SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-59073
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P&L COAL HOLDINGS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4004153
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Market Street, St. Louis, Missouri 63101-1826
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(Address of principal executive offices) (Zip Code)
(314) 342-3400
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
----- ------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(In thousands)
Predecessor
Nine Months Company
Quarter Ended Quarter Ended Ended Period Ended ---------------
December 31, December 31, December 31, December 31, Period Ended
1999 1998 1999 1998<F1> May 19, 1998
--------------- --------------- --------------- --------------- ---------------
REVENUES
Sales $ 635,340 $ 546,620 $ 1,859,343 $ 1,327,497 $ 278,930
Other revenues 35,385 35,984 90,050 75,272 13,478
--------------- --------------- --------------- --------------- ---------------
Total revenues 670,725 582,604 1,949,393 1,402,769 292,408
OPERATING COSTS AND EXPENSES
Operating costs and expenses 542,052 460,042 1,577,247 1,137,323 246,801
Depreciation, depletion and amortization 61,150 53,124 186,449 130,598 26,218
Selling and administrative expenses 22,229 18,353 63,396 44,101 12,017
--------------- --------------- --------------- --------------- ---------------
OPERATING PROFIT 45,294 51,085 122,301 90,747 7,372
Interest expense 49,545 47,369 150,397 123,215 4,222
Interest income (818) (4,686) (2,913) (12,439) (1,667)
--------------- --------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (3,433) 8,402 (25,183) (20,029) 4,817
Income tax provision (benefit) 1,242 3,284 (1,238) (5,188) 4,341
Minority interests 5,395 - 8,516 - -
--------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (10,070) $ 5,118 $ (32,461) $ (14,841) $ 476
=============== =============== =============== =============== ===============
<FN>
<F1> Includes results for the nine months ended December 31, 1998; however, P&L
Coal Holdings Corporation had no activity for the period April 1, 1998 to
May 19, 1998.
</FN>
See accompanying notes to unaudited condensed consolidated financial statements.
P&L COAL HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, March 31,
1999 1999
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 87,493 $ 194,078
Accounts receivable, less allowance for
doubtful accounts of $1,326 and $177
as of December 31, 1999 and March 31, 1999,
respectively 330,040 312,748
Materials and supplies 51,108 53,978
Coal inventory 184,549 195,919
Assets from power trading activities 790,669 1,037,300
Other current assets 69,521 38,438
--------------- ---------------
Total current assets 1,513,380 1,832,461
Property, plant, equipment and mine development,
net of accumulated depreciation, depletion
and amortization of $360,870 and $193,492,
respectively 4,785,969 4,797,945
Investments and other assets 380,682 393,525
--------------- ---------------
Total assets $ 6,680,031 $ 7,023,931
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities
of long-term debt $ 76,434 $ 72,404
Income taxes payable 11,659 7,308
Liabilities from power trading activities 391,956 638,062
Accounts payable and accrued expenses 593,400 627,734
--------------- ---------------
Total current liabilities 1,073,449 1,345,508
Long-term debt, less current maturities 2,430,070 2,469,975
Deferred income taxes 757,427 780,175
Accrued reclamation and other environmental
liabilities 504,936 498,032
Workers' compensation obligations 209,849 207,544
Accrued postretirement benefit costs 968,911 956,714
Obligation to industry fund 62,704 63,107
Other noncurrent liabilities 168,955 183,736
--------------- ---------------
Total liabilities 6,176,301 6,504,791
Minority interests 32,065 23,910
Stockholders' equity:
Preferred Stock - $0.01 per share par value;
10,000,000 shares authorized, 5,000,000
shares issued and outstanding 50 50
Common Stock - Class A, $0.01 per share par
value; 30,000,000 shares authorized,
19,000,000 shares issued and outstanding 190 190
Common Stock - Class B, $0.01 per share par
value; 3,000,000 shares authorized,
708,767 shares issued and 698,457 and
708,767 shares outstanding, respectively 7 7
Additional paid-in capital 484,772 484,772
Employee stock loans (2,943) (2,331)
Accumulated other comprehensive income 11,878 2,333
Retained earnings (accumulated deficit) (22,252) 10,209
Treasury shares, at cost: 10,310 Class B
shares as of December 31, 1999 (37) -
--------------- ---------------
Total stockholders' equity 471,665 495,230
--------------- ---------------
Total liabilities and stockholders'
equity $ 6,680,031 $ 7,023,931
=============== ===============
See accompanying notes to unaudited condensed consolidated financial statements.
P&L COAL HOLDINGS CORPORATION
UNAUDITED STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(In thousands)
Predecessor
Nine Months Company
Ended Period Ended ---------------
December 31, December 31, Period Ended
1999 1998 May 19, 1998
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (32,461) $ (14,841) $ 476
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 186,449 130,598 26,218
Deferred income taxes (16,291) (23,066) 2,835
Amortization of debt discount and debt
issuance costs 13,637 12,273 1,379
Net gain on property and equipment disposals (4,182) - (328)
Net gain on coal contract restructuring (12,957) (5,300) -
Minority interests 8,516 - -
Stock compensation - 3,924 -
Changes in current assets and liabilities,
excluding effects of acquisitions:
Accounts receivable (17,174) 21,091 (132,065)
Materials and supplies 2,962 1,079 881
Coal inventory 20,171 20,034 (2,807)
Other current assets (30,586) 5,167 (10,701)
Accounts payable and accrued expenses (36,342) (84,729) 87,814
Income taxes payable 4,818 19,152 1,234
Net assets from power trading activities 525 (2,079) 5,289
Accrued reclamation and related liabilities (10,609) 760 (1,622)
Workers' compensation obligations 2,305 324 (2,156)
Accrued postretirement benefit costs 12,197 8,912 6,092
Obligation to industry fund (403) (1,957) (2,379)
Royalty prepayment - 135,903 -
Other, net (44,109) (8,394) (10,619)
--------------- --------------- ---------------
Net cash provided by (used in) operating
activities 46,466 218,851 (30,459)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and
mine development (124,030) (133,514) (20,950)
Acquisitions, net (44,203) (1,994,635) -
Contribution from minority interests 704 - -
Proceeds from coal contract restructuring 21,877 3,889 328
Proceeds from property and equipment disposals 6,736 - 1,374
Proceeds from sale-leaseback transactions 34,234 8,392 -
--------------- --------------- ---------------
Net cash used in investing activities (104,682) (2,115,868) (19,248)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short-term borrowings (5,640) (25,812) -
Proceeds from long-term debt 11,547 1,890,100 53,597
Payments of long-term debt (52,264) (179,028) (19,423)
Capital contribution - 480,000 -
Dividends paid to stockholders - - (173,330)
Dividends paid to minority interests (2,292) - -
Proceeds from affiliated loan - (940) 141,000
Advances from affiliates - - 21,693
--------------- --------------- ---------------
Net cash provided by (used in) financing
activities (48,649) 2,164,320 23,537
Effect of exchange rate changes on cash and cash
equivalents 280 (197) (292)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (106,585) 267,106 (26,462)
Cash and cash equivalents at beginning of period 194,078 - 96,821
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 87,493 $ 267,106 $ 70,359
=============== =============== ===============
See accompanying notes to unaudited condensed consolidated financial statements.
P&L COAL HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
consolidated operations and balance sheets of P&L Coal Holdings Corporation (the
"Company"), also known as Peabody Group. These financial statements include the
subsidiaries of Peabody Holding Company, Inc. ("Peabody Holding Company"); Gold
Fields Mining Corporation ("Gold Fields") which owns Lee Ranch Coal Company
("Lee Ranch"); Citizens Power LLC ("Citizens Power"); and Peabody Resources
Holdings Pty. Ltd. ("Peabody Resources"), an Australian company (collectively,
the "Predecessor Company" or "P&L Coal Group"). Through May 19, 1998, the
Predecessor Company was a wholly owned indirect subsidiary of The Energy Group,
PLC ("The Energy Group"). Effective May 20, 1998, the Predecessor Company was
acquired by the Company. P&L Coal Holdings Corporation, a holding company with
no direct operations and nominal assets other than its investment in its
subsidiaries, was formed by Lehman Brothers Merchant Banking Partners II L. P.
on February 27, 1998 for the purpose of acquiring the Predecessor Company and
had no significant activity until the acquisition.
The accompanying condensed consolidated financial statements as of and for the
quarter and nine months ended December 31, 1999 and for the quarter and period
ended December 31, 1998, and the notes thereto, are unaudited. However, in the
opinion of management, these financial statements reflect all adjustments
necessary for a fair presentation of the results of the periods presented. The
results of operations for the quarter and nine months ended December 31, 1999
are not necessarily indicative of the results to be expected for the full year.
(2) Reclassifications
Certain amounts in the prior periods have been reclassified to conform with the
report classifications for the nine months ended December 31, 1999, with no
effect on previously reported operating results or stockholders' equity.
(3) Comprehensive Income
The following table sets forth the components of comprehensive income (loss) for
the quarter and nine months ended December 31, 1999, and the quarter and period
ended December 31, 1998 (in thousands):
Nine Months
Quarter Ended Quarter Ended Ended Period Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Net income (loss) $ (10,070) $ 5,118 $ (32,461) $ (14,841)
Foreign currency translation adjustment 2,795 8,396 9,545 (5,335)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $ (7,275) $ 13,514 $ (22,916) $ (20,176)
=============== =============== =============== ===============
(4) Restructuring Liability
In conjunction with the acquisition of P&L Coal Group, the Company established a
$39.4 million liability for estimated costs associated with a restructuring plan
resulting from the business combination. The estimate was comprised of costs
associated with exiting certain activities ("exit plan") and consolidating and
restructuring certain management and administrative functions ("restructuring
plan") and includes costs resulting from a plan to terminate or relocate
employees. Costs associated with the restructuring and exit plans are being
charged against the liability as incurred. The total costs charged against the
liability for the quarter and nine months ended December 31, 1999 are $0.7
million and $6.1 million, respectively. The cumulative net cash outlays and
non-cash costs charged against the liability through December 31, 1999 are as
follows (in thousands):
Cash Outlays Non-cash Costs Total
--------------- --------------- ---------------
Restructuring plan $ 24,612 $ - $ 24,612
Exit plan 6,643 3,648 10,291
--------------- --------------- ---------------
$ 31,255 $ 3,648 $ 34,903
=============== =============== ===============
The exit plan was completed in the third quarter and the liability was reduced
by $3.8 million 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 relates to lower exit plan costs than originally estimated. The $0.7
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
$0.7 million remaining liability, the cost of the acquisition will be further
reduced.
(5) Business Segments
The Company's industry and geographic data for continuing operations are as
follows:
(In thousands)
Nine Months
Quarter Ended Quarter Ended Ended Period Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Revenues:
U.S. Mining $ 595,923 $ 532,696 $ 1,767,411 $ 1,285,580
Non U.S. Mining 71,660 41,739 169,931 97,810
Other<F1> 3,142 8,169 12,051 19,379
--------------- --------------- --------------- ---------------
$ 670,725 $ 582,604 $ 1,949,393 $ 1,402,769
=============== =============== =============== ===============
Operating profit (loss):
U.S. Mining $ 34,547 $ 36,771 $ 96,077 $ 65,968
Non U.S. Mining 14,951 12,963 37,135 23,769
Other<F1> (4,204) 1,351 (10,911) 1,010
--------------- --------------- --------------- ---------------
$ 45,294 $ 51,085 $ 122,301 $ 90,747
=============== =============== =============== ===============
Revenues:
United States $ 599,065 $ 540,865 $ 1,779,462 $ 1,304,959
Foreign 71,660 41,739 169,931 97,810
--------------- --------------- --------------- ---------------
$ 670,725 $ 582,604 $ 1,949,393 $ 1,402,769
=============== =============== =============== ===============
Operating profit:
United States $ 30,343 $ 38,122 $ 85,166 $ 66,978
Foreign 14,951 12,963 37,135 23,769
--------------- --------------- --------------- ---------------
$ 45,294 $ 51,085 $ 122,301 $ 90,747
=============== =============== =============== ===============
<FN>
<F1> Primarily consists of Citizens Power, a subsidiary of the Company that
engages in electricity contract restructurings and electricity, gas and oil
trading.
</FN>
(6) Commitments and Contingencies
Environmental Claims
Environmental claims have been asserted against a subsidiary of the Company at
18 sites in the United States. Some of these claims are based on the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, and on similar state statutes. The majority of these sites are related
to activities of former subsidiaries of the Company.
The Company's policy is to accrue environmental cleanup-related costs of a
non-capital nature when those costs are believed to be probable and can be
reasonably estimated. The quantification of environmental exposures requires an
assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For certain sites, the Company also assesses the financial
capability of other potentially responsible parties and, where allegations are
based on tentative findings, the reasonableness of the Company's apportionment.
The Company has not anticipated any recoveries from insurance carriers or other
potentially responsible third parties in its Consolidated Balance Sheets. The
liabilities for environmental cleanup-related costs recorded in the Consolidated
Balance Sheet at December 31, 1999 were $56.3 million. This amount represents
those costs that the Company believes are probable and reasonably estimable. In
the event that future remediation expenditures are in excess of amounts accrued,
management does not anticipate that they will have a material adverse effect on
the results of operations or financial position of the Company.
Other
In addition, the Company at times becomes a party to claims, lawsuits,
arbitration proceedings and administrative procedures in the ordinary course of
business. Management believes that the ultimate resolution of pending or
threatened proceedings will not have a material adverse effect on the results of
operations or financial position of the Company.
(7) Supplemental Guarantor/Non-guarantor Financial Information
In accordance with the indentures governing the Senior Notes and Senior
Subordinated Notes, certain wholly-owned U.S. subsidiaries of the Company have
fully and unconditionally guaranteed the debt associated with the purchase on a
joint and several basis. Separate financial statements and other disclosures
concerning the Guarantor Subsidiaries are not presented because management
believes that such information is not material to investors. The following
condensed historical financial statement information is provided for such
Guarantor/Non-guarantor Subsidiaries.
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended December 31, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
Total revenues $ - $ 489,441 $ 183,302 $ (2,018) $ 670,725
Costs and expenses:
Operating costs and expenses - 424,044 120,026 (2,018) 542,052
Depreciation, depletion and amortization - 45,152 15,998 - 61,150
Selling and administrative expenses - 17,334 4,895 - 22,229
Interest expense 43,203 23,965 4,620 (22,243) 49,545
Interest income (17,100) (5,720) (241) 22,243 (818)
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (26,103) (15,334) 38,004 - (3,433)
Income tax provision (benefit) (9,683) (2,010) 12,935 - 1,242
Minority interests - - 5,395 - 5,395
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (16,420) $ (13,324) $ 19,674 $ - $ (10,070)
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Quarter Ended December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
Total revenues $ - $ 536,674 $ 45,930 $ - $ 582,604
Costs and expenses:
Operating costs and expenses - 431,694 28,348 - 460,042
Depreciation, depletion and amortization - 45,376 7,748 - 53,124
Selling and administrative expenses - 19,319 (966) - 18,353
Interest expense 47,437 (586) 518 - 47,369
Interest income (639) (3,431) (616) - (4,686)
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (46,798) 44,302 10,898 - 8,402
Income tax provision (benefit) (8,673) 7,526 4,431 - 3,284
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (38,125) $ 36,776 $ 6,467 $ - $ 5,118
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Nine Months Ended December 31, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
Total revenues $ - $ 1,494,084 $ 460,624 $ (5,315) $ 1,949,393
Costs and expenses:
Operating costs and expenses - 1,262,618 319,944 (5,315) 1,577,247
Depreciation, depletion and amortization - 139,997 46,452 - 186,449
Selling and administrative expenses - 51,165 12,231 - 63,396
Interest expense 130,949 48,684 12,903 (42,139) 150,397
Interest income (26,790) (17,831) (431) 42,139 (2,913)
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (104,159) 9,451 69,525 - (25,183)
Income tax provision (benefit) (30,790) 5,464 24,088 - (1,238)
Minority interests - - 8,516 - 8,516
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (73,369) $ 3,987 $ 36,921 $ - $ (32,461)
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Operations
For the Period Ended December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
Total revenues $ - $ 1,290,511 $ 112,258 $ - $ 1,402,769
Costs and expenses:
Operating costs and expenses - 1,064,734 72,589 - 1,137,323
Depreciation, depletion and amortization - 111,715 18,883 - 130,598
Selling and administrative expenses - 44,424 (323) - 44,101
Interest expense 116,698 4,939 1,578 - 123,215
Interest income (2,475) (9,248) (716) - (12,439)
--------------- --------------- --------------- --------------- ---------------
Income (loss) before income taxes (114,223) 73,947 20,247 - (20,029)
Income tax provision (benefit) (25,781) 12,476 8,117 - (5,188)
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ (88,442) $ 61,471 $ 12,130 $ - $ (14,841)
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets
As of December 31, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 76 $ 32,562 $ 54,855 $ - $ 87,493
Accounts receivable 1,823 260,280 103,912 (35,975) 330,040
Inventories - 179,282 56,375 - 235,657
Assets from power trading activities - - 790,669 - 790,669
Other current assets 185 44,970 24,366 - 69,521
--------------- --------------- --------------- --------------- ---------------
Total current assets 2,084 517,094 1,030,177 (35,975) 1,513,380
Property, plant, equipment and mine
development - at cost - 4,355,675 791,164 - 5,146,839
Less accumulated depreciation, depletion
and amortization - (288,047) (72,823) - (360,870)
--------------- --------------- --------------- --------------- ---------------
- 4,067,628 718,341 - 4,785,969
Investments and other assets 1,958,935 1,437,354 146,197 (3,161,804) 380,682
--------------- --------------- --------------- --------------- ---------------
Total assets $ 1,961,019 $ 6,022,076 $ 1,894,715 $ (3,197,779) $ 6,680,031
=============== =============== =============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 20,724 $ 21,354 $ 34,356 $ - $ 76,434
Payable to affiliates, net (287,368) 288,847 (1,479) - -
Income taxes payable - - 11,659 - 11,659
Liabilities from power trading activities - - 391,956 - 391,956
Accounts payable and accrued expenses 48,328 427,299 153,748 (35,975) 593,400
--------------- --------------- --------------- --------------- ---------------
Total current liabilities (218,316) 737,500 590,240 (35,975) 1,073,449
Long-term debt, less current maturities 1,707,670 179,652 542,748 - 2,430,070
Deferred income taxes - 697,432 59,995 - 757,427
Other noncurrent liabilities - 1,873,920 41,435 - 1,915,355
--------------- --------------- --------------- --------------- ---------------
Total liabilities 1,489,354 3,488,504 1,234,418 (35,975) 6,176,301
Minority interests - - 32,065 - 32,065
Stockholders' equity 471,665 2,533,572 628,232 (3,161,804) 471,665
--------------- --------------- --------------- --------------- ---------------
Total liabilities and stockholders'
equity $ 1,961,019 $ 6,022,076 $ 1,894,715 $ (3,197,779) $ 6,680,031
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets
As of March 31, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ - $ 130,861 $ 63,217 $ - $ 194,078
Accounts receivable - 220,287 107,770 (15,309) 312,748
Inventories - 202,749 47,148 - 249,897
Assets from power trading activities - - 1,037,300 - 1,037,300
Other current assets - 24,293 14,145 - 38,438
--------------- --------------- --------------- --------------- ---------------
Total current assets - 578,190 1,269,580 (15,309) 1,832,461
Property, plant, equipment and mine
development - at cost - 4,298,203 693,234 - 4,991,437
Less accumulated depreciation,
depletion and amortization - (158,295) (35,197) - (193,492)
--------------- --------------- --------------- --------------- ---------------
- 4,139,908 658,037 - 4,797,945
Investments and other assets 2,461,362 1,464,147 158,912 (3,690,896) 393,525
--------------- --------------- --------------- --------------- ---------------
Total assets $ 2,461,362 $ 6,182,245 $ 2,086,529 $ (3,706,205) $ 7,023,931
=============== =============== =============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 19,670 $ 21,666 $ 31,068 $ - $ 72,404
Payable to affiliates, net 152,364 (151,199) (1,165) - -
Income taxes payable - 229 7,079 - 7,308
Liabilities from power trading activities - - 638,062 - 638,062
Accounts payable and accrued expenses 56,562 440,331 146,150 (15,309) 627,734
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 228,596 311,027 821,194 (15,309) 1,345,508
Long-term debt, less current maturities 1,737,536 173,364 559,075 - 2,469,975
Deferred income taxes - 711,932 68,243 - 780,175
Other noncurrent liabilities - 1,886,337 22,796 - 1,909,133
--------------- --------------- --------------- --------------- ---------------
Total liabilities 1,966,132 3,082,660 1,471,308 (15,309) 6,504,791
Minority 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
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
For the Nine Months Ended December 31, 1999
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in) operating
activities $ (100,192) $ 70,345 $ 76,313 $ - $ 46,466
--------------- --------------- --------------- --------------- ---------------
Additions to property, plant, equipment
and mine development - (88,498) (35,532) - (124,030)
Acquisitions, net - - (44,203) - (44,203)
Contribution from minority interests - - 704 - 704
Proceeds from coal contract restructuring - 877 21,000 - 21,877
Proceeds from property and equipment disposals - 6,144 592 - 6,736
Proceeds from sale-leaseback transactions - 34,234 - - 34,234
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing activities - (47,243) (57,439) - (104,682)
--------------- --------------- --------------- --------------- ---------------
Change in short-term borrowings - - (5,640) - (5,640)
Proceeds from long term debt - - 11,547 - 11,547
Payments of long-term debt (30,000) (1,380) (20,884) - (52,264)
Dividends paid to minority interests - 9,933 (12,225) - (2,292)
Net change in due to/from affiliates 130,268 (129,954) (314) - -
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities 100,268 (121,401) (27,516) - (48,649)
Effect of exchange rate changes on
cash and equivalents - - 280 - 280
--------------- --------------- --------------- --------------- ---------------
Net increase (decrease) in cash and equivalents 76 (98,299) (8,362) - (106,585)
Cash and cash equivalents at beginning of period - 130,861 63,217 - 194,078
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents at end of period $ 76 $ 32,562 $ 54,855 $ - $ 87,493
=============== =============== =============== =============== ===============
P&L Coal Holdings Corporation
Unaudited Supplemental Condensed Statements of Consolidated Cash Flows
For the Period Ended December 31, 1998
(In thousands)
Parent Guarantor Non-guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
operating activities $ (129,339) $ 338,737 $ 9,453 $ - $ 218,851
--------------- --------------- --------------- --------------- ---------------
Additions to property, plant, equipment
and mine development - (80,369) (53,145) - (133,514)
Acquisitions, net (1,994,635) - - - (1,994,635)
Proceeds from coal contract restructuring - 3,889 - - 3,889
Proceeds from property and equipment disposals - 7,783 609 - 8,392
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing activities (1,994,635) (68,697) (52,536) - (2,115,868)
--------------- --------------- --------------- --------------- ---------------
Change in short-term borrowings - - (25,812) - (25,812)
Proceeds from long-term debt 1,817,390 - 72,710 - 1,890,100
Payments of long-term debt (158,583) (1,154) (19,291) - (179,028)
Capital contribution 398,000 - 82,000 - 480,000
Net change in due to/from affiliates 67,167 (57,947) (10,160) - (940)
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities 2,123,974 (59,101) 99,447 - 2,164,320
Effect of exchange rate changes on
cash and equivalents - - (197) - (197)
--------------- --------------- --------------- --------------- ---------------
Net increase in cash and cash equivalents - 210,939 56,167 - 267,106
Cash and cash equivalents at beginning of period - - - - -
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents at end of period $ - $ 210,939 $ 56,167 $ - $ 267,106
=============== =============== =============== =============== ===============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
For purposes of comparison to prior year operating results, the results of
operations and cash flows for the nine months ended December 31, 1998 reflect
the results of the Company from April 1 to December 31, 1998 (the Company
acquired the Predecessor Company on May 19, 1998 and prior to such date had no
separate operations) and the results of the Predecessor Company from April 1 to
May 19, 1998.
The results of operations and cash flows for the period ended December 31, 1999
may not be directly comparable to the other periods indicated as a result of the
effects of restatement of assets and liabilities to their estimated fair market
value in accordance with the application of purchase accounting pursuant to
Accounting Principles Board Opinion No. 16.
Quarter Ended Nine Months Ended
------------------------------- --------------------------------
December 31, December 31, December 31, December 31,
(In thousands) 1999 1998 1999 1998<F1>
--------------- --------------- --------------- ---------------
Revenues:
Sales $ 635,340 $ 546,620 $ 1,859,343 $ 1,606,427
Other revenues 35,385 35,984 90,050 88,750
--------------- --------------- --------------- ---------------
Total revenues 670,725 582,604 1,949,393 1,695,177
Operating costs and expenses 625,431 531,519 1,827,092 1,597,058
--------------- --------------- --------------- ---------------
Operating profit 45,294 51,085 122,301 98,119
Interest expense 49,545 47,369 150,397 127,437
Interest income (818) (4,686) (2,913) (14,106)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes (3,433) 8,402 (25,183) (15,212)
Income tax provision (benefit) 1,242 3,284 (1,238) (847)
Minority interests 5,395 - 8,516 -
--------------- --------------- --------------- ---------------
Net income (loss) $ (10,070) $ 5,118 $ (32,461) $ (14,365)
=============== =============== =============== ===============
Other Data:
EBITDA<F2> $ 106,444 $ 104,209 $ 308,750 $ 254,935
Cash provided by (used in):
Operating activities $ 46,466 $ 188,392
Investing activities (104,682) (2,135,116)
Financing activities (48,649) 2,187,857
Tons sold (In millions) 48.8 43.4 143.3 127.2
<FN>
<F1> Represents the combination of the results of operations for the period from
May 20, 1998 to December 31, 1998 with those of the Predecessor Company for
the period from April 1 to May 19, 1998.
<F2> EBITDA is defined as income before deducting net interest expense, income
taxes, minority interests and depreciation, depletion and amortization.
EBITDA has been reduced by costs associated with reclamation, retiree
health care and workers' compensation. EBITDA is not a substitute for
operating income, net income and cash flow from operating activities as
determined in accordance with generally accepted accounting principles as a
measure of profitability or liquidity. EBITDA is presented as additional
information because management believes it to be a useful indicator of the
Company's ability to meet debt service and capital expenditure
requirements. Because EBITDA is not calculated identically by all
companies, the presentation herein may not be comparable to other similarly
titled measures of other companies. The amounts presented include EBITDA
losses for Citizens Power of $3.4 million, $0.7 million, $6.6 million and
$0.3 million for the quarters ended December 31, 1999 and 1998 and the nine
months ended December 31, 1999 and 1998, respectively.
</FN>
Quarter Ended December 31, 1999
Sales. Sales for the quarter ended December 31, 1999 were $635.3 million, an
increase of $88.7 million, or 16.2%. Overall sales volume increased 12.4% to
48.8 million tons. The current quarter results include sales of 4.6 million tons
and $85.6 million from Black Beauty Coal Company (Black Beauty), which in the
prior year was accounted for under the equity method (and included as Other
Revenues). The Company increased its ownership interest in Black Beauty to 81.7%
effective January 1, 1999. Sales for the third quarter also increased $19.3
million as a result of the Moura Mine acquisition in Australia completed in
August 1999.
Excluding Black Beauty, sales in the U.S. decreased $27.8 million, mainly as
mild winter weather increased customer stockpiles, causing lower demand and
pricing in our Midwestern and Appalachian markets. Further declines were
attributable to operational difficulties at two eastern mines and the closure of
one mine and suspension of two mines during the current quarter. The operational
difficulties were primarily related to delays in longwall panel development and
adverse geological conditions. Excluding Moura, sales in Australia increased
$11.4 million for the quarter, mainly due to higher customer demand.
Other Revenues. Other revenues decreased $0.6 million as compared to the third
quarter of fiscal year 1999. In the current quarter, contract restructuring
gains increased $7.7 million as Black Beauty executed the buyout of a contract
to provide capacity to meet a new long-term coal supply agreement. The prior
year quarter included income from monetization of a long-term royalty agreement
of $3.9 million and joint venture equity income was lower due to the
consolidation of Black Beauty in the current year.
Operating Profit. Operating profit declined $5.8 million for the three-month
period ended December 31, 1999. Operating profit attributable to U.S. mining
locations decreased $2.3 million, mainly due to lower profits in Appalachia
($17.8 million) resulting from the weak market conditions and operating
difficulties discussed above, partially offset by the $7.7 million in higher
revenues from contract restructurings and the consolidation of Black Beauty
($4.2 million increase, excluding contract restructuring gains). In addition,
the higher royalty income in the prior year previously mentioned also
contributed to the variance.
Operating profit increased $2.0 million in Australia, mainly due to higher
demand and contributions from the recently acquired Moura mine. Citizens Power's
operating profit declined $2.7 million due mainly to the timing of closing asset
restructuring transactions in the current year.
Interest Expense. Interest expense increased $2.1 million, or 4.4%, to $49.5
million. This increase is due to the inclusion of Black Beauty's results in the
current year and higher short-term Australian borrowings to fund the Moura Mine
acquisition, partially offset by lower interest expense on the acquisition
borrowings due to prepayments and lower average borrowing costs.
Interest Income. Interest income for the three months ended December 31, 1999
was $0.8 million, a decrease of $3.9 million. This decrease is primarily due to
interest income associated with a prior year Federal tax refund, and higher cash
balances in the prior year in anticipation of the acquisition of the Black
Beauty controlling interest.
Income Taxes. For the quarter ended December 31, 1999, the Company had tax
expense of $1.2 million, and a pretax loss of $3.4 million, compared to tax
expense of $3.3 million and pretax income of $8.4 million in the prior year
quarter. The Company's consolidated tax position is impacted by the percentage
depletion tax deduction utilized by the Company and its subsidiaries that
creates an alternative minimum tax situation, and the positive contribution of
its Australian operations which are taxed at a higher rate than the U.S. On a
consolidated basis, the foreign tax expense exceeded the tax benefit recorded on
U.S. pretax losses.
Nine Months Ended December 31, 1999
Sales. Sales for the nine months ended December 31, 1999 were $1,859.3 million,
an increase of $252.9 million, or 15.7%, over the prior year. Overall sales
volume increased 12.7% to 143.3 million tons. The Black Beauty and Moura
acquisitions contributed $250.6 million and $27.1 million, respectively, in
sales for the nine-month period. Excluding Black Beauty, sales in the U.S.
declined $45.8 million, primarily due to declines in Appalachia ($50.0 million).
Appalachia was impacted by the mild winter weather, lower export demand and
pricing and reduced production volumes caused by operational difficulties. Sales
in the Midwest declined $12.4 million due to the closure and suspension of three
mines, while Powder River Basin sales have improved $19.2 million as a result of
higher demand and pricing. Excluding the Moura Mine acquisition, sales improved
$24.1 million in Australia due to higher customer demand.
Other Revenues. Other revenues were $90.1 million for the nine-month period, an
increase of $1.3 million over the prior year. The current year results include
$7.7 million in higher contract restructuring gains, partially offset by $4.4
million in lower revenues at Citizens Power due to the timing of asset
restructuring activities, and lower joint venture equity income due to the
consolidation of Black Beauty.
Operating Profit. Operating profit was $122.3 million, an increase of $24.2
million over the prior year. U.S. mining operating profit improved $23.2
million, including $16.7 million from the acquisition of Black Beauty. The
remainder of the increase in the U.S. primarily relates to higher productivity
and lower operating and reclamation costs at the Midwestern operations, higher
volumes and pricing in Powder River, and $7.7 million in higher gains on
contract restructurings, partially offset by operational difficulties and the
unfavorable market conditions in Appalachia discussed above, higher operating
costs and lower volumes in the Southwest region, lower coal royalty income due
to monetizations in the prior year and higher costs for past mining obligations
due mainly to a multiemployer benefit plan refund of $2.8 million in the prior
year that is non-recurring.
Operating profit improved $10.4 million in Australia, reflecting higher volumes,
lower than anticipated repair and maintenance expenses and contributions from
the new Bengalla and Moura mines. Citizens Power's operating profit declined
$6.3 million, primarily due to delays in the closing of asset restructuring
transactions.
Interest Expense. Interest expense increased $23.0 million for the nine-month
period, to $150.4 million, primarily because prior year results reflected
acquisition-related indebtedness only from the May 20, 1998 acquisition date
forward.
Interest Income. Interest income was $2.9 million for the nine months ended
December 31, 1999, a decrease of $11.2 million. The prior year results reflect
interest income from higher average cash balances, and interest from the Federal
tax refund discussed above.
Liquidity and Capital Resources
Net cash provided by operating activities was $46.5 million for the nine-month
period ended December 31, 1999, a decrease of $141.0 million. The prior year
results include the monetization of a long-term royalty agreement that resulted
in a prepayment to the Company of $135.9 million.
Excluding the effect of acquisitions, net cash used in investing activities
decreased $80.0 million compared to the prior nine-month period. This is mainly
the result of a decrease in capital expenditures amounting to $30.5 million, and
increases in proceeds from contract restructurings ($17.7 million), asset sales
($5.3 million) and sale-leaseback transactions ($25.8 million). The prior year
results include the acquisition of the Predecessor Company for approximately
$2.0 billion, while the current year results include the acquisition of the
Moura Mine in Australia for $30.2 million and the $14.0 million acquisition of
Catlin Coal Company (Catlin). The Catlin acquisition occurred in November 1999
and provides Black Beauty with a source of low sulfur coal located near the
plant of a customer that recently agreed to a new long-term coal supply
agreement. As of December 31, 1999, the Company had $120.9 million of committed
capital expenditures, primarily related to coal reserves and mining equipment.
It is anticipated these capital expenditures will be funded through available
cash and credit facilities. The Company has approximately $270 million of unused
borrowing capacity under its revolving credit agreements.
Net cash used in financing activities for the nine months ended December 31,
1999 was $48.6 million, compared to the prior year's proceeds of $2.2 billion.
The prior year results include the financing of the acquisition of the
Predecessor Company of $1.8 billion and the related equity contribution of
$480.0 million, while the current year results include borrowings to fund the
Moura and Catlin acquisitions net of a debt prepayment of $30.0 million and an
overall reduction in short-term borrowings. As of December 31, 1999, the Company
had total indebtedness of $2,506.5 million, consisting of the following:
(In millions)
Term loans under senior credit facilities $ 810.0
9.625% Senior Subordinated Notes due 2008 ("Senior
Subordinated Notes") 498.7
8.875% Senior Notes due 2008 ("Senior Notes") 398.9
Non-Recourse Debt (Citizens Power) 323.4
5.0% Subordinated Note (Peabody Holding Company) 197.8
Senior unsecured notes under various agreements (Black
Beauty Coal Company) 99.3
Project finance facility (Peabody Resources) 76.4
Bank loan facilities 49.6
Capital lease obligations 28.0
Other 24.4
-------------
$ 2,506.5
=============
The Senior Credit Facilities include a Revolving Credit Facility that provides
for aggregate borrowings of up to $150.0 million and letters of credit of up to
$330.0 million. The Company had no borrowings outstanding under the Revolving
Credit Facility during either period. Interest rates on the revolving loans
under the Revolving Credit Facility are based on the Base Rate (as defined in
the Senior Credit Facilities), or LIBOR (as defined in the Senior Credit
Facilities) at the Company's option. On October 1, 1998, the Company entered
into two interest rate swaps to fix the interest cost on $500 million of
long-term debt outstanding under the Term Loan Facility. The Company will pay a
fixed rate of approximately 7.0% on $300 million of such long-term debt for a
period of three years ending October 1, 2001, and on $200 million of such
long-term debt for two years ending October 1, 2000. The Revolving Credit
Facility commitment matures in fiscal year 2005.
The Revolving Credit Facility and related Term Loan Facility also contain
certain restrictions and limitations including, but not limited to, financial
covenants that will require the Company to maintain and achieve certain levels
of financial performance and limit the payment of cash dividends and similar
restricted payments. In addition, the Senior Credit Facilities prohibit the
Company from allowing its Restricted Subsidiaries (which include all Guarantors)
to create or otherwise cause any encumbrance or restriction on the ability of
any such Restricted Subsidiary to pay any dividends or make certain other
upstream payments subject to certain exceptions.
The indentures governing the Senior Notes and Senior Subordinated Notes permit
the Company and its Restricted Subsidiaries (which include all subsidiaries of
the Company except Citizens Power and its subsidiaries) to incur additional
indebtedness, including secured indebtedness, subject to certain limitations. In
addition, among other customary restrictive covenants, the indentures prohibit
the Company and its Restricted Subsidiaries from creating or otherwise causing
any encumbrance or restriction on the ability of any Restricted Subsidiary that
is not a Guarantor to pay dividends or to make certain other upstream payments
to the Company or any of its Restricted Subsidiaries (subject to certain
exceptions). The Company was in compliance with all of the restrictive covenants
of its loan agreements as of December 31, 1999.
Other
Mine Closure. In October 1999, the Company suspended operations at its Marissa
Operating Unit in Illinois. The Marissa Operating Unit, which shipped 4.4
million tons of coal in fiscal year 1999, had attempted to secure additional
business after its principal customer began shifting its supply to lower-sulfur
coal from the Company's Powder River operations. These efforts were
unsuccessful, and as a result the mine was closed in December 1999. The Company
does not anticipate a material adverse impact on its results of operations or
financial position from the mine closure.
Mine Suspensions. In addition, the Company suspended operations at its 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 to purchase coal from another
Peabody subsidiary, Black Beauty. The Company periodically evaluates the
possibility of suspending other mines due to market conditions. Such
suspensions, if any, are not expected to have a material adverse impact on the
Company's results of operations or financial condition.
Status of West Virginia Mountaintop Mining. On October 20, 1999, the U.S.
District Court for the Southern District of West Virginia issued a permanent
injunction against the West Virginia Department of Environmental Protection in a
mountaintop-mining lawsuit. As interpreted by the Director of the Department of
Environmental Protection, the injunction prohibits the Department from approving
any new permits that would authorize the placement of excess spoil in
intermittent and perennial streams for the primary purpose of waste (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. The Court of Appeals has not yet
set a briefing schedule for the appeal. The Company does not believe the court
order (which is currently being stayed) will have any immediate effect on its
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 the Company anticipates that similar legislation will
be introduced in 2000. The Company cannot predict whether any such legislation
will be passed by Congress in 2000.
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 the Company). The Company is evaluating the
requirements of this Statement and has 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.
The Company has not experienced any significant impact on its 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, the Company has not encountered any significant problems with third
parties such as its customers, suppliers, service providers and other business
partners. However, if these or other third parties with whom the Company
conducts business experience lingering Year 2000 Issues, the Company could
experience a material adverse impact on its results of operations and financial
position.
Forward Looking Statements. This quarterly report and certain press releases and
statements the Company makes from time to time include statements of the
Company's and management's expectations, intentions, plans and beliefs that
constitute "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and are intended to come within the safe harbor protection provided by those
sections. Forward looking statements involve risks and uncertainties, and a
variety of factors could cause actual results to differ materially from the
Company's current expectations, including but not limited to: coal and power
market conditions and fluctuations in the demand for coal as an energy source,
economic conditions, weather conditions, the continued availability of long-term
coal supply contracts, railroad performance, foreign currency translation,
changes in the government regulation of the mining industry, risks inherent to
mining, changes in the Company's leverage position, the ability to successfully
implement operating strategies, the impact of Year 2000 compliance by the
Company or those entities with which the Company does business and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to such forward
looking statements that may be made to reflect events or circumstances after the
date hereof, or thereof, as the case may be, or to reflect the occurrence of
anticipated events.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Navajo Nation
On June 18, 1999, The Navajo Nation served the Company's subsidiaries, Peabody
Holding Company, Inc., Peabody Coal Company and Peabody Western Coal Company,
with a complaint that had been filed in the U. S. District Court for the
District of Columbia. Other defendants in the litigation are two utilities, two
current employees and one former employee. The Navajo Nation has alleged sixteen
claims including civil Racketeer Influenced and Corrupt Organizations Act, or
RICO, claims, fraud and tortious interference with contractual relationships.
The plaintiff is seeking various remedies including actual damages of at least
$600 million which could be trebled under the RICO counts, punitive damages of
at least $1 billion, a determination that Peabody Western Coal Company's two
coal leases for the Kayenta and Black Mesa mines have terminated due to the
failure of a condition and a reformation of the two coal leases to adjust the
royalty rate to 20%. All defendants have filed a motion to dismiss the
complaint. The Company believes this matter will be resolved without a material
adverse effect on its financial condition or results of operations.
Minerals Management Service
The Minerals Management Service (MMS) issued a preliminary administrative
decision in August 1992, determining that a subsidiary of the Company,
subsequently merged into Powder River Coal Company, had underpaid royalties owed
to the federal government. On October 15, 1999, the Company signed a settlement
agreement with the federal government on all civil claims related to the
dispute. The Company agreed to pay $11.0 million in two installments, which was
charged against a previously established reserve.
Environmental Claims
Environmental claims have been asserted against a subsidiary of the Company at
18 sites in the United States. Some of these claims are based on the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, and on similar state statutes. The majority of these sites are related
to activities of former subsidiaries of the Company.
The Company's policy is to accrue environmental cleanup-related costs of a
non-capital nature when those costs are believed to be probable and can be
reasonably estimated. The quantification of environmental exposures requires an
assessment of many factors, including changing laws and regulations,
advancements in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site investigation,
preliminary findings and the length of time involved in remediation or
settlement. For certain sites, the Company also assesses the financial
capability of other potentially responsible parties and, where allegations are
based on tentative findings, the reasonableness of the Company's apportionment.
The Company has not anticipated any recoveries from insurance carriers or other
potentially responsible third parties in its Consolidated Balance Sheets. The
liabilities for environmental cleanup-related costs recorded in the Consolidated
Balance Sheet at December 31, 1999 were $56.3 million. This amount represents
those costs that the Company believes are probable and reasonably estimable. In
the event that future remediation expenditures are in excess of amounts accrued,
management does not anticipate that they will have a material adverse effect on
the results of operations or financial position of the Company.
Other
In addition, the Company at times becomes a party to claims, lawsuits,
arbitration proceedings and administrative procedures in the ordinary course of
business. Management believes that the ultimate resolution of pending or
threatened proceedings will not have a material adverse effect on the results of
operations or financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See the Exhibit Index at page 21 of this report.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
P&L COAL HOLDINGS CORPORATION
Date: February 11, 2000 By: /s/ RICHARD A. NAVARRE
-------------------------
Richard A. Navarre
Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit
No. Description of Exhibit
------- ----------------------
3.1 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).
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 Gurantors (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 Gurantors (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 Gurantors (as defined in the Senior
Subordinated Note Indenture) and State Street Bank and Trust
Company, as Senior Subordinated Note Trustee.
27 Financial Data Schedule (filed electronically with the SEC only).