424B3 1 0001.txt Filed Pursuant to Rule 424(b)(3) File Nos. 333-59073 333-59073-01 to 333-59073-51 P&L COAL HOLDINGS CORPORATION SUPPLEMENT NO. 2 TO MARKET-MAKING PROSPECTUS DATED AUGUST 11, 2000 THE DATE OF THIS SUPPLEMENT IS NOVEMBER 14, 2000 ON NOVEMBER 14, 2000, P&L COAL HOLDINGS CORPORATION FILED THE ATTACHED REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 63101-1826 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (314) 342-3400 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No P&L COAL HOLDINGS CORPORATION UNAUDITED STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (In thousands) Quarter Ended Six Months Ended September 30, September 30, 2000 1999 2000 1999 --------------- --------------- --------------- --------------- REVENUES Sales $ 654,164 $ 660,429 $ 1,312,817 $ 1,302,001 Other revenues 23,427 17,914 37,795 40,742 --------------- --------------- --------------- --------------- Total revenues 677,591 678,343 1,350,612 1,342,743 COSTS AND EXPENSES Operating costs and expenses 558,405 550,641 1,108,963 1,086,185 Depreciation, depletion and amortization 60,809 62,084 121,276 127,667 Selling and administrative expenses 20,626 21,679 43,429 43,136 Net gain on property and equipment disposals (1,609) (2,764) (3,373) (2,915) --------------- --------------- --------------- --------------- OPERATING PROFIT 39,360 46,703 80,317 88,670 Interest expense 51,456 51,949 102,926 102,571 Interest income (1,194) (1,065) (5,754) (2,058) --------------- --------------- --------------- --------------- LOSS BEFORE INCOME TAXES AND MINORITY INTERESTS (10,902) (4,181) (16,855) (11,843) Income tax provision (benefit) (1,113) 150 (777) (983) Minority interests 1,444 2,726 3,625 5,624 --------------- --------------- --------------- --------------- LOSS FROM CONTINUING OPERATIONS (11,233) (7,057) (19,703) (16,484) Discontinued operations: Loss from discontinued operations, net of income tax benefit of $346 and $1,497, respectively - (1,036) - (4,489) Gain from disposal of discontinued operations, net of income tax provision of $1,060 and $4,240, respectively 2,940 - 11,760 - --------------- --------------- --------------- --------------- NET LOSS $ (8,293) $ (8,093) $ (7,943) $ (20,973) =============== =============== =============== =============== See accompanying notes to unaudited condensed consolidated financial statements. P&L COAL HOLDINGS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share information) (Unaudited) September 30, March 31, 2000 2000 --------------- --------------- ASSETS Current assets Cash and cash equivalents $ 55,434 $ 65,618 Accounts receivable, less allowance for doubtful accounts of $1,213 and $1,233, respectively 151,756 153,021 Materials and supplies 48,737 48,809 Coal inventory 174,150 193,341 Assets from coal and emission allowance trading activities 131,481 78,695 Deferred income taxes 49,869 49,869 Other current assets 41,101 43,192 --------------- --------------- Total current assets 652,528 632,545 Property, plant, equipment and mine development, net of accumulated depreciation, depletion and amortization of $507,754 and $411,270 respectively 4,718,339 4,815,510 Net assets of discontinued operations 15,510 90,000 Investments and other assets 277,216 288,794 --------------- --------------- Total assets $ 5,663,593 $ 5,826,849 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings and current maturities of long-term debt $ 58,637 $ 57,977 Income taxes payable 8,837 13,594 Liabilities from coal and emission allowance trading activities 129,059 75,883 Accounts payable and accrued expenses 546,604 573,137 --------------- --------------- Total current liabilities 743,137 720,591 Long-term debt, less current maturities 1,904,360 2,018,189 Deferred income taxes 613,146 625,124 Accrued reclamation and other environmental liabilities 477,129 502,092 Workers' compensation obligations 212,605 212,260 Accrued postretirement benefit costs 979,388 971,186 Obligation to industry fund 64,458 64,737 Other noncurrent liabilities 160,808 162,979 --------------- --------------- Total liabilities 5,155,031 5,277,158 Minority interests 41,986 41,265 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, 802,799 shares issued and 740,943 outstanding as of September 30, 2000; 3,000,000 shares authorized, 746,329 shares issued and 684,473 shares outstanding as of March 31, 2000 8 7 Additional paid-in capital 485,436 485,037 Employee stock loans (2,522) (2,391) Accumulated other comprehensive loss (46,843) (12,667) Retained earnings 30,476 38,419 Treasury shares, at cost: 61,856 Class B shares (219) (219) --------------- --------------- Total stockholders' equity 466,576 508,426 --------------- --------------- Total liabilities and stockholders' equity $ 5,663,593 $ 5,826,849 =============== =============== See accompanying notes to unaudited condensed consolidated financial statements. P&L COAL HOLDINGS CORPORATION UNAUDITED STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (In thousands) Six Months Ended September 30, 2000 1999 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (7,943) $ (20,973) Loss from discontinued operations - 4,489 Gain from disposal of discontinued operations (11,760) - --------------- --------------- Loss from continuing operations (19,703) (16,484) Adjustments to reconcile loss from continuing operations to net cash provided by continuing operations: Depreciation, depletion and amortization 121,276 127,667 Deferred income taxes (10,760) (11,908) Amortization of debt discount and debt issuance costs 8,497 8,362 Net gain on property and equipment disposals (3,373) (2,915) Minority interests 3,625 5,624 Stock compensation 399 - Changes in current assets and liabilities: Sale of accounts receivable 25,000 - Accounts receivable, net of sale (26,152) (7,901) Materials and supplies (506) 1,142 Coal inventory 15,531 11,201 Net assets from coal and emission allowance trading activities 390 (1,891) Other current assets (433) (12,697) Accounts payable and accrued expenses (18,645) (18,675) Income taxes payable (3,023) (695) Accrued reclamation and related liabilities (22,036) (8,990) Workers' compensation obligations 345 1,694 Accrued postretirement benefit costs 8,202 9,422 Obligation to industry fund (279) (840) Other, net 3,067 (5,353) --------------- --------------- Net cash provided by continuing operations 81,422 76,763 Net cash used in discontinued operations - (3,185) --------------- --------------- Net cash provided by operating activities 81,422 73,578 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant, equipment and mine development (97,028) (96,244) Acquisition, net - (30,239) Additions to advance mining royalties (8,879) (10,804) Proceeds from property and equipment disposals 7,614 4,465 Proceeds from sale-leaseback transactions 35,089 24,245 --------------- --------------- Net cash used in continuing operations (63,204) (108,577) Net cash provided by discontinued operations 90,074 622 --------------- --------------- Net cash provided by (used in) investing activities 26,870 (107,955) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Change in short-term borrowings 4,348 5,205 Proceeds from long-term debt 5,013 12,317 Payments of long-term debt (123,813) (35,107) Distributions to minority interests (2,904) (1,434) --------------- --------------- Net cash used in continuing operations (117,356) (19,019) Net cash used in discontinued operations - (8,731) --------------- --------------- Net cash used in financing activities (117,356) (27,750) Effect of exchange rate changes on cash and cash equivalents (1,120) 172 --------------- --------------- Net decrease in cash and cash equivalents (10,184) (61,955) Cash and cash equivalents at beginning of period 65,618 194,078 --------------- --------------- Cash and cash equivalents at end of period $ 55,434 $ 132,123 =============== =============== 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"), and Peabody Resources Holdings Pty Ltd. ("Peabody Resources"), an Australian company. The accompanying condensed consolidated financial statements as of and for the quarter and six months ended September 30, 2000 and 1999, and the notes thereto, are unaudited. However, in the opinion of management, these financial statements reflect all adjustments necessary for a fair presentation of the results of the periods presented. The results of operations for the quarter and six months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. (2) Comprehensive Income The following table sets forth the components of comprehensive loss for the quarter and six months ended September 30, 2000 and 1999 (in thousands): Quarter Ended Six Months Ended September 30, September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- Net loss $ (8,293) $ (8,093) $ (7,943) $ (20,973) Foreign currency translation adjustment (29,522) (5,718) (34,176) 6,750 --------------- --------------- --------------- --------------- Comprehensive loss $ (37,815) $ (13,811) $ (42,119) $ (14,223) =============== =============== =============== =============== (3) Business Segments The Company's industry and geographic data for continuing operations were as follows (in thousands): Quarter Ended Six Months Ended September 30, September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- Revenues: U.S. Mining $ 604,876 $ 621,672 $ 1,208,379 $ 1,244,408 Non U.S. Mining 72,715 56,671 142,027 98,271 Other - - 206 64 --------------- --------------- --------------- --------------- $ 677,591 $ 678,343 $ 1,350,612 $ 1,342,743 =============== =============== =============== =============== Operating profit (loss): U.S. Mining $ 18,564 $ 35,126 $ 46,687 $ 67,113 Non U.S. Mining 12,827 11,846 25,476 22,184 Other 7,969 (269) 8,154 (627) --------------- --------------- --------------- --------------- $ 39,360 $ 46,703 $ 80,317 $ 88,670 =============== =============== =============== =============== Revenues: United States $ 604,876 $ 621,672 $ 1,208,585 $ 1,244,472 Non U.S. 72,715 56,671 142,027 98,271 --------------- --------------- --------------- --------------- $ 677,591 $ 678,343 $ 1,350,612 $ 1,342,743 =============== =============== =============== =============== Operating profit: United States $ 26,533 $ 34,857 $ 54,841 $ 66,486 Non U.S. 12,827 11,846 25,476 22,184 --------------- --------------- --------------- --------------- $ 39,360 $ 46,703 $ 80,317 $ 88,670 =============== =============== =============== =============== (4) Commitments and Contingencies Environmental Claims Environmental claims have been asserted against a subsidiary of the Company at 19 sites in the United States. Some of these claims are based on the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and on similar state statutes. The majority of these sites are related to activities of former subsidiaries of the Company. The Company's policy is to accrue environmental cleanup-related costs of a noncapital nature when those costs are believed to be probable and can be reasonably estimated. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advancements in environmental technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings and the length of time involved in remediation or settlement. For certain sites, the Company also assesses the financial capability of other potentially responsible parties and, where allegations are based on tentative findings, the reasonableness of the Company's apportionment. The Company has not anticipated any recoveries from insurance carriers or other potentially responsible third parties in its Consolidated Balance Sheets. The liabilities for environmental cleanup-related costs recorded in the Consolidated Balance Sheet at September 30, 2000 were $48.8 million. This amount represents those costs that the Company believes are probable and reasonably estimable. In the event that future remediation expenditures are in excess of amounts accrued, management does not anticipate that they will have a material adverse effect on the financial position, results of operations or liquidity of the Company. Other In addition, the Company at times becomes a party to claims, lawsuits, arbitration proceedings and administrative procedures in the ordinary course of business. Management believes that the ultimate resolution of pending or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company. (5) Discontinued Operations In August 2000, the Company completed the sale of Citizens Power to Edison Mission Energy, along with the monetization of a portion of Citizens' interests in certain power contract assets. Net proceeds of $90.1 million received from the sale were used to repay long-term debt. As of September 30, 2000 the Company's investment in discontinued operations was $15.5 million, which represents the estimated net proceeds from the monetization of the Company's remaining interest in power contracts to be sold as part of the final wind-down of the subsidiary's operations. (6) 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 Senior Notes and Senior Subordinated Notes 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 September 30, 2000 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- Total revenues $ - $ 481,373 $ 203,010 $ (6,792) $ 677,591 Costs and expenses: Operating costs and expenses - 406,676 158,521 (6,792) 558,405 Depreciation, depletion and amortization - 43,509 17,300 - 60,809 Selling and administrative expenses 148 16,367 4,111 - 20,626 Net gain on property and equipment disposals - (1,605) (4) - (1,609) Interest expense 40,634 22,607 5,315 (17,100) 51,456 Interest income (17,100) (1,012) (182) 17,100 (1,194) --------------- --------------- --------------- --------------- --------------- Income (loss) before income taxes and minority interests (23,682) (5,169) 17,949 - (10,902) Income tax provision (benefit) (6,271) (1,069) 6,227 - (1,113) Minority interests - - 1,444 - 1,444 --------------- --------------- --------------- --------------- --------------- Income (loss) from continuing operations (17,411) (4,100) 10,278 - (11,233) Discontinued operations: Gain from disposal of discontinued operations, net of income taxes - 2,940 - - 2,940 --------------- --------------- --------------- --------------- --------------- Net income (loss) $ (17,411) $ (1,160) $ 10,278 $ - $ (8,293) =============== =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Statements of Consolidated Operations For the Quarter Ended September 30, 1999 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- Total revenues $ - $ 500,417 $ 179,717 $ (1,791) $ 678,343 Costs and expenses: Operating costs and expenses - 421,115 131,317 (1,791) 550,641 Depreciation, depletion and amortization - 44,792 17,292 - 62,084 Selling and administrative expenses (38) 17,124 4,593 - 21,679 Net gain on property and equipment disposals - (2,730) (34) - (2,764) Interest expense 33,862 12,197 5,890 - 51,949 Interest income - (957) (108) - (1,065) --------------- --------------- --------------- --------------- --------------- Income (loss) before income taxes and minority interests (33,824) 8,876 20,767 - (4,181) Income tax provision (benefit) (10,224) 3,206 7,168 - 150 Minority interests - - 2,726 - 2,726 --------------- --------------- --------------- --------------- --------------- Income (loss) from continuing operations (23,600) 5,670 10,873 - (7,057) Discontinued operations: Loss from discontinued operations, net of income taxes - - (1,036) - (1,036) --------------- --------------- --------------- --------------- --------------- Net income (loss) $ (23,600) $ 5,670 $ 9,837 $ - $ (8,093) =============== =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Statements of Consolidated Operations For the Six Months Ended September 30, 2000 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- Total revenues $ - $ 962,337 $ 405,348 $ (17,073) $ 1,350,612 Costs and expenses: Operating costs and expenses - 812,800 313,236 (17,073) 1,108,963 Depreciation, depletion and amortization - 86,437 34,839 - 121,276 Selling and administrative expenses 256 33,743 9,430 - 43,429 Net gain on property and equipment disposals - (2,841) (532) - (3,373) Interest expense 82,668 44,862 9,596 (34,200) 102,926 Interest income (34,211) (5,396) (347) 34,200 (5,754) --------------- --------------- --------------- --------------- --------------- Income (loss) before income taxes and minority interests (48,713) (7,268) 39,126 - (16,855) Income tax provision (benefit) (12,554) (1,595) 13,372 - (777) Minority interests - - 3,625 - 3,625 --------------- --------------- --------------- --------------- --------------- Income (loss) from continuing operations (36,159) (5,673) 22,129 - (19,703) Discontinued operations: Gain from disposal of discontinued operations, net of income taxes 88 11,672 - - 11,760 --------------- --------------- --------------- --------------- --------------- Net income (loss) $ (36,071) $ 5,999 $ 22,129 $ - $ (7,943) =============== =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Statements of Consolidated Operations For the Six Months Ended September 30, 1999 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- Total revenues $ - $ 1,004,646 $ 341,394 $ (3,297) $ 1,342,743 Costs and expenses: Operating costs and expenses - 841,430 248,052 (3,297) 1,086,185 Depreciation, depletion and amortization - 94,845 32,822 - 127,667 Selling and administrative expenses - 33,832 9,304 - 43,136 Net gain on property and equipment disposals - (2,891) (24) - (2,915) Interest expense 78,056 14,513 10,002 - 102,571 Interest income - (1,868) (190) - (2,058) --------------- --------------- --------------- --------------- --------------- Income (loss) before income taxes and minority interests (78,056) 24,785 41,428 - (11,843) Income tax provision (benefit) (21,236) 6,431 13,822 - (983) Minority interests - - 5,624 - 5,624 --------------- --------------- --------------- --------------- --------------- Income (loss) from continuing operations (56,820) 18,354 21,982 - (16,484) Discontinued operations: Loss from discontinued operations, net of income taxes - - (4,489) - (4,489) --------------- --------------- --------------- --------------- --------------- Net income (loss) $ (56,820) $ 18,354 $ 17,493 $ - $ (20,973) =============== =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Consolidated Balance Sheets As of September 30, 2000 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- ASSETS Current assets Cash and cash equivalents $ 28 $ 42,961 $ 12,445 $ - $ 55,434 Accounts receivable 1,956 87,569 119,871 (57,640) 151,756 Inventories - 177,126 45,761 - 222,887 Assets from coal and emission allowance trading activities - 131,481 - - 131,481 Deferred income taxes - 49,869 - - 49,869 Other current assets 1,439 9,516 30,146 - 41,101 --------------- --------------- --------------- --------------- --------------- Total current assets 3,423 498,522 208,223 (57,640) 652,528 Property, plant, equipment and mine development - at cost - 4,378,516 847,577 - 5,226,093 Less accumulated depreciation, depletion and amortization - (400,796) (106,958) - (507,754) --------------- --------------- --------------- --------------- --------------- - 3,977,720 740,619 - 4,718,339 Net assets of discontinued operations - 15,510 - - 15,510 Investments and other assets 2,028,592 1,262,951 257,849 (3,272,176) 277,216 --------------- --------------- --------------- --------------- --------------- Total assets $ 2,032,015 $ 5,754,703 $ 1,206,691 $ (3,329,816) $ 5,663,593 =============== =============== =============== =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings and current maturities of long-term debt $ - $ 20,401 $ 38,236 $ - $ 58,637 Payable to affiliates, net (5,926) 9,079 (3,153) - - Income taxes payable - 486 8,351 - 8,837 Liabilities from coal and emission allowance trading activities - 129,059 - - 129,059 Accounts payable and accrued expenses 93,551 404,474 106,219 (57,640) 546,604 --------------- --------------- --------------- --------------- --------------- Total current liabilities 87,625 563,499 149,653 (57,640) 743,137 Long-term debt, less current maturities 1,477,814 166,479 260,067 - 1,904,360 Deferred income taxes - 562,814 50,332 - 613,146 Other noncurrent liabilities - 1,854,099 40,289 - 1,894,388 --------------- --------------- --------------- --------------- --------------- Total liabilities 1,565,439 3,146,891 500,341 (57,640) 5,155,031 Minority interests - - 41,986 - 41,986 Stockholders' equity 466,576 2,607,812 664,364 (3,272,176) 466,576 --------------- --------------- --------------- --------------- --------------- Total liabilities and stockholders' equity $ 2,032,015 $ 5,754,703 $ 1,206,691 $ (3,329,816) $ 5,663,593 =============== =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Consolidated Balance Sheets As of March 31, 2000 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- 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 =============== =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Statements of Consolidated Cash Flows For the Six Months Ended September 30, 2000 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Consolidated --------------- --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities $ 16,216 $ 39,271 $ 25,935 $ 81,422 --------------- --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant, equipment and mine development - (49,295) (47,733) (97,028) Additions to advance mining royalties - (2,766) (6,113) (8,879) Proceeds from property and equipment disposals - 3,625 3,989 7,614 Proceeds from sale-leaseback transactions - 28,800 6,289 35,089 --------------- --------------- --------------- --------------- Net cash used in continuing operations - (19,636) (43,568) (63,204) Net cash provided by discontinued operations 604 89,470 - 90,074 --------------- --------------- --------------- --------------- Net cash provided by (used in) investing activities 604 69,834 (43,568) 26,870 --------------- --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Change in short-term borrowings - - 4,348 4,348 Proceeds from long-term debt - - 5,013 5,013 Payments of long-term debt (110,000) (931) (12,882) (123,813) Distributions to minority interests - - (2,904) (2,904) Net change in due to/from affiliates 92,861 (111,144) 18,283 - --------------- --------------- --------------- --------------- Net cash provided by (used in) financing activities (17,139) (112,075) 11,858 (117,356) Effect of exchange rate changes on cash and equivalents - - (1,120) (1,120) --------------- --------------- --------------- --------------- Net decrease in cash and cash equivalents (319) (2,970) (6,895) (10,184) Cash and cash equivalents at beginning of period 347 45,931 19,340 65,618 --------------- --------------- --------------- --------------- Cash and cash equivalents at end of period $ 28 $ 42,961 $ 12,445 $ 55,434 =============== =============== =============== =============== P&L Coal Holdings Corporation Unaudited Supplemental Condensed Statements of Consolidated Cash Flows For the Six Months Ended September 30, 1999 (In thousands) Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Consolidated --------------- --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by (used in) continuing operations $ (49,895) $ 65,077 $ 61,581 $ 76,763 Net cash used in discontinued operations - - (3,185) (3,185) --------------- --------------- --------------- --------------- Net cash provided by (used in) operating activities (49,895) 65,077 58,396 73,578 --------------- --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant, equipment and mine development - (70,630) (25,614) (96,244) Acquisition, net - - (30,239) (30,239) Additions to advance mining royalties - (5,186) (5,618) (10,804) Proceeds from property and equipment disposals - 3,773 692 4,465 Proceeds from sale-leaseback transactions - 24,245 - 24,245 --------------- --------------- --------------- --------------- Net cash used in continuing operations - (47,798) (60,779) (108,577) Net cash provided by discontinued operations - - 622 622 --------------- --------------- --------------- --------------- Net cash used in investing activities - (47,798) (60,157) (107,955) --------------- --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Change in short-term borrowings - - 5,205 5,205 Proceeds from long-term debt - - 12,317 12,317 Payments of long-term debt (30,000) (59) (5,048) (35,107) Distributions to minority interests - - (1,434) (1,434) Net change in due to/from affiliates 79,915 (76,570) (3,345) - --------------- --------------- --------------- --------------- Net cash provided by (used in) continuing operations 49,915 (76,629) 7,695 (19,019) Net cash used in discontinued operations - - (8,731) (8,731) --------------- --------------- --------------- --------------- Net cash provided by (used in) financing activities 49,915 (76,629) (1,036) (27,750) Effect of exchange rate changes on cash and equivalents - - 172 172 --------------- --------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 20 (59,350) (2,625) (61,955) Cash and cash equivalents at beginning of period - 130,861 63,217 194,078 --------------- --------------- --------------- --------------- Cash and cash equivalents at end of period $ 20 $ 71,511 $ 60,592 $ 132,123 =============== =============== =============== =============== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Quarter Ended Six Months Ended September 30, September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- (Dollars in thousands) Revenues: Sales $ 654,164 $ 660,429 $ 1,312,817 $ 1,302,001 Other revenues 23,427 17,914 37,795 40,742 --------------- --------------- --------------- --------------- Total revenues 677,591 678,343 1,350,612 1,342,743 Operating costs and expenses 638,231 631,640 1,270,295 1,254,073 --------------- --------------- --------------- --------------- Operating profit 39,360 46,703 80,317 88,670 Interest expense 51,456 51,949 102,926 102,571 Interest income (1,194) (1,065) (5,754) (2,058) --------------- --------------- --------------- --------------- Loss before income taxes and minority interests (10,902) (4,181) (16,855) (11,843) Income tax provision (benefit) (1,113) 150 (777) (983) Minority interests 1,444 2,726 3,625 5,624 --------------- --------------- --------------- --------------- Loss from continuing operations (11,233) (7,057) (19,703) (16,484) Discontinued operations: Gain (loss) from discontinued operations, net of income tax 2,940 (1,036) 11,760 (4,489) --------------- --------------- --------------- --------------- Net loss $ (8,293) $ (8,093) $ (7,943) $ (20,973) =============== =============== =============== =============== Other Data: Tons sold (In millions) 49.8 48.3 96.9 95.1 =============== =============== =============== =============== EBITDA $ 100,169 $ 108,787 $ 201,593 $ 216,337 =============== =============== =============== =============== Cash provided by (used in): Operating activities $ 81,422 $ 73,578 Investing activities 26,870 (107,955) Financing activities (117,356) (27,750) [FN] EBITDA is defined as income from continuing operations 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. Quarter ended September 30, 2000 Sales. Sales for the quarter ended September 30, 2000 were $654.2 million, a decrease of $6.3 million, or 0.9% from the prior year quarter. Overall sales volume was 49.8 million tons for the current year quarter, compared to 48.3 million tons for the prior year quarter. Sales from broker and trading activities increased $20.6 million, due to a continued increase in trading and brokerage volume. Sales in the Powder River region increased $15.4 million, on improved pricing and slightly higher volume over the prior year. Sales from Black Beauty increased $6.1 million, due to the transition of sourcing for new contracts from other Peabody mines to the 81.7%-owned joint venture, partially offsetting the sales decrease in the Midwest region of $56.1 million from the closure and suspension of three mines during the third quarter of the prior fiscal year. Sales in Australia increased $5.5 million over the prior year, due to the contribution of the Moura Mine ($9.1 million increase) acquired in August 1999, the ramp-up of the Bengalla Mine ($8.9 million increase) that began production in April 1999 and continued strong demand for steam and metallurgical coal in the Asia Pacific region, partially offset by unfavorable foreign currency translation. Other Revenues. Other revenues increased $5.5 million as compared to the second quarter of fiscal year 2000, due mainly to higher revenues from engineering services for underground mining projects in Australia. Operating Profit. Operating profit was $39.4 million for the quarter ended September 30, 2000, a decrease of $7.3 million, or 15.7% compared to the prior year. A significant impact on current year results was the 63% per-gallon increase in fuel prices, which decreased operating profit by $6.1 million during the quarter. Operating profit in the Midwest declined $17.6 million as compared to the prior year, due to the closure and suspension of three mines in the prior year. Appalachia's operating profit declined $6.0 million, as prior year results included a $4.6 million credit for Black Lung excise tax overpayments on export shipments in prior periods. In addition, lower pricing due to the expiration of a high-priced contract was partially offset by increased volume in Appalachia from higher production in the current year. Black Beauty's operating profit was $2.6 million below the prior year, due mainly to production difficulties resulting from poor mining conditions at three mines, partially offset by the contribution of two new mines that opened in November 1999 and April 2000, respectively. Partially offsetting these declines was an increase in the Powder River region ($8.9 million) due to higher demand-related volume and higher per-ton prices. Additionally, the Southwest region improved $7.7 million due mainly to lower costs as a result of higher production in the current year, as the prior year production levels were lower in order to reduce stockpile levels. Finally, the Company reduced its liability for environmental cleanup-related costs by $8.0 million based upon favorable experience. Income Taxes. For the quarter ended September 30, 2000, the Company had an income tax benefit of $1.1 million and a pretax loss of $10.9 million, compared to income tax expense of $0.2 million and a pretax loss of $4.2 million in the prior year. 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 that is taxed at a higher rate than the U.S. operations. On a consolidated basis, the Australian income tax expense exceeded the income tax benefit recorded on U.S. pretax losses in the prior year. Income (Loss) from Discontinued Operations. During the quarter ended September 30, 2000 the Company recorded a $3.0 million adjustment, net of income taxes, to reduce its estimated net loss from the sale of Citizens Power. This adjustment reflected higher estimated proceeds from the monetization of Citizens' power contracts as part of the wind-down of Citizens' operations. Six Months ended September 30, 2000 Sales. Sales increased $10.8 million to $1,312.8 million for the six months ended September 30, 2000. Overall sales volume was 96.9 million tons, compared to 95.1 million tons in the prior year period. Sales in Australia increased $31.5 million over the prior year, due to the contribution of the Moura Mine ($26.9 million increase) acquired in August 1999, the ramp-up of the Bengalla Mine ($14.4 million increase) that began production in April 1999 and continued strong demand for steam and metallurgical coal in the Asia Pacific region, partially offset by unfavorable foreign currency translation. Sales in the Powder River region increased $21.6 million, mainly due to improved pricing in the Powder River Basin. Black Beauty's sales increased $18.9 million, due to the higher volumes on contracts transitioned from other Peabody mines, partially offsetting the sales decrease in the Midwest of $107.0 million from the closure and suspension of three mines during the prior fiscal year. The Southwest region's sales improved $7.1 million, due to strong customer demand as a result of decreased availability of hydroelectric power in the region, while sales in Appalachia improved by $10.9 million as a result of improved performance at the region's longwall operations. Finally, sales from broker and trading activities increased $27.8 million, reflecting a continued increase in trading and brokerage volume. Other Revenues. Other revenues for the six months ended September 30, 2000 were $37.8 million, a decrease of $2.9 million compared to the prior year period. Lower coal royalty income in the current year was only partially offset by an increase in engineering services for underground mining projects in Australia. Depreciation, Depletion and Amortization. For the six months ended September 30, 2000, depreciation, depletion and amortization was $121.3 million, a decrease of $6.4 million compared to the prior year period. The prior year period included $6.0 million of additional depletion associated with a new coal royalty agreement in June 1999. Operating Profit. For the six-month period, operating profit was $80.3 million, a decrease of $8.4 million from the prior year period. The negative impact of a 55% per-gallon increase in fuel prices was $10.9 million for the six-month period. At the U.S. mining operations, operating profit declined $31.8 million mainly due to a decrease in the Midwest region of $30.1 million from the closure and suspension of three mines in the prior year. In addition, Black Beauty's operating profit decreased $1.9 million due to the operating difficulties resulting from poor geologic conditions. Appalachia's operating profit decreased $4.6 million from lower average pricing due to contract expirations and poor mining conditions at certain underground operations, partially offset by improved performance at the region's longwall operations. Operating profit at Powder River region increased $11.2 million due to demand-related volume and higher average pricing. In the Southwest region, an increase of $9.5 million was realized as a result of higher sales volumes and improved productivity in the current year. Australia's operating profit increased $6.3 million, mainly due to higher volumes in the current year, partially offset by a $3.0 million decline due to unfavorable exchange rate movements. The current year results also include a decrease in operating costs for a $8.0 million reduction in its liabilities for environmental cleanup-related costs discussed above, and $9.1 million lower costs related to Black Lung excise tax refund credits on export shipments. Beginning in 1997, the Company filed for refund of these taxes on the basis that the tax was unconstitutional. In May 2000, the Internal Revenue Service issued guidelines for the refund of these taxes. The Company has filed a claim and expects to receive a refund by the end of the fiscal year. Interest Income. Interest income increased $3.7 million to $5.8 million for the six months ended September 30, 2000 as a result of the interest recorded in the current year associated with the Black Lung excise tax refunds. Income Taxes. For the six months ended September 30, 2000, the Company had an effective income tax rate of 4.6%, compared to an effective income tax rate of 8.3% in the prior year. The decline in the effective income tax rate is due to the higher profitability of the Australian operations in the current year. Income (Loss) from Discontinued Operations. During the six-month period ended September 30, 2000 the Company reduced its estimated net loss from the sale of Citizens Power by $11.8 million, net of income taxes. This reduction reflected a decrease in the estimated operating losses of Citizens Power during the disposal period due to higher income from electricity trading activities driven by increased volatility and prices for electricity in the western U.S. power markets during the first quarter ($8.8 million) and higher estimated proceeds from the monetization of power contracts as part of the wind-down of Citizens' operations ($3.0 million). Liquidity and Capital Resources Net cash provided by operating activities increased $7.8 million to $81.4 million for the six months ended September 30, 2000, primarily due to a net increase in working capital of $21.7 million. The Company added $25.0 million to its securitization program in the first quarter of the fiscal year, bringing the total amount of accounts receivable included in the securitization program to $125.0 million. Net cash provided by investing activities was $26.9 million for the current year six-month period, compared to a cash use of $108.0 million in the same period in 1999. During the second quarter of the current year the Company received $90.1 million in net proceeds from the sale of Citizens Power, while the prior year period includes a $30.2 million outflow for the acquisition of the Moura Mine in Australia. In addition, proceeds from sale-leaseback activities were $10.8 million higher in the current year period. The Company had $93.1 million of committed capital expenditures (primarily related to coal reserves and mining equipment) at September 30, 2000. The Company anticipates funding these capital expenditures through available cash and credit facilities. Net cash used in financing activities was $117.4 million for the six months ended September 30, 2000, as compared to $27.8 million in the prior year period. The Company repaid $123.8 million of long-term debt during the current year period, an increase of $88.7 million, as the proceeds from the sale of Citizens Power were used to reduce the Company's leverage position. As of September 30, 2000, the Company had total indebtedness of $1,963.0 million, consisting of the following (in thousands): Term loans under Senior Credit Facility $ 580,000 9.625% Senior Subordinated Notes ("Senior Subordinated Notes") due 2008 498,790 8.875% Senior Notes ("Senior Notes") due 2008 399,015 5.0% Subordinated Note 184,907 Project finance facility 80,379 Unsecured revolving credit agreement 41,587 Capital lease obligations 21,315 Other 157,004 --------------- $ 1,962,997 =============== The Senior Credit Facility includes 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. The Revolving Credit Facility commitment matures in fiscal year 2005. As of September 30, 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. As of September 30, 2000, the Company had in place two interest rate swaps on $500 million of term loans outstanding under the Senior Credit facility - a $200 million interest rate swap that fixes LIBOR at approximately 4.7% and expires on October 5, 2000, and a $300 million interest rate swap that fixes LIBOR at approximately 7.0% and expires on October 5, 2001. After giving effect to the October 5, 2000 swap expiration, approximately 52% of the term loans outstanding under the Senior Credit Facility are fixed as of September 30, 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 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 Facility prohibits the Company from allowing its Restricted Subsidiaries (which include all Guarantors) to create or otherwise cause any encumbrance or restriction on the ability of any such Restricted Subsidiary to pay any dividends or make certain other upstream payments subject to certain exceptions. The Company was in compliance with all of the restrictive covenants of its loan agreements as of September 30, 2000. The indentures governing the Senior Notes and Senior Subordinated Notes permit the Company and its Restricted 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). Certain of the Company's subsidiaries maintain short-term lines and other working capital borrowing facilities. Total commitments under such subsidiary facilities totaled approximately $160.0 million and borrowings thereunder totaled approximately $53.5 million as of September 30, 2000. In addition, certain subsidiaries have long-term debt outstanding under various agreements. These agreements contain certain customary restrictive covenants, including limitations on additional debt, dividends and investments. As of September 30, 2000, the revolving and working capital borrowing facilities referred to above totaled $360.0 million, and borrowings thereunder totaled $53.5 million. Other Mine Closure. In October 2000, the Camp No. 1 mine was closed due to the depletion of its economically mineable reserves. This mine shipped 3.0 million tons in fiscal year 2000. The Company does not anticipate a material adverse effect on its results of operations, financial condition or liquidity from the mine closure since the requirements of the mine's customers will be met by other mines of the Company or its affiliates. Strategic Review of Australian Operations. On August 8, 2000, the Company announced that it will engage outside advisors to conduct a review of strategic alternatives to maximize the value of its Australian subsidiary, Peabody Resources Limited. The Company expects the review will be completed by the end of the fiscal year. 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 (as amended by SFAS Nos. 137 and 138) 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 effective date of SFAS No. 133 is for all fiscal quarters of fiscal years beginning after June 15, 2000 (effective April 1, 2001 for the Company). The Company continues to evaluate the requirements of SFAS No. 133 and the impact of adoption on the consolidated financial statements has not yet been determined. Forward Looking Statements This quarterly report and certain press releases and statements the Company makes from time to time include statements of the Company's and management's expectations, intentions, plans and beliefs that constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. Forward looking statements involve risks and uncertainties, and a variety of factors could cause actual results to differ materially from the Company's current expectations, including but not limited to: coal and power market conditions and fluctuations in the demand for coal as an energy source, weather conditions, the continued availability of long-term coal supply contracts, railroad performance, foreign currency translation, changes in economic conditions, changes in mining costs for labor, fuel and operational reasons, 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 and other factors discussed in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to such forward looking statements that may be made to reflect events or circumstances after the date hereof, or thereof, as the case may be, or to reflect the occurrence of anticipated events. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits See the Exhibit Index at page 21 of this report. (b) Reports on Form 8-K. On August 8, 2000, the Company filed a Form 8-K that contained a news release announcing it will engage outside advisors to assist in evaluating its options to maximize the value of its Australian coal holdings. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. P&L COAL HOLDINGS CORPORATION Date:November 13, 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). 10.19 Purchase and Sale Agreement by and among Edison Mission Energy, P&L Coal Holdings Corporation and Gold Fields Mining Corporation dated as of May 10, 2000. 27 Financial Data Schedule (filed electronically with the SEC only).