 (3,247,389) 508,426
------------ -------------- ------------- ------------ ------------
Total liabilities and stockholders'
equity $1,887,915 $6,042,051 $1,179,994 $(3,283,111) $5,826,849
============ ============== ============= ============ ============
76
<PAGE>
<PAGE>
Notes (continued)
<CAPTION>
Supplemental Condensed Consolidated Balance Sheets
As of March 31, 1999
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
Assets from coal and emission allowance
trading activities - 2,514 - - 2,514
Deferred income taxes - 8,496 - - 8,496
Other current assets - 13,283 14,145 - 27,428
----------- ------------ ------------- ------------ --------------
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 activities - - 638,062 - 638,062
Liabilities from coal and emission allowance
trading activities - 12 - - 12
Accounts payable and accrued expenses 56,562 440,319 146,150 (15,309) 627,722
----------- ------------ ------------- ------------ --------------
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 interest - - 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>
77
<PAGE>
<PAGE>
Notes (continued)
<TABLE>
Supplemental Condensed Statements of Consolidated Cash Flows
For the Year Ended March 31, 2000
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Consolidated
---------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
continuing operations $ (83,810) $ 283,472 $ 103,753 $ 303,415
Net cash used in discontinued operations - - (40,504) (40,504)
---------- ------------ ------------- ------------
Net cash provided by (used in)
operating activities (83,810) 283,472 63,249 262,911
---------- ------------ ------------- ------------
Additions to property, plant, equipment
and mine development - (106,593) (72,161) (178,754)
Additions to advance mining royalties - (7,475) (17,817) (25,292)
Acquisitions, net - - (63,265) (63,265)
Investment in joint venture - (4,325) - (4,325)
Proceeds from coal contract restructurings - 11,904 21,000 32,904
Proceeds from property and
equipment disposals - 9,637 9,647 19,284
Proceeds from sale-leaseback
transactions - 34,234 - 34,234
---------- ------------ ------------- ------------
Net cash used in continuing operations - (62,618) (122,596) (185,214)
Net cash used in discontinued operations - - (170) (170)
---------- ------------ ------------- ------------
Net cash used in investing activities - (62,618) (122,766) (185,384)
---------- ------------ ------------- ------------
Proceeds from short-term borrowings and
long-term debt - - 22,026 22,026
Payments of short-term borrowings and
long-term debt (171,088) (21,695) (17,202) (209,985)
Capital contribution (distribution) - (1,073) 1,073 -
Distributions to minority interests - - (3,353) (3,353)
Dividends (paid) received 121,903 15,422 (137,325) -
Other 133,342 (298,438) 165,096 -
---------- ------------ ------------- ------------
Net cash provided by (used in) continuing operations 84,157 (305,784) 30,315 (191,312)
Net cash used in discontinued operations - - (13,869) (13,869)
---------- ------------ ------------- ------------
Net cash provided by (used in) financing activities 84,157 (305,784) 16,446 (205,181)
Effect of exchange rate changes
on cash and equivalents - - (806) (806)
---------- ------------ ------------- ------------
Net increase (decrease) in cash and
cash equivalents 347 (84,930) (43,877) (128,460)
Cash and cash equivalents at
beginning of period - 130,861 63,217 194,078
---------- ------------ ------------- ------------
Cash and cash equivalents at
end of period $ 347 $ 45,931 $ 19,340 $ 65,618
========== ============ ============= ============
78
<PAGE>
<PAGE>
Notes (continued)
<CAPTION>
Supplemental Condensed Statements of Consolidated Cash Flows
For the Period Ended March 31, 1999
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
continuing operations $ (140,674) $ 407,889 $ 63,708 $ 330,923
Net cash used in discontinued operations - - (48,901) (48,901)
------------ ------------ ------------- ------------
Net cash provided by (used in)
operating activities (140,674) 407,889 14,807 282,022
------------ ------------ ------------- ------------
Additions to property, plant, equipment
and mine development - (108,186) (66,334) (174,520)
Additions to advance mining royalties - (8,836) (2,673) (11,509)
Acquisitions, net (1,933,178) (143,742) (33,480) (2,110,400)
Proceeds from coal contract restructurings - 2,515 - 2,515
Proceeds from property and equipment disposals - 10,494 954 11,448
------------ ------------ ------------- ------------
Net cash used in continuing operations (1,933,178) (247,755) (101,533) (2,282,466)
Net cash provided by discontinued operations - - 33,130 33,130
------------ ------------ ------------- ------------
Net cash used in investing activities (1,933,178) (247,755) (68,403) (2,249,336)
------------ ------------ ------------- ------------
Proceeds from short-term borrowings and
long-term debt 1,817,390 - 53,388 1,870,778
Payments of short-term borrowings and
long-term debt (158,263) (21,470) (42,982) (222,715)
Capital contribution 480,000 - - 480,000
Distributions to minority interests - 9,096 (12,176) (3,080)
Other (65,275) (16,899) 48,158 (34,016)
------------ ------------ ------------- ------------
Net cash provided by (used in) continuing operations 2,073,852 (29,273) 46,388 2,090,967
Net cash provided by discontinued operations - - 70,314 70,314
------------ ------------ ------------- ------------
Net cash provided by (used in) financing activities 2,073,852 (29,273) 116,702 2,161,281
Effect of exchange rate changes
on cash and equivalents - - 111 111
------------ ------------ ------------- ------------
Net increase in cash and cash equivalents - 130,861 63,217 194,078
Cash and cash equivalents at
beginning of period - - - -
------------ ------------ ------------- ------------
Cash and cash equivalents at
end of period $ - $ 130,861 $ 63,217 $ 194,078
============ ============ ============= ============
</TABLE>
79
<PAGE>
<PAGE>
Notes (continued)
<TABLE>
Supplemental Condensed Statements of Combined Cash Flows
For the Period Ended May 19, 1998
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Combined
-------------- ------------- -----------
<S> <C> <C> <C>
Net cash provided by (used in) continuing operations $ (41,999) $ 12,138 $ (29,861)
Net cash provided by discontinued operations - 1,704 1,704
-------------- ------------- -----------
Net cash provided by (used in) operating activities (41,999) 13,842 (28,157)
-------------- ------------- -----------
Additions to property, plant, equipment and mine development (13,582) (7,292) (20,874)
Additions to advance mining royalties (1,767) (535) (2,302)
Proceeds from coal contract restructurings 308 20 328
Proceeds from property and equipment disposals 1,374 - 1,374
-------------- ------------- -----------
Net cash used in continuing operations (13,667) (7,807) (21,474)
Net cash used in discontinued operations - (76) (76)
-------------- ------------- -----------
Net cash used in investing activities (13,667) (7,883) (21,550)
-------------- ------------- -----------
Proceeds from short-term borrowings and long-term debt - 53,597 53,597
Payments of short-term borrowings and long-term debt (464) (18,959) (19,423)
Dividends paid (141,000) (32,330) (173,330)
Other 141,831 (831) 141,000
-------------- ------------- -----------
Net cash provided by continuing operations 367 1,477 1,844
Net cash provided by discontinued operations - 21,693 21,693
-------------- ------------- -----------
Net cash provided by financing activities 367 23,170 23,537
Effect of exchange rate changes on cash and equivalents - (292) (292)
-------------- ------------- -----------
Net increase (decrease) in cash and cash equivalents (55,299) 28,837 (26,462)
Cash and cash equivalents at beginning of period 83,812 13,009 96,821
-------------- ------------- -----------
Cash and cash equivalents at end of period $ 28,513 $ 41,846 $ 70,359
============== ============= ===========
80
<PAGE>
<PAGE>
Notes (continued)
<CAPTION>
Supplemental Condensed Statements of Combined Cash Flows
For the Year Ended March 31, 1998
PREDECESSOR COMPANY
--------------------------------------------------
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Combined
-------------- ------------- -----------
<S> <C> <C> <C>
Net cash provided by (used in)
continuing operations $ 272,348 $ (5,318) $ 267,030
Net cash used in discontinued operations - (79,178) (79,178)
-------------- ------------- -----------
Net cash provided by (used in)
operating activities 272,348 (84,496) 187,852
-------------- ------------- -----------
Additions to property, plant, equipment
and mine development (112,383) (53,131) (165,514)
Additions to advance mining royalties (6,174) - (6,174)
Acquisitions, net (58,715) - (58,715)
Proceeds from coal contract restructurings 57,460 - 57,460
Proceeds from property and equipment disposals 36,948 775 37,723
-------------- ------------- -----------
Net cash used in continuing operations (82,864) (52,356) (135,220)
Net cash used in discontinued operations - (813) (813)
-------------- ------------- -----------
Net cash used in investing activities (82,864) (53,169) (136,033)
-------------- ------------- -----------
Proceeds from short-term borrowings and long-term debt 90,000 179,391 269,391
Payments of short-term borrowings and long-term debt (162,420) (188,317) (350,737)
Capital contribution (distribution) (50,230) 50,230 -
Dividends paid (65,109) - (65,109)
Other (184,529) 5,235 (179,294)
-------------- ------------- -----------
Net cash provided by (used in) continuing operations (372,288) 46,539 (325,749)
Net cash provided by discontinued operations - 90,360 90,360
-------------- ------------- -----------
Net cash provided by (used in) financing activities (372,288) 136,899 (235,389)
Effect of exchange rate changes
on cash and equivalents - (718) (718)
-------------- ------------- -----------
Net decrease in cash and cash equivalents (182,804) (1,484) (184,288)
Cash and cash equivalents at
beginning of period 266,616 14,493 281,109
-------------- ------------- -----------
Cash and cash equivalents at
end of period $ 83,812 $ 13,009 $ 96,821
============== ============= ===========
</TABLE>
81
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the names, ages as of March 31, 2000 and current
positions with us and our subsidiaries of our executive officers and
Directors. The terms of our Directors will expire upon the election and
qualification of successors at the annual meeting of stockholders.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Irl F. Engelhardt 53 Chairman, Chief Executive Officer and Director
Richard M. Whiting 45 President, Chief Operating Officer and Director
Roger B. Walcott, Jr. 44 Executive Vice President
Mark Maisto 44 Chief Executive Officer and President, Citizens Power
Christopher G. Farrand 59 Vice President - Corporate Affairs
George J. Holway 50 Vice President - Mining Business Development
Robert D. Humphris 57 Managing Director-Australia
Jeffery L. Klinger 53 Vice President, Legal Services and Secretary
Richard A. Navarre 39 Vice President and Chief Financial Officer
Sharon K. Schergen 43 Vice President - Human Resources
Paul H. Vining 45 President, Peabody COALSALES Company
William E. Broshears 51 Group Executive - Resource Development
Roger H. Goodspeed 49 Director
Henry E. Lentz 55 Director
Alan H. Washkowitz 59 Director
</TABLE>
Irl F. Engelhardt served as President and Chief Executive Officer of
Peabody from 1990 to 1995 and Chairman and Chief Executive Officer of
Peabody since 1993, and has been a Director of Peabody since June 1998.
Since joining Peabody in 1979, he has held various officer level
positions in the executive, sales, business development and
administrative areas, including serving as Chairman of Peabody Resources
Ltd. (Australia) and Chairman of Citizens Power. Mr. Engelhardt also
served as an executive director of The Energy Group from February 1997 to
May 1998, Chairman of Cornerstone Construction & Materials, Inc. from
September 1994 to May 1995 and Chairman of Suburban Propane Company from
May 1995 to February 1996. He also served as a Director and Group Vice
President of Hanson Industries from 1995 to 1996. Mr. Engelhardt is
Co-Chairman of the Coal Utilization Research Council and past Chairman of
the National Mining Association and the Coal Industry Advisory Board of
the International Energy Agency. He is also a director of Firstar
(formerly Mercantile Bank of St. Louis, N. A.).
Richard M. Whiting was promoted to President and Chief Operating Officer
of Peabody in January 1998 and has been a Director of Peabody and a
member of the Management Committee since June 1998. He served as
President of Peabody COALSALES Company from June 1992 to January 1998.
Since joining Peabody in 1976, Mr. Whiting has held a number of
operations, sales and engineering positions both at the corporate offices
and at field locations. From 1989 to 1990, Mr. Whiting served as Vice
President of Engineering and Operations Support. Mr. Whiting is currently
Chairman of the Bituminous Coal Operators' Association and Chairman of
the National Mining Association's Safety and Health Committee.
Roger B. Walcott, Jr. joined Peabody in June 1998 as Executive Vice
President and a member of Peabody's Management Committee. From 1981 to
1998, he was a Senior Vice President & Director with The Boston
Consulting Group where he served a variety of clients in strategy and
operational assignments. He was also Chairman of The Boston Consulting
Group's Human Resource Capabilities Committee. Mr. Walcott holds an MBA
with high distinction from the Harvard Business School.
82
<PAGE>
<PAGE>
Mark Maisto was named Chief Executive Officer of Citizens Power in
September 1998. He was also named a member of Peabody's Management
Committee at that time. He has been President of Citizens Power since
February 1998. He joined Peabody in 1997 as Executive Vice President of
Citizens Power. Prior to joining Citizens Power he was a Senior Vice
President at Lehman Brothers. At Lehman Brothers, he specialized in
corporate and project finance working with electric utility companies.
Prior to joining Lehman Brothers in 1987, Mr. Maisto was employed at GE
Capital, where he was Director-Utility Finance. Mr. Maisto holds an MBA
from New York University.
Christopher G. Farrand has been Vice President of Corporate Affairs of
Peabody since June 1992. From April 1991 to June 1992, he served as
President of Peabody Development Company. Between 1981 and 1992 he worked
as Vice President of Government Relations for both Peabody Coal Company
and Peabody Holding Company. Mr. Farrand joined Peabody as Director of
Corporate Planning for Peabody Coal Company in 1978. Prior to working for
Peabody, Mr. Farrand held several positions in the United States
Department of Interior, including Deputy Under Secretary in 1977 and 1978
and Deputy Assistant Secretary from 1974 to 1976. He currently serves on
the board of directors of the National Coal Association.
George J. Holway was appointed to his current position as Vice
President-Mining Business Development in October 1999. Previously he had
served as Vice President and Chief Financial Officer from June 1998 to
October 1999. Prior to that, he had been Vice President of Corporate
Development with responsibilities for our mining business development and
land functions. After first joining Peabody in 1980, Mr. Holway served in
several financial positions at Peabody Holding Company including Vice
President and Controller from 1990 to 1992. In 1992, he left Peabody to
become Chief Financial Officer of Zeigler Coal Holding Company, a
position he held until he rejoined Peabody in November 1996. Prior to
joining the Peabody in 1980, Mr. Holway was employed by Arthur Andersen &
Co. Mr. Holway is a CPA and holds an MBA from Saint Louis University.
Robert D. Humphris has been Managing Director-Australia and a member of
Peabody's Management Committee since May 1998. Prior to that, he had been
Managing Director of Peabody Resources since April 1993. He has held
management positions at various mining companies in the United Kingdom
and Australia, including Managing Director of mining operations for
Costain Australia Limited, which was subsequently acquired by Hanson. He
was actively involved in Costain's real estate and construction
activities in Australia. Mr. Humphris is immediate past Chairman of the
New South Wales Minerals Council, past Chairman of the Australian Coal
Association and the Chairman of Newcastle Coal Shippers. He is a member
of the Coal Industry Advisory Board of the International Energy Agency
and the State Minerals Advisory Council.
In May 2000, Mr. Humphris announced that he will retire in October 2000.
Ian Craig, Deputy Managing Director of Peabody Resources, will succeed
Mr. Humphris.
Jeffery L. Klinger was named Vice President of Legal Services and
Secretary in May 1998. Prior to that, he had been Vice President,
Secretary and Chief Legal Officer since October 1990. From 1986 to
October 1990, he served as Eastern Regional Counsel for Peabody Holding
Company and from 1982 to 1986 as Director of Legal and Public Affairs,
Eastern Division of Peabody Coal Company and joined Peabody as Director
of Legal and Public Affairs, Indiana Division of Peabody Coal Company
from 1978 to 1982. He is a past President of the Indiana Coal Council and
is currently a trustee of the Energy and Mineral Law Foundation.
Richard A. Navarre was named Vice President and Chief Financial Officer
in October 1999. Prior to that, he was President of Peabody COALSALES
Company from January 1998 to October 1999 and previously served as
President of Peabody Energy Solutions, Inc. Prior to his roles in sales
and marketing, he was Vice President of Finance and served as Vice
President and Controller of Peabody. He joined Peabody in 1993 as
Director of Financial Planning. Prior to joining Peabody, Mr. Navarre was
a senior manager with KPMG Peat Marwick. Mr. Navarre is a member of the
Trade and International Affairs Committee and the Transportation
Committee of the National Mining Association. He is also a member of the
NYMEX Coal Advisory Council.
Sharon K. Schergen has been Vice President-Human Resources since 1991,
with executive responsibility for employee development, benefits,
compensation, employee relations and affirmative action programs. She
joined Peabody in 1981 as Manager-Salary Administration and has held a
series of employee relations, compensation, and salaried benefits
positions. Prior to joining Peabody, Ms. Schergen, who earned degrees in
social work and psychology and an MBA, was a personnel representative for
Ford Motor Company. Ms. Schergen is a member of the National Mining
Association's Human Resource Committee.
83
<PAGE>
<PAGE>
Paul H. Vining was named President of Peabody COALSALES Company in
October 1999. Prior to that, he was President of Peabody COALTRADE, Inc.
from March 1997 to October 1999, and Senior Vice President of Peabody
COALSALES Company from August 1995 - February 1997. Mr. Vining is a
member of the Board of Directors of the Coal Exporters Association.
William E. Broshears was named Group Executive - Resource Development in
July 1999. Prior to that he was Group Executive - Mining Services from
May 1999 to July 1999, Vice President-Operations of Peabody Coal Company
from October 1996 to May 1999 and Vice President-Surface Operations of
Eastern Associated Coal Corp. from November 1995 to October 1996. Mr.
Broshears is the Chairman of the West Virginia Mining and Reclamation
Association.
Roger H. Goodspeed became a Director in May 1998. He is also a Managing
Director of Lehman Brothers. He joined Lehman Brothers in 1974 and became
a Managing Director in 1984. During his tenure at Lehman Brothers, he has
served in management positions for several different groups. In 1994, he
became Chairman of Citizens Lehman Power, an electric power marketing
joint venture 50% owned by Lehman Brothers until the joint venture was
sold to The Energy Group in 1997. Mr. Goodspeed remains a director of the
ongoing entity, Citizens Power. Mr. Goodspeed received an MBA from the
University of California, Los Angeles.
Henry E. Lentz became a Director in February 1998. He is also a Managing
Director of Lehman Brothers and a principal of the firm's Merchant
Banking Group. Mr. Lentz joined Lehman Brothers in 1971 and became a
Managing Director in 1976. In 1988, Mr. Lentz left Lehman Brothers to
serve as Vice Chairman of Wasserstein Perella Group, Inc. In 1993, he
returned to Lehman Brothers as a Managing Director and, prior to joining
the Merchant Banking Group, served as head of the firm's worldwide energy
practice. Mr. Lentz is currently a director of Rowan Companies, Inc. and
Consort Holdings plc. Mr. Lentz holds an MBA, with honors, from the
Wharton School of the University of Pennsylvania.
Alan H. Washkowitz became a Director in May 1998. He is also a Managing
Director of Lehman Brothers and the head of the firm's Merchant Banking
Group, responsible for the oversight of Lehman Brothers Merchant Banking
Partners II L.P. Mr. Washkowitz joined Kuhn Loeb & Co. in 1968 and
became a general partner of Lehman Brothers in 1978 when Kuhn Loeb &
Co. was acquired. Prior to joining the Merchant Banking Group, Mr.
Washkowitz headed Lehman Brothers' Financial Restructuring Group. He is
currently a director of Illinois Central Corporation, L-3 Communications
Corporation, K&F Industries, Inc. and McBride plc. Mr. Washkowitz holds
an MBA from Harvard University and a JD from Columbia University.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual compensation for our chief
executive officer and the four most highly compensated executive officers
(the "Named Executive Officers") other than the chief executive officer
for their services to Peabody during fiscal years 2000, 1999 and 1998.
84
<PAGE>
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------ --------------------------------------------------------
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Fiscal Salary Bonus sation Award(s) Options/SARs Payments Compensation
Name and Principal Position Year ($) ($) ($) (#) <F1> (#) <F2> ($) <F3> ($) <F4>
------------------------------ -------- --------- --------- -------- ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Irl F. Engelhardt 2000 700,000 875,000 ---- ---- ---- ---- 51,525
Chairman, Chief 1999 681,264 700,000 ---- 154,639 499,855 441,240 23,998
Executive Officer and 1998 550,000 412,500 ---- ---- ---- 42,644 15,754
Director
Richard M. Whiting 2000 400,000 500,000 ---- ---- ---- ---- 28,662
President, Chief Operating 1999 385,834 400,000 ---- 51,546 179,828 168,051 12,238
Officer and Director 1998 244,851 182,501 ---- ---- ---- 12,326 7,058
Roger B. Walcott, Jr. 2000 350,000 437,500 ---- 51,546 ---- ---- 24,955
Executive Vice President 1999 291,667 350,000 ---- ---- 179,828 ---- 8,374
1998 ---- ---- ---- ---- ---- ---- ----
Mark Maisto 2000 300,000 600,000 ---- 51,546 ---- ---- 14,272
President and Chief 1999 282,485 450,000 ---- ---- 179,828 ---- 10,650
Executive Officer, 1998 208,333 300,000 ---- ---- ---- ---- 9,167
Citizens Power LLC
Richard A. Navarre 2000 233,750 343,750 ---- ---- ---- ---- 17,203
Vice President and Chief 1999 220,000 220,000 ---- 38,660 134,902 45,030 6,824
Financial Officer 1998 182,917 132,000 ---- ---- ---- 3,096 5,488
W. Howard Carson <F5> 2000 331,758 381,875 ---- ---- ---- ---- 660,678
Former Chief Commercial 1999 312,633 325,000 ---- 51,546 179,828 169,716 37,055
Officer 1998 225,750 130,368 ---- ---- ---- 20,391 6,773
<FN>
------------
<F1> Represents number of shares of our Class B common stock granted to
executives as of May 19, 1998. In addition, shares purchased by
Mr. Walcott and Mr. Maisto on May 19, 1998 were converted to
granted shares during the year ended March 31, 2000.
<F2> Represents number of shares of our Class A common stock underlying
options issued as of May 19, 1998.
<F3> Represents certain long-term incentive payments earned during the
fiscal year that relate to Predecessor Company compensation plans.
<F4> Represents annual matching contributions and performance
contributions to qualified and non-qualified savings and
investment plans, and group term life insurance. Also includes
amounts related to Mr. Carson's resignation in fiscal year 2000,
and his relocation benefit received in fiscal year 1999.
<F5> Mr. Carson resigned effective March 8, 2000.
</TABLE>
Pension Benefits
Our Salaried Employees Retirement Plan, or pension plan, is a "defined
benefit" plan. The pension plan provides a monthly annuity to salaried
employees when they retire. A salaried employee must have at least five
years of service to be vested in the pension plan. A full benefit is
available to a retiree at age 62. A retiree can begin receiving a
benefit as early as age 55; however, a 4% reduction factor applies for
each year a retiree receives a benefit prior to age 62.
An individual's retirement benefit under the pension plan is equal to
the sum of (1) 1.112% of the average monthly earnings over 60
consecutive months up to the "covered compensation limit" multiplied by
the employee's years of service, not to exceed 35 years, and (2) 1.5% of
the average monthly earnings over 60 consecutive months over the
"covered compensation limit" multiplied by the employee's years of
service, not to exceed 35 years.
85
<PAGE>
<PAGE>
We announced in February 1999 that the pension plan would be phased out
beginning January 1, 2001. Certain transition benefits were introduced
based on the age and/or service of the employee at December 31, 2000:
(1) employees age 50 or older will continue to accrue service at 100%;
(2) employees between the ages of 45 and 49 or with 20 years or more of
service will accrue service at the rate of 50% for each year of service
worked after December 31, 2000; and (3) employees under age 45 with less
than 20 years of service will have their pension benefit frozen. In all
cases, final average earnings for retirement plan purposes will be
capped at December 31, 2000 levels.
We have three supplemental retirement plans, which provide pension
benefits to executives whose pay exceeds legislative limits for
qualified pension plans. The estimated annual benefits payable upon
retirement at age 62, the normal retirement age, for the CEO and named
executive officers are as follows:
Irl F. Engelhardt $487,883
Richard M. Whiting 262,395
Roger B. Walcott, Jr. 24,663
Richard A. Navarre 38,138
W. Howard Carson 144,820
Mr. Maisto is not eligible for the pension plan.
Other Benefit Plans
In addition to the pension plan, we maintain various other benefit plans
covering employees and retirees. We announced in February 1999 that we
were restructuring several of these plans over the next four years. The
benefits associated with the medical plan and savings and long term
investment plan will be most significantly impacted.
The changes to the medical plan include the following as of January 1,
2000: (1) a decrease in employee/retiree contributions; (2) an increase
in medical contributions for dependents; (3) a decrease in medical
coverage for certain expenses; (4) additional medical plan options; and
(5) changes to dependent eligibility rules for retirees. In addition,
the medical plan was restructured so that employees leaving Peabody on
or after January 1, 2003 (age 55 or older with ten years of service)
will be covered under a medical premium reimbursement plan instead of
the current medical plan.
Beginning with fiscal year 2000, a performance contribution feature was
added to the savings and long-term investment plan to allow for Company
contributions up to a maximum of 4% of employees' salary based upon
meeting certain Company performance targets. Effective January 1, 2001,
we will increase our match for the savings and long-term investment
plan.
Management Incentive Compensation Plans
We have established an incentive compensation plan that provides a bonus
to selected employees based on the participant's base salary, target
level, and the attainment of certain organizational and individual
targets. The organizational targets are a ratio of net debt (total debt
minus cash) divided by earnings before interest, income taxes and
depreciation, depletion and amortization expense, or EBITDA.
Employment Agreements
We have entered into employment agreements with Mr. Engelhardt, the
Chairman and Chief Executive Officer, or CEO, and Messrs. Whiting,
Walcott, Maisto, Navarre and seven other key executive officers. The
CEO's employment agreement provides for an initial term of three years
and the other executives' employment agreements provide for initial
terms of two years, each of which extend thereafter on a day-to-day
basis such that the CEO's employment agreement continually has a three
year term and the other executives, subsequent to their initial one year
of employment, continually have a one-year term. Upon a termination
without cause or resignation for good reason, the executive is entitled
to the following benefits during the continuation period, described
below: (1) base salary; (2) bonus actually paid in the year prior to
such termination, except that, instead of such actual bonus amount, the
CEO shall receive an amount equal to 100% of his final base salary in
each of the three years following such termination; (3) a one-time
prorated bonus for the year of termination (based on actual performance
multiplied by a fraction, the numerator of which is the number of
business days such executive was employed during the year of termination
and the denominator of which is the total
86
<PAGE>
<PAGE>
number of business days during such year); and (4) continuation of
qualified and nonqualified pension, life insurance, medical,
hospitalization and other benefits; provided, however, that we shall not
be obligated to provide any benefits under tax qualified plans which are
not permitted by the terms of each such plan or by applicable law or
could jeopardize the plan's tax status; provided, further, that any such
coverage shall terminate to the extent that executive is offered or
obtains comparable coverage from any other employer. The "continuation
period" is three years for the CEO and for the other executives, the
balance of the initial two-year term if termination occurs during the
first year of the initial term, or for a period of one year after. The
employment agreements provide for confidentiality during employment and
at all times thereafter, and include a noncompetition and
nonsolicitation agreement that is effective during the employment term
and for one year thereafter.
Equity Agreements
The executives and 20 other employees acquired, in the aggregate,
approximately 3% of our initial fully-diluted equity, issued as Class B
common stock in connection with our acquisition on May 19, 1998. With
respect to these Class B shares, we provided a full recourse loan for
the amount of the tax liability to each executive, and to certain of
these executives, an additional full recourse loan for the amount of the
value of the stock, with a five-year principal balloon payment which
accelerates to the date which is six months following any termination of
employment or disposition of the stock, with interest payable throughout
the term of the loan at the applicable federal rate.
Stock Option Plan
We adopted the 1998 Stock Purchase and Option Plan for Key Employees,
under which we granted options to certain employees to purchase shares
of our common stock. We granted the executives who received Class B
common stock and other employees our options exercisable for common
stock to purchase an aggregate of 7% of our initial fully-diluted
equity; 931,885 of which were granted as "time options" in the form of
Incentive Stock Options (as defined in Section 422 of the Internal
Revenue Code), to the extent permitted, and 2,863,988 of which were
granted in the form of nonqualified stock options as "performance
options." Time options become exercisable with respect to 20% of the
shares subject to such options on each of the first five anniversaries
of the date of the closing of the transaction if the executive's
employment continues through and including such date, subject to
acceleration upon (1) death, (2) disability (3) a change of control or
(4) a recapitalization event. Performance options become exercisable at
the end of nine and one-half years, whether or not the applicable
performance targets are achieved, but become exercisable earlier with
respect to up to 20% of the shares subject to the performance options,
on each of the first five anniversaries of the date of May 19, 1998, to
the extent certain performance targets, as determined by the Board of
Directors and based on net debt and EBITDA, are met or exceeded.
Performance options accelerate upon (1) a change of control, (2) a
recapitalization event or (3) an initial public offering. "Change of
control," for the purposes of this section, means an acquisition of all
or substantially all of our direct and indirect assets by merger,
consolidation, recapitalization event, stock or asset sale or otherwise,
whereby immediately following any such transaction (1) Lehman Merchant
Banking owns less than 8.1 million of our outstanding voting securities
or (2) any person individually owns more of our then outstanding voting
securities entitled to vote generally than Lehman Merchant Banking.
"Recapitalization event" means 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.
We granted these executives performance-based options exercisable for
common stock to purchase an aggregate of 7% of our initial fully-diluted
equity. Options vest upon the earlier of (1) achievement of certain
financial performance targets and the earliest of completion of (x) an
initial public offering, (y) a change of control or (z) a
recapitalization event; and (2) nine and one-half years from the date of
grant. Vesting of options accelerate: (1) upon completion of an initial
public offering during our first 36 months following the closing of our
acquisition, at least 2.5% of these options shall vest and the balance
shall vest in accordance with the achievement of certain financial
performance targets; or (2) upon a change of control or a
recapitalization event during the first 36 months following the closing
of our acquisition, at least 5% of these options shall vest.
The options have an exercise price of $20.00 per share of the Class A
common stock.
The options have a 10-year term; provided, however, that exercisable
non-performance based options expire earlier upon termination of
employment as follows: (1) upon termination for cause or a resignation
without good reason, immediately upon such termination; or (2) upon
termination without cause, resignation for good reason, death,
disability or retirement, one year after termination of employment.
Unexercisable options terminate upon termination of employment, unless
acceleration in connection with such termination is explicitly provided
for.
87
<PAGE>
<PAGE>
Upon a change of control, the Board of Directors may terminate the
options, so long as the executives are cashed out at the change of
control price or are permitted to exercise their options prior to the
change of control, except as otherwise provided.
<TABLE>
FY-END OPTION/SAR VALUES
<CAPTION>
Number of securities underlying
unexercised options/SARs at FY-end
------------------------------------------------
Name Exercisable (#) Unexercisable (#)
-------------------------- ------------------ --------------------
<S> <C> <C>
Irl F. Engelhardt 44,000 455,855
Richard M. Whiting 15,985 163,843
Roger B. Walcott, Jr. 15,985 163,843
Mark Maisto 15,985 163,843
Richard A. Navarre 11,992 122,910
W. Howard Carson 15,985 -----
</TABLE>
Stockholders Agreements
We have entered into stockholders agreements with the executives who
received our Class B common stock and will enter into shareholder
agreements with employees who have options to purchase shares of common
stock when such options have vested and are exercised. Such stockholders
agreements contain, among other things, puts/calls, drag-along,
tag-along, voting, corporate governance and registration rights
provisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information concerning ownership
of the capital stock as of March 31, 2000: (1) persons who beneficially
own more than 5% of the outstanding shares of capital stock; (2) each
person who is a director of Peabody; (3) each person who is a Named
Executive Officer; and (4) all directors and executive officers as a
group. Our capital stock consists of our Class A common stock, our Class
B common stock and our Non-Convertible, Exchangeable Preferred Stock.
Class B common stock has voting rights and other attributes similar to
Class A common stock (except that Class A common stock will have a
liquidation preference) and will convert to Class A common stock upon
consummation of a change of control, an initial public offering or a
recapitalization event or, in any event, after nine years. Of the $480
million equity contribution made in connection with our acquisition on
May 19, 1998, $100 million was in the form of preferred stock. The
preferred stock bears the same voting powers, dividend rights and other
rights as, and votes as a single class with, the common stock, except
for the following: (1) upon the occurrence of any merger, consolidation,
sale of all or substantially all assets, liquidation, dissolution or
winding up of Peabody, the holders of the preferred stock will receive a
preferential distribution of available assets equal to the cost per
share before the holders of the common stock receive any distributions
(following which the holders of common stock will receive a similar
preferential distribution of any remaining available assets equal to the
same cost per share, and thereafter the shares of Common Stock and
Preferred Stock will receive equal distributions per share of any
remaining available assets); (2) we may, at any time at our discretion,
exchange all or part of the shares of preferred stock for an equal
number of shares of common stock; and (3) we may, at our discretion and
only for the first six months after the issuance of shares of the
preferred stock, redeem all or part of the shares of preferred stock for
an amount equal to the cost per share.
88
<PAGE>
<PAGE>
<TABLE>
NUMBER OF SHARES BENEFICIALLY OWNED
-----------------------------------
<CAPTION>
CLASS A CLASS B PERCENT PERCENT
COMMON COMMON PREFERRED OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK<F1> STOCK STOCK<F2> CLASS A CLASS B
------------------------------------------------------ ------------ --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Lehman Brothers Merchant Banking Partners II L.P.,
LBI Group Inc. and their affiliated co-investors 16,000,000 ---- 5,000,000 85.0% ----
c/o Lehman Brothers Holdings Inc.
3 World Financial Center, 200 Versey Street
New York, NY 10285
Co-Investment Partners, L.P. 2,500,000 ---- ---- 13.3% ----
c/o Lexington Partners Inc.
659 Madison Avenue, 23rd Floor
New York, NY 10021
Irl F. Engelhardt 88,000 154,639 ---- 0.4% 22.6%
Richard M. Whiting 31,970 51,546 ---- 0.1% 7.5%
Roger B. Walcott, Jr. 31,970 51,546 ---- 0.1% 7.5%
Mark Maisto 31,970 51,546 ---- 0.1% 7.5%
Richard A. Navarre 23,984 38,660 ---- 0.1% 5.6%
All executives and directors as a group (15 people) 327,230 548,966 ---- 1.5% 73.6%
<FN>
<F1> Totals for named executive officers represent options exercisable
within 60 days after March 31, 2000.
<F2> Lehman Brothers Merchant Banking Partners II L.P., LBI Group Inc.
and their affiliated co-investors own 100% of the outstanding
Preferred Stock of P&L Coal Holdings Inc.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Affiliates of Lehman Brothers Holdings Inc.
Lehman Brothers Merchant Banking Partners II L.P. and other affiliates of
Lehman Brothers Holdings Inc. (collectively, the "Lehman Merchant Banking
Fund") own a substantial majority of our outstanding shares of capital
stock. Messrs. Washkowitz, Lentz and Goodspeed, each directors of
Peabody, are investors in the Lehman Merchant Banking Fund and employees
of an affiliate of LBHI.
During the fiscal year ended March 31, 2000, Lehman Brothers Inc.
received approximately $1 million in cash for advising on the acquisition
of an additional 38.3% of Black Beauty in the prior fiscal year, and
$0.8 million in fees associated with a power contract restructuring by
Citizens Power during fiscal year 2000.
Transactions with Management
During the fiscal years ended March 31, 2000 and 1999, our executive
officers were granted or allowed to purchase shares of our capital stock
pursuant to the 1998 Stock Purchase and Option Plan for Key Employees. In
connection with these grants and sales, we, affiliates of Lehman Brothers
Holdings Inc. and the executives who received our Class B common stock
entered into a stockholders agreement providing for piggy-back
registration rights and drag-along and tag-along rights with respect to
certain sales of our capital stock by affiliates of Lehman Brothers
Holdings Inc.
In conjunction with the grant or sale of our capital stock, the executive
officers executed term notes as of December 31, 1998. The term notes for
executive officers receiving grants of capital stock are generally due on
March 31, 2003 and bear annual interest at an applicable United States
federal rate utilized by the Internal Revenue Service for loans to
employees. The term notes for executive
89
<PAGE>
<PAGE>
officers who purchased capital stock are payable in equal amounts on from
March 31, 1999 to 2003 and have a 5% annual interest rate. Either form of
promissory note will accelerate upon the occurrence of certain events.
The following table indicates the amounts due under the term notes for
our executive officers with aggregate indebtedness in excess of $60,000
during the fiscal year ended March 31, 2000:
<TABLE>
<CAPTION>
LARGEST AGGREGATE INDEBTEDNESS
DURING FISCAL OUTSTANDING INDEBTEDNESS
NAME YEAR ENDED MARCH 31, 2000 AT MARCH 31, 2000
---- ------------------------- -----------------
<S> <C> <C>
Irl F. Engelhardt $551,593 $551,593
Richard M. Whiting 183,852 183,852
Roger B. Walcott, Jr. 182,500 182,500
Mark Maisto 182,500 182,500
Christopher G. Farrand 91,925 91,925
George J. Holway 137,889 137,889
Robert D. Humphris 95,058 95,058
Jeffery L. Klinger 91,932 91,932
Richard A. Navarre 137,883 137,883
Sharon K. Schergen 91,928 91,928
</TABLE>
90
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report
(1) Financial Statements.
The following financial statements of P&L Coal Holdings
Corporation are included in Item 8 at the page indicated:
Page
----
Report of Independent Auditors 41
Audited Financial Statements:
Statements of Operations - Year ended March 31, 2000, Periods
ended March 31, 1999 and May 19, 1998 and Year ended
March 31, 1998 42
Balance Sheets - March 31, 2000 and 1999 43
Statements of Cash Flows - Year ended March 31, 2000, Periods
ended March 31, 1999 and May 19, 1998 and Year ended
March 31, 1998 44
Statements of Changes in Stockholders' Equity/Invested Capital
- Year ended March 31, 2000 and Periods ended March 31, 1999
and May 19, 1998 and Year ended March 31, 1998 45
Notes to Financial Statements 46
(2) Financial Statement Schedule.
The following financial statement schedule of P&L Coal Holdings
Corporation is included in Item 14, along with the report of
independent auditors thereon, at the pages indicated:
Page
----
Report of Independent Auditors on Financial Statement Schedule F-1
Valuation and Qualifying Accounts F-2
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Exhibits.
The following exhibits are filed as part of this Report:
Exhibit
No. Description of Exhibit
------- ----------------------
10.16 Receivables Sale Agreement dated as of March 31, 2000,
by and among Originators and P&L Coal Holdings
Corporation ("P&L")
10.17 Receivables Contribution Agreement dated as of March
31, 2000, by and between P&L and P&L Receivables
Company, LLC ("Seller")
10.18 Receivables Purchase Agreement as of March 31, 2000,
by and among Seller, P&L, International Securitization
Corporation, Bank One, NA, as Agent ("Agent") and the
Financial Institutions named therein.
21 List of Subsidiaries
24 Power of Attorney
27 Financial Data Schedule (filed electronically with the
SEC only)
(b) Reports on Form 8-K.
No reports were filed on Form 8-K for the year ended March 31, 2000.
91
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
IRL F. ENGELHARDT
------------------------------------
Irl F. Engelhardt
Chairman and Chief Executive Officer
Date: June 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
IRL F. ENGELHARDT
------------------------------------
Irl F. Engelhardt Chairman, Chief Executive Officer and Director
(principal executive officer)
<F*>
------------------------------------
Richard M. Whiting President, Chief Operating Officer and Director
RICHARD A. NAVARRE
------------------------------------
Richard A. Navarre Vice President and Chief Financial Officer
(principal financial and accounting officer)
<F*>
------------------------------------
Henry E. Lentz Vice President, Assistant Secretary and Director
<F*>
------------------------------------
Roger H. Goodspeed Director
<F*>
------------------------------------
Alan H. Washkowitz Director
<F*>By: RICHARD A. NAVARRE
-----------------------------
Richard A. Navarre
Attorney-In-Fact
</TABLE>
92
<PAGE>
<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).
3.3 Certificate of Incorporation of Affinity Mining Company
(Incorporated by reference to Exhibit 3.3 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.4 By-Laws of Affinity Mining Company (Incorporated by
reference to Exhibit 3.4 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.5 Certificate of Incorporation of Arid Operations Inc.
(Incorporated by reference to Exhibit 3.5 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.6 By-Laws of Arid Operations Inc (Incorporated by reference
to Exhibit 3.6 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.7 Certificate of Incorporation of Big Sky Coal Company
(Incorporated by reference to Exhibit 3.7 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.8 By-Laws of Big Sky Coal Company (Incorporated by reference
to Exhibit 3.8 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.9 Articles of Incorporation of Blackrock First Capital
Corporation (Incorporated by reference to Exhibit 3.9
of the Company's Form S-4 Registration Statement
No. 333-59073).
3.10 By-Laws of Blackrock First Capital Corporation
(Incorporated by reference to Exhibit 3.10 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.11 Certificate of Incorporation of Bluegrass Coal Company
(Incorporated by reference to Exhibit 3.11 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.12 By-Laws of Bluegrass Coal Company (Incorporated by
reference to Exhibit 3.12 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.13 Certificate of Incorporation of Caballo Coal Company
(Incorporated by reference to Exhibit 3.13 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.14 By-Laws of Caballo Coal Company (Incorporated by reference
to Exhibit 3.14 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.15 Certificate of Incorporation of Charles Coal Company
(Incorporated by reference to Exhibit 3.15 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.16 By-Laws of Charles Coal Company (Incorporated by reference
to Exhibit 3.16 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.17 Certificate of Incorporation of Coal Properties Corp.
(Incorporated by reference to Exhibit 3.17 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.18 By-Laws of Coal Properties Corp (Incorporated by reference
to Exhibit 3.18 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.19 Exhibit Intentionally Omitted
3.20 Amended and Restated Venture Agreement of Colony Bay Coal
Company (Incorporated by reference to Exhibit 3.20 of
the Company's Form S-4 Registration Statement No. 333-59073).
3.21 Certificate of Incorporation of Cook Mountain Coal Company
(Incorporated by reference to Exhibit 3.21 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.22 By-Laws of Cook Mountain Coal Company (Incorporated
by reference to Exhibit 3.22 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.23 Certificate of Incorporation of Cottonwood Land Company
(Incorporated by reference to Exhibit 3.23 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.24 By-Laws of Cottonwood Land Company (Incorporated by
reference to Exhibit 3.24 of the Company's
Form S-4 Registration Statement No. 333-59073).
93
<PAGE>
<PAGE>
Exhibit
No. Description of Exhibit
--------- ----------------------
3.25 Certificate of Incorporation of Orion Mines, Inc. (now
known as Darius Gold Mine Inc.) (Incorporated by
reference to Exhibit 3.25 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.26 By-Laws of Darius Gold Mine Inc. (Incorporated by
reference to Exhibit 3.26 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.27 Certificate of Incorporation of Koppers Recreation Camps
(now known as EACC Camps, Inc.) (Incorporated by
reference to Exhibit 3.27 of the Company's Form S-4
Registration Statement No. 333-59073).
3.28 By-Laws of Koppers Recreation Camps, Inc. (now known as
EACC Camps, Inc.) (Incorporated by reference to
Exhibit 3.28 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.29 Certificate of Incorporation of Eastern Associated Coal
Corp. (Incorporated by reference to Exhibit 3.29 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.30 By-Laws of Eastern Associated Coal Corp. (Incorporated
by reference to Exhibit 3.30 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.31 Certificate of Incorporation of Eastern Royalty Corp.
(Incorporated by reference to Exhibit 3.31 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.32 By-Laws of Eastern Royalty Corp. (Incorporated by
reference to Exhibit 3.32 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.33 Certificate of Incorporation of Exploraciones y Minerales
Sierra Morena S.A. (now known as Gold Fields Chile,
S.A.) (Incorporated by reference to Exhibit 3.33 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.34 By-Laws of Exploraciones y Minerales Sierra Morena S.A.
(now known as Gold Fields Chile, S.A.) (Incorporated
by reference to Exhibit 3.34 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.35 Restated Certificate of Incorporation of Gold Fields
Mining Corporation (Incorporated by reference to
Exhibit 3.35 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.36 By-Laws of Gold Fields Mining Corporation (Incorporated
by reference to Exhibit 3.36 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.37 Certificate of Incorporation of East Tennessee Coal
Company (now known as Gold Fields Operating Co.-Ortiz)
(Incorporated by reference to Exhibit 3.37 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.38 By-Laws of Gold Fields Operating Co.-Ortiz (Incorporated
by reference to Exhibit 3.38 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.39 Articles of Incorporation of Grand Eagle Mining, Inc.
(Incorporated by reference to Exhibit 3.39 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.40 By-Laws of Grand Eagle Mining, Inc. (Incorporated by
reference to Exhibit 3.40 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.41 Certificate of Incorporation of Hayden Gulch Terminal,
Inc. (Incorporated by reference to Exhibit 3.41 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.42 By-Laws of Hayden Gulch Terminal, Inc. (Incorporated by
reference to Exhibit 3.42 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.43 Certificate of Incorporation of Independence Material
Handling Company (Incorporated by reference to Exhibit
3.43 of the Company's Form S-4 Registration Statement
No. 333-59073).
3.44 By-Laws of Independence Material Handling Company
(Incorporated by reference to Exhibit 3.44 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.45 Certificate of Incorporation of Interior Holdings Corp.
(Incorporated by reference to Exhibit 3.45 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.46 By-Laws of Interior Holdings Corp. (Incorporated by
reference to Exhibit 3.46 of the Company's Form S-4
Registration Statement No. 333-59073).
3.47 Certificate of Incorporation of A.T. Two, Inc. (now known
as James River Coal Terminal Company) (Incorporated by
reference to Exhibit 3.47 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.48 Restated By-Laws of James River Coal Terminal Company
(Incorporated by reference to Exhibit 3.48 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.49 Certificate of Incorporation of Juniper Coal Company
(Incorporated by reference to Exhibit 3.49 of the
Company's Form S-4 Registration Statement No. 333-59073).
94
<PAGE>
<PAGE>
Exhibit
No. Description of Exhibit
--------- ----------------------
3.50 By-Laws of Juniper Coal Company (Incorporated by reference
to Exhibit 3.50 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.51 Certificate of Incorporation of Kayenta Mobile Home Park,
Inc. (Incorporated by reference to Exhibit 3.51 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.52 By-Laws of Kayenta Mobile Home Park, Inc. (Incorporated
by reference to Exhibit 3.52 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.53 Certificate of Incorporation of Martinka Coal Company
(Incorporated by reference to Exhibit 3.53 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.54 By-Laws of Martinka Coal Company (Incorporated by
reference to Exhibit 3.54 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.55 Articles of Incorporation of Midco Supply and Equipment
Corporation (Incorporated by reference to Exhibit 3.55
of the Company's Form S-4 Registration Statement
No. 333-59073).
3.56 By-Laws of Midco Supply and Equipment Corporation.
(Incorporated by reference to Exhibit 3.56 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.57 Exhibit Intentionally Omitted.
3.58 Exhibit Intentionally Omitted.
3.59 Certificate of Incorporation of Nueast Mining Corp. (now
known as Mountain View Coal Company) (Incorporated
by reference to Exhibit 3.59 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.60 By-Laws of Nueast Mining Corp. (now known as Mountain View
Coal Company) (Incorporated by reference to Exhibit 3.60
of the Company's Form S-4 Registration Statement
No. 333-59073).
3.61 Articles of Incorporation of North Page Coal Corp.
(Incorporated by reference to Exhibit 3.61 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.62 By-Laws of North Page Coal Corp. (Incorporated by
reference to Exhibit 3.62 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.63 Articles of Incorporation of Ohio County Coal Company
(Incorporated by reference to Exhibit 3.63 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.64 By-Laws of Ohio County Coal Company (Incorporated by
reference to Exhibit 3.64 of the Company's
Form S-8 Registration Statement No. 333-59073).
3.65 Certificate of Limited Partnership of Patriot Coal
Company, L.P. (Incorporated by reference to Exhibit
3.65 of the Company's Form S-4 Registration Statement
No. 333-59073).
3.66 Limited Partnership Agreement of Patriot Coal Company,
L.P. (Incorporated by reference to Exhibit 3.66 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.67 Certificate of Incorporation of Peabody America, Inc.
(Incorporated by reference to Exhibit 3.67 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.68 By-Laws of Peabody America, Inc. (Incorporated by
reference to Exhibit 3.68 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.69 Certificate of Incorporation of Peabody Coal Company
(Incorporated by reference to Exhibit 3.69 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.70 Restated By-Laws of Peabody Coal Company (Incorporated
by reference to Exhibit 3.70 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.71 Certificate of Incorporation of Peabody COALSALES Company
(Incorporated by reference to Exhibit 3.71 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.72 By-Laws of Peabody COALSALES Company (Incorporated by
reference to Exhibit 3.72 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.73 Certificate of Incorporation of COALTRADE Inc. (now known
as Peabody COALTRADE, Inc.) (Incorporated by reference
to Exhibit 3.73 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.74 By-Laws of COALTRADE Inc. (now known as Peabody COALTRADE,
Inc.) (Incorporated by reference to Exhibit 3.74 of the
Company's Form S-4 Registration Statement No. 333-59073).
95
<PAGE>
<PAGE>
Exhibit
No. Description of Exhibit
--------- ----------------------
3.75 Certificate of Incorporation of Premier Coal Sales
Company, (now known as Peabody Development Company)
(Incorporated by reference to Exhibit 3.75 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.76 Restated By-Laws of Peabody Development Company
(Incorporated by reference to Exhibit 3.76 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.77 Certificate of Incorporation of Peabody Powertrade, Inc.
(now known as Peabody Energy Solutions, Inc.)
(Incorporated by reference to Exhibit 3.77 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.78 By-Laws of Peabody Powertrade, Inc. (now known as Peabody
Energy Solutions, Inc.) (Incorporated by reference to
Exhibit 3.78 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.79 Restated Certificate of Incorporation of Peabody Holding
Company, Inc. (Incorporated by reference to Exhibit 3.79 of
the Company's Form S-4 Registration Statement No. 333-59073).
3.80 Restated By-Laws of Peabody Holding Company, Inc.
(Incorporated by reference to Exhibit 3.80 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.81 Exhibit Intentionally Omitted
3.82 Second Amended and Restated Partnership Agreement re:
Peabody Natural Resources Company (Incorporated
by reference to Exhibit 3.82 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.83 Certificate of Incorporation of Armco Terminal Company
(now known as Peabody Terminals, Inc.) (Incorporated
by reference to Exhibit 3.83 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.84 By-Laws of Peabody Terminals, Inc. (Incorporated by
reference to Exhibit 3.84 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.85 Certificate of Incorporation of Peabody Venezuela Coal
Corp. (Incorporated by reference to Exhibit 3.85 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.86 By-Laws of Peabody Venezuela Coal Corp. (Incorporated
by reference to Exhibit 3.86 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.87 Certificate of Incorporation of Peabody Western Coal
Company (Incorporated by reference to Exhibit 3.87 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.88 By-Laws of Peabody Western Coal Company (Incorporated
by reference to Exhibit 3.88 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.89 Certificate of Incorporation of Pine Ridge Coal Company
(Incorporated by reference to Exhibit 3.89 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.90 By-Laws of Pine Ridge Coal Company (Incorporated
by reference to Exhibit 3.90 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.91 Certificate of Incorporation of Powder River Coal Company
(Incorporated by reference to Exhibit 3.91 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.92 Restated By-Laws of Powder River Coal Company
(Incorporated by reference to Exhibit 3.92 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.93 Certificate of Incorporation of Rio Escondido Coal Corp.
(Incorporated by reference to Exhibit 3.93 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.94 By-Laws of Rio Escondido Coal Corp. (Incorporated by
reference to Exhibit 3.94 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.95 Certificate of Incorporation of Seneca Coal Company
(Incorporated by reference to Exhibit 3.95 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.96 By-Laws of Seneca Coal Company (Incorporated by reference
to Exhibit 3.96 of the Company's Form S-4 Registration
Statement No. 333-59073).
3.97 Certificate of Incorporation of Sentry Mining Company
(Incorporated by reference to Exhibit 3.97 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.98 By-Laws of Sentry Mining Company (Incorporated by
reference to Exhibit 3.98 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.99 Certificate of Incorporation of Snowberry Land Company
Incorporated by reference to Exhibit 3.99 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.100 By-Laws of Snowberry Land Company (Incorporated by
reference to Exhibit 3.100 of the Company's
Form S-4 Registration Statement No. 333-59073).
96
<PAGE>
<PAGE>
Exhibit
No. Description of Exhibit
--------- ----------------------
3.101 Agreement of Incorporation of Low Volatile Coals, Inc.
(now known as Sterling Smokeless Company) (Incorporated
by reference to Exhibit 3.101 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.102 By-Laws of Sterling Smokeless Company (Incorporated by
reference to Exhibit 3.102 of the Company's
Form S-4 Registration Statement No. 333-59073).
3.103 Certificate of Formation of Thoroughbred, L.L.C.
(Incorporated by reference to Exhibit 3.103 of the
Company's Form S-4 Registration Statement No. 333-59073).
3.104 Operating Agreement of Thoroughbred, L.L.C. (Incorporated
by reference to Exhibit 3.104 of the Company's
Form S-4 Registration Statement No. 333-59073).
4.1 Senior Note Indenture dated as of May 18, 1998 between
P&L Coal Holdings Corporation and State Street Bank and
Trust Company, as Senior Note Trustee (Incorporated
by reference to Exhibit 4.1 of the Company's
Form S-4 Registration Statement No. 333-59073).
4.2 Senior Subordinated Note Indenture dated as of May 18, 1998
between P&L Coal Holdings Corporation and State Street
Bank and Trust Company, as Senior Subordinated Note Trustee
(Incorporated by reference to Exhibit 4.2 of the Company's
Form S-4 Registration Statement No.333-59073).
4.3 First Supplemental Senior Note Indenture dated as of
May 19, 1998 among the Guaranteeing Subsidiary (as defined
therein), P&L Coal Holdings Corporation the other
Senior Note Guarantors (as defined in the Senior Note
Indenture) and State Street Bank and Trust Company, as
Senior Note Trustee (Incorporated by reference to
Exhibit 4.3 of the Company's Form S-4 Registration
Statement No. 333-59073).
4.4 First Supplemental Senior Subordinated Note Indenture
dated as of May 19, 1998 among the Guaranteeing
Subsidiary (as defined therein), P&L Coal Holdings
Corporation, the other Senior Subordinated Note
Guarantors (as defined in the Senior Subordinated Note
Indenture) and State Street Bank and Trust Company, as
Senior Subordinated Note Trustee (Incorporated by
reference to Exhibit 4.4 of the Company's
Form S-4 Registration Statement No. 333-59073).
4.5 Notation of Senior Subsidiary Guarantee dated as of
May 19, 1998 among the Senior Note Guarantors (as defined
in the Senior Note Indenture) (Incorporated by reference to
Exhibit 4.5 of the Company's Form S-4 Registration Statement
No. 333-59073).
4.6 Notation of Subordinated Subsidiary Guarantee dated as of
May 19, 1998 among the Senior Subordinated Note
Guarantors (as defined in the Senior Subordinated Note
Indenture) (Incorporated by reference to Exhibit 4.6 of
the Company's Form S-4 Registration Statement No. 333-59073).
4.7 Senior Note Registration Rights Agreement dated as of
May 18, 1998 between P&L Coal Holdings Corporation and
Lehman Brothers Inc. (Incorporated by reference to
Exhibit 4.7 of the Company's Form S-4 Registration
Statement No. 333-59073).
4.8 Senior Subordinated Note Registration Rights Agreement
dated as of May 18, 1998 between P&L Coal Holdings
Corporation and Lehman Brothers Inc. (Incorporated by
reference to Exhibit 4.8 of the Company's
Form S-4 Registration Statement No. 333-59073).
4.9 Second Supplemental Senior Note Indenture dated as of
December 31, 1998 among the Guaranteeing Subsidiary (as
defined therein), P&L Coal Holdings Corporation, the
other Senior Note Guarantors (as defined in the Senior
Note Indenture) and State Street Bank and Trust
Company, as Senior Note Trustee.
4.10 Second Supplemental Senior Subordinated Note Indenture
dated as of December 31, 1998 among the Guaranteeing
Subsidiary (as defined therein), P&L Coal Holdings
Corporation, the other Senior Subordinated Note
Guarantors (as defined in the Senior Subordinated Note
Indenture) and State Street Bank and Trust Company, as
Senior Subordinated Note Trustee.
4.11 Third Supplemental Senior Note Indenture dated as of June
30, 1999 among the Guaranteeing Subsidiary (as defined
therein), P&L Coal Holdings Corporation, the other
Senior Note Guarantors (as defined in the Senior Note
Indenture) and State Street Bank and Trust Company, as
Senior Note Trustee.
4.12 Third Supplemental Senior Subordinated Note Indenture
dated as of June 30, 1999 among the Guaranteeing
Subsidiary (as defined therein), P&L Coal Holdings
Corporation, the other Senior Subordinated Note
Guarantors (as defined in the Senior Subordinated Note
Indenture) and State Street Bank and Trust Company, as
Senior Subordinated Note Trustee.
97
<PAGE>
<PAGE>
Exhibit
No. Description of Exhibit
--------- ----------------------
10.1 Amended and Restated Credit Agreement dated as of June 9,
1998 among P&L Coal Holdings Corporation, as Borrower,
Lehman Brothers Inc., as Arranger, Lehman Commercial
Paper Inc., as Syndication Agent, Documentation Agent,
and Administrative Agent, and the lenders party thereto
(Incorporated by reference to Exhibit 10.1 of the
Company's Form S-4 Registration Statement No. 333-59073).
10.2 Guarantee and Collateral Agreement dated as of May 14, 1997
made by the Guarantors, in favor of Lehman Commercial
Paper, Inc., as Administrative Agent for the banks and
other financial institutions (Incorporated by reference
to Exhibit 10.2 of the Company's Form S-4 Registration
Statement No. 333-59073).
10.3 Federal Coal Lease WYW0321779: North Antelope/Rochelle
Mine (Incorporated by reference to Exhibit 10.3 of the
Company's Form S-4 Registration Statement No. 333-59073).
10.4 Federal Coal Lease WYW119554: North Antelope/Rochelle Mine
(Incorporated by reference to Exhibit 10.4 of the
Company's Form S-4 Registration Statement No. 333-59073).
10.5 Federal Coal Lease WYW5036: Rawhide Mine (Incorporated
by reference to Exhibit 10.5 of the Company's
Form S-4 Registration Statement No. 333-59073).
10.6 Federal Coal Lease WYW3397: Caballo Mine (Incorporated
by reference to Exhibit 10.6 of the Company's
Form S-4 Registration Statement No. 333-59073).
10.7 Federal Coal Lease WYW83394: Caballo Mine (Incorporated
by reference to Exhibit 10.7 of the Company's
Form S-4 Registration Statement No. 333-59073).
10.8 Federal Coal Lease WYW136142 (Incorporated by reference
to Exhibit 10.7 of Amendment No. 1 of the Company's
Form S-4 Registration Statement No. 333-59073).
10.9 Royalty Prepayment Agreement by and among Peabody Natural
Resources Company, Gallo Finance Company and Chaco
Energy Company, dated September 30, 1998 (Incorporated
by reference to Exhibit 10.9 of the Company's Form 10-Q
for the second quarter ended September 30, 1998).
10.10<F*> 1998 Stock Purchase and Option Plan for Key Employees of
P&L Coal Holding Corporation (incorporated by reference
to Exhibit 10.10 of the Company's Form 10-Q for the
third quarter ended December 1998).
10.11<F*> Employment Agreement between Irl F. Engelhardt and the
Company dated May 19, 1998.
10.12<F*> Employment Agreement between Richard M. Whiting and the
Company dated May 19, 1998.
10.13<F*> Employment Agreement between W. Howard Carson and the
Company dated May 19, 1998.
10.14<F*> Employment Agreement between Roger B. Walcott, Jr. and the
Company dated May 19, 1998.
10.15<F*> Employment Agreement between Mark Maisto and the Company
dated May 19, 1998.
10.16 Receivables Sale Agreement dated as of March 31, 2000, by and
among Originators and P&L Coal Holdings Corporation ("P&L")
10.17 Receivables Contribution Agreement dated as of March 31, 2000,
by and between P&L and P&L Receivables Company, LLC
("Seller")
10.18 Receivables Purchase Agreement as of March 31, 2000, by
and among Seller, P&L, International Securitization
Corporation, Bank One, NA, as Agent ("Agent") and the
Financial Institutions named therein.
21 List of Subsidiaries.
24 Power of Attorney.
27 Financial Data Schedule (filed electronically with the
SEC only).
[FN]
<F*> These exhibits constitute all management contracts,
compensatory plans and arrangements required to be filed
as an exhibit to this form pursuant to Item 14(c) of this
report.
98
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
P&L Coal Holdings Corporation
We have audited the consolidated financial statements of P&L Coal
Holdings Corporation (the Company) as of March 31, 2000 and 1999, and
for the year and period then ended, and the combined financial
statements of P&L Coal Group (the Predecessor Company) for the period
ended May 19, 1998 and the year ended March 31, 1998, and have issued
our report thereon dated April 27, 2000. Our audits also included the
financial statement schedule listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
April 27, 2000
St. Louis, Missouri
F-1
<PAGE>
<PAGE>
<TABLE>
P & L COAL HOLDINGS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(In thousands) Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions<F1> Other of Period
------------------------------------------- ------------ ---------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 2000
Reserves deducted from asset accounts:
Land and coal interests $54,277 $2,179 $(40,541) $ (2,716)<F2><F3> $13,199
Reserve for materials and supplies 16,558 --- (4,748) 590 <F2> 12,400
Allowance for doubtful accounts 177 1,213 (157) --- 1,233
PERIOD MAY 20, 1999 THROUGH MARCH 31, 1999
Reserves deducted from asset accounts:
Land and coal interests $51,455 $3,138 $ (316) --- $54,277
Reserve for materials and supplies 6,087 --- (1,037) 11,508 <F4> 16,558
Allowance for doubtful accounts 9,073 --- (8,980) 84 <F5> 177
========================================================================================================================
(PREDECESSOR COMPANY)
PERIOD APRIL 1, 1998 THROUGH MAY 19, 1998
Reserves deducted from asset accounts:
Land and coal interests $67,884 $ 124 $ (10) $(16,543)<F2> $51,455
Reserve for materials and supplies 6,316 --- (229) --- 6,087
Allowance for doubtful accounts 9,100 --- (27) --- 9,073
YEAR ENDED MARCH 31, 1998
Reserves deducted from asset accounts:
Land and coal interests $61,276 $9,256 $ (2,648) --- $67,884
Reserve for materials and supplies 9,433 35 (2,908) (244)<F6> 6,316
Allowance for doubtful accounts 5,525 --- (378) 3,953 <F2> 9,100
<FN>
<F1> Reserves utilized, unless otherwise indicated.
<F2> Balances transferred from other accounts.
<F3> Balance transferred as part of asset contribution to
joint venture.
<F4> Balance recorded as part of the May 19, 1998 purchase
accounting adjustments.
<F5> Balance acquired as part of controlling interest in
Black Beauty Coal Company purchased January 1, 1999.
<F6> Balance disposed of as part of asset sale.
</TABLE>
F-2
