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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the Fiscal Year Ended December 31, 2006 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-16463
Peabody Energy Corporation
(Exact name of registrant as specified in its charter)
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Delaware |
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13-4004153 |
(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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701 Market Street, St. Louis, Missouri
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63101 |
(Address of principal executive offices) |
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(Zip Code) |
(314) 342-3400
Registrants telephone number, including area code
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Stock, par value $0.01 per share
Preferred Share Purchase Rights |
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New York Stock Exchange
New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
of the Exchange
Act) Yes o No þ
Aggregate market value of the voting stock held by
non-affiliates (shareholders who are not directors or executive
officers) of the Registrant, calculated using the closing price
on June 30, 2006: Common Stock, par value $0.01 per
share, $14.6 billion.
Number of shares outstanding of each of the Registrants
classes of Common Stock, as of February 16, 2007: Common
Stock, par value $0.01 per share, 264,685,954 shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Companys Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the
Companys Annual Meeting of Stockholders to be held on
May 1, 2007 (the Companys 2007 Proxy
Statement) are incorporated by reference into
Part III hereof. Other documents incorporated by reference
in this report are listed in the Exhibit Index of this
Form 10-K.
Explanatory
Note
Peabody Energy Corporation is filing this Amendment No. 1 on Form 10-K/A
(Amended Filing) in order to amend our Annual Report on Form 10-K for the fiscal
year ended December 31, 2006, originally filed February 28, 2007 (Original Filing), to
provide additional disclosures concerning our practices and policies related to exploration and
drilling costs, advanced stripping costs, and coal reserve estimates. The expanded disclosure is based
on correspondence with the Securities and Exchange Commission (SEC) in
conjunction with the SECs review of our Original Filing. The following items were impacted
by these expanded disclosures:
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Part I. Item 1A. Risk Factors We added a new risk factor on page 12 labeled Diversity in interpretation and application of accounting literature in the mining industry may impact our reported financial results; |
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Part II. Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates We added new critical accounting policies on page 35 regarding the treatment of
Exploration and Drilling Costs and Advance Stripping Costs; and |
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Part II. Item 8. Financial Statements and Supplementary Data and Part IV. Exhibits and
Financial Statement Schedules Consolidated Financial Statements We expanded the description of our Inventories and Property, Plant, Equipment and Mine Development policies contained in Note 1,
Summary of Significant Accounting Policies.
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We are also including Part I. Item 2. Properties to reflect the correction of footing errors for certain
category totals within the coal reserve tables; total proven and probable coal reserves remain unchanged at 10.2 billion tons. Except as described in this note, this Amended Filing does not
modify or update the disclosures in our Original Filing. See our Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K filed with the SEC subsequent to our Original Filing for updated
information.
We are also including new certifications of the principal executive officer and principal financial officer as exhibits to this Amended Filing.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report includes statements of our 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. These statements
relate to future events or our future financial performance,
including, without limitation, the section captioned
Outlook. We use words such as
anticipate, believe, expect,
may, project, will or other
similar words to identify forward-looking statements.
Without limiting the foregoing, all statements relating to our
future outlook, anticipated capital expenditures, future cash
flows and borrowings, and sources of funding are forward-looking
statements. These forward-looking statements are based on
numerous assumptions that we believe are reasonable, but are
subject to a wide range of uncertainties and business risks and
actual results may differ materially from those discussed in
these statements. Among the factors that could cause actual
results to differ materially are:
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ability to renew sales contracts; |
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reductions of purchases by major customers; |
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transportation performance and costs, including demurrage; |
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geology, equipment and other risks inherent to mining; |
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weather; |
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legislation, regulations and court decisions; |
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new environmental requirements affecting the use of coal
including mercury and carbon dioxide related limitations; |
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changes in postretirement benefit and pension obligations; |
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changes to contribution requirements to multi-employer benefit
funds; |
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availability, timing of delivery and costs of key supplies,
capital equipment or commodities such as diesel fuel, steel,
explosives and tires; |
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replacement of coal reserves; |
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price volatility and demand, particularly in higher-margin
products and in our trading and brokerage businesses; |
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performance of contractors, third-party coal suppliers or major
suppliers of mining equipment or supplies; |
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negotiation of labor contracts, employee relations and workforce
availability; |
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availability and costs of credit, surety bonds and letters of
credit; |
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risks associated with customer contracts, including credit and
performance risk; |
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the effects of acquisitions or divestitures, including
integration of new acquisitions; |
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economic strength and political stability of countries in which
we have operations or serve customers; |
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risks associated with our Btu conversion or generation
development initiatives; |
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risks associated with the conversion of our current information
systems; |
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growth of domestic and international coal and power markets; |
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coals market share of electricity generation; |
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prices of fuels which compete with or impact coal usage, such as
oil or natural gas; |
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future worldwide economic conditions; |
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successful implementation of business strategies; |
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variation in revenues related to synthetic fuel production due
to expiration of related tax credits at the end of 2007; |
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the effects of changes in currency exchange rates, primarily the
Australian dollar; |
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inflationary trends, including those impacting materials used in
our business; |
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interest rate changes; |
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litigation, including claims not yet asserted; |
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terrorist attacks or threats; |
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impacts of pandemic illnesses; |
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other factors, including those discussed in Legal Proceedings,
set forth in Item 3 of the Original Filing and Risk Factors, set
forth in Item 1A of this report. |
When considering these forward-looking statements, you should
keep in mind the cautionary statements in this document and in
our other SEC
filings. We do not undertake any obligation to update these
statements, except as required by federal securities laws.
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TABLE OF CONTENTS
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Note: |
The words we, our,
Peabody or the Company as used in this
report, refer to Peabody Energy Corporation or its applicable
subsidiary or subsidiaries. |
PART I
Item 1A. Risk Factors.
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If a substantial portion of our long-term coal supply
agreements terminate, our revenues and operating profits could
suffer if we were unable to find alternate buyers willing to
purchase our coal on comparable terms to those in our
contracts. |
Most of our sales are made under coal supply agreements, which
are important to the stability and profitability of our
operations. The execution of a satisfactory coal supply
agreement is frequently the basis on which we undertake the
development of coal reserves required to be supplied under the
contract. For the year ended December 31, 2006, 90% of our
sales volume was sold under long-term coal supply agreements. At
December 31, 2006, our coal supply agreements had remaining
terms ranging from one to 19 years and an average
volume-weighted remaining term of approximately 5 years.
Many of our coal supply agreements contain provisions that
permit the parties to adjust the contract price upward or
downward at specified times. We may adjust these contract prices
based on inflation or deflation and/or changes in the factors
affecting the cost of producing coal, such as taxes, fees,
royalties and changes in the laws regulating the mining,
production, sale or use of coal. In a limited number of
contracts, failure of the parties to agree on a price under
those provisions may allow either party to terminate the
contract. We sometimes experience a reduction in coal prices in
new long-term coal supply agreements replacing some of our
expiring contracts. Coal supply agreements also typically
contain force majeure provisions allowing temporary suspension
of performance by us or the customer during the duration of
specified events beyond the control of the affected party. Most
coal supply agreements contain provisions requiring us to
deliver coal meeting quality thresholds for certain
characteristics such as Btu, sulfur content, ash content,
grindability and ash fusion temperature. Failure to meet these
specifications could result in economic penalties, including
price adjustments, the rejection of deliveries or termination of
the contracts. Moreover, some of these agreements permit the
customer to terminate the contract if transportation costs,
which our customers typically bear, increase substantially. In
addition, some of these contracts allow our customers to
terminate their contracts in the event of changes in regulations
affecting our industry that increase the price of coal beyond
specified limits.
The operating profits we realize from coal sold under supply
agreements depend on a variety of factors. In addition, price
adjustment and other provisions may increase our exposure to
short-term coal price volatility provided by those contracts. If
a substantial portion of our coal supply agreements were
modified or terminated, we could be materially adversely
affected to the extent that we are unable to find alternate
buyers for our coal at the same level of profitability. Market
prices for coal vary by mining region and country. As a result,
we cannot predict the future strength of the coal market overall
or by mining region and cannot assure you that we will be able
to replace existing long-term coal supply agreements at the same
prices or with similar profit margins when they expire. In
addition, one of our largest coal supply agreements is the
subject of ongoing litigation and arbitration.
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The loss of, or significant reduction in, purchases by our
largest customers could adversely affect our revenues. |
For the year ended December 31, 2006, we derived 22% of our
total coal revenues from sales to our five largest customers. At
December 31, 2006, we had 123 coal supply agreements with
these customers expiring at various times from 2007 to 2016. We
are currently discussing the extension of existing agreements or
entering into new long-term agreements with some of these
customers, but these negotiations may not be successful and
those customers may not continue to purchase coal from us under
long-term coal supply agreements. If a number of these customers
significantly reduce their purchases of coal from us, or if we
are unable to sell coal to them on terms as favorable to us as
the terms under our current agreements, our financial condition
and results of operations could suffer materially.
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If transportation for our coal becomes unavailable or
uneconomic for our customers, our ability to sell coal could
suffer. |
Transportation costs represent a significant portion of the
total cost of coal and the cost of transportation is a critical
factor in a customers purchasing decision. Increases in
transportation costs and the lack of sufficient rail and port
capacity could lead to reduced coal sales. As of
December 31, 2006, certain coal supply agreements, which
account for less than 5% of our tons sold, permit the customer
to terminate the contract if the cost of transportation
increases by an amount over specified levels in any given
12-month period.
Coal producers depend upon rail, barge, trucking, overland
conveyor and ocean-going vessels to deliver coal to markets.
While our coal customers typically arrange and pay for
transportation of coal from the mine or port to the point of
use, disruption of these transportation services because of
weather-related problems, infrastructure damage, strikes,
lock-outs, lack of fuel or maintenance items, transportation
delays or other events could temporarily impair our ability to
supply coal to our customers and thus could adversely affect our
results of operations. For example, two primary railroads serve
the Powder River Basin mines. Due to the high volume of coal
shipped from all Powder River Basin mines, the loss of access to
rail capacity could create temporary congestion on the rail
systems servicing that region. We are also susceptible to port
congestion and demurrage fees. In Australia, we export our
Queensland production from Dalrymple Bay Coal Terminal and the
Ports of Gladstone and Brisbane. We export our New South Wales
production from the Ports of Newcastle and Kembla.
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Risks inherent to mining could increase the cost of
operating our business. |
Our mining operations are subject to conditions that can impact
the safety of our workforce, or delay coal deliveries or
increase the cost of mining at particular mines for varying
lengths of time. These conditions include fires and explosions
from methane gas or coal dust; accidental minewater discharges;
weather, flooding and natural disasters; unexpected maintenance
problems; key equipment failures; variations in coal seam
thickness; variations in the amount of rock and soil overlying
the coal deposit; variations in rock and other natural materials
and variations in geologic conditions. We maintain insurance
policies that provide limited coverage for some of these risks,
although there can be no assurance that these risks would be
fully covered by our insurance policies. Despite our efforts,
significant mine accidents could occur and have a substantial
impact.
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Our mining operations are extensively regulated, which
imposes significant costs on us, and future regulations and
developments could increase those costs or limit our ability to
produce coal. |
Federal, state and local authorities regulate the coal mining
industry with respect to matters such as employee health and
safety, permitting and licensing requirements, air quality
standards, water pollution, plant and wildlife protection,
reclamation and restoration of mining properties after mining is
completed, the discharge of materials into the environment,
surface subsidence from underground mining and the effects that
mining has on groundwater quality and availability. In addition,
significant legislation mandating specified benefits for retired
coal miners affects our industry. Numerous governmental permits
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and approvals are required for mining operations. We are
required to prepare and present to federal, state or local
authorities data pertaining to the effect or impact that any
proposed exploration for or production of coal may have upon the
environment. The costs, liabilities and requirements associated
with these regulations may be costly and time-consuming and may
delay commencement or continuation of exploration or production.
The possibility exists that new legislation and/or regulations
and orders related to the environment or employee health and
safety may be adopted and may materially adversely affect our
mining operations, our cost structure and/or our customers
ability to use coal. New legislation or administrative
regulations (or judicial interpretations of existing laws and
regulations), including proposals related to the protection of
the environment that would further regulate and tax the coal
industry, may also require us or our customers to change
operations significantly or incur increased costs. The majority
of our coal supply agreements contain provisions that allow a
purchaser to terminate its contract if legislation is passed
that either restricts the use or type of coal permissible at the
purchasers plant or results in specified increases in the
cost of coal or its use. These factors and legislation, if
enacted, could have a material adverse effect on our financial
condition and results of operations.
According to the Department of Energys Energy Information
Administration, Emissions of Greenhouse Gases in the
United States 2003, coal accounts for 31% of greenhouse
gas emissions in the United States, and efforts to control
greenhouse gas emissions could result in reduced use of coal if
electricity generators switch to lower carbon sources of fuel.
Legislation was introduced in Congress in 2006 to reduce
greenhouse gas emissions in the United States. Such or similar
federal legislative action could be taken in 2007 or later years
(see additional discussion in Item 1 under the heading
Global Climate Change). Further developments in
connection with legislation, regulations or other limits on
greenhouse emissions, both in the United States and in other
countries where we sell coal, could have a material adverse
effect on our financial condition or results of operations.
A number of laws, including in the U.S. the Comprehensive
Environmental Response, Compensation and Liability Act
(CERCLA or Superfund), impose liability
relating to contamination by hazardous substances. Such
liability may involve the costs of investigating or remediating
contamination and damages to natural resources, as well as
claims seeking to recover for property damage or personal injury
caused by hazardous substances. Such liability may arise from
conditions at formerly as well as currently owned or operated
properties, and at properties to which hazardous substances have
been sent for treatment, disposal, or other handling. Liability
under CERCLA and similar state statutes is without regard to
fault, and typically is joint and several, meaning that a person
may be held responsible for more than its share, or even all of,
the liability involved. Our mining operations involve some use
of hazardous materials. In addition, we have accrued for
liability arising out of contamination associated with Gold
Fields Mining, LLC (Gold Fields), a dormant,
non-coal-producing subsidiary of ours that was previously
managed and owned by Hanson PLC, or with Gold Fields
former affiliates. A predecessor owner of ours, Hanson PLC
transferred ownership of Gold Fields to us in the February 1997
spin-off of its energy business. Gold Fields is currently a
defendant in several lawsuits and has received notices of
several other potential claims arising out of lead contamination
from mining and milling operations it conducted in northeastern
Oklahoma. Gold Fields is also involved in investigating or
remediating a number of other contaminated sites. Although we
have accrued for many of these liabilities known to us, the
amounts of other potential losses cannot be estimated.
Significant uncertainty exists as to whether claims will be
pursued against Gold Fields in all cases, and where they are
pursued, the amount of the eventual costs and liabilities, which
could be greater or less than our accrual. Although we believe
many of these liabilities are likely to be resolved without a
material adverse effect on us, future developments, such as new
information concerning areas known to be or suspected of being
contaminated for which we may be responsible, the discovery of
new contamination for which we may be responsible, or the
inability to share costs with other parties that may be
responsible for the contamination, could have a material adverse
effect on our financial condition or results of operations.
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Our expenditures for postretirement benefit and pension
obligations could be materially higher than we have predicted if
our underlying assumptions prove to be incorrect. |
We provide postretirement health and life insurance benefits to
eligible union and non-union employees. We calculated the total
accumulated postretirement benefit obligation under
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions, which we
estimate had a present value of $1.45 billion as of
December 31, 2006, $82.6 million of which was a
current liability. We have estimated these unfunded obligations
based on assumptions described in the notes to our consolidated
financial statements. If our assumptions do not materialize as
expected, cash expenditures and costs that we incur could be
materially higher. Moreover, regulatory changes could increase
our obligations to provide these or additional benefits.
We are party to an agreement with the Pension Benefit Guaranty
Corporation (the PBGC) and TXU Europe Limited, an
affiliate of our former parent corporation, under which we are
required to make specified contributions to two of our defined
benefit pension plans and to maintain a $37.0 million
letter of credit in favor of the PBGC. If we or the PBGC give
notice of an intent to terminate one or more of the covered
pension plans in which liabilities are not fully funded, or if
we fail to maintain the letter of credit, the PBGC may draw down
on the letter of credit and use the proceeds to satisfy
liabilities under the Employment Retirement Income Security Act
of 1974, as amended. The PBGC, however, is required to first
apply amounts received from a $110.0 million guaranty in
place from TXU Europe Limited in favor of the PBGC before it
draws on our letter of credit. On November 19, 2002, TXU
Europe Limited was placed under the administration process in
the United Kingdom (a process similar to bankruptcy proceedings
in the United States) and continues under this process as of
December 31, 2006.
In addition, certain of our subsidiaries participate in two
defined benefit multi-employer pension funds that were
established as a result of collective bargaining with the UMWA
pursuant to the National Bituminous Coal Wage Agreement as
periodically negotiated. The UMWA 1950 Pension Plan provides
pension and disability pension benefits to qualifying
represented employees retiring from a participating employer
where the employee last worked prior to January 1, 1976.
This is a closed group of beneficiaries with no new entrants.
The UMWA 1974 Pension Plan provides pension and disability
pension benefits to qualifying represented employees retiring
from a participating employer where the employee last worked
after December 31, 1975. In December 2006, the 2007
National Bituminous Coal Wage Agreement was signed, which
required funding of the 1974 Pension Plan through 2011 under a
phased funding schedule. The funding is based on an hourly rate
for certain UMWA workers. Under the labor contract, the per hour
funding rate increased from zero to $2.00 in 2007 and increased
each year thereafter until reaching $5.50 in 2011. Although our
subsidiaries are not a party to that labor agreement, they are
required to contribute to the 1974 Pension Plan at the new
hourly rates. During 2006, represented employees subject to the
new rate worked a total of approximately four million hours.
Contributions to these funds could increase as a result of
future collective bargaining with the UMWA, a shrinking
contribution base as a result of the insolvency of other coal
companies who currently contribute to these funds, lower than
expected returns on pension fund assets, higher medical and drug
costs or other funding deficiencies.
The United Mine Workers of America Combined Fund was created by
federal law in 1992. This multi-employer fund provides health
care benefits to a closed group of retirees including our
retired former employees who last worked prior to 1976, as well
as orphaned beneficiaries of bankrupt companies who were
receiving benefits as orphans prior to the 1992 law. No new
retirees will be added to this group. The liability is subject
to increases or decreases in per capita health care costs,
offset by the mortality curve in this aging population of
beneficiaries. Another fund, the 1992 Benefit Plan created by
the same federal law in 1992, provides benefits to qualifying
retired former employees of bankrupt companies who have
defaulted in providing their former employees with retiree
medical benefits. Beneficiaries continue to be added to this
fund as employers default in providing their former employees
with retiree medical benefits, but the overall exposure for new
beneficiaries into this fund is limited to retirees covered
under their employers plan who retired prior to
October 1, 1994. A third fund, the 1993 Benefit Plan, was
established
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through collective bargaining and provides benefits to
qualifying retired former employees who retired after
September 30, 1994 of certain signatory companies who have
gone out of business and have defaulted in providing their
former employees with retiree medical benefits. Beneficiaries
continue to be added to this fund as employers go out of
business.
The Surface Mining Control and Reclamation Act Amendments of
2006 (the 2006 Act), which was enacted in December
2006, amended the federal laws establishing the Combined Fund,
1992 Benefit Plan and the 1993 Benefit Plan. Among other things,
the 2006 Act guarantees full funding of all beneficiaries in the
Combined Fund, provides funds on a phased-in basis for the 1992
Benefit Plan, and authorizes the trustees of the 1993 Benefit
Plan to determine the contribution rates through 2010 for
pre-2007 beneficiaries. The new and additional federal
expenditures to the Combined Fund, 1992 Benefit Plan, 1993
Benefit Plan and certain Abandoned Mine Land payments to the
states and Indian tribes are collectively limited by an
aggregate annual cap of $490 million. To the extent that
(i) the annual funding of the programs exceeds this amount
(plus the amount of interest from the AML trust fund paid with
respect to the Combined Benefit Fund), and (ii) Congress
does not allocate additional funds to cover the shortfall,
contributing employers and affiliates, including some of our
subsidiaries, would be responsible for the additional costs.
Based upon the enactment of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, we estimated future
cash savings which allowed us to reduce our projected
postretirement benefit obligations and related expense. Failure
to achieve these assumed future savings under all benefit plans
could adversely affect our financial condition, results of
operations and cash flows.
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A decrease in the availability or increase in costs of key
supplies, capital equipment or commodities such as diesel fuel,
steel, explosives and tires could decrease our anticipated
profitability. |
Our mining operations require a reliable supply of replacement
parts, explosives, fuel, tires, steel-related products
(including roof control) and lubricants. If the cost of any of
these inputs increased significantly, or if a source for these
supplies or mining equipment were unavailable to meet our
replacement demands, our profitability could be reduced from our
current expectations. Recent consolidation of suppliers of
explosives has limited the number of sources for these
materials, and our current supply of explosives is concentrated
with one supplier. Further, our purchases of some items of
underground mining equipment are concentrated with one principal
supplier. Over the past few years, industry-wide demand growth
has exceeded supply growth for certain surface and underground
mining equipment and other capital equipment as well as
off-the-road tires. As
a result, lead times for some items have increased significantly.
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Our future success depends upon our ability to continue
acquiring and developing coal reserves that are economically
recoverable. |
Our recoverable reserves decline as we produce coal. We have not
yet applied for the permits required or developed the mines
necessary to use all of our reserves. Furthermore, we may not be
able to mine all of our reserves as profitably as we do at our
current operations. Our future success depends upon our
conducting successful exploration and development activities or
acquiring properties containing economically recoverable
reserves. Our current strategy includes increasing our reserves
through acquisitions of government and other leases and
producing properties and continuing to use our existing
properties. The federal government also leases natural gas and
coalbed methane reserves in the West, including in the Powder
River Basin. Some of these natural gas and coalbed methane
reserves are located on, or adjacent to, some of our Powder
River Basin reserves, potentially creating conflicting interests
between us and lessees of those interests. Other lessees
rights relating to these mineral interests could prevent, delay
or increase the cost of developing our coal reserves. These
lessees may also seek damages from us based on claims that our
coal mining operations impair their interests. Additionally, the
federal government limits the amount of federal land that may be
leased by any company to 150,000 acres nationwide. As of
December 31, 2006, we leased a total of 63,463 acres
from the federal government. The limit could restrict
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our ability to lease additional federal lands. For additional
discussion of our federal leases see Item 2. Properties.
Our planned mine development projects and acquisition activities
may not result in significant additional reserves, and we may
not have continuing success developing additional mines. Most of
our mining operations are conducted on properties owned or
leased by us. Because title to most of our leased properties and
mineral rights are not thoroughly verified until a permit to
mine the property is obtained, our right to mine some of our
reserves may be materially adversely affected if defects in
title or boundaries exist. In addition, in order to develop our
reserves, we must receive various governmental permits. We
cannot predict whether we will continue to receive the permits
necessary for us to operate profitably in the future. We may not
be able to negotiate new leases from the government or from
private parties, obtain mining contracts for properties
containing additional reserves or maintain our leasehold
interest in properties on which mining operations are not
commenced during the term of the lease. From time to time, we
have experienced litigation with lessors of our coal properties
and with royalty holders.
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A decrease in the price or our production of metallurgical
coal could decrease our anticipated profitability. |
We have annual capacity to produce approximately 15 to
18 million tons of metallurgical coal. Prices for
metallurgical coal at the end of 2005 and during 2006 were near
historically high levels. As a result, our margins from these
sales have increased significantly, and represented a larger
percentage of our overall revenues and profits and are expected
to continue to favorably contribute in the future. To the extent
we experience either production or transportation difficulties
that impair our ability to ship metallurgical coal to our
customers at anticipated levels, our profitability will be
reduced in 2007.
The majority of our 2007 metallurgical coal production will be
priced during the first quarter of 2007; however, early
indications are that prices will be down from historical highs.
As a result, a decrease in metallurgical coal prices could
decrease our profitability.
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Our financial performance could be adversely affected by
our debt. |
Our financial performance could be affected by our indebtedness.
As of December 31, 2006, our total indebtedness was
$3.26 billion, and we had $1.29 billion of available
borrowing capacity under our revolving credit facility. The
indentures governing the convertible debentures and senior notes
do not limit the amount of indebtedness that we may issue, and
the indentures governing our other senior notes permit the
incurrence of additional indebtedness.
The degree to which we are leveraged could have important
consequences, including, but not limited to:
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making it more difficult for us to pay interest and satisfy our
debt obligations; |
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increasing our vulnerability to general adverse economic and
industry conditions; |
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requiring the dedication of a substantial portion of our cash
flow from operations to the payment of principal of, and
interest on, our indebtedness, thereby reducing the availability
of the cash flow to fund working capital, capital expenditures,
research and development or other general corporate uses; |
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limiting our ability to obtain additional financing to fund
future working capital, capital expenditures, research and
development or other general corporate requirements; |
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limiting our flexibility in planning for, or reacting to,
changes in our business and in the coal industry; and |
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placing us at a competitive disadvantage compared to less
leveraged competitors. |
7
In addition, our indebtedness subjects us to financial and other
restrictive covenants. Failure by us to comply with these
covenants could result in an event of default that, if not cured
or waived, could have a material adverse effect on us.
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to sell assets,
seek additional capital or seek to restructure or refinance our
indebtedness. These alternative measures may not be successful
and may not permit us to meet our scheduled debt service
obligations. In the absence of such operating results and
resources, we could face substantial liquidity problems and
might be required to sell material assets or operations to
attempt to meet our debt service and other obligations. The
senior unsecured credit facility and indentures governing
certain of our notes restrict our ability to sell assets and use
the proceeds from the sales. We may not be able to consummate
those sales or to obtain the proceeds which we could realize
from them and these proceeds may not be adequate to meet any
debt service obligations then due.
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The covenants in our senior unsecured credit facility and
the indentures governing our senior notes and convertible
debentures impose restrictions that may limit our operating and
financial flexibility. |
Our senior unsecured credit facility, the indentures governing
our senior notes and convertible debentures and the instruments
governing our other indebtedness contain certain restrictions
and covenants which restrict our ability to incur liens and debt
or provide guarantees in respect of obligations of any other
person. Under our senior unsecured credit facility, we must
comply with certain financial covenants on a quarterly basis
including a minimum interest coverage ratio and a maximum
leverage ratio, as defined. The financial covenants also place
limitations on our investments in joint ventures, unrestricted
subsidiaries, indebtedness of non-loan parties and the
imposition of liens on our assets. These covenants and
restrictions are reasonable and customary and have not impacted
our business in the past.
Operating results below current levels or other adverse factors,
including a significant increase in interest rates, could result
in our inability to comply with the financial covenants
contained in our senior unsecured credit facility. If we violate
these covenants and are unable to obtain waivers from our
lenders, our debt under these agreements would be in default and
could be accelerated by our lenders. If our indebtedness is
accelerated, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if we are able to obtain
new financing, it may not be on commercially reasonable terms,
on terms that are acceptable to us or at all. If our debt is in
default for any reason, our business, financial condition and
results of operations could be materially and adversely
affected. In addition, complying with these covenants may also
cause us to take actions that are not favorable to holders of
our other debt or equity securities and may make it more
difficult for us to successfully execute our business strategy
and compete against companies who are not subject to such
restrictions.
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Our operations could be adversely affected if we fail to
appropriately secure our obligations. |
U.S. federal and state laws and Australian laws require us to
secure certain of our obligations to reclaim lands used for
mining, to pay federal and state workers compensation, to
secure coal lease obligations and to satisfy other miscellaneous
obligations. The primary method for us to meet those obligations
is to post a corporate guarantee (i.e. self bond), provide a
third-party surety bond or provide a letter of credit. As of
December 31, 2006, we had $685.2 million of self bonds
in place primarily for our reclamation obligations. As of
December 31, 2006, we also had outstanding surety bonds
with third parties and letters of credit of $1.09 billion,
of which $445.6 million was for post-mining reclamation,
$188.5 million related to workers compensation
obligations, $119.4 was for retiree healthcare obligations,
$104.2 million was for coal lease obligations, and
$236.0 million was for other obligations, including
collateral for surety companies and bank guarantees, road
maintenance, and performance guarantees. Surety bonds are
typically renewable on a yearly basis. Surety bond issuers and
holders may not continue to renew the bonds or may demand
additional collateral upon those renewals. Letters of credit are
subject to our successful renewal of our bank revolving credit
facilities, which are currently set to expire in 2011. Our
failure to maintain, or inability to acquire, surety bonds, or
letters of credit, or to provide a suitable
8
alternative would have a material adverse effect on us. That
failure could result from a variety of factors including the
following:
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lack of availability, higher expense or unfavorable market terms
of new surety bonds; |
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restrictions on the availability of collateral for current and
future third-party surety bond issuers under the terms of our
indentures or senior unsecured credit facility; |
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the exercise by third-party surety bond issuers of their right
to refuse to renew the surety; and |
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inability to renew our credit facility. |
Our ability to self bond reduces our costs of providing
financial assurances. To the extent we are unable to maintain
our current level of self bonding, due to legislative or
regulatory changes or changes in our financial condition, our
costs would increase.
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The conversion of our outstanding convertible debentures
may result in the dilution of the ownership interests of our
existing stockholders. |
If the conditions permitting the conversion of our convertible
debentures are met and holders of the convertible debentures
exercise their conversion rights, any conversion value in excess
of the principal amount will be delivered in shares of our
common stock. If any common stock is issued in connection with a
conversion of our convertible debentures, our existing
stockholders will experience dilution in the voting power of
their common stock and earnings per share could be negatively
impacted.
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Provisions of our convertible debentures could discourage
an acquisition of us by a third-party. |
Certain provisions of our convertible debentures could make it
more difficult or more expensive for a third-party to acquire
us. Upon the occurrence of certain transactions constituting a
change of control as defined in the indenture
relating to our convertible debentures, holders of our
convertible debentures will have the right, at their option, to
convert their convertible debentures and thereby require us to
pay the principal amount of such converted debentures in cash.
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An inability of contract miner or brokerage sources to
fulfill the delivery terms of their contracts with us could
reduce our profitability. |
In conducting our trading, brokerage and mining operations, we
utilize third-party sources of coal production, including
contract miners and brokerage sources, to fulfill deliveries
under our coal supply agreements. In Australia, the majority of
our mines utilize contract miners. Employee relations at mines
that use contract miners is the responsibility of the contractor.
Recently, certain of our brokerage sources and contract miners
in the United States have experienced adverse geologic mining,
escalated operating costs and/or financial difficulties that
have made their delivery of coal to us at the contracted price
difficult or uncertain. In some instances, the contract miners
and third-party suppliers have suspended mining operations, and
it has become increasing difficult to identify and retain
contract workers. Our profitability or exposure to loss on
transactions or relationships such as these is dependent upon
the reliability (including financial viability) and price of the
third-party supply, our obligation to supply coal to customers
in the event that adverse geologic mining conditions restrict
deliveries from our suppliers, our willingness to participate in
temporary cost increases experienced by our third-party coal
suppliers, our ability to pass on temporary cost increases to
our customers, the ability to substitute, when economical,
third-party coal sources with internal production or coal
purchased in the market, and other factors.
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If the coal industry experiences overcapacity in the
future, our profitability could be impaired. |
During the mid-1970s and early 1980s, a growing coal market and
increased demand for coal attracted new investors to the coal
industry, spurred the development of new mines and resulted in
production capacity in excess of market demand throughout the
industry. Similarly, increases in future coal
9
prices could encourage the development of expanded capacity by
new or existing coal producers. Recently, the coal industry
experienced lower demand as electricity usage was at lower than
historical growth levels. Therefore, as of December 2006, total
coal inventories of 130 to 140 million tons at generators
were above the five-year average.
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We could be negatively affected if we fail to maintain
satisfactory labor relations. |
As of December 31, 2006, we had approximately 9,200
employees. As of December 31, 2006, approximately 40% of
our hourly employees were represented by unions and they
generated approximately 14% of our 2006 coal production.
Relations with our employees and, where applicable, organized
labor are important to our success.
Due to the higher labor costs and the increased risk of strikes
and other work-related stoppages that may be associated with
union operations in the coal industry, our competitors who
operate without union labor may have a competitive advantage in
areas where they compete with our unionized operations. If some
or all of our current non-union operations were to become
unionized, we could incur an increased risk of work stoppages,
reduced productivity and higher labor costs.
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United States Labor Relations |
Approximately 66% of our U.S. miners are non-union and are
employed in the states of Wyoming, Colorado, Indiana, New
Mexico, Illinois and Kentucky. The UMWA represented
approximately 26% of our subsidiaries hourly employees,
who generated 11% of our U.S. production during the year
ended December 31, 2006. An additional 5% of our hourly
employees are represented by labor unions other than the UMWA.
These employees generated 1% of our production during the year
ended December 31, 2006. Hourly workers at our mine in
Arizona are represented by the UMWA under the Western Surface
Agreement of 2000, which is effective through September 1,
2007. Our union workforce east of the Mississippi River is
primarily represented by the UMWA. The UMWA-represented workers
at one of our eastern mines operate under a contract that
expires on December 31, 2007. The remainder of our
UMWA-represented workers in the east operate under a recently
signed, five-year labor agreement expiring December 31,
2011. This contract replaced a contract that had expired on
December 31, 2006 and mirrors the 2007 National Bituminous
Coal Wage Agreement.
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Australia Labor Relations |
The Australian coal mining industry is unionized and the
majority of workers employed at our Australian Mining Operations
are members of trade unions. The Construction Forestry Mining
and Energy Union represents our hourly production employees. As
of December 31, 2006, our Australian hourly employees were
approximately 9% or our hourly workforce and generated 2% of our
total production in the year then ended. The labor agreement at
our Wilkie Creek Mine was renewed in June 2006 and that
agreement expires in June 2009. The North Goonyella Mine
operates under an agreement due to expire in 2008, and the
Metropolitan Mine operates under an agreement that expires in
June 2007.
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Our ability to operate our company effectively could be
impaired if we lose key personnel or fail to attract qualified
personnel. |
We manage our business with a number of key personnel, the loss
of a number of whom could have a material adverse effect on us.
In addition, as our business develops and expands, we believe
that our future success will depend greatly on our continued
ability to attract and retain highly skilled and qualified
personnel. We cannot assure you that key personnel will continue
to be employed by us or that we will be able to attract and
retain qualified personnel in the future. We do not have
key person life insurance to cover our executive
officers. Failure to retain or attract key personnel could have
a material adverse effect on us.
Due to the current demographics of our mining workforce, a high
portion of our current hourly employees are eligible to retire
over the next decade. Additionally, many of our mine sites are
in more
10
secluded areas of the United States, such as the Native American
reservations of Arizona and the Southern Powder River Basin of
Wyoming. These geographic locations provide limited pools of
qualified resources, and it is challenging to locate resources
interested in working in some of these regions. Failure to
attract new employees to the mining workforce could have a
material adverse effect on us.
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Our ability to collect payments from our customers could
be impaired if their creditworthiness deteriorates. |
Our ability to receive payment for coal sold and delivered
depends on the continued creditworthiness of our customers. Our
customer base has changed with deregulation as utilities have
sold their power plants to their non-regulated affiliates or
third parties. These new power plant owners or other customers
may have credit ratings that are below investment grade. If
deterioration of the creditworthiness of our customers occurs,
our $225.0 million accounts receivable securitization
program and our business could be adversely affected.
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Our certificate of incorporation and by-laws include
provisions that may discourage a takeover attempt. |
Provisions contained in our certificate of incorporation and
by-laws and Delaware law could make it more difficult for a
third-party to acquire us, even if doing so might be beneficial
to our stockholders. Provisions of our by-laws and certificate
of incorporation impose various procedural and other
requirements that could make it more difficult for stockholders
to effect certain corporate actions. For example, a change of
control of our Company may be delayed or deterred as a result of
the stockholders rights plan adopted by our Board of
Directors. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of
our common stock and may have the effect of delaying or
preventing a change in control.
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The extent to which we are able to successfully integrate
the newly acquired Excel operations and successfully complete
the development of the new mine sites acquired from Excel will
have a bearing on our future financial results. |
The process of integrating the operations of the Excel coal
mines could cause an interruption of, or loss of momentum in,
the activities of the business or the development of new mines.
We will need to make significant capital expenditures to utilize
and maintain the assets we acquired in the Excel acquisition.
There are currently three development-stage mines, two of which
are scheduled to begin production in early 2007. Delays in
optimizing the operations of the development-stage mines, and to
a lesser extent the existing Excel operations, could impact our
future financial results. Additionally, our ability to integrate
and manage the Excel operations will have a direct bearing on
the realization of anticipated cost savings and synergies.
Further, we may encounter unanticipated risks associated with
the Excel acquisition.
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Growth in our global operations increases our risks unique
to international mining and trading operations. |
We currently have international mining operations in Australia
and Venezuela. We have recently opened a business development,
sales and marketing office in Beijing, China and an
international trading group in our trading and brokerage
operations. The international expansion of our operations
increases our exposure to country and currency risks. Some of
our international activities include expansion into developing
countries where business practices and counterparty reputations
may not be as well developed as in our domestic or Australian
operations. We are also challenged by political risks, including
expropriation and the inability to repatriate earnings on our
investment. In particular, the Venezuelan government has
suggested its desire to increase government ownership in
Venezuelan energy assets and natural resources. Actions to
nationalize Venezuelan coal properties could be detrimental to
our investments in the Paso Diablo Mine and Cosila development
project. During 2006, the Paso Diablo Mine contributed
$28.0 million to segment Adjusted EBITDA in Corporate
and Other Adjusted EBITDA
11
(see Item 7) and paid a dividend of $18.2 million. At
December 31, 2006, our investment in Paso Diablo was
$60.1 million, recorded in Investment and other
assets on the consolidated balance sheet.
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As we continue to pursue development of Generation
Development and Btu Conversion activities, we face challenges
and risks that differ from those in our mining business. |
We continue to pursue the development of coal-fueled generating
projects in the U.S., including mine-mouth generating plants
using our surface lands and coal reserves. Our ultimate role in
these projects could take numerous forms, including, but not
limited to, equity partner, contract miner or coal sales. The
projects we are currently pursuing include the 1,600
plus-megawatt Prairie State Energy Campus in Washington County,
Illinois and the 1,500-megawatt Thoroughbred Energy Campus in
Muhlenberg County, Kentucky. We also continue to pursue
opportunities to participate in technologies to economically
convert our coal resources to natural gas and liquids, such as
diesel fuel, gasoline and jet fuel (Btu conversion).
As we move forward with all of these projects, we are exposed to
risks related to the performance of our partners, securing
required financing, obtaining necessary permits, meeting
stringent regulatory laws, maintaining strong supplier
relationships and managing (along with our partners) large
projects, including managing through long lead times for
ordering and obtaining capital equipment. Our work in new or
recently commercialized technologies could expose us to
unanticipated risks, evolving legislation and uncertainty
regarding the extent of future government support and funding.
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The extent of our success in converting our current
information systems to our new enterprise resource planning
system will directly impact our ability to perform functions
critical to our
day-to-day
business. |
To support the continued growth and globalization of our
businesses, we are converting our existing information systems
across major business processes to an integrated information
technology system provided by SAP AG. The project began in the
first quarter of 2006 and certain phases of implementation are
expected to be completed in 2007. The successful conversion of
our information technology systems will have direct bearing on
our ability to perform certain
day-to-day functions
critical to our business, including billing, processing
invoices, certain Treasury functions, recordkeeping and
financial reporting.
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Diversity in interpretation and application of accounting literature in the mining industry may impact our reported financial results.
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The mining industry has limited industry specific accounting literature and, as a result, we
understand diversity in practice exists in the interpretation and application of accounting
literature to mining specific issues. For example, some companies capitalize drilling and related
costs incurred to delineate and classify mineral resources as proven and probable reserves, and
other companies expense such costs. In addition, some industry participants expense pre-production
stripping costs associated with developing new pits at existing surface mining operations, while
other companies capitalize pre-production stripping costs for new pit development at existing
operations. The materiality of such expenditures can vary greatly relative to a given companys
respective financial position and results of operations. As diversity in mining industry accounting
is addressed, we may need to restate our reported results if the resulting interpretations differ
from our current accounting practices (for additional information regarding our accounting policies
with respect to drilling costs and advance stripping costs, please see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting
Policies and Estimates).
Coal Reserves
We had an estimated 10.2 billion tons of proven and
probable coal reserves as of December 31, 2006. An
estimated 9.4 billion tons of our proven and probable coal
reserves are in the United States and 0.8 billion tons are
in Australia. Forty-three percent of our reserves, or
4.4 billion tons, are compliance coal and 57% are
non-compliance coal. We own approximately 42% of these reserves
and lease property containing the remaining 58%. Compliance coal
is defined by Phase II of the Clean Air Act as coal having
sulfur dioxide content of 1.2 pounds or less per million Btu.
Electricity generators are able to use coal that exceeds these
specifications by using emissions reduction technology, using
emission allowance credits or blending higher sulfur coal with
lower sulfur coal.
12
Below is a table summarizing the locations and reserves of our
major operating regions.
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Proven and Probable | |
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Reserves as of | |
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December 31, 2006(1) | |
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Owned | |
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Leased | |
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Total | |
Operating Regions |
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Locations |
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Tons | |
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Tons | |
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Tons | |
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(Tons in millions) | |
Midwest
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Illinois, Indiana and Kentucky |
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3,270 |
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900 |
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4,170 |
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Powder River Basin
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Wyoming and Montana |
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67 |
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3,400 |
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3,467 |
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Southwest
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Arizona and New Mexico |
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617 |
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363 |
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980 |
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Appalachia
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West Virginia and Ohio |
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249 |
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306 |
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555 |
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Colorado
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Colorado |
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43 |
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184 |
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227 |
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Total United States
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4,246 |
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5,153 |
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9,399 |
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Australia
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New South Wales |
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466 |
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466 |
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Australia
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Queensland |
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337 |
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337 |
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Total Proven and Probable Coal Reserves
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4,246 |
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5,956 |
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10,202 |
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(1) |
Reserves have been adjusted to take into account estimated
losses involved in producing a saleable product. |
Reserves are defined by SEC Industry Guide 7 as that part of a
mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination.
Proven and probable coal reserves are defined by SEC Industry
Guide 7 as follows:
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Proven (Measured) Reserves Reserves for which
(a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or
quality are computed from the results of detailed sampling and
(b) the sites for inspection, sampling and measurement are
spaced so close and the geographic character is so well defined
that size, shape, depth and mineral content of reserves are
well-established. |
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Probable (Indicated) Reserves Reserves for
which quantity and grade and/or quality are computed from
information similar to that used for proven
(measured) reserves, but the sites for inspection, sampling
and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than
that for proven (measured) reserves, is high enough to
assume continuity between points of observation. |
Our estimates of proven and probable coal reserves are
established within these guidelines. Proven reserves require the
coal to lie within one-quarter mile of a valid point of measure
or point of observation, such as exploratory drill holes or
previously mined areas. Estimates of probable reserves may lie
more than one-quarter mile, but less than three-quarters of a
mile, from a point of thickness measurement. Estimates within
the proven category have the highest degree of assurance, while
estimates within the probable category have only a moderate
degree of geologic assurance. Further exploration is necessary
to place probable reserves into the proven reserve category. Our
active properties generally have a much higher degree of
reliability because of increased drilling density. Active
surface reserves generally have points of observation as close
as 330 feet to 660 feet.
Our reserve estimates are prepared by our staff of geologists,
whose experience ranges from 10 to 30 years. We also have a
chief geologist of reserve reporting whose primary
responsibility is to track changes in reserve estimates,
supervise our other geologists and coordinate periodic
third-party reviews of our reserve estimates by qualified mining
consultants.
Our reserve estimates are predicated on information obtained
from our ongoing drilling program, which totals nearly 500,000
individual drill holes. We compile data from individual drill
holes in a computerized drill-hole database from which the
depth, thickness and, where core drilling is used, the
13
quality of the coal are determined. The density of the drill
pattern determines whether the reserves will be classified as
proven or probable. The reserve estimates are then input into
our computerized land management system, which overlays the
geological data with data on ownership or control of the mineral
and surface interests to determine the extent of our reserves in
a given area. The land management system contains reserve
information, including the quantity and quality (where
available) of reserves as well as production rates, surface
ownership, lease payments and other information relating to our
coal reserves and land holdings. We periodically update our
reserve estimates to reflect production of coal from the
reserves and new drilling or other data received. Accordingly,
reserve estimates will change from time to time to reflect
mining activities, analysis of new engineering and geological
data, changes in reserve holdings, modification of mining
methods and other factors.
Our estimate of the economic recoverability of our reserves is
based upon a comparison of unassigned reserves to assigned
reserves currently in production in the same geologic setting to
determine an estimated mining cost. These estimated mining costs
are compared to existing market prices for the quality of coal
expected to be mined and taking into consideration typical
contractual sales agreements for the region and product. Where
possible, we also review production by competitors in similar
mining areas. Only reserves expected to be mined economically
are included in our reserve estimates. Finally, our reserve
estimates include reductions for recoverability factors to
estimate a saleable product.
We periodically engage independent mining and geological
consultants to review estimates of our coal reserves. The most
recent of these audits, which was completed in January 2007,
included a review of the procedures used by us to prepare our
internal estimates, verification of the accuracy of selected
property reserve estimates and retabulation of reserve groups
according to standard classifications of reliability. This audit
confirmed that we controlled approximately 10.2 billion
tons of proven and probable reserves as of December 31,
2006.
With respect to the accuracy of our reserve estimates, our
experience is that recovered reserves are within plus or minus
10% of our proven and probable estimates, on average, and our
probable estimates are generally within the same statistical
degree of accuracy when the necessary drilling is completed to
move reserves from the probable to the proven classification. On
a regional basis, the expected degree of variance from reserve
estimate to tons produced is lower in the Powder River Basin,
Southwest and Illinois Basin due to the continuity of the coal
seams as confirmed by the mining history. Appalachia, however,
has a higher degree of risk due to the mountainous nature of the
topography which makes exploration drilling more difficult. Our
recovered reserves in Appalachia are less predictable and may
vary by an additional one to two percent above the threshold
discussed above.
We have numerous federal coal leases that are administered by
the U.S. Department of the Interior under the Federal Coal
Leasing Amendments Act of 1976. These leases cover our principal
reserves in Wyoming and other reserves in Montana and Colorado.
Each of these leases continues indefinitely, provided there is
diligent development of the property and continued operation of
the related mine or mines. The Bureau of Land Management has
asserted the right to adjust the terms and conditions of these
leases, including rent and royalties, after the first
20 years of their term and at
10-year intervals
thereafter. Annual rents on surface land under our federal coal
leases are now set at $3.00 per acre. Production royalties
on federal leases are set by statute at 12.5% of the gross
proceeds of coal mined and sold for surface-mined coal and 8%
for underground-mined coal. The federal government limits by
statute the amount of federal land that may be leased by any
company and its affiliates at any time to 75,000 acres in
any one state and 150,000 acres nationwide. As of
December 31, 2006, we leased 11,103 acres of federal
land in Colorado, 11,254 acres in Montana and
41,106 acres in Wyoming, for a total of 63,463 nationwide.
Similar provisions govern three coal leases with the Navajo and
Hopi Indian tribes. These leases cover coal contained in
65,000 acres of land in northern Arizona lying within the
boundaries of the Navajo Nation and Hopi Indian reservations. We
also lease coal-mining properties from various state governments.
Private coal leases normally have terms of between 10 and
20 years and usually give us the right to renew the lease
for a stated period or to maintain the lease in force until the
exhaustion of mineable and merchantable coal contained on the
relevant site. These private leases provide for royalties to be
paid to
14
the lessor either as a fixed amount per ton or as a percentage
of the sales price. Many leases also require payment of a lease
bonus or minimum royalty, payable either at the time of
execution of the lease or in periodic installments.
The terms of our private leases are normally extended by active
production on or near the end of the lease term. Leases
containing undeveloped reserves may expire or these leases may
be renewed periodically. With a portfolio of approximately
10.2 billion tons, we believe that we have sufficient
reserves to replace capacity from depleting mines for the
foreseeable future and that our significant reserve holdings is
one of our strengths. We believe that the current level of
production at our major mines is sustainable for the foreseeable
future.
Consistent with industry practice, we conduct only limited
investigation of title to our coal properties prior to leasing.
Title to lands and reserves of the lessors or grantors and the
boundaries of our leased properties are not completely verified
until we prepare to mine those reserves.
15
The following chart provides a summary, by mining complex, of
production for the years ended December 31, 2006 and 2005
and 2004, tonnage of coal reserves that is assigned to our
operating mines, our property interest in those reserves and
other characteristics of the facilities.
PRODUCTION AND ASSIGNED
RESERVES(1)
(Tons in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur Content(2) |
|
|
|
As of December 31, 2006 |
|
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<1.2 lbs. |
|
>1.2 to 2.5 lbs. |
|
>2.5 lbs. |
|
As |
|
Assigned |
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
|
sulfur dioxide |
|
sulfur dioxide |
|
sulfur dioxide |
|
Received |
|
Proven and |
|
|
Geographic Region/Mining |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Type of |
|
per |
|
per |
|
per |
|
Btu per |
|
Probable |
|
|
Complex |
|
2006 |
|
2005 |
|
2004 |
|
Coal |
|
Million Btu |
|
Million Btu |
|
Million Btu |
|
pound(3) |
|
Reserves |
|
Owned |
|
Leased |
|
Surface |
|
Underground |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4.6 |
|
|
|
4.1 |
|
|
|
4.9 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
13,300 |
|
|
|
31 |
|
|
11 |
|
|
20 |
|
|
|
|
|
|
|
31 |
|
|
Big Mountain
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
Steam |
|
|
|
4 |
|
|
|
30 |
|
|
|
|
|
|
|
12,300 |
|
|
|
34 |
|
|
|
|
|
34 |
|
|
|
|
|
|
|
34 |
|
|
Kanawha
Eagle(4)
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
Steam/Met. |
|
|
|
31 |
|
|
|
22 |
|
|
|
|
|
|
|
13,100 |
|
|
|
53 |
|
|
|
|
|
53 |
|
|
|
|
|
|
|
53 |
|
|
Harris
|
|
|
1.6 |
|
|
|
2.0 |
|
|
|
3.0 |
|
|
|
Steam/Met. |
|
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
13,800 |
|
|
|
8 |
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
Rocklick
|
|
|
2.2 |
|
|
|
2.6 |
|
|
|
2.0 |
|
|
|
Steam/Met. |
|
|
|
5 |
|
|
|
7 |
|
|
|
1 |
|
|
|
13,100 |
|
|
|
13 |
|
|
|
|
|
13 |
|
|
|
3 |
|
|
|
10 |
|
|
Wells
|
|
|
2.3 |
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
Steam/Met. |
|
|
|
20 |
|
|
|
29 |
|
|
|
|
|
|
|
12,800 |
|
|
|
49 |
|
|
|
|
|
49 |
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14.6 |
|
|
|
13.2 |
|
|
|
14.4 |
|
|
|
|
|
|
|
65 |
|
|
|
91 |
|
|
|
32 |
|
|
|
|
|
|
|
188 |
|
|
11 |
|
|
177 |
|
|
|
3 |
|
|
|
185 |
|
Midwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highland
|
|
|
3.7 |
|
|
|
3.8 |
|
|
|
3.2 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
11,400 |
|
|
|
88 |
|
|
31 |
|
|
57 |
|
|
|
|
|
|
|
88 |
|
|
Patriot
|
|
|
3.9 |
|
|
|
4.2 |
|
|
|
4.1 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
10,800 |
|
|
|
41 |
|
|
4 |
|
|
37 |
|
|
|
3 |
|
|
|
38 |
|
|
Air Quality
|
|
|
2.2 |
|
|
|
2.1 |
|
|
|
1.8 |
|
|
|
Steam |
|
|
|
|
|
|
|
25 |
|
|
|
33 |
|
|
|
10,700 |
|
|
|
58 |
|
|
5 |
|
|
53 |
|
|
|
|
|
|
|
58 |
|
|
Riola/ Vermilion Grove
|
|
|
1.7 |
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
10,500 |
|
|
|
19 |
|
|
|
|
|
19 |
|
|
|
|
|
|
|
19 |
|
|
Miller Creek
|
|
|
1.6 |
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
Steam |
|
|
|
|
|
|
|
2 |
|
|
|
28 |
|
|
|
10,000 |
|
|
|
30 |
|
|
29 |
|
|
1 |
|
|
|
30 |
|
|
|
|
|
|
Francisco Surface
|
|
|
2.0 |
|
|
|
1.8 |
|
|
|
2.1 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
10,500 |
|
|
|
6 |
|
|
2 |
|
|
4 |
|
|
|
6 |
|
|
|
|
|
|
Francisco Underground
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
0.9 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
10,600 |
|
|
|
22 |
|
|
3 |
|
|
18 |
|
|
|
|
|
|
|
22 |
|
|
Farmersburg
|
|
|
3.8 |
|
|
|
3.8 |
|
|
|
4.2 |
|
|
|
Steam |
|
|
|
1 |
|
|
|
11 |
|
|
|
95 |
|
|
|
10,300 |
|
|
|
107 |
|
|
93 |
|
|
14 |
|
|
|
107 |
|
|
|
|
|
|
Somerville Central
|
|
|
3.5 |
|
|
|
3.4 |
|
|
|
3.2 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
10,300 |
|
|
|
4 |
|
|
2 |
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
Somerville North
|
|
|
2.4 |
|
|
|
2.4 |
|
|
|
2.1 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
10,500 |
|
|
|
7 |
|
|
6 |
|
|
1 |
|
|
|
7 |
|
|
|
|
|
|
Somerville South
|
|
|
2.5 |
|
|
|
2.4 |
|
|
|
2.0 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
10,000 |
|
|
|
14 |
|
|
8 |
|
|
6 |
|
|
|
14 |
|
|
|
|
|
|
Viking
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
Steam |
|
|
|
|
|
|
|
1 |
|
|
|
7 |
|
|
|
10,700 |
|
|
|
8 |
|
|
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
Wildcat Hills Surface/Underground
|
|
|
2.4 |
|
|
|
2.6 |
|
|
|
2.7 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
10,300 |
|
|
|
10 |
|
|
5 |
|
|
5 |
|
|
|
10 |
|
|
|
|
|
|
Willow Lake
|
|
|
3.6 |
|
|
|
3.7 |
|
|
|
3.4 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
11,200 |
|
|
|
64 |
|
|
48 |
|
|
17 |
|
|
|
|
|
|
|
64 |
|
|
Gateway
|
|
|
2.6 |
|
|
|
0.5 |
|
|
|
|
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
10,300 |
|
|
|
20 |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
20 |
|
|
Dodge Hill
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
1.2 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
11,100 |
|
|
|
8 |
|
|
3 |
|
|
5 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
39.6 |
|
|
|
37.9 |
|
|
|
35.6 |
|
|
|
|
|
|
|
1 |
|
|
|
39 |
|
|
|
466 |
|
|
|
|
|
|
|
506 |
|
|
259 |
|
|
247 |
|
|
|
189 |
|
|
|
317 |
|
Powder River Basin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Antelope/ Rochelle
|
|
|
88.6 |
|
|
|
82.7 |
|
|
|
82.5 |
|
|
|
Steam |
|
|
|
1,171 |
|
|
|
|
|
|
|
|
|
|
|
8,800 |
|
|
|
1,171 |
|
|
|
|
|
1,171 |
|
|
|
1,171 |
|
|
|
|
|
|
Caballo
|
|
|
32.8 |
|
|
|
30.5 |
|
|
|
26.5 |
|
|
|
Steam |
|
|
|
787 |
|
|
|
122 |
|
|
|
22 |
|
|
|
8,600 |
|
|
|
931 |
|
|
|
|
|
931 |
|
|
|
931 |
|
|
|
|
|
|
Rawhide
|
|
|
17.0 |
|
|
|
12.4 |
|
|
|
6.9 |
|
|
|
Steam |
|
|
|
290 |
|
|
|
62 |
|
|
|
55 |
|
|
|
8,600 |
|
|
|
407 |
|
|
|
|
|
407 |
|
|
|
407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
138.4 |
|
|
|
125.6 |
|
|
|
115.9 |
|
|
|
|
|
|
|
2,248 |
|
|
|
184 |
|
|
|
77 |
|
|
|
|
|
|
|
2,509 |
|
|
|
|
|
2,509 |
|
|
|
2,509 |
|
|
|
|
|
Southwest/ Colorado:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black Mesa
|
|
|
|
|
|
|
3.9 |
|
|
|
4.8 |
|
|
|
Steam |
|
|
|
10 |
|
|
|
1 |
|
|
|
|
|
|
|
10,600 |
|
|
|
11 |
|
|
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
Kayenta
|
|
|
8.2 |
|
|
|
8.2 |
|
|
|
8.2 |
|
|
|
Steam |
|
|
|
185 |
|
|
|
82 |
|
|
|
3 |
|
|
|
11,000 |
|
|
|
270 |
|
|
|
|
|
270 |
|
|
|
270 |
|
|
|
|
|
|
Lee Ranch
|
|
|
5.5 |
|
|
|
5.3 |
|
|
|
5.8 |
|
|
|
Steam |
|
|
|
20 |
|
|
|
123 |
|
|
|
12 |
|
|
|
10,000 |
|
|
|
155 |
|
|
88 |
|
|
67 |
|
|
|
155 |
|
|
|
|
|
|
Twentymile
|
|
|
8.6 |
|
|
|
9.4 |
|
|
|
6.4 |
|
|
|
Steam |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
10,800 |
|
|
|
73 |
|
|
14 |
|
|
59 |
|
|
|
|
|
|
|
73 |
|
|
Seneca
|
|
|
|
|
|
|
1.1 |
|
|
|
1.5 |
|
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22.3 |
|
|
|
27.9 |
|
|
|
26.7 |
|
|
|
|
|
|
|
288 |
|
|
|
206 |
|
|
|
15 |
|
|
|
|
|
|
|
509 |
|
|
102 |
|
|
407 |
|
|
|
436 |
|
|
|
73 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur Content(2) |
|
|
|
As of December 31, 2006 |
|
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<1.2 lbs. |
|
>1.2 to 2.5 lbs. |
|
>2.5 lbs. |
|
As |
|
Assigned |
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
|
sulfur dioxide |
|
sulfur dioxide |
|
sulfur dioxide |
|
Received |
|
Proven and |
|
|
Geographic Region/Mining |
|
Dec. 31, |
|
Dec. 31, |
|
Dec. 31, |
|
Type of |
|
per |
|
per |
|
per |
|
Btu per |
|
Probable |
|
|
Complex |
|
2006 |
|
2005 |
|
2004 |
|
Coal |
|
Million Btu |
|
Million Btu |
|
Million Btu |
|
pound(3) |
|
Reserves |
|
Owned |
|
Leased |
|
Surface |
|
Underground |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Goonyella/ Eaglefield
|
|
|
2.2 |
|
|
|
2.1 |
|
|
|
1.7 |
|
|
|
Met. |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
12,800 |
|
|
|
48 |
|
|
|
|
|
48 |
|
|
|
2 |
|
|
|
46 |
|
|
Metropolitan
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
Met. |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
12,700 |
|
|
|
40 |
|
|
|
|
|
40 |
|
|
|
|
|
|
|
40 |
|
|
Wilkie Creek
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
1.4 |
|
|
|
Steam |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
10,800 |
|
|
|
223 |
|
|
|
|
|
223 |
|
|
|
223 |
|
|
|
|
|
|
Chain Valley
(80.0%)(5)
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Steam |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
11,900 |
|
|
|
17 |
|
|
|
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
Wambo Open
Cut(4)
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
Steam |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
12,400 |
|
|
|
106 |
|
|
|
|
|
106 |
|
|
|
106 |
|
|
|
|
|
|
Burton
(95.0%)(5)
|
|
|
4.3 |
|
|
|
4.4 |
|
|
|
3.2 |
|
|
|
Steam/Met. |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
12,400 |
|
|
|
38 |
|
|
|
|
|
38 |
|
|
|
38 |
|
|
|
|
|
|
Baralaba(4)
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Steam/Met. |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
12,200 |
|
|
|
2 |
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
Wilpinjong
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Steam |
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
9,900 |
|
|
|
165 |
|
|
|
|
|
165 |
|
|
|
165 |
|
|
|
|
|
|
Millennium(4)
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Met. |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
12,800 |
|
|
|
26 |
|
|
|
|
|
26 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10.9 |
|
|
|
8.4 |
|
|
|
6.3 |
|
|
|
|
|
|
|
498 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
665 |
|
|
|
|
|
665 |
|
|
|
562 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
225.8 |
|
|
|
213.0 |
|
|
|
198.9 |
|
|
|
|
|
|
|
3,100 |
|
|
|
687 |
|
|
|
590 |
|
|
|
|
|
|
|
4,377 |
|
|
372 |
|
|
4,005 |
|
|
|
3,699 |
|
|
|
678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following chart provides a summary of the amount of our
proven and probable coal reserves in each U.S. state and
Australia state, the predominant type of coal mined in the
applicable location, our property interest in the reserves and
other characteristics of the facilities.
ASSIGNED AND UNASSIGNED PROVEN AND PROBABLE COAL RESERVES
As of December 31, 2006
(Tons in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur Content(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<1.2 lbs. |
|
>1.2 to 2.5 lbs. |
|
>2.5 lbs. |
|
As |
|
|
|
|
|
|
Total Tons |
|
Proven and |
|
|
|
|
|
|
|
sulfur dioxide |
|
sulfur dioxide |
|
sulfur dioxide |
|
Received |
|
Reserve Control |
|
Mining Method |
|
|
|
|
Probable |
|
|
|
|
|
Type of |
|
per |
|
per |
|
per |
|
Btu per |
|
|
|
|
Coal Seam Location |
|
Assigned |
|
Unassigned |
|
Reserves(6) |
|
Proven |
|
Probable |
|
Coal |
|
Million Btu |
|
Million Btu |
|
Million Btu |
|
pound(3) |
|
Owned |
|
Leased |
|
Surface |
|
Underground |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio
|
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
19 |
|
|
|
6 |
|
|
Steam |
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
11,300 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
West Virginia
|
|
|
188 |
|
|
|
342 |
|
|
|
530 |
|
|
|
310 |
|
|
|
220 |
|
|
Steam/Met. |
|
|
141 |
|
|
|
190 |
|
|
|
199 |
|
|
|
13,000 |
|
|
|
224 |
|
|
|
306 |
|
|
|
15 |
|
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachia
|
|
|
188 |
|
|
|
367 |
|
|
|
555 |
|
|
|
329 |
|
|
|
226 |
|
|
|
|
|
141 |
|
|
|
190 |
|
|
|
224 |
|
|
|
|
|
|
|
249 |
|
|
|
306 |
|
|
|
15 |
|
|
|
540 |
|
Midwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
|
113 |
|
|
|
2,292 |
|
|
|
2,405 |
|
|
|
1,190 |
|
|
|
1,215 |
|
|
Steam |
|
|
5 |
|
|
|
38 |
|
|
|
2,362 |
|
|
|
10,400 |
|
|
|
2,195 |
|
|
|
210 |
|
|
|
78 |
|
|
|
2,327 |
|
|
Indiana
|
|
|
255 |
|
|
|
353 |
|
|
|
608 |
|
|
|
410 |
|
|
|
198 |
|
|
Steam |
|
|
1 |
|
|
|
40 |
|
|
|
567 |
|
|
|
10,300 |
|
|
|
402 |
|
|
|
206 |
|
|
|
258 |
|
|
|
350 |
|
|
Kentucky
|
|
|
138 |
|
|
|
1,019 |
|
|
|
1,157 |
|
|
|
622 |
|
|
|
535 |
|
|
Steam |
|
|
|
|
|
|
1 |
|
|
|
1,156 |
|
|
|
10,800 |
|
|
|
673 |
|
|
|
484 |
|
|
|
105 |
|
|
|
1,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest
|
|
|
506 |
|
|
|
3,664 |
|
|
|
4,170 |
|
|
|
2,222 |
|
|
|
1,948 |
|
|
|
|
|
6 |
|
|
|
79 |
|
|
|
4,085 |
|
|
|
|
|
|
|
3,270 |
|
|
|
900 |
|
|
|
441 |
|
|
|
3,729 |
|
Powder River Basin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana
|
|
|
|
|
|
|
162 |
|
|
|
162 |
|
|
|
158 |
|
|
|
4 |
|
|
Steam |
|
|
15 |
|
|
|
117 |
|
|
|
30 |
|
|
|
8,600 |
|
|
|
67 |
|
|
|
95 |
|
|
|
162 |
|
|
|
|
|
|
Wyoming
|
|
|
2,509 |
|
|
|
796 |
|
|
|
3,305 |
|
|
|
3,226 |
|
|
|
79 |
|
|
Steam |
|
|
3,020 |
|
|
|
183 |
|
|
|
102 |
|
|
|
8,700 |
|
|
|
|
|
|
|
3,305 |
|
|
|
3,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Powder River Basin
|
|
|
2,509 |
|
|
|
958 |
|
|
|
3,467 |
|
|
|
3,384 |
|
|
|
83 |
|
|
|
|
|
3,035 |
|
|
|
300 |
|
|
|
132 |
|
|
|
|
|
|
|
67 |
|
|
|
3,400 |
|
|
|
3,467 |
|
|
|
|
|
Southwest/ Colorado:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona
|
|
|
281 |
|
|
|
|
|
|
|
281 |
|
|
|
281 |
|
|
|
|
|
|
Steam |
|
|
195 |
|
|
|
83 |
|
|
|
3 |
|
|
|
10,900 |
|
|
|
|
|
|
|
281 |
|
|
|
281 |
|
|
|
|
|
|
Colorado
|
|
|
73 |
|
|
|
154 |
|
|
|
227 |
|
|
|
165 |
|
|
|
62 |
|
|
Steam |
|
|
139 |
|
|
|
|
|
|
|
88 |
|
|
|
10,600 |
|
|
|
43 |
|
|
|
184 |
|
|
|
|
|
|
|
227 |
|
|
New Mexico
|
|
|
155 |
|
|
|
544 |
|
|
|
699 |
|
|
|
636 |
|
|
|
63 |
|
|
Steam |
|
|
91 |
|
|
|
344 |
|
|
|
264 |
|
|
|
9,200 |
|
|
|
617 |
|
|
|
82 |
|
|
|
699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest
|
|
|
509 |
|
|
|
698 |
|
|
|
1,207 |
|
|
|
1,082 |
|
|
|
125 |
|
|
|
|
|
425 |
|
|
|
427 |
|
|
|
355 |
|
|
|
|
|
|
|
660 |
|
|
|
547 |
|
|
|
980 |
|
|
|
227 |
|
Australia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New South Wales
|
|
|
328 |
|
|
|
138 |
|
|
|
466 |
|
|
|
253 |
|
|
|
213 |
|
|
Steam/Met. |
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
12,400 |
|
|
|
|
|
|
|
466 |
|
|
|
271 |
|
|
|
195 |
|
|
Queensland
|
|
|
337 |
|
|
|
|
|
|
|
337 |
|
|
|
104 |
|
|
|
233 |
|
|
Steam/Met. |
|
|
335 |
|
|
|
2 |
|
|
|
|
|
|
|
11,200 |
|
|
|
|
|
|
|
337 |
|
|
|
291 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
665 |
|
|
|
138 |
|
|
|
803 |
|
|
|
357 |
|
|
|
446 |
|
|
|
|
|
801 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
803 |
|
|
|
562 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proven and Probable
|
|
|
4,377 |
|
|
|
5,825 |
|
|
|
10,202 |
|
|
|
7,374 |
|
|
|
2,828 |
|
|
|
|
|
4,408 |
|
|
|
998 |
|
|
|
4,796 |
|
|
|
|
|
|
|
4,246 |
|
|
|
5,956 |
|
|
|
5,465 |
|
|
|
4,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
(1) |
Assigned reserves represent recoverable coal reserves that we
have committed to mine at locations operating as of
December 31, 2006. Unassigned reserves represent coal at
suspended locations and coal that has not been committed. These
reserves would require new mine development, mining equipment or
plant facilities before operations could begin on the property. |
|
(2) |
Compliance coal is defined by Phase II of the Clean Air Act
as coal having sulfur dioxide content of 1.2 pounds or less per
million Btu. Non-compliance coal is defined as coal having
sulfur dioxide content in excess of this standard. Electricity
generators are able to use coal that exceeds these
specifications by using emissions reduction technology, using
emissions allowance credits or blending higher sulfur coal with
lower sulfur coal. |
|
(3) |
As-received Btu per pound includes the weight of moisture in the
coal on an as sold basis. The following table reflects the
average moisture content used in the determination of
as-received Btu by region: |
|
|
|
|
|
|
Appalachia
|
|
|
6.0 |
% |
Midwest:
|
|
|
|
|
|
Illinois
|
|
|
14.0 |
% |
|
Indiana
|
|
|
15.0 |
% |
|
Kentucky
|
|
|
12.5 |
% |
|
Missouri/ Oklahoma
|
|
|
12.0 |
% |
Powder River Basin:
|
|
|
|
|
|
Montana
|
|
|
26.5 |
% |
|
Wyoming
|
|
|
27.5 |
% |
Southwest:
|
|
|
|
|
|
Arizona
|
|
|
13.0 |
% |
|
Colorado
|
|
|
14.0 |
% |
|
New Mexico
|
|
|
15.5 |
% |
Australia
|
|
|
10.0 |
% |
|
|
(4) |
These joint ventures are consolidated in our results and their
proven and probable coal reserves are reflected at 100%. Our
effective percentage interest in each operation is as follows:
Kanawha Eagle 73.9%; Wambo Open-Cut
75.0%; Baralaba 62.5% and Millennium
84.6%. |
|
(5) |
Proven and probable coal reserves for these joint ventures
reflect our proportional ownership as indicated parenthetically. |
|
(6) |
Proven and probable reserves exclude approximately
30 million tons located in Zulia State, Venezuela, related
to the Las Carmelitas Project, which is held through our 51%
interest in Excelven Pty Ltd. |
19
THIS PAGE INTENTIONALLY LEFT BLANK
20
PART II
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations. |
Overview
We are the largest private sector coal company in the world,
with majority interests in 40 coal operations located throughout
all major U.S. coal producing regions and internationally
in Australia and Venezuela. In 2006, we sold 247.6 million
tons of coal, which was approximately 38% greater than the sales
of our closest competitor. Our domestic sales represented 22% of
all U.S. coal sales and was approximately 80% greater than
the sales of our closest domestic competitor. Based on Energy
Information Administration (EIA) estimates, demand
for coal in the United States was approximately 1.1 billion
tons in 2006. Domestic coal consumption is expected to grow at
an average rate of 1.8% per year through 2030 when
U.S. coal demand is forecasted to be 1.8 billion tons.
The EIA expects demand for coal use at
coal-to-liquids
(CTL) plants to grow to 112 million tons by
2030. Coal-fueled generation is used in most cases to meet
baseload electricity requirements, and coal use generally grows
at the approximate rate of electricity growth, which is expected
to average 1.5% annually through 2030. Coal production
located west of the Mississippi River is projected to provide
most of the incremental growth as Western production increases
to an estimated 68% share of total production in 2030. In 2005,
coals share of electricity generation was approximately
50%, a share that the EIA projects will grow to 57% by 2030.
Our primary customers are U.S. utilities, which accounted
for 87% of our sales in 2006. We typically sell coal to utility
customers under long-term contracts (those with terms longer
than one year). During 2006, approximately 90% of our sales were
under long-term contracts. As of December 31, 2006,
production totaled 226.2 million tons and sales totaled
247.6 million tons. As discussed more fully in
Item 1A. Risk Factors, our results of operations in the
near-term could be negatively impacted by poor weather
conditions, unforeseen geologic conditions or equipment problems
at mining locations, and by the availability of transportation
for coal shipments. On a long-term basis, our results of
operations could be impacted by our ability to secure or acquire
high-quality coal reserves, find replacement buyers for coal
under contracts with comparable terms to existing contracts, or
the passage of new or expanded regulations that could limit our
ability to mine, increase our mining costs, or limit our
customers ability to utilize coal as fuel for electricity
generation. In the past, we have achieved production levels that
are relatively consistent with our projections.
We conduct business through four principal operating segments:
Western U.S. Mining, Eastern U.S. Mining, Australian
Mining, and Trading and Brokerage. Our Western U.S. Mining
operations consist of our Powder River Basin, Southwest and
Colorado operations, and our Eastern U.S. Mining operations
21
consist of our Appalachia and Midwest operations. The principal
business of the Western U.S. Mining segment is the mining,
preparation and sale of steam coal, sold primarily to electric
utilities. The principal business of the Eastern
U.S. Mining segment is the mining, preparation and sale of
steam coal, sold primarily to electric utilities, as well as the
mining of metallurgical coal, sold to steel and coke producers.
Geologically, Western operations mine bituminous and
subbituminous coal deposits and Eastern operations mine
bituminous coal deposits. Our Western U.S. Mining
operations are characterized by predominantly surface extraction
processes, lower sulfur content and Btu of coal, and higher
customer transportation costs (due to longer shipping
distances). Our Eastern U.S. Mining operations are
characterized by predominantly underground extraction processes,
higher sulfur content and Btu of coal, and lower customer
transportation costs (due to shorter shipping distances).
Australian Mining operations are characterized by both surface
and underground extraction processes, mining various qualities
of low-sulfur, high Btu coal (metallurgical coal) as well as
steam coal primarily sold to an international customer base with
a small portion sold to Australian steel producers and power
generators. In the second half of 2006, through two separate
transactions, we acquired Excel Coal Limited
(Excel), an independent coal company in Australia
for a total acquisition price of US$1.51 billion, net of
cash received, plus approximately US$293.0 million in
assumed debt. See Liquidity and Capital Resources for
information on the financing of the Excel transaction. Assets
acquired include three operating mines and three
development-stage mines, along with more than 500 million
tons of proven and probable coal reserves.
We own a 25.5% interest in Carbones del Guasare, which owns and
operates the Paso Diablo Mine in Venezuela. The Paso Diablo Mine
produces approximately 6 to 8 million tons of steam coal
annually for export to the United States and Europe. During
2006, the Paso Diablo Mine contributed $28.0 million to
segment Adjusted EBITDA in Corporate and Other Adjusted
EBITDA and paid a dividend of $18.2 million. At
December 31, 2006, our investment in Paso Diablo was
$60.1 million.
Metallurgical coal is produced primarily from four of our
Australian mines (two of which were acquired in the Excel
transaction) and two of our U.S. mines. Metallurgical coal
is approximately 5% of our total sales volume and approximately
3% of U.S. sales volume.
In addition to our mining operations, which comprised 87% of
revenues in 2006, our trading and brokerage operations (13% of
revenues), transactions utilizing our vast natural resource
position (selling non-core land holdings and mineral interests)
and other ventures generate revenues and additional cash flows.
We continue to pursue the development of coal-fueled generating
projects in areas of the U.S. where electricity demand is
strong and where there is access to land, water, transmission
lines and low-cost coal. The projects involve mine-mouth
generating plants using our surface lands and coal reserves. Our
ultimate role in these projects could take numerous forms,
including, but not limited to, equity partner, contract miner or
coal sales. The projects we are currently pursuing include the
1,600-megawatt Prairie State Energy Campus in Washington County,
Illinois and the 1,500-megawatt Thoroughbred Energy Campus in
Muhlenberg County, Kentucky. The plants, assuming all necessary
permits and financing are obtained and following selection of
partners and sale of a majority of the output of each plant,
could be operational following a four-year construction phase.
In October 2006, we entered an agreement with CMS Enterprises to
share equally an expected 30% equity interest in the Prairie
State Energy Campus and to oversee development and operation of
the generating plant and coal mine. In the third quarter of
2006, the Prairie State Energy Campus received affirmation of
the air quality permit from the U.S. Environmental
Protection Agency, and in the fourth quarter of 2006, parties
that had previously challenged the permit filed a new appeal.
The EIA projects that the high price of oil will lead to an
increase in demand for unconventional sources of transportation
fuel, including Btu conversion technologies, and that coal will
increase its share as a fuel for generation of electricity. We
are exploring several Btu conversion projects, which are
designed to
22
expand the uses of coal through various technologies, and we are
continuing to explore options particularly as they relate to Btu
conversion technologies such as
coal-to-liquids and
coal gasification.
Effective February 22, 2006, we implemented a two-for-one
stock split on all shares of our common stock. All share and per
share amounts in this annual report reflect
this split. In July 2005, our Board of Directors authorized a
share repurchase program of up to 5% of the outstanding shares
of our common stock. The repurchases may be made from time to
time based on an evaluation of our outlook and general business
conditions, as well as alternative investment and debt repayment
options. In 2006, we repurchased 2.2 million of our common
shares for $99.8 million under this repurchase program.
Results of Operations
The discussion of our results of operations below includes
references to and analysis of our segments Adjusted EBITDA
results. Adjusted EBITDA is defined as income from continuing
operations before deducting early debt extinguishment costs, net
interest expense, income taxes, minority interests, asset
retirement obligation expense and depreciation, depletion and
amortization. Adjusted EBITDA is used by management primarily as
a measure of our segments operating performance. Because
Adjusted EBITDA is not calculated identically by all companies,
our calculation may not be comparable to similarly titled
measures of other companies. Adjusted EBITDA is reconciled to
its most comparable measure, under generally accepted accounting
principles, in Note 25 to our consolidated financial
statements.
Year Ended December 31, 2006 Compared to Year Ended
December 31, 2005
Higher average sales prices and increased volumes in the Eastern
U.S., Powder River Basin and Australian mining operations,
including the October 2006 acquisition of three mines in
Australia, contributed to a 13.2% increase in revenues to
$5.26 billion compared to 2005. Segment Adjusted EBITDA
increased 13.8% to $1.23 billion primarily on growth in
international volumes and higher sales prices from our
Australian mining operations and increased results from Trading
and Brokerage operations. Increases in sales volumes and prices
in our U.S. mining operations were partially offset by
operational challenges experienced during the period such as
ongoing shipping constraints from rail performance in the Powder
River Basin and port congestion in Australia; geologic,
equipment and third-party supply issues as well as mine closures
in our Western U.S. mining operations in late 2005. Net
income was $600.7 million in 2006, or $2.23 per
diluted share, an increase of 42.1% over 2005 net income of
$422.7 million, or $1.58 per diluted share.
The following table presents tons sold by operating segment for
the year ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Increase | |
|
|
December 31, | |
|
(Decrease) | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
Tons | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Tons in millions) | |
Western U.S. Mining Operations
|
|
|
160.5 |
|
|
|
154.3 |
|
|
|
6.2 |
|
|
|
4.0 |
% |
Eastern U.S. Mining Operations
|
|
|
54.7 |
|
|
|
52.5 |
|
|
|
2.2 |
|
|
|
4.2 |
% |
Australian Mining Operations
|
|
|
11.0 |
|
|
|
8.3 |
|
|
|
2.7 |
|
|
|
32.5 |
% |
Trading and Brokerage Operations
|
|
|
21.4 |
|
|
|
24.8 |
|
|
|
(3.4 |
) |
|
|
(13.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tons sold
|
|
|
247.6 |
|
|
|
239.9 |
|
|
|
7.7 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The following table presents revenues for the year ended
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase to | |
|
|
Year Ended December 31, | |
|
Revenues | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Sales
|
|
$ |
5,144,925 |
|
|
$ |
4,545,323 |
|
|
$ |
599,602 |
|
|
|
13.2 |
% |
Other revenues
|
|
|
111,390 |
|
|
|
99,130 |
|
|
|
12,260 |
|
|
|
12.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
5,256,315 |
|
|
$ |
4,644,453 |
|
|
$ |
611,862 |
|
|
|
13.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, our total revenues were $5.26 billion, an increase
of $611.9 million, or 13.2%, compared to prior year, which
resulted from sales price increases in all regions, particularly
in our Eastern and Australian operations and demand-driven sales
volume increases in the Powder River Basin, Midwest and
Australian operations. Volumes related to the October 2006 Excel
acquisition accounted for 2.1 million tons of the increase
to tons sold and approximately 43% of the increase to sales in
Australia. Partially offsetting sales price increases were lower
regional sales due to late 2005 mine closures in the Western
U.S. Mining operations and lower brokerage volumes.
Sales increased $599.6 million, or 13.2%, to
$5.14 billion in 2006, which included increases of
$91.9 million in Western U.S. Mining sales,
$318.1 million in Eastern U.S. Mining sales and
$245.1 million in Australian Mining sales, partially offset
by a decrease of $55.5 million in our brokerage operations.
Overall, prices and volumes in our Western U.S. Mining
operations increased, mainly reflecting increases to sales
prices of over $0.70 per ton and volumes of
12.7 million tons in the Powder River Basin. These
increases at our Powder River Basin operations resulted from
strong demand for the mines low-sulfur products and
improved rail conditions compared to 2005, when the region was
dealing with major railroad maintenance. Despite rail
performance improvements relative to 2005, constrained rail
capacity continued to limit growth in the region in 2006.
Offsetting this increase was lower production due to the
cessation of mining operations at our Seneca and Black Mesa
mines in late 2005 and unfavorable geologic conditions and
equipment issues at our Twentymile Mine. On average, per ton
sales prices in our Eastern U.S. Mining operations
increased, driven by increases in metallurgical and steam coal
prices. Sales volumes increased due to a newly developed mine,
which began operation in late 2005, and the expansion of several
existing mines, partially offset by lower production at one of
our mines and at contract miner operations, as both managed
geologic, equipment and, in certain locations, supplier issues.
Sales from our Australian Mining operations were
$245.1 million, or 41.0%, higher than in 2005, primarily
due to higher international metallurgical coal prices, higher
production at our underground mine following installation of a
new longwall in the second quarter of 2006 and additional
volumes from our newly acquired mines ($105.1 million). A
higher per ton sales price reflected higher contract prices in
2006 for metallurgical coal as well as the slower realization of
metallurgical coal price increases in 2005 when we operated
under some lower priced carry-over contracts from 2004 through
most of the first nine months of 2005. Brokerage
operations sales decreased $55.5 million in 2006
compared to prior year due to lower sales volumes, partially
offset by higher sales prices.
Other revenues increased $12.3 million, or 12.4%, compared
to prior year. The increase includes proceeds of
$28.2 million from settlement of commitments by a
third-party coal producer following a brokerage contract
restructuring. Offsetting this increase were lower revenues
related to synthetic fuel facilities as customers idled their
synthetic fuel plants due to high crude oil prices.
24
Our total segment Adjusted EBITDA was $1.23 billion for the
year ended 2006, compared with $1.08 billion in the prior
year. Details were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase to Segment | |
|
|
Year Ended December 31, | |
|
Adjusted EBITDA | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Western U.S. Mining Operations
|
|
$ |
473,074 |
|
|
$ |
459,039 |
|
|
$ |
14,035 |
|
|
|
3.1 |
% |
Eastern U.S. Mining Operations
|
|
|
384,107 |
|
|
|
374,628 |
|
|
|
9,479 |
|
|
|
2.5 |
% |
Australian Mining Operations
|
|
|
278,411 |
|
|
|
202,582 |
|
|
|
75,829 |
|
|
|
37.4 |
% |
Trading and Brokerage Operations
|
|
|
92,604 |
|
|
|
43,058 |
|
|
|
49,546 |
|
|
|
115.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Adjusted EBITDA
|
|
$ |
1,228,196 |
|
|
$ |
1,079,307 |
|
|
$ |
148,889 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from our Western U.S. Mining operations
increased $14.0 million, or 3.1%, during 2006 primarily
reflecting an increase in sales volumes of 12.7 million
tons at our Powder River Basin operations, which resulted from
continued strong demand and improved rail performance relative
to 2005. Western U.S. Mining operations sales price per ton
increased moderately due to mix changes resulting from ceasing
operations at our Black Mesa and Seneca mines. Western
U.S. Mining operations cost increases were driven by higher
fuel costs, an increase in revenue-based royalties and
production taxes, and the timing of major repairs. In addition,
we experienced unfavorable geologic conditions and equipment
issues related to the new longwall system at our Twentymile
Mine; however, a recovery of certain costs associated with the
equipment difficulties lessened the impact of these issues on
our 2006 results. The Western U.S. Mining operations were
also negatively impacted by the cessation of operations at the
Black Mesa mine in late 2005.
Eastern U.S. Mining operations Adjusted EBITDA
increased $9.5 million, or 2.5%, compared to prior year
primarily due to higher sales volumes partially offset by a
decrease in margin per ton. Results improved compared to prior
year as benefits of higher volumes, product mix and sales prices
were partially offset by higher costs. The Eastern
U.S. Mining operations experienced higher costs per ton due
to fuel costs, revenue-based royalties and production taxes as
well as higher costs associated with equipment, geologic and
contract miner issues. The 2006 results were also negatively
impacted by lower revenues from synthetic fuel facilities of
$10.1 million as customers idled their synthetic fuel
plants. Also impacting Eastern U.S. Mining results was
$8.9 million of income from a settlement related to
customer billings regarding coal quality.
Our Australian Mining operations Adjusted EBITDA increased
$75.8 million, or 37.4%, compared to prior year primarily
due to increased sales volumes following increased production
from the second quarter installation of a new longwall system at
our underground mine, higher metallurgical coal sales prices,
and a $19.7 million contribution from our newly acquired
mines.
Trading and Brokerage operations Adjusted EBITDA increased
$49.5 million from the prior year, as 2006 results included
proceeds from restructuring the brokerage contract mentioned
above, improved brokerage margins and contribution from the
newly established international operation, partially offset by
lower domestic trading results.
25
|
|
|
Income Before Income Taxes and Minority Interests |
The following table presents income before income taxes and
minority interests for the years ended December 31, 2006
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) | |
|
|
Year Ended December 31, | |
|
to Income | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Total Segment Adjusted EBITDA
|
|
$ |
1,228,196 |
|
|
$ |
1,079,307 |
|
|
$ |
148,889 |
|
|
|
13.8 |
% |
Corporate and Other Adjusted EBITDA
|
|
|
(147,792 |
) |
|
|
(208,909 |
) |
|
|
61,117 |
|
|
|
29.3 |
% |
Depreciation, depletion and amortization
|
|
|
(377,210 |
) |
|
|
(316,114 |
) |
|
|
(61,096 |
) |
|
|
(19.3 |
)% |
Asset retirement obligation expense
|
|
|
(40,112 |
) |
|
|
(35,901 |
) |
|
|
(4,211 |
) |
|
|
(11.7 |
)% |
Interest expense and early debt extinguishment costs
|
|
|
(144,846 |
) |
|
|
(102,939 |
) |
|
|
(41,907 |
) |
|
|
(40.7 |
)% |
Interest income
|
|
|
12,726 |
|
|
|
10,641 |
|
|
|
2,085 |
|
|
|
19.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests
|
|
$ |
530,962 |
|
|
$ |
426,085 |
|
|
$ |
104,877 |
|
|
|
24.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests of
$531.0 million for 2006 is $104.9 million, or 24.6%,
higher than 2005 primarily due to improved segment Adjusted
EBITDA as discussed above.
Corporate and Other Adjusted EBITDA results include selling and
administrative expenses, equity income from our joint ventures,
net gains on asset disposals or exchanges, costs associated with
past mining obligations and revenues and expenses related to our
other commercial activities such as coalbed methane, generation
development, Btu conversion and resource management. The
$61.1 million improvement in Corporate and Other Adjusted
EBITDA (net expense) in 2006 compared to 2005 includes the
following:
|
|
|
|
|
Higher gains on asset disposals and exchanges of
$30.7 million. The 2006 activity included sales with a
combined gain of $66.3 million from the sale of
non-strategic coal reserves and surface lands located in
Kentucky and West Virginia, a $39.2 million gain on an
exchange with the Bureau of Land Management of approximately
63 million tons of leased coal reserves at our Caballo
mining operation for approximately 46 million tons of coal
reserves contiguous with our North Antelope Rochelle mining
operation and other gains on asset disposals totaling
$26.7 million. In comparison, activity in 2005 included a
$37.4 million gain on exchange of coal reserves as part of
a dispute settlement with a third-party supplier, a
$31.1 million gain from sale of our remaining
0.838 million units of Penn Virginia Resource Partners,
L.P., a $12.5 million gain from the sale of non-strategic
coal reserves and properties, a $6.2 million gain on an
asset exchange from which we received Illinois Basin coal and
other gains on asset disposals of $14.3 million; |
|
|
|
Lower selling and administrative expenses of $13.9 million
primarily associated with lower performance-based incentive
costs, partially offset by increases to share-based compensation
expense as a result of the new requirement to expense stock
options, costs to support corporate and international growth
initiatives and costs for the development and installation of a
new enterprise resource planning system. The lower costs
associated with the performance-based incentive plan related to
a long-term, executive incentive plan that is driven by
shareholder return and reflected lower stock price appreciation
in 2006 than in the prior year; |
|
|
|
Higher equity income of $8.0 million from our 25.5%
interest in Carbones del Guasare, which owns and operates the
Paso Diablo Mine in Venezuela; and |
|
|
|
Lower net expenses of $4.7 million related to the
development of the Prairie State Energy Campus due to a higher
rate of cost reimbursement from the partners in 2006. |
26
Depreciation, depletion and amortization increased
$61.1 million in 2006 due to higher production volume,
acquisitions and the impact of escalating costs and new capital,
including two new longwall installations and new mine
development. Also, 2005 depreciation, depletion and amortization
was net of amortization of acquired contract liabilities.
Interest expense and early debt extinguishment costs increased
$41.9 million primarily due to approximately
$1.7 billion in new debt issuances in the second half of
2006 to finance the Excel acquisition. See Liquidity and Capital
Resources for more details of the debt issued.
The following table presents net income for the year ended
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) | |
|
|
Year Ended December 31, | |
|
to Income | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Income before income taxes and minority interests
|
|
$ |
530,962 |
|
|
$ |
426,085 |
|
|
$ |
104,877 |
|
|
|
24.6 |
% |
Income tax benefit (provision)
|
|
|
81,515 |
|
|
|
(960 |
) |
|
|
82,475 |
|
|
|
n/a |
|
Minority interests
|
|
|
(11,780 |
) |
|
|
(2,472 |
) |
|
|
(9,308 |
) |
|
|
(376.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
600,697 |
|
|
$ |
422,653 |
|
|
$ |
178,044 |
|
|
|
42.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income increased $178.0 million in 2006 compared to
prior year due to the increase in income before income taxes and
minority interests discussed above and an income tax benefit
compared to an income tax provision in 2005. The income tax
benefit for the year ended 2006 related primarily to a reduction
in tax reserves no longer required due to the finalization of
various federal and state returns and expiration of applicable
statute of limitations, and a reduction in a portion of the
valuation allowance related to net operating loss
(NOL) carry-forwards. The reduction to the valuation
allowance resulted from an increase to estimated future taxable
income primarily resulting from long-term contracts signed in
late 2006 which increased our ability to realize these benefits
in the future. Minority interests increased primarily as a
result of acquiring an additional interest in a joint venture
near the end of the first quarter of 2006.
Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Our 2005 revenues of $4.64 billion increased 27.9% over the
prior year. Revenues were driven higher by improved pricing in
all of our mining operations and increased sales volume with
239.9 million tons sold compared to 227.2 million tons
in 2004. Segment Adjusted EBITDA of $1.08 billion was a
39.5% increase over the prior year due to increases in sales
volumes and prices at our U.S. and Australian Mining Operations.
Results in our Western U.S. Mining Operations segment
include amounts for our April 15, 2004, acquisition of the
Twentymile Mine in Colorado. Results in our Australian Mining
Operations segment include amounts for our April 15, 2004,
acquisition of the Burton and North Goonyella Mines as well as
the opening of the Eaglefield Mine adjacent to the North
Goonyella Mine in the fourth quarter of 2004. Our Corporate and
Other segment includes results from our December 2004
acquisition of a 25.5% interest in Carbones del Guasare, which
owns and operates the Paso Diablo Mine in Venezuela. In
addition, higher gains on property transactions contributed to
higher year over year results. Net income was
$422.7 million in 2005, or $1.58 per diluted share, an
increase of 141.0% over 2004 net income of
$175.4 million, or $0.69 per diluted share.
27
The following table presents tons sold by operating segment for
the years ended December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Increase | |
|
|
December 31, | |
|
(Decrease) | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
Tons | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Tons in millions) | |
Western U.S. Mining Operations
|
|
|
154.3 |
|
|
|
142.2 |
|
|
|
12.1 |
|
|
|
8.5 |
% |
Eastern U.S. Mining Operations
|
|
|
52.5 |
|
|
|
51.7 |
|
|
|
0.8 |
|
|
|
1.5 |
% |
Australian Mining Operations
|
|
|
8.3 |
|
|
|
6.1 |
|
|
|
2.2 |
|
|
|
36.1 |
% |
Trading and Brokerage Operations
|
|
|
24.8 |
|
|
|
27.2 |
|
|
|
(2.4 |
) |
|
|
(8.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tons sold
|
|
|
239.9 |
|
|
|
227.2 |
|
|
|
12.7 |
|
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents revenues for the years ended
December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Increase to Revenues | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Sales
|
|
$ |
4,545,323 |
|
|
$ |
3,545,027 |
|
|
$ |
1,000,296 |
|
|
|
28.2 |
% |
Other revenues
|
|
|
99,130 |
|
|
|
86,555 |
|
|
|
12,575 |
|
|
|
14.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
4,644,453 |
|
|
$ |
3,631,582 |
|
|
$ |
1,012,871 |
|
|
|
27.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues increased by $1.01 billion, or 27.9%, to
$4.64 billion compared to prior year. The three mines we
acquired in the second quarter of 2004 contributed
$365.2 million of revenue growth due to the additional
105 days of operations in 2005 compared to the prior year.
The remaining $647.7 million of revenue growth was driven
by higher sales prices and volumes across all mining segments
and improved volumes in our brokerage operations.
Sales increased 28.2% to $4.55 billion in 2005, reflecting
increases in every operating segment. Western U.S. Mining
sales increased $222.2 million, Eastern U.S. Mining
sales were $224.0 million higher, sales in Australia Mining
improved $328.0 million and sales from our brokerage
operations increased $226.0 million. Sales in every segment
increased on improved pricing, and volumes were higher in every
segment other than Trading and Brokerage. Our average sales
price per ton increased 17.4% during 2005 due to increased
demand for all of our coal products, which drove pricing higher,
particularly in the regions where we produce metallurgical coal.
Prices for metallurgical coal and our ultra-low sulfur Powder
River Basin coal have been the subject of increasing demand. We
sell metallurgical coal from our Eastern U.S. and Australian
Mining operations. We sell ultra-low sulfur Powder River Basin
coal from our Western U.S. Mining operations. The sales mix
also improved due to an increase in sales from our Australian
Mining segment, where per ton prices are higher than in domestic
markets due primarily to a higher proportion of metallurgical
coal production in the Australian segment sales mix.
The increase in Eastern U.S. Mining operations sales was
primarily due to improved pricing for both steam and
metallurgical coal from the region. On average, prices in our
Eastern U.S. Mining operations increased 14.1% to
$33.10 per ton. Sales increased in our Western
U.S. Mining operations due to higher demand-driven volumes
and prices, particularly in the Powder River Basin. Overall,
prices in our Western U.S. Mining operations increased 6.6%
to $10.45 per ton. Powder River Basin production and sales
volumes were up as a result of increasingly strong demand for
the mines low-sulfur product, which continues to expand
its market area geographically. Powder River Basin operations
were able to ship record volumes during 2005 by overcoming train
derailments, weather and track maintenance disruptions on the
main shipping line out of the basin. Our Twentymile Mine,
acquired in April of 2004, contributed to higher sales in 2005
due to an additional four months of ownership, higher prices and
increased mine
28
productivity. Sales from our Australian Mining operations were
$328.0 million, or 122.1%, higher than in 2004. The
increase in Australian sales was due primarily to a 63.3%
increase in per ton sales prices largely due to higher
international metallurgical coal prices, an increase in volumes
which included the opening of our Eaglefield surface mine at the
end of 2004, and $197.6 million of incremental sales from
the two mines we acquired in April 2004 due to 105 additional
days of operations in 2005 compared to 2004. Our Trading and
Brokerage operations sales increased $226.0 million in 2005
compared to prior year due to an increase in average per ton
prices and higher eastern U.S. and international brokerage
volumes.
Other revenues increased $12.6 million, or 14.5%, compared
to prior year primarily due to proceeds from a purchase contract
restructuring and higher synthetic fuel revenues in the Midwest.
Our total segment Adjusted EBITDA of $1.08 billion for 2005
was $305.5 million higher than 2004 segment Adjusted EBITDA
of $773.8 million, and was composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase to Segment | |
|
|
Year Ended December 31, | |
|
Adjusted EBITDA | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Western U.S. Mining Operations
|
|
$ |
459,039 |
|
|
$ |
402,052 |
|
|
$ |
56,987 |
|
|
|
14.2 |
% |
Eastern U.S. Mining Operations
|
|
|
374,628 |
|
|
|
280,357 |
|
|
|
94,271 |
|
|
|
33.6 |
% |
Australian Mining Operations
|
|
|
202,582 |
|
|
|
50,372 |
|
|
|
152,210 |
|
|
|
302.2 |
% |
Trading and Brokerage Operations
|
|
|
43,058 |
|
|
|
41,039 |
|
|
|
2,019 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Adjusted EBITDA
|
|
$ |
1,079,307 |
|
|
$ |
773,820 |
|
|
$ |
305,487 |
|
|
|
39.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from our Western U.S. Mining operations
increased $57.0 million during 2005 due to a margin per ton
increase of $0.15, or 5.3%, and a sales volume increase of
12.1 million tons. Results in the Powder River Basin
operations contributed to the increase in Western
U.S. Mining operations as it earned 12.3% higher per ton
margins while increasing volumes 8.5% in response to greater
demand for our low-sulfur products. Improved revenues overcame
increased unit costs that resulted from higher fuel and
explosives costs, lower than anticipated volume due to rail
difficulties and an increase in revenue-based royalties and
production taxes. The Twentymile Mine, acquired in April of
2004, contributed $25.4 million more to Adjusted EBITDA in
2005 than in 2004, due to four months of incremental ownership
and a 22.2% increase in per ton margin.
Eastern U.S. Mining operations Adjusted EBITDA
increased $94.3 million, or 33.6%, compared to prior year
primarily due to an increase in margin per ton of $1.71, or
31.5%. Our Eastern U.S. Mining operations Adjusted
EBITDA increased as a result of sales price increases, partially
offset by lower production at two of our mines and higher costs
related to geologic issues, contract mining, fuel, repair and
maintenance and the impact of heavy rainfall on surface
operations early in the year.
Our Australian Mining operations Adjusted EBITDA increased
$152.2 million in the current year, a 302.2% increase
compared to prior year due to an increase of $16.23, or 197.4%,
in margin per ton and 2.2 million additional tons shipped.
Our Australian operations produce mostly (75% to 85%) high
margin metallurgical coal. The two mines we acquired in April
2004 added $87.4 million to Adjusted EBITDA compared to
eight months of ownership in 2004. The remaining increase of
$64.8 million was primarily due to an increase in volume,
including tonnage from our surface operation opened at the end
of the prior year, and an increase of 63.3% in average per ton
sale price. While current year margins benefited from strong
sales prices, margin growth was limited by the impact of port
congestion, related demurrage costs and higher costs due to
geological problems at the underground mine.
Trading and Brokerage operations Adjusted EBITDA increased
$2.0 million from the prior year primarily due to higher
brokerage results. Results in 2005 included a net charge of
$4.0 million, primarily related to the breach of a coal
supply contract by a producer.
29
|
|
|
Reconciliation of Segment Adjusted EBITDA to Income Before
Income Taxes and Minority Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) | |
|
|
Year Ended December 31, | |
|
to Income | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Total Segment Adjusted EBITDA
|
|
$ |
1,079,307 |
|
|
$ |
773,820 |
|
|
$ |
305,487 |
|
|
|
39.5 |
% |
Corporate and Other Adjusted EBITDA
|
|
|
(208,909 |
) |
|
|
(214,576 |
) |
|
|
5,667 |
|
|
|
2.6 |
% |
Depreciation, depletion and amortization
|
|
|
(316,114 |
) |
|
|
(270,159 |
) |
|
|
(45,955 |
) |
|
|
(17.0 |
)% |
Asset retirement obligation expense
|
|
|
(35,901 |
) |
|
|
(42,387 |
) |
|
|
6,486 |
|
|
|
15.3 |
% |
Interest expense and early debt extinguishment costs
|
|
|
(102,939 |
) |
|
|
(98,544 |
) |
|
|
(4,395 |
) |
|
|
(4.5 |
)% |
Interest income
|
|
|
10,641 |
|
|
|
4,917 |
|
|
|
5,724 |
|
|
|
116.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests
|
|
$ |
426,085 |
|
|
$ |
153,071 |
|
|
$ |
273,014 |
|
|
|
178.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest of
$426.1 million for the current year is $273.0 million,
or 178.4%, higher than prior year primarily due to improved
segment Adjusted EBITDA as discussed above. Increases in
depreciation, depletion and amortization expense and interest
expense offset improvements in Corporate and Other Adjusted
EBITDA, asset retirement obligation expense, debt extinguishment
costs and interest income.
Corporate and Other Adjusted EBITDA results include selling and
administrative expenses, equity income from our Venezuelan joint
venture, net gains on asset disposals or exchanges, costs
associated with past mining obligations and revenues and
expenses related to our other commercial activities such as
coalbed methane, generation development and resource management.
The $5.7 million improvement in Corporate and Other
Adjusted EBITDA (net expense) in 2005 compared to 2004 included:
|
|
|
|
|
net gains on asset sales that were $77.7 million higher
than prior year primarily due to a $37.4 million gain from
a property exchange related to settlement of a contract dispute
with a third-party coal supplier (see Note 3 to our
consolidated financial statements), sales of Penn Virginia
Resource Partners, L.P. (PVR) units
($31.1 million) (see Note 9 to our consolidated
financial statements), resource sales involving non-strategic
coal assets and properties ($12.5 million), and an asset
exchange in which we acquired Illinois Basin coal reserves
($6.2 million). The gain from PVR unit sales in 2005 was
from the sale of all of our remaining 0.838 million units
compared to a gain of $15.8 million on the sale of
0.775 million units in two separate transactions during
2004. All other gains on asset disposals in 2005 and 2004 were
$14.3 million and $8.0 million, respectively; |
|
|
|
higher equity income of $18.7 million from our 25.5%
interest in Carbones del Guasare (acquired in December 2004),
which owns and operates the Paso Diablo Mine in Venezuela, and; |
|
|
|
lower net expenses related to generation development of
$5.1 million, primarily due to reimbursements from the
Prairie State Energy Campus partnership group. |
These improvements were partially offset by:
|
|
|
|
|
a $36.0 million increase in past mining obligations
expense, primarily related to higher retiree health care costs.
The increase in retiree health care costs was actuarially driven
by higher trend rates, and lower interest discount assumptions
and higher amortization of actuarial losses in 2005, and; |
|
|
|
an increase of $46.8 million in selling and administrative
expenses primarily related to accruals for higher short-term and
long-term performance-based incentive plans
($32.2 million). These incentives are principally long-term
plans that are driven by total shareholder returns. Our share
price increased 104% during 2005, significantly outperforming
industrial benchmarks and our coal |
30
|
|
|
|
|
peer group average. The remaining increase in selling and
administrative expenses was due to higher personnel and outside
services costs needed to advance our growth initiatives in areas
such as China and BTU conversion, acquisitions and regulatory
costs (e.g. Sarbanes-Oxley), and an increase in advertising
costs related to an industry awareness campaign launched in late
2005. |
Depreciation, depletion and amortization increased
$46.0 million during 2005. Approximately 56% of the
increase was due to acquisitions completed during 2004 and the
remainder was from increased volumes at existing mines and
operations opened during 2005. Asset retirement obligation
expense decreased $6.5 million in 2005 due to additional
expenses incurred in 2004 to accelerate the planned reclamation
of certain closed mine sites. Interest expense increased
$6.1 million primarily related to a full year of interest
in 2005 on $250 million of 5.875% Senior Notes issued
in late March of 2004 and increases in the cost of floating rate
debt due to higher interest rates. Interest income improved
$5.7 million due to higher yields on short-term interest
rates and an increase in invested balances due to improved cash
flows during 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) | |
|
|
Year Ended December 31, | |
|
to Income | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Income before income taxes and minority interests
|
|
$ |
426,085 |
|
|
$ |
153,071 |
|
|
$ |
273,014 |
|
|
|
178.4% |
|
Income tax benefit (provision)
|
|
|
(960 |
) |
|
|
26,437 |
|
|
|
(27,397 |
) |
|
|
(103.6 |
)% |
Minority interests
|
|
|
(2,472 |
) |
|
|
(1,282 |
) |
|
|
(1,190 |
) |
|
|
(92.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
422,653 |
|
|
|
178,226 |
|
|
|
244,427 |
|
|
|
(137.1 |
)% |
Loss from discontinued operations
|
|
|
|
|
|
|
(2,839 |
) |
|
|
2,839 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
422,653 |
|
|
$ |
175,387 |
|
|
$ |
247,266 |
|
|
|
141.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income increased $247.3 million, or 141.0%, compared to
the prior year due to the increase in income before income taxes
and minority interests discussed above, partially offset by
increases in our income tax provision. The income tax benefit in
2004 included a $25.9 million reduction in the valuation
allowance on net operating loss carry-forwards and alternative
minimum tax credits. The income tax provision in 2005 was higher
based on the increase in pretax income which was partially
offset by the higher permanent benefit of percentage depletion
and the partial benefit of tax loss from a deemed liquidation of
a subsidiary arising as an indirect consequence of a
comprehensive and strategic internal restructuring we completed
during 2005. This restructuring resulted from efforts to better
align corporate ownership of subsidiaries on a geographic and
functional basis.
Outlook
|
|
|
Events Impacting Near-Term Operations |
In October 2006, we acquired Excel Coal Limited, which included
three operating mines, two late development-stage mines and a
development-stage mine. These development-stage mines are
expected to begin shipments in 2007, and our 2007 results will
be impacted to the extent we complete ramp up activities at
these development-stage mines on time and at expected capacity.
Furthermore, our two primary Australian shipping points,
Dalrymple Bay Coal Terminal and Port of Newcastle, are
experiencing significant queues of vessels, which could result
in delayed shipments and demurrage charges.
Currently depressed Central Appalachian coal prices combined
with escalating costs of our third-party contractors could
adversely impact our saleable production as it becomes
uneconomic to mine.
Although we expect that the Twentymile longwall system will
allow for expanded capacity over the next several years, we
continue to manage equipment and lower coal quality issues at
our Twentymile mine.
31
Shipments from our Powder River Basin mines improved in 2006,
but were still impacted by rail service disruptions. Rail
carriers are expected to continue improvements in 2007. Although
we currently expect to increase our shipment levels from our
Powder River Basin operations in 2007 compared with 2006, our
ability to reach these targeted shipment levels is dependent
upon the performance of the rail carriers.
Our union workforce east of the Mississippi River is primarily
represented by the UMWA. The UMWA-represented workers at one of
our eastern mines operate under a contract that expires on
December 31, 2007. The remainder of our UMWA-represented
workers in the east operate under a recently signed, five-year
labor agreement expiring December 31, 2011. The new
contract mirrors the 2007 National Bituminous Coal Wage
Agreement and stipulates a $1.50 per hour increase to wages
effective January 1, 2007 and a total wage increase of
$4.00 per hour over the life of the agreement. The contract
also calls for a $1,000 bonus for each of our UMWA-represented
employees.
Our outlook for the coal markets remains positive. We believe
strong coal markets will continue worldwide, as long as growth
continues in the U.S., Asia and other industrialized economies
that are increasing coal demand for electricity generation and
steelmaking. Approximately 115 gigawatts of new coal-fueled
electricity generating capacity is scheduled to come on line
around the world over the next three years, and the EIA projects
an additional 156 gigawatts of new U.S. coal-fueled
generation by 2030, which by itself represents more than
500 million tons of additional coal demand.
Global coal markets continued to grow, driven by increased
demand from growing economies. The U.S. economy grew at an
annual rate of 3.5% based on fourth quarter 2006 data as
reported by the U.S. Commerce Department, while
Chinas economy grew 10.7% in 2006 as published by the
National Bureau of Statistics of China. Metallurgical coal
continued to sell at a significant premium to steam coal.
Metallurgical markets, while off record levels, remain strong as
seaborne metallurgical coal prices for the upcoming fiscal year
were settling from a reference price near $100 per metric
ton and as China steel production shows signs of continued
growth over 2005 levels. We expect to capitalize on the strong
global market for metallurgical coal primarily through
production and sales of metallurgical coal from our Appalachia
and Australian operations. In response to growing international
markets, we established an international trading group in 2006,
and added another operations office in Europe in early 2007.
Coal-to-gas and
coal-to-liquids
(CTL) plants represent a significant avenue for
long-term industry growth. The EIA continues to project an
increase in demand for unconventional sources of transportation
fuel, including
coal-to-liquids, and in
the
U.S. coal-to-liquid
technologies are receiving growing bipartisan support as
demonstrated by the newly introduced CTL bills such as the
Coal-to-Liquid
Fuel Promotion Act within the Senate. China and India are
developing coal-to-gas
and coal-to-liquids
facilities.
Demand for Powder River Basin coal remains strong, particularly
for our ultra-low sulfur products. The Powder River Basin
represents more than half of our production. We control
approximately 3.5 billion tons of proven and probable
reserves in the Southern Powder River Basin, and we sold
138.4 million tons of coal from this region during 2006, an
increase of 10.1% over the prior year.
We are targeting 2007 production of 240 to 260 million tons
and total sales volume of 265 to 285 tons, including 15 to
18 million tons of metallurgical coal. As of
December 31, 2006, our unpriced 2007 volumes for planned
produced tonnage were 5 to 15 million U.S. tons and
14 million Australia tons. Our total unpriced planned
production for 2008 is approximately 70 to 80 million tons
in the United States and 20 to 22 million tons in Australia.
Management plans to aggressively control costs and operating
performance to mitigate external cost pressures, geologic
conditions and potentially adverse port and rail performance. We
are experiencing increases in operating costs related to fuel,
explosives, steel, tires, contract mining and healthcare, and
have taken measures to mitigate the increases in these costs,
including a company-wide initiative to instill best
32
practices at all operations. In addition, historically low
long-term interest rates also have a negative impact on expenses
related to our actuarially determined, employee-related
liabilities. We may also encounter poor geologic conditions,
lower third-party contract miner or brokerage source performance
or unforeseen equipment problems that limit our ability to
produce at forecasted levels. To the extent upward pressure on
costs exceeds our ability to realize sales increases, or if we
experience unanticipated operating or transportation
difficulties, our operating margins would be negatively
impacted. See Cautionary Notice Regarding Forward-Looking
Statements and Item 1A. Risk Factors for additional
considerations regarding our outlook.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition, results
of operations, liquidity and capital resources is based upon our
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. Generally accepted accounting principles require that we
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates. We base our estimates on
historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates.
|
|
|
Employee-Related Liabilities |
We have significant long-term liabilities for our
employees postretirement benefit costs, workers
compensation obligations and defined benefit pension plans.
Detailed information related to these liabilities is included in
Notes 14, 15 and 16 to our consolidated financial
statements. The adoption of SFAS No. 158 on
December 31, 2006 resulted in each of these liabilities
recorded on the consolidated balance sheet as of
December 31, 2006 being equal to the funded status of the
plans. Liabilities for postretirement benefit costs and
workers compensation obligations are not funded. Our
pension obligations are funded in accordance with the provisions
of federal law. Expense for the year ended December 31,
2006, for these liabilities totaled $178.7 million, while
payments were $146.2 million.
Each of these liabilities are actuarially determined and we use
various actuarial assumptions, including the discount rate and
future cost trends, to estimate the costs and obligations for
these items. Our discount rate is determined by utilizing a
hypothetical bond portfolio model which approximates the future
cash flows necessary to service our liabilities.
We make assumptions related to future trends for medical care
costs in the estimates of retiree health care and work-related
injuries and illnesses obligations. Our medical trend assumption
is developed by annually examining the historical trend of our
cost per claim data. In addition, we make assumptions related to
future compensation increases and rates of return on plan assets
in the estimates of pension obligations.
If our assumptions do not materialize as expected, actual cash
expenditures and costs that we incur could differ materially
from our current estimates. Moreover, regulatory changes could
increase our obligation to satisfy these or additional
obligations. Our most significant employee liability is
postretirement health care, and assumed discount rates and
health care cost trend rates have a significant effect on the
expense and liability amounts reported for health care plans.
33
Below we have provided two separate sensitivity analyses to
demonstrate the significance of these assumptions in relation to
reported amounts.
Health care cost trend rate:
|
|
|
|
|
|
|
|
|
|
|
One-Percentage- | |
|
One-Percentage- | |
|
|
Point Increase | |
|
Point Decrease | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Effect on total service and interest cost
components(1)
|
|
$ |
9,501 |
|
|
$ |
(7,989 |
) |
Effect on total postretirement benefit
obligation(1)
|
|
$ |
179,264 |
|
|
$ |
(150,765 |
) |
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
One-Half | |
|
One-Half | |
|
|
Percentage- | |
|
Percentage- | |
|
|
Point Increase | |
|
Point Decrease | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Effect on total service and interest cost
components(1)
|
|
$ |
1,064 |
|
|
$ |
(1,496 |
) |
Effect on total postretirement benefit
obligation(1)
|
|
$ |
(78,243 |
) |
|
$ |
82,702 |
|
|
|
(1) |
In addition to the effect on total service and interest cost
components of expense, changes in trend and discount rates would
also increase or decrease the actuarial gain or loss
amortization expense component. The gain or loss amortization
would approximate the increase or decrease in the obligation
divided by 8.47 years at December 31, 2006. |
|
|
|
Asset Retirement Obligations |
Our asset retirement obligations primarily consist of spending
estimates for surface land reclamation and support facilities at
both surface and underground mines in accordance with federal
and state reclamation laws as defined by each mining permit.
Asset retirement obligations are determined for each mine using
various estimates and assumptions including, among other items,
estimates of disturbed acreage as determined from engineering
data, estimates of future costs to reclaim the disturbed
acreage, the timing of these cash flows, and a credit-adjusted,
risk-free rate. As changes in estimates occur (such as mine plan
revisions, changes in estimated costs, or changes in timing of
the reclamation activities), the obligation and asset are
revised to reflect the new estimate after applying the
appropriate credit-adjusted, risk-free rate. If our assumptions
do not materialize as expected, actual cash expenditures and
costs that we incur could be materially different than currently
estimated. Moreover, regulatory changes could increase our
obligation to perform reclamation and mine closing activities.
Asset retirement obligation expense for the year ended
December 31, 2006, was $40.1 million, and payments
totaled $36.6 million. See detailed information regarding
our asset retirement obligations in Note 13 to our
consolidated financial statements.
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS No. 109), which requires that
deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the
book and tax basis of recorded assets and liabilities.
SFAS No. 109 also requires that deferred tax assets be
reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be
realized. In our annual evaluation of the need for a valuation
allowance, we take into account various factors, including the
expected level of future taxable income and available tax
planning strategies. If actual results differ from the
assumptions made in our annual evaluation of our valuation
allowance, we may record a change in valuation allowance through
income tax expense in the period such determination is made.
We establish reserves for tax contingencies when, despite the
belief that our tax return positions are fully supported,
certain positions are likely to be challenged and may not be
fully sustained. The tax contingency reserves are analyzed on a
quarterly basis and adjusted based upon changes in facts and
circumstances, such as the progress of federal and state audits,
case law and emerging legislation. Our effective tax rate
includes the impact of tax contingency reserves and changes to
the reserves, including
34
related interest. We establish the reserves based upon
managements assessment of exposure associated with
permanent tax differences (i.e. tax depletion expense, etc.) and
certain tax sharing agreements. We are subject to federal audits
for several open years due to our previous inclusion in multiple
consolidated groups and the various parties involved in
finalizing those years. Additional details regarding the effect
of income taxes on our consolidated financial statements is
available in Note 11.
Interpretation No. 48 Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109 (FIN No. 48) prescribes
a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN No. 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. This interpretation is
effective for fiscal years beginning after December 15,
2006 (January 1, 2007 for the Company).
In general, we recognize revenues when they are realizable and
earned. We generated 98% of our revenue in 2006 from the sale of
coal to our customers. Revenue from coal sales is realized and
earned when risk of loss passes to the customer. Coal sales are
made to our customers under the terms of coal supply agreements,
most of which are long-term (greater than one year). Under the
typical terms of these coal supply agreements, title and risk of
loss transfer to the customer at the mine or port, where coal is
loaded to the rail, barge, ocean-going vessel, truck or other
transportation source(s) that delivers coal to its destination.
With respect to other revenues, other operating income, or gains
on asset sales recognized in situations unrelated to the
shipment of coal, we carefully review the facts and
circumstances of each transaction and apply the relevant
accounting literature as appropriate, and do not recognize
revenue until the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or
services have been rendered; the sellers price to the
buyer is fixed or determinable; and collectibility is reasonably
assured.
We engage in the buying and selling of coal in
over-the-counter
markets. Our coal trading contracts are accounted for on a fair
value basis under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. To
establish fair values for our trading contracts, we use bid/ask
price quotations obtained from multiple, independent third-party
brokers to value coal and emission allowance positions. Prices
from these sources are then averaged to obtain trading position
values. We could experience difficulty in valuing our market
positions if the number of third-party brokers should decrease
or market liquidity is reduced.
All of the contracts in our trading portfolio as of
December 31, 2006 were valued utilizing prices from
over-the-counter market
sources, adjusted for coal quality and traded transportation
differentials. As of December 31, 2006, 41% of the
estimated future value of our trading portfolio was scheduled to
be realized by the end of 2007 and 80% within 24 months.
See Note 5 to our consolidated financial statements for
additional details regarding assets and liabilities from our
coal trading activities.
Exploration and Drilling Costs
Exploration expenditures are charged to operating costs as incurred, including costs related to drilling
and study costs incurred to convert or upgrade mineral resources to reserves.
Advance Stripping Costs
Pre-production: At existing surface operations, additional pits may be added to increase production
capacity in order to meet customer requirements. These expansions may require significant capital to
purchase additional equipment, expand the workforce, build or improve existing haul roads and create the
initial pre-production box cut to remove overburden (i.e., advance stripping costs) for new pits at existing
operations. If these pits operate in a separate and distinct area of the mine, the costs associated with initially
uncovering coal (i.e., advance stripping costs incurred for the initial box cuts) for production are capitalized
and amortized over the life of the developed pit consistent with coal industry practices.
Post-production: Advance stripping costs related to post-production are expensed as incurred. Where
new pits are routinely developed as part of a contiguous mining sequence, we expense such costs as
incurred. The development of a contiguous pit typically reflects the planned progression of an existing pit,
thus maintaining production levels from the same mining area utilizing the same employee group and equipment.
Since the January 1, 2006 adoption of EITF 04-6, we have not incurred development costs (advance
stripping costs) related to opening new pits at existing surface operations. However, we anticipate such
development expenditures will be incurred in the latter part of 2007 and beyond.
Liquidity and Capital Resources
Our primary sources of cash include sales of our coal production
to customers, cash generated from our trading and brokerage
activities, sales of non-core assets and financing transactions,
including the sale of our accounts receivable (through our
securitization program). Our primary uses of cash include our
cash costs of coal production, capital expenditures, interest
costs and costs related to past mining obligations as well as
planned acquisitions. Our ability to pay dividends, service our
debt (interest and principal) and acquire new productive assets
or businesses is dependent upon our ability to continue to
generate cash from the primary sources noted above in excess of
the primary uses. Future dividends,
35
among other things, are subject to limitations imposed by our
Senior Notes and Debenture covenants. We expect to fund all of
our capital expenditure requirements with cash generated from
operations.
Net cash provided by operating activities was
$595.7 million for the year ended December 31, 2006, a
decrease of $107.1 million compared to $702.8 million
provided by operating activities in the prior year. The decrease
was primarily related to the timing of working capital needs.
The decrease in cash from operating activities would have been
$30.4 million lower had 2006 and 2005 operating cash flows
been shown on a comparable basis. The 2006 operating cash flows
include a required reclassification of the excess tax benefit
related to stock option exercises ($33.2 million) from
operating to financing activities.
Net cash used in investing activities was $2.14 billion for
the year ended December 31, 2006 compared to
$584.2 million used in the prior year. The increase
reflects the acquisition of Excel for $1.51 billion, net of
cash acquired, higher capital expenditures of
$93.4 million, higher federal coal lease expenditures of
$59.8 million, the acquisition of an additional interest in
a joint venture for $44.5 million, and the receipt of notes
in lieu of payments on asset sales of $45.6 million,
partially offset by higher proceeds from asset disposals of
$46.9 million in 2006 and the purchase of mining and
related assets of $141.2 million in 2005. Capital
expenditures included longwall equipment and mine development at
our Australian mines (including our recently acquired Excel
operations), the opening of new mines and the purchase of
equipment for expansion. The $141.2 million purchase of
mining and related assets in 2005 included 70 million tons
of Illinois and Indiana coal reserves, surface properties and
equipment from Lexington Coal Company ($56.5 million) and
rail, loadout and surface facilities as well as other mining
assets for $84.7 million from another major coal producer.
Net cash provided by financing activities was $1.37 billion
during the year ended December 31, 2006, compared to a use
of $4.9 million in 2005. In 2006, we issued net borrowings
of $1.74 billion, which were utilized to fund the
$1.51 billion Excel acquisition, the repayment of
Excels bank facility and a portion of its outstanding
bonds, and other corporate purposes. See the detailed discussion
of our Senior Unsecured Credit Facility, Convertible Junior
Subordinated Debentures, Senior Notes offerings and borrowings
under our Senior Unsecured Credit Facility below. In addition to
the net issuance of debt related to the Excel acquisition, we
repaid $23.8 million of debt held by a majority-owned joint
venture, purchased $7.7 million of our 5.875% Senior
Notes in the open market, and made scheduled debt repayments of
$11.1 million on our 5% Subordinated Note and other
notes payable.
The 2006 activity compared to 2005 also reflected payments for
common stock repurchases of $99.8 million, debt issuance
costs of $40.6 million and higher dividends of
$18.9 million. During the year ended December 31,
2006, we repurchased 2.2 million of our common shares at a
cost of $99.8 million under our share repurchase program as
authorized by the Board of Directors. The 2006 activity included
a decrease in the usage of our accounts receivable
securitization program of $5.8 million compared to an
increase of $25.0 million in 2005. The 2006 activity
compared to 2005 also reflected $7.0 million lower proceeds
from the exercise of stock options as well as a
$33.2 million tax benefit related to stock option exercises
included in financing activity based on the newly adopted
accounting standard for share-based compensation (see
Newly Adopted Accounting Pronouncements below for
more discussion about the adoption of this standard). In 2005,
the tax benefit related to stock option exercises (totaling
$30.4 million) was included in operating activities.
36
Our total indebtedness as of December 31, 2006 and 2005
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Term Loan under Senior Unsecured Credit Facility
|
|
$ |
547,000 |
|
|
$ |
|
|
Term Loan under Senior Secured Credit Facility
|
|
|
|
|
|
|
442,500 |
|
Convertible Junior Subordinated Debentures due 2066
|
|
|
732,500 |
|
|
|
|
|
7.375% Senior Notes due 2016
|
|
|
650,000 |
|
|
|
|
|
6.875% Senior Notes due 2013
|
|
|
650,000 |
|
|
|
650,000 |
|
7.875% Senior Notes due 2026
|
|
|
246,897 |
|
|
|
|
|
5.875% Senior Notes due 2016
|
|
|
231,845 |
|
|
|
239,525 |
|
5.0% Subordinated Note
|
|
|
59,504 |
|
|
|
66,693 |
|
6.84% Series C Bonds due 2016
|
|
|
43,000 |
|
|
|
|
|
6.34% Series B Bonds due 2014
|
|
|
21,000 |
|
|
|
|
|
6.84% Series A Bonds due 2014
|
|
|
10,000 |
|
|
|
|
|
Capital lease obligations
|
|
|
56,707 |
|
|
|
1,529 |
|
Fair value of interest rate swaps
|
|
|
(13,784 |
) |
|
|
(8,879 |
) |
Other
|
|
|
29,157 |
|
|
|
14,138 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,263,826 |
|
|
$ |
1,405,506 |
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured Credit Facility |
In September 2006, we entered into a Third Amended and Restated
Credit Agreement, which established a $2.75 billion Senior
Unsecured Credit Facility and which amended and restated in full
our then existing $1.35 billion Senior Secured Credit
Facility. The Senior Unsecured Credit Facility provides a
$1.8 billion Revolving Credit Facility and a
$950.0 million Term Loan Facility. The Revolving
Credit Facility replaced our previous $900.0 million
revolving credit facility and the increased capacity is intended
to accommodate working capital needs, letters of credit, the
funding of capital expenditures and other general corporate
purposes. The Revolving Credit Facility also includes a
$50.0 million sub-facility available for same-day swingline
loan borrowings. In September 2006, we borrowed
$312.0 million under the Revolver in conjunction with the
Excel acquisition and repaid this $312.0 million
outstanding balance in December 2006 with net proceeds from the
Debentures.
The Term Loan Facility consisted of an unsecured
$440.0 million portion, which was drawn at closing to
replace the previous term loan ($437.5 million balance at
time of replacement; $442.5 million at December 31,
2005) issued under the Senior Secured Credit Facility. The Term
Loan Facility also included a Delayed Draw Term Loan
Sub-Facility of up to
$510.0 million, which was fully drawn in October 2006 in
connection with the Excel acquisition. In December 2006,
$403.0 million of the outstanding balance of the Term
Loan Facility ($950.0 million was outstanding at time
of repayment) was repaid with the net proceeds from the
Debentures. In conjunction with the establishment of the Senior
Unsecured Credit Facility, we incurred $8.6 million in
financing costs, of which $5.6 million related to the
Revolving Credit Facility and $3.0 million related to the
Term Loan Facility. These debt issuance costs will be
amortized to interest expense over five years, the term of the
Senior Unsecured Credit Facility.
Loans under the facility are available in U.S. dollars,
with a sub-facility under the Revolving Credit Facility
available in Australian dollars, pounds sterling and Euros.
Letters of credit under the Revolving Credit Facility are
available to us in U.S. dollars with a sub-facility
available in Australian dollars, pounds sterling and Euros. The
interest rate payable on the Revolving Credit Facility and the
Term Loan Facility under the Senior Unsecured Credit
Facility is LIBOR plus 1.0% with step-downs to LIBOR plus 0.50%
based on improvement in the leverage ratio, as defined in the
Third Amended and Restated Credit Agreement. The rate applicable
to the Term Loan Facility was 6.35% at December 31,
2006.
37
Under the Senior Unsecured Credit Facility, we must comply with
certain financial covenants on a quarterly basis including a
minimum interest coverage ratio and a maximum leverage ratio, as
defined in the Third Amended and Restated Credit Agreement. The
financial covenants also place limitations on our investments in
joint ventures, unrestricted subsidiaries, indebtedness of
non-loan parties, and the imposition of liens on our assets. The
new facility is less restrictive with respect to limitations on
our dividend payments, capital expenditures, asset sales or
stock repurchases. The Senior Unsecured Credit Facility matures
on September 15, 2011.
As of December 31, 2006, we had no borrowings outstanding
under our Revolving Credit Facility. Our revolving line of
credit was primarily used for standby letters of credit until
September 2006, when we also used the revolving line of credit
to facilitate the Excel acquisition. As discussed above, the
$312.0 million outstanding under the revolving line of
credit was repaid in December 2006 with net proceeds from the
Debentures. The remaining available borrowing capacity
($1.29 billion as of December 31, 2006) will be used
to fund strategic acquisitions or meet other financing needs,
including standby letters of credit. During 2005, we had no
borrowings outstanding under our previous $900.0 million
revolving line of credit, which we used primarily for standby
letters of credit. We were in compliance with all of the
covenants of the Senior Unsecured Credit Facility, the
6.875% Senior Notes, the 5.875% Senior Notes, the
7.375% Senior Notes, the 7.875% Senior Notes, and the
Convertible Junior Subordinated Debentures as of
December 31, 2006.
|
|
|
Convertible Junior Subordinated Debentures |
On December 20, 2006, we issued $732.5 million
aggregate principal amount of 4.75% Convertible Junior
Subordinated Debentures due 2066 (the Debentures),
including $57.5 million issued pursuant to the
underwriters exercise of their over-allotment option. Net
proceeds from the offering, after deducting underwriting
discounts and offering expenses, were $715.0 million and
were used to repay indebtedness under our Senior Unsecured
Credit Facility. The Debentures will pay interest semiannually
at a rate of 4.75% per year. We may elect to, and if and to
the extent that a mandatory trigger event (as defined in the
indenture governing the Debentures) has occurred and is
continuing will be required to, defer interest payments on the
Debentures. After five years of deferral at our option, or upon
the occurrence of a mandatory trigger event, we generally must
sell warrants or preferred stock with specified characteristics
and use the funds from that sale to pay deferred interest,
subject to certain limitations. In no event may we defer
payments of interest on the Debentures for more than ten years.
The Debentures are convertible at any time on or prior to
December 15, 2036 if any of the following conditions occur:
(i) our closing common stock price exceeds 140% of the then
applicable conversion price for the Debentures (currently
$86.73 per share) for at least 20 of the final 30 trading
days in any quarter; (ii) a notice of redemption is issued
with respect to the Debentures; (iii) a change of control,
as defined in the indenture governing the Debentures;
(iv) satisfaction of certain trading price conditions; and
(v) other specified corporate transactions described in the
indenture governing the Debentures. In addition, the Debentures
are convertible at any time after December 15, 2036 to
December 15, 2041, the scheduled maturity date. In the case
of conversion following a notice of redemption or upon a
non-stock change of control, as defined in the indenture
governing the Debentures, holders may convert their Debentures
into cash in the amount of the principal amount of their
Debentures and shares of our common stock for any conversion
value in excess of the principal amount. In all other conversion
circumstances, holders will receive perpetual preferred stock
(see Note 17 to our consolidated financial statements) with
a liquidation preference equal to the principal amount of their
Debentures, and any conversion value in excess of the principal
amount will be settled with our common stock. The consideration
delivered upon conversion will be based upon an initial
conversion rate of 16.1421 shares of common stock per
$1,000 principal amount of Debentures, subject to adjustment.
This conversion rate represents an initial conversion price of
approximately $61.95 per share, a 40% premium over the
closing stock price of $44.25 on December 14, 2006, the
date of the pricing of the offering of the Debentures.
The Debentures are unsecured obligations, ranking junior to all
existing and future senior and subordinated debt (excluding
trade accounts payable or accrued liabilities arising in the
ordinary course of
38
business) except for any future debt that ranks equal to or
junior to the Debentures. The Debentures will rank equal in
right of payment with our obligations to trade creditors.
Substantially, all of our existing indebtedness is senior to the
Debentures. In addition, the Debentures will be effectively
subordinated to all indebtedness of our subsidiaries. The
indenture governing the Debentures places no limitation on the
amount of additional indebtedness that we or any of our
subsidiaries may incur (see Note 12 of our consolidated
financial statements for additional information on the
Debentures).
|
|
|
7.375% Senior Notes Due November 2016 and
7.875% Senior Notes Due November 2026 |
On October 12, 2006, we completed a $650 million
offering of 7.375%
10-year Senior Notes
due 2016 and $250 million of 7.875%
20-year Senior Notes
due 2026. The notes are general unsecured obligations and rank
senior in right of payment to any subordinated indebtedness;
equally in right of payment with any senior indebtedness;
effectively junior in right of payment to our existing and
future secured indebtedness, to the extent of the value of the
collateral securing that indebtedness; and effectively junior to
all the indebtedness and other liabilities of our subsidiaries
that do not guarantee the notes. Interest payments are scheduled
to occur on May 1 and November 1 of each year,
commencing on May 1, 2007.
The notes are guaranteed by our Subsidiary Guarantors, as
defined in the note indenture. The note indenture contains
covenants that, among other things, limit our ability to create
liens and enter into sale and lease-back transactions. The notes
are redeemable at a redemption price equal to 100% of the
principal amount of the notes being redeemed plus a make-whole
premium, if applicable, and any accrued unpaid interest to the
redemption date. Net proceeds from the offering, after deducting
underwriting discounts and expenses, were $886.1 million.
As of December 31, 2006, we had $74.0 million in
Series Bonds outstanding, which were assumed as part of the
Excel acquisition. The 6.84% Series A Bonds have a balloon
maturity in December 2014. The 6.34% Series B Bonds mature
in December 2014 and are payable in installments beginning
December 2008. The 6.84% Series C Bonds mature in December
2016 and are payable in installments beginning December 2012.
Interest payments occur in June and December of each year.
Prior to completion of the Senior Unsecured Credit Facility, we
had two $400.0 million interest rate swaps. A
$400.0 million notional amount
floating-to-fixed
interest rate swap was designated as a hedge of changes in
expected cash flows on the previous term loan under the Senior
Secured Credit Facility. Under this swap, we paid a fixed rate
of 6.764% and received a floating rate of LIBOR plus 2.5% that
reset each March 15, June 15, September 15 and
December 15 based upon the three-month LIBOR rate. A
$400.0 million notional amount
fixed-to-floating
interest rate swap was designated as a hedge of the changes in
the fair value of the 6.875% Senior Notes due 2013. Under
this swap, we paid a floating rate of LIBOR plus 1.97% that
reset each March 15, June 15, September 15 and
December 15 based upon the three-month LIBOR rate and received a
fixed rate of 6.875%.
In conjunction with the completion of the new Senior Unsecured
Credit Facility, the $400.0 million notional amount
floating-to-fixed
interest rate swap was terminated and resulted in payment to us
of $5.2 million. We recorded the $5.2 million fair
value of the swap in Accumulated other comprehensive
loss on the consolidated balance sheet and will amortize
this amount to interest expense over the remaining term of the
forecasted interest payments initially hedged. We then entered
into a $120.0 million notional amount
floating-to-fixed
interest rate swap with a fixed rate of 6.25% and a floating
rate of LIBOR plus 1.0%. This interest rate swap was designated
as a hedge of the variable interest payments on the Term Loan
under the new Senior Unsecured Credit Facility.
We also terminated $280.0 million of our
$400.0 million notional amount
fixed-to-floating
interest rate swap designated as a hedge of the changes in fair
value of the 6.875% Senior Notes due 2013. Reducing the
notional amount of the interest rate swap to $120.0 million
resulted in payment of $5.2 million to the
39
counterparty. Reduction of the notional amount of the swap did
not affect our floating and fixed rates. The $5.2 million
of fair value associated with the termination of the
$280.0 million portion of the swap was recorded as an
adjustment to the carrying value of long-term debt and will be
amortized to interest expense through maturity of the
6.875% Senior Notes due 2013.
Because the critical terms of the swaps and the respective debt
instruments they hedge coincide, there was no hedge
ineffectiveness recognized in the consolidated statements of
operations during the years ended December 31, 2006 and
2005. At December 31, 2006 there was an unrealized loss
related to the cash flow hedge of $2.5 million and at
December 31, 2005 there was an unrealized gain related to
the cash flow hedge of $2.3 million. As of
December 31, 2006 and 2005, the net unrealized loss on the
fair value hedges discussed above were $13.8 million and
$8.9 million, respectively, which is reflected as an
adjustment to the carrying value of the Senior Notes (see table
above).
|
|
|
Third-party Security Ratings |
In 2006, third-party rating agencies performed a comprehensive
review of our securities ratings based on our entrance
into the new senior unsecured credit facility and the issuance
of additional debt securities to facilitate the Excel
acquisition. The ratings for our senior unsecured credit
facility and our senior unsecured notes are as follows:
Moodys issued a Ba1 rating, Standard &
Poors issued a BB rating and Fitch issued a BB+ rating.
The rating on our convertible junior subordinated debentures
issued in December 2006 were as follows: Moodys issued a
Ba2 rating, Standard & Poors issued a B rating
and Fitch issued a BB- rating. These security ratings reflected
the views of the rating agency only. An explanation of the
significance of these ratings may be obtained from the rating
agency. Such ratings are not a recommendation to buy, sell or
hold securities, but rather an indication of creditworthiness.
Any rating can be revised upward or downward or withdrawn at any
time by a rating agency if it decides that the circumstances
warrant the change. Each rating should be evaluated
independently of any other rating.
|
|
|
Shelf Registration Statement |
On July 28, 2006, we filed an automatic shelf registration
statement on
Form S-3 as a
well-known seasoned issuer with the Securities and Exchange
Commission. The registration was for an indeterminate number of
securities and is effective for three years, at which time we
can file an automatic shelf registration statement that would
become immediately effective for another three-year term. Under
this universal shelf registration statement, we have the
capacity to offer and sell from time to time securities,
including common stock, preferred stock, debt securities,
warrants and units. The Debentures, 7.375% Senior Notes due
2016 and 7.875% Senior Notes due 2026 were issued pursuant
to the shelf registration statement.
On July 5, 2006, we signed a merger implementation
agreement to acquire Excel Coal Limited (Excel), an
independent coal company, by means of a scheme of arrangement
transaction under Australian law. The merger implementation
agreement was amended on September 18, 2006, and we agreed
to pay A$9.50 per share (US$7.16 as of the amendment date)
for the outstanding shares of Excel. On September 20, 2006,
as part of the amended agreement, we acquired 19.99% of the
outstanding shares of Excel at A$9.50 per share, resulting
in payment of A$408.3 million, or US$307.8 million. In
October 2006, we acquired the remaining interest in Excel for
A$9.50 per share (US$7.07 per share), a total of
A$1.63 billion or US$1.21 billion. The total
acquisition price, including the advance purchase of 19.99% and
related costs, was US$1.54 billion in cash plus assumed
debt of US$293.0 million, less US$30.0 million of cash
acquired in the transaction, and was financed with borrowings
under our Senior Unsecured Credit Facility and Senior Notes due
2016 and 2026 (see Note 12 of our consolidated financial
statements for additional information on the financing of the
Excel acquisition). The Excel acquisition includes three
operating mines (Wambo Open-Cut Mine, Metropolitan Mine and
Chain Valley Mine) and three development-stage mines (North
Wambo Underground Mine, Wilpinjong Mine and Millennium Mine),
with more than 500 million tons of proven and probable coal
reserves. We also acquired a 51.0%
40
interest in Excelven Pty Ltd., which owns Transportes Coal-Sea
de Venezuela C.A. and a 96.7% interest in Cosila Complejo
Siderurgico Del Lago S.A., which owns the Las Carmelitas coal
mine development project. The results of operations of Excel are
included in our Australian Mining Operations segment from
October 2006. The acquisition was accounted for as a purchase in
accordance with SFAS No. 141, Business
Combinations (see Note 4 of our consolidated
financial statements for additional information on the Excel
acquisition).
Contractual Obligations
The following is a summary of our contractual obligations as of
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Year | |
|
|
| |
|
|
Within | |
|
|
|
After | |
|
|
1 Year | |
|
2-3 Years | |
|
4-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Long-term debt obligations (principal and interest)
|
|
$ |
303,849 |
|
|
$ |
481,974 |
|
|
$ |
859,965 |
|
|
$ |
4,323,807 |
|
Capital lease obligations (principal and interest)
|
|
|
11,335 |
|
|
|
21,806 |
|
|
|
15,686 |
|
|
|
23,428 |
|
Operating leases obligations
|
|
|
102,256 |
|
|
|
152,264 |
|
|
|
101,386 |
|
|
|
168,076 |
|
Unconditional purchase
obligations(1)
|
|
|
125,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal reserve lease and royalty obligations
|
|
|
216,996 |
|
|
|
344,407 |
|
|
|
25,459 |
|
|
|
46,611 |
|
Other long-term
liabilities(2)
|
|
|
170,716 |
|
|
|
337,809 |
|
|
|
396,113 |
|
|
|
1,362,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
930,943 |
|
|
$ |
1,338,260 |
|
|
$ |
1,398,609 |
|
|
$ |
5,924,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
We have purchase agreements with approved vendors for most types
of operating expenses. However, our specific open purchase
orders (which have not been recognized as a liability) under
these purchase agreements, combined with any other open purchase
orders, are not material. The commitments in the table above
relate to significant capital purchases. |
|
(2) |
Represents long-term liabilities relating to our postretirement
benefit plans, work-related injuries and illnesses, defined
benefit pension plans and mine reclamation and end of mine
closure costs. |
As of December 31, 2006, we had $125.8 million of
purchase obligations for capital expenditures and
$479.8 million of obligations related to federal coal
reserve lease payments due over the next three years. Total
capital expenditures for 2007 are expected to range from
$450 million to $525 million, excluding federal coal
reserve lease payments, and relate to replacement, improvement,
or expansion of existing mines, particularly in Australia,
Appalachia and the Midwest, and growth initiatives such as
increasing capacity in the Powder River Basin. Approximately
$10 million of the expenditures relate to safety equipment
that will be utilized to comply with recently issued federal and
state regulations. Capital expenditures were funded primarily
through operating cash flow. Despite the acquisition of three
development stage mines in 2006, we will exercise capital
discipline in 2007, limiting capital expenditures to 2006 levels.
Our subsidiary, Peabody Pacific, has committed to pay up to a
maximum of A$0.20/tonne (approximately US$0.15/tonne) of coal
sales for a period of five years to the Australian COAL21 Fund.
The COAL21 Fund is a voluntary coal industry fund to support
clean coal technology demonstration projects and research in
Australia. All major coal companies in Australia have committed
to this fund. The commitment to pay starts on April 1, 2007
with a levy of A$0.10/tonne of coal sales. This levy is expected
to rise to A$0.20/tonne on July 1, 2007.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain
off-balance sheet arrangements. These arrangements include
guarantees, indemnifications, financial instruments with
off-balance sheet risk, such
41
as bank letters of credit and performance or surety bonds and
our accounts receivable securitization. Liabilities related to
these arrangements are not reflected in our consolidated balance
sheets, and we do not expect any material adverse effects on our
financial condition, results of operations or cash flows to
result from these off-balance sheet arrangements.
We use a combination of surety bonds, corporate guarantees (i.e.
self bonds) and letters of credit to secure our financial
obligations for reclamation, workers compensation,
postretirement benefits and coal lease obligations as follows as
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workers | |
|
Retiree | |
|
|
|
|
|
|
Reclamation | |
|
Lease | |
|
Compensation | |
|
Healthcare | |
|
|
|
|
|
|
Obligations | |
|
Obligations | |
|
Obligations | |
|
Obligations | |
|
Other(1) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Self Bonding
|
|
$ |
685.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.9 |
|
|
$ |
688.2 |
|
Surety Bonds
|
|
|
441.5 |
|
|
|
83.9 |
|
|
|
31.7 |
|
|
|
|
|
|
|
27.2 |
|
|
|
584.3 |
|
Letters of Credit
|
|
|
4.1 |
|
|
|
20.3 |
|
|
|
156.8 |
|
|
|
119.4 |
|
|
|
208.8 |
|
|
|
509.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,130.9 |
|
|
$ |
104.2 |
|
|
$ |
188.5 |
|
|
$ |
119.4 |
|
|
$ |
238.9 |
|
|
$ |
1,781.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes financial guarantees primarily related to joint venture
debt, the Pension Benefit Guarantee Corporation and collateral
for surety companies. |
As part of arrangements through which we obtain exclusive sales
representation agreements with small coal mining companies (the
Counterparties), we issued financial guarantees on
behalf of the Counterparties. These guarantees facilitate the
Counterparties efforts to obtain bonding or financing. In
July 2006, we issued $5.2 million of financial guarantees,
expiring at various dates through July 2013, on behalf of a
small coal producer to facilitate its efforts in obtaining
financing. In the event of default, we have multiple recourse
options, including the ability to assume the loans and procure
title and use of the equipment purchased through the loans. If
default occurs, we have the ability and intent to exercise our
recourse options, so the liability associated with the guarantee
has been valued at zero. We have also guaranteed bonding for a
partnership in which we formerly held an interest. The aggregate
amount guaranteed for all such Counterparties was
$12.1 million, and the fair value of the guarantees
recognized as a liability was $0.4 million as of
December 31, 2006. Our obligations under the guarantees
extend to September 2015. In March 2006, we issued a guarantee
for certain equipment lease arrangements on behalf of one of the
sales representation parties with maximum potential future
payments totaling $2.7 million at December 31, 2006,
and with lease terms that extend to April 2010. See Note 21
to our consolidated financial statements included in this report
for a discussion of our guarantees.
Under our accounts receivable securitization program, undivided
interests in a pool of eligible trade receivables contributed to
our wholly-owned, bankruptcy-remote subsidiary are sold, without
recourse, to a multi-seller, asset-backed commercial paper
conduit (Conduit). Purchases by the Conduit are
financed with the sale of highly rated commercial paper. We
utilize proceeds from the sale of our accounts receivable as an
alternative to other forms of debt, effectively reducing our
overall borrowing costs. The funding cost of the securitization
program was $1.9 million and $2.5 million for the
years ended December 31, 2006 and 2005, respectively. The
securitization program is scheduled to expire in September 2009.
The securitization transactions have been recorded as sales,
with those accounts receivable sold to the Conduit removed from
the consolidated balance sheets. The amount of undivided
interests in accounts receivable sold to the Conduit was
$219.2 million and $225.0 million as of
December 31, 2006 and 2005 (see Note 6 to our
consolidated financial statements for additional information on
accounts receivable securitization).
42
The following is a summary of specified types of commercial
commitments available to us as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration Per Year |
|
|
|
|
|
Total Amounts | |
|
Within |
|
|
|
Over |
|
|
Committed | |
|
1 Year |
|
2-3 Years |
|
4-5 Years | |
|
5 Years |
|
|
| |
|
|
|
|
|
| |
|
|
|
|
(Dollars in thousands) |
Lines of credit and/ or standby letters of credit
|
|
$ |
1,800,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,800,000 |
|
|
$ |
|
|
Newly Adopted Accounting Pronouncements
We adopted Emerging Issues Task Force (EITF) Issue
No. 04-6,
Accounting for Stripping Costs in the Mining
Industry (EITF Issue
No. 04-6) on
January 1, 2006 and utilized the cumulative effect
adjustment approach whereby a cumulative effect adjustment
reduced retained earnings by $150.3 million, net of tax.
EITF Issue
No. 04-6 states
that stripping costs incurred during the production phase
of a mine are variable production costs that should be included
in the costs of the inventory produced during the period that
the stripping costs are incurred. Advance stripping costs
include those costs necessary to remove overburden above an
unmined coal seam as part of the surface mining process and
prior to the adoption were included as the
work-in-process
component of Inventories in the consolidated balance
sheet. EITF Issue
No. 04-6 and its
interpretations require stripping costs incurred during a period
to be attributed only to the inventory costs of the coal that is
extracted during that same period, and therefore, advance
stripping costs are no longer separately classified as a
component of inventory.
On January 1, 2006, we adopted SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123(R)), which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123).
SFAS No. 123(R) supersedes Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees (APB Opinion
No. 25) and amends SFAS No. 95,
Statement of Cash Flows. Prior to January 1,
2006, we applied APB Opinion No. 25 and related
interpretations in accounting for our stock option plans, as
permitted under SFAS No. 123 and
SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure. We applied
SFAS No. 123(R) through use of the modified
prospective method, in which compensation cost is recognized
beginning with the effective date (a) based on the
requirements of SFAS No. 123(R) for all share-based
payments granted or modified after the effective date and
(b) based on the requirements of SFAS No. 123 for
all awards granted to employees prior to the effective date of
SFAS No. 123(R) that remain unvested on the effective
date. SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their
fair values at the grant date. SFAS No. 123(R) also
requires that the excess income tax benefits from stock options
exercised be recorded as financing cash inflow on the statements
of cash flows. The excess income tax benefit from stock option
exercises during 2005 and 2004 are included in operating cash
flows, netted in deferred tax activity.
For share-based payment instruments excluding restricted stock,
we recognized $17.7 million (or $0.07 per diluted
share), $24.8 million (or $0.09 per diluted share) and
$12.8 million (or $0.05 per diluted share) of expense,
net of taxes, for the years ended December 31, 2006, 2005
and 2004, respectively. As a result of adopting
SFAS No. 123(R), our net income for the year ended
December 31, 2006 was $4.4 million (or $0.02 per
diluted share) lower than if we had continued to account for
share-based compensation under APB Opinion No. 25.
Share-based compensation expense is recorded in Selling
and administrative expenses in the consolidated statements
of operations. We used the Black-Scholes option pricing model to
determine the fair value of stock options and employee stock
purchase plan share-based payments made before and after the
adoption of SFAS No. 123(R). We began utilizing
restricted stock as part of our equity-based compensation
strategy in January 2005. Accounting for restricted stock awards
was not changed by the adoption of SFAS No. 123(R). As
of December 31, 2006, the total unrecognized compensation
cost related to nonvested awards was $24.0 million, net of
taxes, which is expected to be
43
recognized over 5.0 years with a weighted-average period of
1.3 years. See Note 18 to our consolidated financial
statements for further discussion of our share-based
compensation plans.
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans
(SFAS No. 158). For fiscal years ending
after December 15, 2006, SFAS No. 158 requires
recognition of the funded status of pension and other
postretirement benefit plans (an asset for overfunded status or
a liability for underfunded status) in a companys balance
sheet. In addition, the standard requires recognition of
actuarial gains and losses, prior service cost, and any
remaining transition amounts from the initial application of
SFAS No. 87, Employers Accounting for
Pensions (SFAS No. 87) and
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions
(SFAS No. 106) when determining a
plans funded status, with a corresponding charge to
accumulated other comprehensive income (loss).
We adopted SFAS No. 158 on December 31, 2006, and
as a result, recorded a noncurrent liability of
$376.1 million, which reflected the total underfunded
status of the pension, retiree healthcare and workers
compensation plans. The funded status of each plan was measured
as the difference between the fair value of the assets and the
projected benefit obligation (the funded status).
SFAS No. 158 did not impact net income. The impact to
the balance sheet was as follows (see Notes 14, 15,
and 16 to our consolidated financial statements for additional
details):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After Application |
|
|
Before Application |
|
|
|
of |
|
|
of SFAS No. 158 |
|
Adjustments |
|
SFAS No. 158 |
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
Workers compensation obligations
|
|
$ |
237,965 |
|
|
$ |
(4,558 |
) |
|
$ |
233,407 |
|
Accrued postretirement benefit costs
|
|
|
973,164 |
|
|
|
395,522 |
|
|
|
1,368,686 |
|
Other noncurrent liabilities (includes long-term pension and
UMWA Combined Fund liabilities)
|
|
|
375,485 |
|
|
|
(14,855 |
) |
|
|
360,630 |
|
Deferred income taxes (long-term liability)
|
|
|
344,712 |
|
|
|
(149,499 |
) |
|
|
195,213 |
|
Total liabilities
|
|
|
6,915,583 |
|
|
|
226,610 |
|
|
|
7,142,193 |
|
Accumulated other comprehensive loss
|
|
|
(22,448 |
) |
|
|
(226,610 |
) |
|
|
(249,058 |
) |
Total stockholders equity
|
|
|
2,565,136 |
|
|
|
(226,610 |
) |
|
|
2,338,526 |
|
Accounting Pronouncements Not Yet Implemented
In June 2006, the FASB issued FIN No. 48. This
interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN No. 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. This
interpretation is effective for fiscal years beginning after
December 15, 2006 (January 1, 2007 for the Company).
Any adjustments required upon the adoption of this
interpretation must be recorded directly to retained earnings in
the year of adoption and reported as a change in accounting
principle. We expect the adoption of FIN No. 48 will
not have a material impact on our financial position.
44
|
|
Item 8. |
Financial Statements and Supplementary Data. |
See Part IV, Item 15 of this report for information
required by this Item.
45
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules. |
(a) Documents Filed as Part of the Report
|
|
|
(1) Financial Statements. |
|
|
The following consolidated financial statements of Peabody
Energy Corporation are included herein on the pages indicated: |
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
F-1 |
|
Consolidated Statements of Operations Years Ended
December 31, 2006, 2005 and 2004
|
|
|
F-2 |
|
Consolidated Balance Sheets December 31, 2006
and December 31, 2005
|
|
|
F-3 |
|
Consolidated Statements of Cash Flows Years Ended
December 31, 2006, 2005 and 2004
|
|
|
F-4 |
|
Consolidated Statements of Changes in Stockholders
Equity Years Ended December 31, 2006, 2005 and
2004
|
|
|
F-5 |
|
Notes to Consolidated Financial Statements
|
|
|
F-6 |
|
|
|
|
(2) Financial Statement Schedule. |
|
|
The following financial statement schedule of Peabody Energy
Corporation and the report thereon of the independent registered
public accounting firm are at the pages indicated: |
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
|
|
|
F-72 |
|
Valuation and Qualifying Accounts
|
|
|
F-73 |
|
|
|
|
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and, therefore, have been omitted. |
|
|
(3) Exhibits. |
|
|
See Exhibit Index hereto. |
46
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
PEABODY ENERGY CORPORATION |
|
|
/s/ RICHARD A. NAVARRE
|
|
|
|
Richard A. Navarre |
|
Chief Financial Officer and Executive Vice President of
Corporate Development |
Date: September 7, 2007
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Peabody Energy Corporation
We have audited the accompanying consolidated balance sheets of
Peabody Energy Corporation as of December 31, 2006 and
2005, and the related consolidated statements of operations,
changes in stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2006.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Peabody Energy Corporation at
December 31, 2006 and 2005, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2006, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, on January 1, 2006, the Company changed its
method of accounting for stripping costs and share-based
payments, and on December 31, 2006, the Company changed its
method of accounting for defined pension benefit and other
postretirement plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Peabody Energy Corporations internal
control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated
February 20, 2007, expressed an unqualified opinion thereon.
St. Louis, Missouri
February 20, 2007
F-1
PEABODY ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except share and per share data) | |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
5,144,925 |
|
|
$ |
4,545,323 |
|
|
$ |
3,545,027 |
|
|
Other revenues
|
|
|
111,390 |
|
|
|
99,130 |
|
|
|
86,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,256,315 |
|
|
|
4,644,453 |
|
|
|
3,631,582 |
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
4,155,984 |
|
|
|
3,715,836 |
|
|
|
2,965,541 |
|
|
Depreciation, depletion and amortization
|
|
|
377,210 |
|
|
|
316,114 |
|
|
|
270,159 |
|
|
Asset retirement obligation expense
|
|
|
40,112 |
|
|
|
35,901 |
|
|
|
42,387 |
|
|
Selling and administrative expenses
|
|
|
175,941 |
|
|
|
189,802 |
|
|
|
143,025 |
|
|
Other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on disposal or exchange of assets
|
|
|
(132,162 |
) |
|
|
(101,487 |
) |
|
|
(23,829 |
) |
|
|
Income from equity affiliates
|
|
|
(23,852 |
) |
|
|
(30,096 |
) |
|
|
(12,399 |
) |
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
663,082 |
|
|
|
518,383 |
|
|
|
246,698 |
|
|
Interest expense
|
|
|
143,450 |
|
|
|
102,939 |
|
|
|
96,793 |
|
|
Early debt extinguishment costs
|
|
|
1,396 |
|
|
|
|
|
|
|
1,751 |
|
|
Interest income
|
|
|
(12,726 |
) |
|
|
(10,641 |
) |
|
|
(4,917 |
) |
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations Before Income Taxes and
Minority Interests
|
|
|
530,962 |
|
|
|
426,085 |
|
|
|
153,071 |
|
|
Income tax provision (benefit)
|
|
|
(81,515 |
) |
|
|
960 |
|
|
|
(26,437 |
) |
|
Minority interests
|
|
|
11,780 |
|
|
|
2,472 |
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations
|
|
|
600,697 |
|
|
|
422,653 |
|
|
|
178,226 |
|
|
Loss from discontinued operations, net of income tax benefit of
$1,893
|
|
|
|
|
|
|
|
|
|
|
(2,839 |
) |
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
600,697 |
|
|
$ |
422,653 |
|
|
$ |
175,387 |
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
2.28 |
|
|
$ |
1.62 |
|
|
$ |
0.72 |
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2.28 |
|
|
$ |
1.62 |
|
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding Basic
|
|
|
263,419,344 |
|
|
|
261,519,424 |
|
|
|
248,732,744 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
2.23 |
|
|
$ |
1.58 |
|
|
$ |
0.70 |
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2.23 |
|
|
$ |
1.58 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding Diluted
|
|
|
269,166,005 |
|
|
|
268,013,476 |
|
|
|
254,812,632 |
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share
|
|
$ |
0.24 |
|
|
$ |
0.17 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-2
PEABODY ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands, except | |
|
|
share and per share data) | |
ASSETS |
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
326,511 |
|
|
$ |
503,278 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$11,144 and $10,853 at December 31, 2006 and 2005,
respectively
|
|
|
358,242 |
|
|
|
202,134 |
|
|
Inventories
|
|
|
215,384 |
|
|
|
389,771 |
|
|
Assets from coal trading activities
|
|
|
150,373 |
|
|
|
146,596 |
|
|
Deferred income taxes
|
|
|
106,967 |
|
|
|
9,027 |
|
|
Other current assets
|
|
|
116,863 |
|
|
|
54,431 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,274,340 |
|
|
|
1,305,237 |
|
Property, plant, equipment and mine development
|
|
|
|
|
|
|
|
|
|
Land and coal interests
|
|
|
7,127,385 |
|
|
|
4,775,126 |
|
|
Buildings and improvements
|
|
|
893,049 |
|
|
|
793,254 |
|
|
Machinery and equipment
|
|
|
1,516,765 |
|
|
|
1,237,184 |
|
|
Less accumulated depreciation, depletion and amortization
|
|
|
(1,985,682 |
) |
|
|
(1,627,856 |
) |
|
|
|
|
|
|
|
Property, plant, equipment and mine development, net
|
|
|
7,551,517 |
|
|
|
5,177,708 |
|
Goodwill
|
|
|
240,667 |
|
|
|
|
|
Investments and other assets
|
|
|
447,532 |
|
|
|
369,061 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
9,514,056 |
|
|
$ |
6,852,006 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$ |
95,757 |
|
|
$ |
22,585 |
|
|
Liabilities from coal trading activities
|
|
|
126,731 |
|
|
|
132,373 |
|
|
Accounts payable and accrued expenses
|
|
|
1,145,043 |
|
|
|
867,965 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,367,531 |
|
|
|
1,022,923 |
|
Long-term debt, less current maturities
|
|
|
3,168,069 |
|
|
|
1,382,921 |
|
Deferred income taxes
|
|
|
195,213 |
|
|
|
338,488 |
|
Asset retirement obligations
|
|
|
423,031 |
|
|
|
399,203 |
|
Workers compensation obligations
|
|
|
233,407 |
|
|
|
237,574 |
|
Accrued postretirement benefit costs
|
|
|
1,368,686 |
|
|
|
959,222 |
|
Other noncurrent liabilities
|
|
|
386,256 |
|
|
|
330,658 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,142,193 |
|
|
|
4,670,989 |
|
Minority interests
|
|
|
33,337 |
|
|
|
2,550 |
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
Preferred Stock $0.01 per share par value;
10,000,000 shares authorized, no shares issued or
outstanding as of December 31, 2006 or 2005
|
|
|
|
|
|
|
|
|
|
|
Series A Junior Participating Preferred Stock
1,500,000 shares authorized, no shares issued or
outstanding as of December 31, 2006 or 2005
|
|
|
|
|
|
|
|
|
|
|
Perpetual Preferred Stock 750,000 shares
authorized, no shares issued or outstanding as of
December 31, 2006 or 2005
|
|
|
|
|
|
|
|
|
|
Series Common Stock $0.01 per share par
value; 40,000,000 shares authorized, no shares issued or
outstanding as of December 31, 2006 or 2005
|
|
|
|
|
|
|
|
|
|
Common Stock $0.01 per share par value;
800,000,000 shares authorized, 266,554,157 shares
issued and 263,846,839 shares outstanding as of
December 31, 2006 and 400,000,000 shares authorized,
263,879,762 shares issued and 263,357,402 shares
outstanding as of December 31, 2005
|
|
|
2,666 |
|
|
|
2,638 |
|
|
Additional paid-in capital
|
|
|
1,572,614 |
|
|
|
1,497,454 |
|
|
Retained earnings
|
|
|
1,115,994 |
|
|
|
729,086 |
|
|
Accumulated other comprehensive loss
|
|
|
(249,058 |
) |
|
|
(46,795 |
) |
|
Treasury shares, at cost: 2,707,318 shares as of
December 31, 2006 and 522,360 shares as of
December 31, 2005
|
|
|
(103,690 |
) |
|
|
(3,916 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,338,526 |
|
|
|
2,178,467 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
9,514,056 |
|
|
$ |
6,852,006 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
PEABODY ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
600,697 |
|
|
$ |
422,653 |
|
|
$ |
175,387 |
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
2,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
600,697 |
|
|
|
422,653 |
|
|
|
178,226 |
|
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
377,210 |
|
|
|
316,114 |
|
|
|
270,159 |
|
|
Deferred income taxes
|
|
|
(189,243 |
) |
|
|
(24,962 |
) |
|
|
(31,925 |
) |
|
Amortization of debt discount and debt issuance costs
|
|
|
7,410 |
|
|
|
6,938 |
|
|
|
8,330 |
|
|
Net gain on disposal or exchange of assets
|
|
|
(132,162 |
) |
|
|
(101,487 |
) |
|
|
(23,829 |
) |
|
Income from equity affiliates
|
|
|
(23,852 |
) |
|
|
(30,096 |
) |
|
|
(12,399 |
) |
|
Dividends received from equity affiliates
|
|
|
28,063 |
|
|
|
7,552 |
|
|
|
13,614 |
|
|
Changes in current assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of sale
|
|
|
(103,399 |
) |
|
|
(52,757 |
) |
|
|
(34,649 |
) |
|
|
Inventories
|
|
|
(38,208 |
) |
|
|
(67,125 |
) |
|
|
(57,781 |
) |
|
|
Net assets from coal trading activities
|
|
|
(9,419 |
) |
|
|
11,377 |
|
|
|
(3,583 |
) |
|
|
Other current assets
|
|
|
(24,108 |
) |
|
|
(10,769 |
) |
|
|
(1,438 |
) |
|
|
Accounts payable and accrued expenses
|
|
|
88,014 |
|
|
|
173,919 |
|
|
|
66,576 |
|
|
Asset retirement obligations
|
|
|
(52 |
) |
|
|
(981 |
) |
|
|
(6,571 |
) |
|
Workers compensation obligations
|
|
|
391 |
|
|
|
11,390 |
|
|
|
10,479 |
|
|
Accrued postretirement benefit costs
|
|
|
13,942 |
|
|
|
19,719 |
|
|
|
(32,499 |
) |
|
Contributions to pension plans
|
|
|
(6,146 |
) |
|
|
(7,162 |
) |
|
|
(62,082 |
) |
|
Other, net
|
|
|
6,588 |
|
|
|
28,436 |
|
|
|
3,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
595,726 |
|
|
|
702,759 |
|
|
|
283,760 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Excel Coal, net of cash acquired
|
|
|
(1,507,775 |
) |
|
|
|
|
|
|
|
|
Other acquisitions, net
|
|
|
(44,538 |
) |
|
|
|
|
|
|
(429,061 |
) |
Additions to property, plant, equipment and mine development
|
|
|
(477,721 |
) |
|
|
(384,304 |
) |
|
|
(151,944 |
) |
Purchase of mining and related assets
|
|
|
|
|
|
|
(141,195 |
) |
|
|
|
|
Federal coal lease expenditures
|
|
|
(178,193 |
) |
|
|
(118,364 |
) |
|
|
(114,653 |
) |
Proceeds from disposal of assets, net of notes receivable
|
|
|
77,579 |
|
|
|
76,227 |
|
|
|
39,339 |
|
Additions to advance mining royalties
|
|
|
(11,021 |
) |
|
|
(14,566 |
) |
|
|
(16,239 |
) |
Investments in joint ventures
|
|
|
(2,149 |
) |
|
|
(2,000 |
) |
|
|
(32,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,143,818 |
) |
|
|
(584,202 |
) |
|
|
(705,030 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
2,580,295 |
|
|
|
11,734 |
|
|
|
700,013 |
|
Payments of long-term debt
|
|
|
(1,045,973 |
) |
|
|
(20,198 |
) |
|
|
(482,924 |
) |
Common stock repurchase
|
|
|
(99,774 |
) |
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(63,456 |
) |
|
|
(44,535 |
) |
|
|
(32,568 |
) |
Payment of debt issuance costs
|
|
|
(40,611 |
) |
|
|
|
|
|
|
(12,875 |
) |
Excess tax benefit related to stock options exercised
|
|
|
33,173 |
|
|
|
|
|
|
|
|
|
Net proceeds from equity offering
|
|
|
|
|
|
|
|
|
|
|
383,125 |
|
Proceeds from stock options exercised
|
|
|
15,617 |
|
|
|
22,573 |
|
|
|
27,266 |
|
Distributions to minority interests
|
|
|
(6,664 |
) |
|
|
(2,498 |
) |
|
|
(1,007 |
) |
Increase (decrease) of securitized interests in accounts
receivable
|
|
|
(5,800 |
) |
|
|
25,000 |
|
|
|
110,000 |
|
Proceeds from employee stock purchases
|
|
|
4,518 |
|
|
|
3,009 |
|
|
|
2,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,371,325 |
|
|
|
(4,915 |
) |
|
|
693,404 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(176,767 |
) |
|
|
113,642 |
|
|
|
272,134 |
|
Cash and cash equivalents at beginning of year
|
|
|
503,278 |
|
|
|
389,636 |
|
|
|
117,502 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
326,511 |
|
|
$ |
503,278 |
|
|
$ |
389,636 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
PEABODY ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
Additional | |
|
Other | |
|
Other | |
|
|
|
|
|
Total | |
|
|
Common | |
|
Paid-In | |
|
Employee | |
|
Comprehensive | |
|
Retained | |
|
Treasury | |
|
Stockholders | |
|
|
Stock | |
|
Capital | |
|
Stock Loans | |
|
Loss | |
|
Earnings | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
December 31, 2003
|
|
$ |
2,190 |
|
|
$ |
1,007,008 |
|
|
$ |
(31 |
) |
|
$ |
(81,572 |
) |
|
$ |
208,149 |
|
|
$ |
(3,687 |
) |
|
$ |
1,132,057 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,387 |
|
|
|
|
|
|
|
175,387 |
|
|
|
Increase in fair value of cash flow hedges (net of $9,945 tax
provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,915 |
|
|
|
|
|
|
|
|
|
|
|
14,915 |
|
|
|
Minimum pension liability adjustment (net of $4,026 tax
provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,039 |
|
|
|
|
|
|
|
|
|
|
|
6,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,341 |
|
|
Issuance of common stock in connection with equity offering, net
of expenses
|
|
|
352 |
|
|
|
382,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383,125 |
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,568 |
) |
|
|
|
|
|
|
(32,568 |
) |
|
Loan repayments
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
Stock options exercised
|
|
|
54 |
|
|
|
27,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,675 |
|
|
Income tax benefits from stock options exercised
|
|
|
|
|
|
|
15,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,718 |
|
|
Employee stock purchases
|
|
|
|
|
|
|
2,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,343 |
|
|
Employee stock grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
Shares repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229 |
) |
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
$ |
2,596 |
|
|
$ |
1,435,562 |
|
|
$ |
|
|
|
$ |
(60,618 |
) |
|
$ |
350,968 |
|
|
$ |
(3,916 |
) |
|
$ |
1,724,592 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422,653 |
|
|
|
|
|
|
|
422,653 |
|
|
|
Increase in fair value of cash flow hedges (net of $7,613 tax
provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,421 |
|
|
|
|
|
|
|
|
|
|
|
11,421 |
|
|
|
Minimum pension liability adjustment (net of $1,601 tax
provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,402 |
|
|
|
|
|
|
|
|
|
|
|
2,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
436,476 |
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,535 |
) |
|
|
|
|
|
|
(44,535 |
) |
|
Stock options exercised
|
|
|
36 |
|
|
|
22,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,663 |
|
|
Income tax benefits from stock options exercised
|
|
|
|
|
|
|
30,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,437 |
|
|
Employee stock purchases
|
|
|
2 |
|
|
|
3,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,009 |
|
|
Employee stock grants
|
|
|
4 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
5,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
$ |
2,638 |
|
|
$ |
1,497,454 |
|
|
$ |
|
|
|
$ |
(46,795 |
) |
|
$ |
729,086 |
|
|
$ |
(3,916 |
) |
|
$ |
2,178,467 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,697 |
|
|
|
|
|
|
|
600,697 |
|
|
|
Increase in fair value of cash flow hedges (net of $16,230 tax
provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,347 |
|
|
|
|
|
|
|
|
|
|
|
24,347 |
|
|
|
Minimum pension liability adjustment (net of $16,842 tax
provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,377 |
|
|
|
|
|
|
|
|
|
|
|
22,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
647,421 |
|
|
Postretirement plans and workers compensation obligations
(net of $149,499 tax benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated actuarial loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(248,987 |
) |
|
|
|
|
|
|
|
|
|
|
(248,987 |
) |
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,456 |
) |
|
|
|
|
|
|
(63,456 |
) |
|
Stock options exercised
|
|
|
20 |
|
|
|
15,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,620 |
|
|
Share-based compensation
|
|
|
|
|
|
|
21,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,877 |
|
|
Income tax benefits from stock options exercised
|
|
|
|
|
|
|
33,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,173 |
|
|
Employee stock purchases
|
|
|
2 |
|
|
|
4,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,518 |
|
|
Employee stock grants
|
|
|
6 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance stripping adjustment (net of $95,189 tax benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,333 |
) |
|
|
|
|
|
|
(150,333 |
) |
|
Shares repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,774 |
) |
|
|
(99,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$ |
2,666 |
|
|
$ |
1,572,614 |
|
|
$ |
|
|
|
$ |
(249,058 |
) |
|
$ |
1,115,994 |
|
|
$ |
(103,690 |
) |
|
$ |
2,338,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1) |
Summary of Significant Accounting Policies |
The consolidated financial statements include the accounts of
Peabody Energy Corporation (the Company) and its
affiliates. All intercompany transactions, profits and balances
have been eliminated in consolidation.
The Company is engaged in the mining of steam coal for sale
primarily to electric utilities and metallurgical coal for sale
to industrial customers. The Companys mining operations
are located in the United States and Australia, and include an
equity interest in mining operations in Venezuela. In addition
to the Companys mining operations, the Company markets,
brokers and trades coal. The Companys other energy related
commercial activities include the development of mine-mouth
coal-fueled generating plants, the management of its vast coal
reserve and real estate holdings, coalbed methane production and
Btu conversion technologies. The Companys Btu conversion
projects are designed to expand the uses of coal through various
technologies such as
coal-to-liquids and
coal gasification.
|
|
|
New Accounting Pronouncements |
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS No. 158). For fiscal
years ending after December 15, 2006,
SFAS No. 158 requires recognition of the funded status
of pension and other postretirement benefit plans (an asset for
overfunded status or a liability for underfunded status) in a
companys balance sheet. In addition, the standard requires
recognition of actuarial gains and losses, prior service cost,
and any remaining transition amounts from the initial
application of SFAS No. 87, Employers
Accounting for Pensions
(SFAS No. 87) and SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions (SFAS No. 106)
when determining a plans funded status, with a
corresponding charge to accumulated other comprehensive income
(loss).
The Company adopted SFAS No. 158 on December 31,
2006, and as a result, recorded a noncurrent liability of
$376.1 million, which reflected the net underfunded status
of the pension, retiree healthcare and workers
compensation plans. The funded status of each plan was measured
as the difference between the fair value of the assets and the
projected benefit obligation (the funded status).
SFAS No. 158 did not impact net income. The impact to
the balance sheet was as follows (see Notes 14, 15,
and 16 for additional details):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application | |
|
|
|
After Application | |
|
|
of SFAS No. 158 | |
|
Adjustments | |
|
of SFAS No. 158 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Workers compensation obligations
|
|
$ |
237,965 |
|
|
$ |
(4,558 |
) |
|
$ |
233,407 |
|
Accrued postretirement benefit costs
|
|
|
973,164 |
|
|
|
395,522 |
|
|
|
1,368,686 |
|
Other noncurrent liabilities (includes long-term pension and
UMWA Combined Fund liabilities)
|
|
|
375,485 |
|
|
|
(14,855 |
) |
|
|
360,630 |
|
Deferred income taxes (long-term liability)
|
|
|
344,712 |
|
|
|
(149,499 |
) |
|
|
195,213 |
|
Total liabilities
|
|
|
6,915,583 |
|
|
|
226,610 |
|
|
|
7,142,193 |
|
Accumulated other comprehensive loss
|
|
|
(22,448 |
) |
|
|
(226,610 |
) |
|
|
(249,058 |
) |
Total stockholders equity
|
|
|
2,565,136 |
|
|
|
(226,610 |
) |
|
|
2,338,526 |
|
F-6
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN No. 48). This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN No. 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. This interpretation is
effective for fiscal years beginning after December 15,
2006 (January 1, 2007 for the Company). Any adjustments
required upon the adoption of this interpretation must be
recorded directly to retained earnings in the year of adoption
and reported as a change in accounting principle. The Company
expects the adoption of FIN No. 48 will not have a
material impact on its results of operations or financial
position.
In March 2005, the Emerging Issues Task Force (EITF)
issued EITF Issue
No. 04-6,
Accounting for Stripping Costs in the Mining
Industry (EITF Issue
No. 04-6).
EITF Issue
No. 04-6 and its
interpretations require stripping costs incurred during a period
to be attributed only to the inventory costs of the coal that is
extracted during that same period. The Company adopted EITF
Issue No. 04-6 on
January 1, 2006 and utilized the cumulative effect
adjustment approach whereby the cumulative effect adjustment
reduced retained earnings by $150.3 million, net of tax.
This non-cash item is excluded from the consolidated statements
of cash flows. Advance stripping costs are primarily expensed as
incurred.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS No. 123(R)), which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123).
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB
Opinion No. 25) and amends FASB Statement
No. 95, Statement of Cash Flows. Generally, the
approach in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to
employees, including employee stock options, to be recognized in
the income statement based on their fair values at the grant
date.
The Company adopted SFAS No. 123(R) on January 1,
2006 and used the modified prospective method, in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of
SFAS No. 123(R) for all share-based payments granted
or modified after the effective date and (b) based on the
requirements of SFAS No. 123 for all awards granted to
employees prior to the effective date of
SFAS No. 123(R) that remain unvested on the effective
date. Prior to January 1, 2006, the Company had elected to
apply APB Opinion No. 25 and related interpretations in
accounting for its stock option plans, as permitted under
SFAS No. 123 and SFAS No. 148
Accounting for Stock-Based Compensation-Transition and
Disclosure. Beginning in 2006, SFAS No. 123(R)
also requires that excess income tax benefits from stock options
exercised be recorded as financing cash inflow on the statements
of cash flows. The excess income tax benefit from stock option
exercises during 2005 and 2004 is included in operating cash
flows, netted in deferred tax activity.
The Companys revenue from coal sales is realized and
earned when risk of loss passes to the customer. Coal sales are
made to the Companys customers under the terms of coal
supply agreements, most of which are long-term (greater than one
year). Under the typical terms of these coal supply agreements,
title and risk of loss transfer to the customer at the mine or
port, where coal is loaded to the rail, barge, ocean-going
vessel, truck or other transportation source(s) that serves each
of the Companys mines. The Company incurs certain
add-on taxes and fees on coal sales. Coal sales are
reported including taxes and fees charged by various federal and
state governmental bodies.
F-7
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other revenues include royalties related to coal lease
agreements, sales agency commissions, farm income, coalbed
methane revenues, property and facility rentals, generation
development activities, net revenues from coal trading
activities accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), as
amended, and contract termination or restructuring payments.
Royalty income generally results from the lease or sublease of
mineral rights to third parties, with payments based upon a
percentage of the selling price or an amount per ton of coal
produced. Certain agreements require minimum annual lease
payments regardless of the extent to which minerals are produced
from the leasehold. The terms of these agreements generally
range from specified periods of five to 15 years, or can be
for an unspecified period until all reserves are depleted.
The Company classifies items within discontinued operations in
the consolidated statements of operations when the operations
and cash flows of a particular component (defined as operations
and cash flows that can be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the
entity) of the Company have been (or will be) eliminated from
the ongoing operations of the Company as a result of a disposal
transaction, and the Company will no longer have any significant
continuing involvement in the operations of that component.
Discontinued operations for the year ended December 31,
2004, reflected a $2.8 million loss, net of taxes, related
to the Companys former Citizens Power subsidiary.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents are stated at cost, which approximates
fair value. Cash equivalents consist of highly liquid
investments with original maturities of three months or less.
Materials and supplies and coal inventory are valued at the
lower of average cost or market. Raw coal represents coal
stockpiles that may be sold in current condition or may be
further processed prior to shipment to a customer. Coal
inventory costs include labor, supplies, equipment, operating
overhead and other related costs. Prior to the adoption of EITF
Issue No. 04-6,
advance stripping consisted of the costs to remove overburden
above an unmined coal seam as part of the surface mining
process. As a result of the adoption of EITF Issue
No. 04-6 on
January 1, 2006, advance stripping costs are
expensed as incurred except to the extent such costs are included as
a component of inventory costs.
|
|
|
Assets and Liabilities from Coal Trading Activities |
The Companys coal trading activities are evaluated under
SFAS No. 133, as amended. Trading contracts that meet
the SFAS No. 133 definition of a derivative are
accounted for at fair value, while contracts that do not qualify
as derivatives are accounted for under the accrual method. All
trading contracts are recorded subject to the requirements of
EITF Issue
No. 02-3,
Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities (EITF Issue
No. 02-3).
The Companys trading contracts are reflected at fair value
and are included in Assets and liabilities from coal
trading activities in the consolidated balance sheets as
of December 31, 2006 and 2005. Under EITF Issue
No. 02-3, all
mark-to-market gains
and losses on energy trading contracts (including derivatives
and hedged contracts) are presented on a net basis in the
statement of operations, even if
F-8
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
settled physically. The Companys consolidated statements
of operations reflect revenues related to all
mark-to-market trading
contracts on a net basis in Other revenues.
|
|
|
Property, Plant, Equipment and Mine Development |
Property, plant, equipment and mine development are recorded at
cost. Interest costs applicable to major asset additions are
capitalized during the construction period, including
$3.0 million, $0.1 million and $0.2 million for
the years ended December 31, 2006, 2005 and 2004,
respectively.
Expenditures which extend the useful lives of existing plant and
equipment assets are capitalized. Maintenance and repairs are
charged to operating costs as incurred, Costs incurred to
develop coal mines or to expand the capacity of operating mines
are capitalized. Costs incurred to maintain current production
capacity at a mine and exploration expenditures are charged to
operating costs as incurred, including costs related to
drilling and study costs incurred to convert or upgrade mineral
resources to reserves. Costs to acquire computer hardware
and the development and/or purchase of software for internal use
are capitalized and depreciated over the estimated useful lives.
Coal reserves are recorded at cost, or at fair value in the case
of acquired businesses. As of December 31, 2006 and 2005,
the net book value of coal reserves totaled $5.2 billion
and $3.7 billion, respectively. These amounts included
$2.1 billion and $1.8 billion at December 31,
2006 and 2005, respectively, attributable to properties where
the Company was not currently engaged in mining operations or
leasing to third parties and, therefore, the coal reserves were
not currently being depleted. Included in the book value of coal
reserves are mineral rights for leased coal interests including
advance royalties and the net book value of these mineral rights
was $3.5 billion and $2.1 billion at December 31,
2006 and 2005, respectively.
The remaining net book value of our coal reserves of $1.7 billion and $1.6 billion, at December 31, 2006 and 2005, respectively, relates to coal reserves held by fee ownership.
Depletion of coal reserves and amortization of advance royalties
is computed using the
units-of-production
method utilizing only proven and probable reserves (as adjusted for recoverability factors) in the
depletion base. Mine development costs are principally amortized
over the estimated lives of the mines using the straight-line
method.
Depreciation of plant and equipment (excluding life of mine
assets) is computed using the straight-line method over the
estimated useful lives as follows:
|
|
|
|
|
|
|
Years | |
|
|
| |
Building and improvements
|
|
|
10 to 30 |
|
Machinery and equipment
|
|
|
3 to 30 |
|
Leasehold improvements
|
|
|
Life of Lease |
|
In addition, certain plant and equipment assets associated with
mining are depreciated using the straight-line method over the
estimated life of the mine, which varies from one to
33 years.
|
|
|
Goodwill and Intangible Assets |
Assets and liabilities acquired in business combinations are
accounted for using the purchase method and recorded at their
respective fair values. Substantially all goodwill is assigned
to the reporting unit that acquires a business. A reporting unit
is an operating segment as defined in SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information, or a business one level below an operating
segment if discrete financial information is prepared and
regularly reviewed by the segment manager. The Company conducts
a formal impairment test of goodwill on an annual basis and
between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying value. Under the impairment
test, if a reporting units carrying amount exceeds its
estimated fair value, a goodwill impairment is recognized to the
extent that the reporting units carrying amount of
goodwill exceeds the implied fair value of the goodwill.
F-9
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All of the Companys intangibles (other than goodwill) are
subject to amortization. Intangibles consist of contractual
obligations and are amortized based on tons sold. These
intangibles are also subject to evaluation for potential
impairment if an event occurs or circumstances change that
indicate the carrying amount may not be recoverable.
|
|
|
Investments in Joint Ventures |
The Company accounts for its investments in less than majority
owned corporate joint ventures under either the equity or cost
method. The Company applies the equity method to investments in
joint ventures when it has the ability to exercise significant
influence over the operating and financial policies of the joint
venture. Investments accounted for under the equity method are
initially recorded at cost, and any difference between the cost
of the Companys investment and the underlying equity in
the net assets of the joint venture at the investment date is
amortized over the lives of the related assets that gave rise to
the difference. The Companys pro rata share of earnings
from joint ventures and basis difference amortization is
reported in the consolidated statements of operations in
Income from equity affiliates. The book value of the
Companys equity method investments as of December 31,
2006 and 2005 was $65.5 million and $97.2 million,
respectively, and is reported in Investments and other
assets in the consolidated balance sheets. Included in the
Companys equity method investments was its 25.5% interest
in Carbones del Guasare, which owns and operates the Paso Diablo
Mine in Venezuela. The Companys investment in Paso Diablo
was $60.1 million and $50.3 million as of
December 31, 2006 and 2005, respectively. The Company
recorded income from this equity affiliate of
$28.0 million, $20.0 million and $1.2 million for
the years ended December 31, 2006, 2005 and 2004,
respectively, which is reported in Income from equity
affiliates in the consolidated statements of operations.
|
|
|
Generation Development Costs |
Development costs related to coal-based electricity generation,
including expenditures for permitting and licensing, are
capitalized at cost under the guidelines in
SFAS No. 142, Goodwill and Other Intangible
Assets. Start-up
costs, as defined in Statement of Position (SOP)
No. 98-5,
Reporting on the Costs of
Start-up
Activities, are expensed as incurred. Development costs of
$21.4 million and $22.4 million were recorded as part
of Investments and other assets in the consolidated
balance sheets as of December 31, 2006 and 2005,
respectively.
|
|
|
Asset Retirement Obligations |
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143) addresses
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Companys asset
retirement obligation (ARO) liabilities primarily
consist of spending estimates related to reclaiming surface land
and support facilities at both surface and underground mines in
accordance with federal and state reclamation laws as defined by
each mining permit.
The Company estimates its ARO liabilities for final reclamation
and mine closure based upon detailed engineering calculations of
the amount and timing of the future cash spending for a
third-party to perform the required work. Spending estimates are
escalated for inflation and then discounted at the
credit-adjusted risk-free rate. The Company records an ARO asset
associated with the discounted liability for final reclamation
and mine closure. The obligation and corresponding asset are
recognized in the period in which the liability is incurred. The
ARO asset is amortized on the
units-of-production
method over its expected life and the ARO liability is accreted
to the projected spending date. As changes in estimates occur
(such as mine plan revisions, changes in estimated costs or
changes in timing of the performance of reclamation activities),
the revisions to the obligation and asset are recognized at the
appropriate credit-
F-10
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
adjusted risk-free rate. The Company also recognizes an
obligation for contemporaneous reclamation liabilities incurred
as a result of surface mining. Contemporaneous reclamation
consists primarily of grading, topsoil replacement and
revegetation of backfilled pit areas.
|
|
|
Environmental Liabilities |
Included in Other noncurrent liabilities are
accruals for other environmental matters that are recorded in
operating expenses when it is probable that a liability has been
incurred and the amount of the liability can be reasonably
estimated. Accrued liabilities are exclusive of claims against
third parties and are not discounted. In general, costs related
to environmental remediation are charged to expense.
Income taxes are accounted for using a balance sheet approach in
accordance with SFAS No. 109, Accounting for
Income Taxes. The Company accounts for deferred income
taxes by applying statutory tax rates in effect at the date of
the balance sheet to differences between the book and tax basis
of assets and liabilities. A valuation allowance is established
if it is more likely than not that the related tax
benefits will not be realized. In determining the appropriate
valuation allowance, the Company considers projected realization
of tax benefits based on expected levels of future taxable
income, available tax planning strategies, and the overall
deferred tax position.
|
|
|
Postretirement Health Care and Life Insurance
Benefits |
The Company accounts for postretirement benefits other than
pensions in accordance with SFAS No. 106, which
requires the costs of benefits to be provided to be accrued over
the employees period of active service. These costs are
determined on an actuarial basis. As a result of the adoption of
SFAS No. 158 on December 31, 2006, the
Companys consolidated balance sheet as of
December 31, 2006 reflects the funded status of
postretirement benefits.
|
|
|
Multi-Employer Benefit Plans |
The Company has an obligation to contribute to two plans
established by the Coal Industry Retiree Health Benefits Act of
1992 (the Coal Act) the Combined
Fund and the 1992 Benefit Plan. A third fund,
the 1993 Benefit Fund (the 1993 Benefit Plan), was
originally established through collective bargaining, but is now
a statutory plan under the terms of the 2006 Tax Relief and
Health Care Act. The Combined Fund obligations are accounted for
in accordance with EITF Issue
No. 92-13,
Accounting for Estimated Payments in Connection with the
Coal Industry Retiree Health Benefit Act of 1992, as
determined on an actuarial basis. The 1992 Benefit Plan and 1993
Benefit Plan qualify as multi-employer plans under
SFAS No. 106 and expense is recognized as
contributions are made.
The Company sponsors non-contributory defined benefit pension
plans accounted for in accordance with SFAS No. 87,
which requires that the cost to provide the benefits be accrued
over the employees period of active service. These costs
are determined on an actuarial basis. SFAS No. 158
amended SFAS No. 87 and as a result of the adoption of
SFAS No. 158 on December 31, 2006, the
Companys consolidated balance sheet as of that date
reflects the funded status of the defined benefit pension plans.
The Company also participates in two multi-employer pension
plans, the United Mine Workers of America 1950 Pension Plan (the
1950 Plan) and the United Mine Workers of America
1974 Pension Plan (the 1974 Plan). These plans
qualify as multi-employer plans under SFAS No. 87 and
expense is recognized as contributions are made.
F-11
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company provides postemployment benefits to qualifying
employees, former employees and dependents and accounts for
these benefits on the accrual basis in accordance with
SFAS No. 112 Employers Accounting for
Postemployment Benefits. Postemployment benefits include
workers compensation occupational disease, which is
accounted for on the actuarial basis over the employees
period of active service; workers compensation traumatic
injury claims, which are accounted for based on estimated loss
rates applied to payroll and claim reserves determined by
independent actuaries and claims administrators; disability
income benefits, which are accrued when a claim occurs; and
continuation of medical benefits, which are recognized when the
obligation occurs. As a result of the adoption of
SFAS No. 158 on December 31, 2006, the
Companys consolidated balance sheet as of
December 31, 2006 reflects the funded status of
postemployment benefits.
SFAS No. 133, as amended, requires the recognition at
fair value of all derivatives as assets or liabilities on the
consolidated balance sheets. Gains or losses from derivative
financial instruments designated as fair value hedges are
recognized immediately in the consolidated statements of
operations, along with the offsetting gain or loss related to
the underlying hedged item.
Gains or losses on derivative financial instruments designated
as cash flow hedges are recorded as a separate component of
stockholders equity until settlement (or until hedge
ineffectiveness is determined), whereby gains or losses are
reclassified to the consolidated statements of operations in
conjunction with the recognition of the underlying hedged item.
To the extent that the periodic changes in the fair value of the
derivatives are not effective, or if the hedge ceases to qualify
for hedge accounting, the ineffective portion of the periodic
non-cash changes are recorded in Operating costs and
expenses in the consolidated statement of operations in
the period of the change. The potential for hedge
ineffectiveness is only present in the design of the hedge
relationship in the Companys cash flow hedges of
anticipated fuel purchases (see Note 2 for additional
details).
|
|
|
Use of Estimates in the Preparation of the Consolidated
Financial Statements |
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
In particular, the Company has significant long-term liabilities
relating to retiree health care, work-related injuries and
illnesses and defined benefit pension plans. Each of these
liabilities is actuarially determined and the Company uses
various actuarial assumptions, including the discount rate and
future cost trends, to estimate the costs and obligations for
these items. In addition, the Company has significant asset
retirement obligations that involve estimations of costs to
remediate mining lands and the timing of cash outlays for such
costs. If these assumptions do not materialize as expected,
actual cash expenditures and costs incurred could differ
materially from current estimates. Moreover, regulatory changes
could increase the obligation to satisfy these or additional
obligations.
Finally, in evaluating the valuation allowance related to the
Companys deferred tax assets, the Company takes into
account various factors, including the expected level of future
taxable income and available tax planning strategies. If actual
results differ from the assumptions made in the evaluation of
the valuation allowance, the Company may record a change in
valuation allowance through income tax expense in the period
such determination is made.
F-12
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Impairment of Long-Lived Assets |
The Company records impairment losses on long-lived assets used
in operations when events and circumstances indicate that assets
might be impaired and the undiscounted cash flows estimated to
be generated by those assets under various assumptions are less
than the carrying amounts of the assets. Impairment losses are
measured by comparing the estimated fair value of the impaired
asset to its carrying amount. There were no impairment losses
recorded during the periods covered by the consolidated
financial statements.
|
|
|
Fair Value of Financial Instruments |
SFAS No. 107, Disclosures About Fair Value of
Financial Instruments, defines the fair value of a
financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. See Note 22 for
additional information.
|
|
|
Foreign Currency Translation |
For the Companys foreign subsidiaries where the functional
currency is the U.S. dollar, monetary assets and
liabilities are translated at year-end exchange rates while
non-monetary items are translated at historical rates. Income
and expense accounts are translated at the average rates in
effect during the year, except for those expenses related to
balance sheet amounts that are remeasured at historical exchange
rates. The Company has foreign subsidiaries whose functional
currency is the U.S. dollar during the years ended
December 31, 2006, 2005, and 2004. Gains and losses from
foreign currency remeasurement are included in the consolidated
statements of operations. The foreign currency remeasurement
loss for the year ended December 31, 2006 was
$12.8 million. Gains and losses from foreign currency
remeasurement did not have a material impact on the
Companys consolidated financial position or results of
operations for the years ended December 31, 2005 and 2004.
|
|
(2) |
Risk Management and Derivative Financial Instruments |
The Company is exposed to various types of risk in the normal
course of business, including fluctuations in commodity prices,
interest rates and foreign currency exchange rates. These risks
are actively monitored to ensure compliance with the risk
management policies of the Company. In most cases, commodity
price risk (excluding coal trading activities) related to the
sale of coal is mitigated through the use of long-term,
fixed-price contracts rather than financial instruments, while
commodity price risk related to materials used in production is
managed through the use of fixed price and cost plus contracts
and derivatives. Interest rate and foreign currency exchange
risk are managed through the use of forward contracts, swaps and
options. The Companys usage of interest rate swaps is
discussed in Note 12.
The Company performs a value at risk analysis of its trading
portfolio, which includes
over-the-counter and
brokerage trading of coal. The use of value at risk allows
management to quantify, in dollars, on a daily basis, the price
risk inherent in its trading portfolio. The Companys value
at risk model is based on the industry standard
variance/co-variance approach. This captures exposure related to
both option and forward positions. During the year ended
December 31, 2006, the low, high, and average values at
risk for the Companys coal trading portfolio were
$0.7 million, $2.7 million and $1.4 million,
respectively. Further discussion of the Companys coal
trading assets and liabilities is included in Note 5.
The Company also monitors other types of risk associated with
its coal trading activities, including credit, market liquidity
and counterparty nonperformance.
F-13
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the derivatives related to trading activities,
the Company manages its exposure to price volatility of
materials used in production, including diesel fuel and
explosives, through various contractual arrangements. As of
December 31, 2006, the Company had designated derivative
contracts as cash flow hedges for 137.9 million gallons of
anticipated fuel usage with contract maturities extending
through 2009. The consolidated balance sheet at
December 31, 2006 reflects unrealized gains on these cash
flow hedges of $12.9 million, which is recorded net of a
$5.2 million tax provision in Accumulated other
comprehensive loss (see Note 19).
A measure of ineffectiveness is inherent in hedging future
diesel fuel purchases with derivative positions based on crude
oil or other mid-distillate commodities. The amount of
ineffectiveness in the Companys hedge of physical fuel
purchases with heating oil derivatives has historically been
insignificant and is expected to remain minimal because the
hedged diesel fuel contracts are priced based on the derivative
underlying, heating oil, adjusted for a fixed transportation
differential. Due to the market volatility of crude oil prices
and refining spreads, the measured ineffectiveness in the
Companys hedges of physical diesel fuel purchases with
crude oil derivatives has historically been greater than for
hedging contracts based on heating oil. Due to the implicit
market volatility of crude and heating oil prices and refining
crack spreads, the Company is unable to predict the amount of
ineffectiveness that may occur in future periods, including the
loss of hedge accounting (which could be determined on a
derivative by derivative basis or in the aggregate), which may
result in increased volatility in the Companys future
results.
Due to the inherent ineffectiveness that occurs when the price
of a derivative contract does not perfectly mirror the value of
the hedged instrument or transaction, SFAS No. 133
permits a degree of ineffectiveness within a narrowly defined
corridor, provided that critical terms of the hedge contract and
the hedged activity are sufficiently matched, including maturity
and notional amount, and provided that historical and expected
future prices are sufficiently correlated. During 2006, the
Company did not recognize any impact due to ineffectiveness of
hedging contracts that exceeded the defined corridor stipulated
in SFAS No. 133. During 2005, the Company recognized
approximately $0.1 million of lower operating costs and
expenses related to the ineffectiveness of its diesel fuel
hedges. Hedge ineffectiveness had no effect on results of
operations for the year ended December 31, 2004.
The notional amounts outstanding of 137.9 million gallons
included derivative swap contracts for 11.6 million gallons
of heating oil and 83.2 million gallons of crude oil and
collar contracts for 43.1 million gallons of crude oil that
were designated as cash flow hedges of future anticipated diesel
fuel purchases as of December 31, 2006. The heating oil
contracts are used to hedge fuel purchases in the Companys
Eastern mining operations, and the crude oil swaps are used to
hedge incremental fuel purchases in the Companys Eastern
mining operations with any excess over Eastern requirements
allocated to Western operations. The crude collar contracts
hedge the Companys remaining expected diesel fuel usage in
excess of the crude and heating oil derivative swap contracts in
the Eastern and Western mining operations.
In addition to the derivatives related to trading activities and
diesel fuel, the Company enters contracts to manage its exposure
to the price volatility of explosives. As of December 31,
2006, the Company had derivative contracts designated as cash
flow hedges with notional amounts outstanding totaling
5.7 million MMBtu of natural gas, with maturities extending
through May 2009. The consolidated balance sheet as of
December 31, 2006, reflects unrealized losses on these cash
flow hedges of $6.6 million, which is recorded net of a
$2.6 million tax benefit in Accumulated other
comprehensive loss (see Note 19). The Companys
hedge of explosives with natural gas is perfectly effective by
design since the contractual purchase of explosives is fixed to
the previous months closing price for natural gas, which
occurs in a constant ratio of MMBtu per ton in the manufacture
of explosives, plus a fixed surcharge.
F-14
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys concentration of credit risk is substantially
with energy producers and marketers and electric utilities,
although it also has exposure to international steel producers,
brokerage sources and trading counterparties. The Companys
policy is to independently evaluate each customers
creditworthiness prior to entering into transactions and to
constantly monitor the credit extended. In the event that the
Company engages into a transaction with a counterparty that does
not meet its credit standards, the Company may protect its
position by requiring the counterparty to provide appropriate
credit enhancement.
When appropriate, the Company has taken steps to reduce the
Companys credit exposure to customers or counterparties
whose credit has deteriorated and who may pose a higher risk, as
determined by the Companys credit management function, of
failure to perform under their contractual obligations. These
steps include obtaining letters of credit or cash collateral,
requiring prepayments for shipments or the creation of customer
trust accounts held for the Companys benefit to fund
payment for coal under existing coal supply agreements.
To reduce the Companys credit exposure related to its
trading and brokerage activities, the Company seeks to enter
into netting agreements with counterparties that permit the
Company to offset receivables and payables with such
counterparties. Counterparty risk with respect to interest rate
swap and foreign currency forwards transactions is not
considered to be significant based upon the creditworthiness of
the participating financial institutions.
The Company utilizes currency forwards to hedge currency risk
associated with anticipated Australian dollar expenditures. As
of December 31, 2006, the Company had forward contracts
designated as cash flow hedges with notional amounts outstanding
totaling approximately A$1.35 billion, with maturities
extending through 2010. The consolidated balance sheet as of
December 31, 2006, reflects unrealized gains on the cash
flow hedges of $64.1 million, which is recorded net of a
$25.6 million tax benefit in Accumulated other
comprehensive loss (see Note 19).
As of December 31, 2006, the Company had approximately
9,200 employees. As of December 31, 2006, approximately 40%
of the Companys hourly employees were represented by
organized labor unions and generated 14% of the 2006 coal
production. Relations with its employees and, where applicable,
organized labor are important to the Companys success.
|
|
|
United States Labor Relations |
The United Mine Workers of America (UMWA)
represented approximately 26% of the Companys
subsidiaries hourly employees, who generated 11% of the
Companys domestic production during the year ended
December 31, 2006. An additional 5% of the hourly employees
are represented by labor unions other than the UMWA. These
employees generated 1% of the Companys domestic production
during the year ended December 31, 2006. Hourly workers at
the Companys mine in Arizona are represented by the UMWA
under the Western Surface Agreement of 2000, which is effective
through September 1, 2007. The Companys union
workforce east of the Mississippi River is primarily represented
by the UMWA. The UMWA-represented workers at one of the
Companys eastern mines operate under a contract that
expires on December 31, 2007. The remainder of the
Companys UMWA-represented workers in the east operate
under a recently signed, five-year labor agreement expiring
December 31, 2011. This contract replaced a contract that
had expired on December 31, 2006 and mirrors the 2007
National Bituminous Coal Wage Agreement.
F-15
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Australia Labor Relations |
The Australian coal mining industry is unionized and the
majority of workers employed at the Companys Australian
Mining Operations are members of trade unions. The Construction
Forestry Mining and Energy Union represents the Companys
hourly production employees. As of December 31, 2006, the
Companys Australian hourly employees were approximately 9%
of its hourly workforce and generated 2% of its total production
in the year then ended. The labor agreement at the Wilkie Creek
Mine was renewed in June 2006 and that agreement expires in June
2009. The North Goonyella Mine operates under an agreement due
to expire in 2008, and the Metropolitan Mine operates under an
agreement that expires in June 2007.
|
|
(3) |
Resource Management and Other Commercial Events |
During 2006, the Company sold non-strategic coal reserves and
surface lands located in Kentucky and West Virginia for proceeds
of $75.3 million and recognized a gain of
$58.9 million. In June 2006, the Company exchanged with the
Bureau of Land Management approximately 63 million tons of
leased coal reserves at its Caballo mining operation for
approximately 46 million tons of coal reserves contiguous
with its North Antelope Rochelle mining operation. Based on the
fair value of the coal reserves exchanged, the Company
recognized a gain on assets exchanged totaling
$39.2 million. This non-cash addition is not included in
Additions to property, plant, equipment and mine
development in the consolidated statement of cash flows.
The gains from these transactions are included in Net gain
on disposal or exchange of assets in the consolidated
statements of operations.
The Company recognized $35.8 million during the year ended
December 31, 2006 in gains related to the settlement of
commitments by a third-party coal producer following a brokerage
contract restructuring. The gains are included in Other
revenues in the consolidated statements of operations.
In the fourth quarter of 2005, the Company acquired rail,
loadout and surface facilities as well as other mining assets
from another major coal producer for $84.7 million and
exchanged 60 million ton blocks of leased coal reserves in
the Powder River Basin. The Company plans to utilize these
reserves and infrastructure to accelerate the development of a
new mine, which will include adjoining Company-leased reserves.
In the first quarter of 2005, the Company purchased mining
assets from Lexington Coal Company for $61.0 million, of
which $56.5 million was recorded in Property, plant,
equipment and mine development and the remainder recorded
primarily to Inventories in the consolidated balance
sheet. The Company used the acquired assets to open a new mine
that produced 2.4 million tons of coal during 2006 and to
provide other synergies to existing properties.
In the third quarter of 2005, the Company exchanged certain idle
steam coal reserves for steam and metallurgical coal reserves as
part of a contractual dispute settlement. Under the settlement,
the Company received $10.0 million in cash, a new coal
supply agreement that partially replaced the disputed coal
supply agreement, and exchanged the idle steam coal reserves. As
a result of the final settlement and based on the fair values of
the items exchanged in the overall settlement transaction, the
Company recorded net contract losses of $4.0 million and a
gain on assets exchanged of $37.4 million. The fair value
of assets exchanged exceeded the book value by
$33.4 million and this non-cash addition is not included in
Additions to property, plant, equipment and mine
development in the consolidated statements of cash flows.
The gain from this transaction is included in Net gain on
disposal or exchange of assets in the consolidated
statements of operations.
|
|
(4) |
Business Combinations |
The results of operations for each of the acquired entities
discussed below are included in the Companys consolidated
statements of operations from the effective date of each
acquisition. Had the
F-16
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
results of operations for Dodge Hill Holding JV, LLC and
Carbones del Guasare been included in the Companys results
of operations since January 1 of the year acquired, there
would have been no material effect on the Companys
consolidated statements of operations, financial position or
cash flows.
On July 5, 2006, the Company signed a Merger Implementation
Agreement (the Merger Implementation Agreement) to
acquire Excel Coal Limited (Excel), an independent
coal company, by means of a scheme of arrangement transaction
under Australian law (the Transaction). The Merger
Implementation Agreement was amended on September 18, 2006,
and the Company agreed to pay A$9.50 per share (US$7.16 as
of the amendment date) for the outstanding shares of Excel. On
September 20, 2006, as part of the amended agreement, the
Company acquired 19.99% of the outstanding shares of Excel at
A$9.50 per share (the Advance Purchase),
resulting in payment of A$408.3 million, or
US$307.8 million. In October 2006, the Company acquired the
remaining interest in Excel for A$9.50 per share
(US$7.07 per share), a total of A$1.63 billion or
US$1.21 billion. The total acquisition price, including the
Advance Purchase and related costs, was US$1.54 billion in
cash plus assumed debt of US$293.0 million, less
US$30.0 million of cash acquired in the transaction, and
was financed with borrowings under the Companys Senior
Unsecured Credit Facility and Senior Notes due 2016 and 2026 as
discussed in Note 12. The Excel acquisition includes three
operating mines (Wambo Open-Cut Mine, Metropolitan Mine and
Chain Valley Mine) and three development-stage mines (North
Wambo Underground Mine, Wilpinjong Mine and Millennium Mine),
with more than 500 million tons of proven and probable coal
reserves. The Company also acquired a 51.0% interest in Excelven
Pty Ltd., which owns Transportes Coal-Sea de Venezuela C.A. and
a 96.7% interest in Cosila Complejo Siderurgico Del Lago S.A.,
which owns the Las Carmelitas coal mine development project. The
results of operations of Excel are included in the
Companys Australian Mining Operations segment from October
2006. The acquisition was accounted for as a purchase in
accordance with SFAS No. 141, Business
Combinations.
The preliminary purchase accounting allocations related to the
acquisition have been recorded in the accompanying consolidated
financial statements as of, and for periods subsequent to,
October 2006. The final valuation of the net assets acquired is
expected to be finalized once third-party appraisals are
completed. The following table summarizes the preliminary
estimated fair values of the assets acquired and the liabilities
assumed at the date of acquisition:
|
|
|
|
|
|
|
(Dollars in thousands) | |
Accounts receivable, net
|
|
$ |
18,700 |
|
Inventories
|
|
|
32,044 |
|
Other current assets
|
|
|
5,336 |
|
Property, plant, equipment and mine development, net
|
|
|
1,897,672 |
|
Goodwill
|
|
|
240,667 |
|
Current maturities of long-term debt
|
|
|
(17,090 |
) |
Accounts payable and accrued expenses
|
|
|
(135,474 |
) |
Long-term debt less current maturities
|
|
|
(275,934 |
) |
Deferred income taxes, net
|
|
|
(179,026 |
) |
Other noncurrent assets and liabilities, net
|
|
|
(60,857 |
) |
Minority interests
|
|
|
(18,263 |
) |
|
|
|
|
Total purchase price, net of cash received of $29,995
|
|
$ |
1,507,775 |
|
|
|
|
|
F-17
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preliminary amount allocated to goodwill reflects the excess
of the purchase price of acquiring Excel over the net fair value
of assets acquired and liabilities assumed and is primarily
attributable to customer relations and the Companys
ability to acquire and develop coal reserves adjacent to certain
operations. The Company is conducting drilling and reserve
studies on the acquired properties, the outcome of which will
determine the fair value to be allocated to reserve assets.
Goodwill will be adjusted upon the final valuation of the net
acquired assets and allocated to reporting units. Also, in
connection with the Excel acquisition, the Company acquired
contract based intangibles consisting solely of coal supply
agreement obligations (customer contracts) that were unfavorable
based upon current market prices for similar coal in October
2006. These below market obligations were recorded at their
preliminarily determined fair value when allocating the purchase
price, resulting in a $27.7 million liability. The
liability will be amortized as the coal is shipped over an
average amortization period of approximately five years.
The following unaudited pro forma financial information presents
the combined results of operations of the Company and Excel, on
a pro forma basis, as though the companies had been combined as
of the beginning of each period presented. The pro forma
financial information does not necessarily reflect the results
of operations that would have occurred had the Company and Excel
constituted a single entity during those periods:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands, | |
|
|
except per share data) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
5,256,315 |
|
|
$ |
4,644,453 |
|
|
Pro forma
|
|
|
5,551,347 |
|
|
|
4,972,791 |
|
Net income:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
600,697 |
|
|
$ |
422,653 |
|
|
Pro forma
|
|
|
568,582 |
|
|
|
362,884 |
|
Basic earnings per share net income:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
2.28 |
|
|
$ |
1.62 |
|
|
Pro forma
|
|
|
2.16 |
|
|
|
1.39 |
|
Diluted earnings per share net income:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
2.23 |
|
|
$ |
1.58 |
|
|
Pro forma
|
|
|
2.11 |
|
|
|
1.35 |
|
|
|
|
RAG Coal International AG |
On April 15, 2004, the Company purchased, through two
separate agreements, all of the equity interests in three coal
operations from RAG Coal International AG. The combined purchase
price, including related costs and fees, of $442.2 million
was funded from equity and debt offerings. The purchases
included two mines in Queensland, Australia that collectively
produce 6 to 7 million tons per year of metallurgical coal
and the Twentymile Mine in Colorado, which produces 8 to
9 million tons per year of steam coal. The results of
operations of the two mines in Queensland, Australia are
included in the Companys Australian Mining Operations
segment and the results of operations of the Twentymile Mine are
included in the Companys Western U.S. Mining
Operations segment from the April 15, 2004, purchase date.
The acquisition was accounted for as a purchase.
In connection with the acquisition of the assets of the
Australian mines and the Twentymile Mine, the Company acquired
contract based intangibles consisting solely of coal supply
agreement obligations (customer contracts) that were unfavorable
based upon current market prices for similar coal as of
F-18
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
April 15, 2004. These below market obligations were
recorded at fair value as part of the purchase price allocation
resulting in a $46.8 million liability, which is amortized
as the coal is shipped. As of December 31, 2006, the
carrying value of these acquired contract liabilities is
$8.1 million and the estimated amortization (reduction to
Depreciation, depletion and amortization in the
consolidated statements of operations) is $6.5 million,
$1.0 million and $0.6 million for the years ending
December 31, 2007, 2008, and 2009, respectively.
|
|
|
Dodge Hill Holding JV, LLC |
On December 29, 2004, the Company purchased the remaining
55% interest in Dodge Hill Holding JV, LLC for $7.0 million
of assumed debt that was repaid immediately upon closing,
$2.8 million of cash and contingent earn-out payments based
on annual and cumulative EBIT (as defined in the purchase
agreement) through 2007. Dodge Hill Holding JV, LLC is located
in Kentucky and operates an underground operation which mines
approximately 1.5 million tons per year. The acquisition
was accounted for as a purchase.
On December 2, 2004, the Company acquired a 25.5% equity
interest in Carbones del Guasare, S.A., from RAG Coal
International AG for a net purchase price of $32.5 million.
Carbones del Guasare, a joint venture that includes Anglo
American plc and a Venezuelan governmental partner, operates the
Paso Diablo surface mine in northwestern Venezuela. In 2006, the
mine produced approximately 6 million tons of steam coal
for electricity generators and steel producers primarily in
North America and Europe. The Company accounted for the purchase
under the equity method of accounting.
|
|
(5) |
Assets and Liabilities from Coal Trading Activities |
The Companys coal trading portfolio included forward and
swap contracts as of December 31, 2006 and forward
contracts as of December 31, 2005. The fair value of coal
trading derivatives and related hedge contracts is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Assets | |
|
Liabilities | |
|
Assets | |
|
Liabilities | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Forward contracts
|
|
$ |
142,105 |
|
|
$ |
120,718 |
|
|
$ |
146,596 |
|
|
$ |
131,988 |
|
Financial swaps
|
|
|
8,268 |
|
|
|
6,013 |
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
150,373 |
|
|
$ |
126,731 |
|
|
$ |
146,596 |
|
|
$ |
132,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the contracts in the Companys trading portfolio as
of December 31, 2006 were valued utilizing prices from
over-the-counter market
sources, adjusted for coal quality and traded transportation
differentials.
F-19
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2006, the estimated future realization
of the value of the Companys trading portfolio was as
follows:
|
|
|
|
|
|
|
Percentage | |
Year of Expiration |
|
of Portfolio | |
|
|
| |
2007
|
|
|
41 |
% |
2008
|
|
|
39 |
% |
2009
|
|
|
15 |
% |
2010
|
|
|
5 |
% |
|
|
|
|
|
|
|
100 |
% |
|
|
|
|
At December 31, 2006, 62% of the Companys credit
exposure related to coal trading activities was with investment
grade counterparties and 38% was with non-investment grade
counterparties. The Companys coal trading operations
traded 79.1 million tons, 36.2 million tons and
33.4 million tons for the years ended December 31,
2006, 2005 and 2004, respectively.
|
|
(6) |
Accounts Receivable Securitization |
The Company has established an accounts receivable
securitization program through its wholly-owned,
bankruptcy-remote subsidiary (Seller). Under the
program, the Company contributes undivided interests in a pool
of eligible trade receivables to the Seller, which then sells,
without recourse, to a multi-seller, asset-backed commercial
paper conduit (Conduit). Purchases by the Conduit
are financed with the sale of highly rated commercial paper. The
Company utilizes proceeds from the sale of its accounts
receivable as an alternative to other forms of debt, effectively
reducing its overall borrowing costs. The funding cost of the
securitization program was $1.9 million, $2.5 million
and $1.7 million for the years ended December 31,
2006, 2005 and 2004, respectively. The securitization program is
currently scheduled to expire in September 2009.
The securitization transactions have been recorded as sales,
with those accounts receivable sold to the Conduit removed from
the consolidated balance sheets. The amount of undivided
interests in accounts receivable sold to the Conduit was
$219.2 million and $225.0 million as of
December 31, 2006 and 2005, respectively.
The Seller is a separate legal entity whose assets are available
first and foremost to satisfy the claims of its creditors.
Eligible receivables, as defined in the securitization
agreement, consist of trade receivables from most of the
Companys domestic subsidiaries, and are reduced for
certain items such as past due balances and concentration
limits. Of the eligible pool of receivables contributed to the
Seller, undivided interests in only a portion of the pool are
sold to the Conduit. The Company (the Seller) continues to own
$166.4 million of receivables as of December 31, 2006,
that represents collateral supporting the securitization
program. The Sellers interest in these receivables is
subordinate to the Conduits interest in the event of
default under the securitization agreement. If the Company
defaulted under the securitization agreement or if its pool of
eligible trade receivables decreased significantly, the Company
could be prohibited from selling any additional receivables in
the future under the agreement.
F-20
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of weighted-average shares outstanding follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Weighted-average shares outstanding basic
|
|
|
263,419,344 |
|
|
|
261,519,424 |
|
|
|
248,732,744 |
|
Dilutive impact of stock options, restricted stock units and
performance units
|
|
|
5,746,661 |
|
|
|
6,494,052 |
|
|
|
6,079,888 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
269,166,005 |
|
|
|
268,013,476 |
|
|
|
254,812,632 |
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004, options for three
thousand shares were excluded from the diluted earnings per
share calculations for the Companys common stock because
they were anti-dilutive.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Materials and supplies
|
|
$ |
85,242 |
|
|
$ |
65,942 |
|
Raw coal
|
|
|
42,693 |
|
|
|
14,033 |
|
Saleable coal
|
|
|
87,449 |
|
|
|
64,274 |
|
Advance stripping
|
|
|
|
|
|
|
245,522 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
215,384 |
|
|
$ |
389,771 |
|
|
|
|
|
|
|
|
Due to an accounting change that was effective on
January 1, 2006, advance stripping costs are no longer a
separate component of inventory (see Note 1).
The Company leases equipment and facilities under various
noncancelable lease agreements. Certain lease agreements require
the maintenance of specified ratios and contain restrictive
covenants which limit indebtedness, subsidiary dividends,
investments, asset sales and other Company actions. Rental
expense under operating leases was $106.9 million,
$108.6 million and $108.1 million for the years ended
December 31, 2006, 2005 and 2004, respectively. The net
book value of property, plant, equipment and mine development
assets under capital leases was $56.7 million and
$1.5 million as of December 31, 2006 and 2005,
respectively, related primarily to the leasing of mining
equipment.
The Company also leases coal reserves under agreements that
require royalties to be paid as the coal is mined. Certain
agreements also require minimum annual royalties to be paid
regardless of the amount of coal mined during the year. Total
royalty expense was $336.8 million, $288.1 million and
$233.9 million for the years ended December 31, 2006,
2005 and 2004, respectively.
A substantial amount of the coal mined by the Company is
produced from mineral reserves leased from the owner. One of the
major lessors is the U.S. government, from which the
Company leases substantially all of the coal it mines in Wyoming
and Colorado under terms set by Congress and administered by the
U.S. Bureau of Land Management. These leases are generally
for an initial term of ten years but may be extended by diligent
development and mining of the reserve until all economically
recoverable reserves are depleted. The Company has met the
diligent development requirements for substantially all of these
federal leases either directly through production or by
including the lease as a
F-21
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
part of a logical mining unit with other leases upon which
development has occurred. Annual production on these federal
leases must total at least 1.0% of the original amount of coal
in the entire logical mining unit. In addition, royalties are
payable monthly at a rate of 12.5% of the gross realization from
the sale of the coal mined using surface mining methods and at a
rate of 8.0% of the gross realization for coal produced using
underground mining methods. The Company also leases coal
reserves in Arizona from The Navajo Nation and the Hopi Tribe
under leases that are administered by the U.S. Department
of the Interior. These leases expire upon exhaustion of the
leased reserves or upon the permanent ceasing of all mining
activities on the related reserves as a whole. The royalty rates
are also generally based upon a percentage of the gross
realization from the sale of coal. These rates are subject to
redetermination every ten years under the terms of the leases.
The remainder of the leased coal is generally leased from state
governments, land holding companies and various individuals. The
duration of these leases varies greatly. Typically, the lease
terms are automatically extended as long as active mining
continues. Royalty payments are generally based upon a specified
rate per ton or a percentage of the gross realization from the
sale of the coal.
Future minimum lease and royalty payments as of
December 31, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
|
Coal | |
Year Ended December 31, |
|
Leases | |
|
Leases | |
|
Reserves | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
2007
|
|
$ |
11,335 |
|
|
$ |
102,256 |
|
|
$ |
216,996 |
|
2008
|
|
|
9,986 |
|
|
|
86,358 |
|
|
|
201,839 |
|
2009
|
|
|
11,820 |
|
|
|
65,906 |
|
|
|
142,568 |
|
2010
|
|
|
7,843 |
|
|
|
56,666 |
|
|
|
14,664 |
|
2011
|
|
|
7,843 |
|
|
|
44,720 |
|
|
|
10,795 |
|
2012 and thereafter
|
|
|
23,428 |
|
|
|
168,076 |
|
|
|
46,611 |
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$ |
72,255 |
|
|
$ |
523,982 |
|
|
$ |
633,473 |
|
|
|
|
|
|
|
|
|
|
|
Less interest
|
|
|
15,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital lease payments
|
|
$ |
56,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2002, the Company entered into a transaction with Penn
Virginia Resource Partners, L.P. (PVR) whereby the
Company sold 120 million tons of coal reserves in exchange
for $72.5 million in cash and 2.76 million units, or
15%, of the PVR master limited partnership. The Companys
subsidiaries leased back the coal and pay royalties as the coal
is mined. No gain or loss was recorded at the inception of this
transaction. In 2005 and 2004, the Company sold
0.838 million and 0.775 million, respectively, of the
PVR units received in the original transaction. As of
December 31, 2006 and 2005, the Company had no remaining
ownership in PVR. The PVR unit sales were accounted for under
SFAS No. 66, Sales of Real Estate, and
gains of $31.1 million and $15.8 million were
recognized in the years ended December 31, 2005 and 2004,
respectively. The remaining deferred gain from the sales of the
reserves and units of $13.3 million at December 31,
2006 is intended to provide for the Companys potential
exposure to loss resulting from its continuing involvement in
the properties and will be amortized over the minimum term of
the leases.
As of December 31, 2006, certain of the Companys
lease obligations were secured by outstanding surety bonds and
letters of credit totaling $104.2 million.
F-22
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(10) |
Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Trade accounts payable
|
|
$ |
462,553 |
|
|
$ |
348,320 |
|
Accrued taxes other than income
|
|
|
128,336 |
|
|
|
111,997 |
|
Accrued payroll and related benefits
|
|
|
130,306 |
|
|
|
110,675 |
|
Accrued health care
|
|
|
88,472 |
|
|
|
78,523 |
|
Workers compensation obligations
|
|
|
30,966 |
|
|
|
34,312 |
|
Other accrued benefits
|
|
|
11,647 |
|
|
|
21,939 |
|
Accrued royalties
|
|
|
53,260 |
|
|
|
50,344 |
|
Accrued environmental
|
|
|
14,390 |
|
|
|
23,619 |
|
Income taxes payable Australia
|
|
|
94,692 |
|
|
|
23,409 |
|
Accrued interest
|
|
|
38,189 |
|
|
|
21,260 |
|
Other accrued expenses
|
|
|
92,232 |
|
|
|
43,567 |
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses
|
|
$ |
1,145,043 |
|
|
$ |
867,965 |
|
|
|
|
|
|
|
|
Income before income tax provision (benefit), minority interests
and loss from discontinued operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
U.S.
|
|
$ |
292,079 |
|
|
$ |
253,329 |
|
|
$ |
118,076 |
|
Non U.S.
|
|
|
238,883 |
|
|
|
172,756 |
|
|
|
34,995 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
530,962 |
|
|
$ |
426,085 |
|
|
$ |
153,071 |
|
|
|
|
|
|
|
|
|
|
|
F-23
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total income tax provision (benefit) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$ |
6,585 |
|
|
$ |
|
|
|
$ |
655 |
|
|
Non U.S.
|
|
|
67,565 |
|
|
|
25,622 |
|
|
|
4,533 |
|
|
State
|
|
|
405 |
|
|
|
300 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
74,555 |
|
|
|
25,922 |
|
|
|
5,488 |
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(159,536 |
) |
|
|
(18,475 |
) |
|
|
(33,275 |
) |
|
Non U.S.
|
|
|
4,094 |
|
|
|
22,997 |
|
|
|
(328 |
) |
|
State
|
|
|
(628 |
) |
|
|
(29,484 |
) |
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(156,070 |
) |
|
|
(24,962 |
) |
|
|
(31,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$ |
(81,515 |
) |
|
$ |
960 |
|
|
$ |
(26,437 |
) |
|
|
|
|
|
|
|
|
|
|
The income tax rate differed from the U.S. federal
statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Federal statutory rate
|
|
$ |
185,837 |
|
|
$ |
149,130 |
|
|
$ |
53,575 |
|
Depletion
|
|
|
(64,964 |
) |
|
|
(59,412 |
) |
|
|
(43,488 |
) |
Foreign earnings rate differential
|
|
|
(16,649 |
) |
|
|
(12,279 |
) |
|
|
(8,043 |
) |
State income taxes, net of U.S. federal tax benefit
|
|
|
6,160 |
|
|
|
(29,288 |
) |
|
|
1,872 |
|
Deemed liquidation of subsidiary
|
|
|
|
|
|
|
(314,071 |
) |
|
|
|
|
Changes in valuation allowance
|
|
|
(165,481 |
) |
|
|
216,908 |
|
|
|
(25,863 |
) |
Changes in tax reserves
|
|
|
(28,658 |
) |
|
|
44,968 |
|
|
|
|
|
Other, net
|
|
|
2,240 |
|
|
|
5,004 |
|
|
|
(4,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$ |
(81,515 |
) |
|
$ |
960 |
|
|
$ |
(26,437 |
) |
|
|
|
|
|
|
|
|
|
|
F-24
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Postretirement benefit obligations
|
|
$ |
630,124 |
|
|
$ |
410,905 |
|
|
Tax credits and loss carryforwards
|
|
|
610,333 |
|
|
|
579,549 |
|
|
Accrued long-term workers compensation liabilities
|
|
|
103,353 |
|
|
|
101,346 |
|
|
Additional minimum pension liability
|
|
|
|
|
|
|
46,931 |
|
|
Accrued reclamation and mine closing liabilities
|
|
|
56,066 |
|
|
|
46,139 |
|
|
Intangible tax asset and purchased contract rights
|
|
|
60,956 |
|
|
|
35,405 |
|
|
Obligation to industry fund
|
|
|
11,197 |
|
|
|
12,112 |
|
|
Others
|
|
|
85,703 |
|
|
|
71,311 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
1,557,732 |
|
|
|
1,303,698 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property, plant, equipment and mine development, leased coal
interests and advance royalties, principally due to differences
in depreciation, depletion and asset writedowns
|
|
|
1,423,693 |
|
|
|
1,168,470 |
|
|
Inventory
|
|
|
|
|
|
|
77,824 |
|
|
Others
|
|
|
|
|
|
|
1,021 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
1,423,693 |
|
|
|
1,247,315 |
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(222,285 |
) |
|
|
(385,844 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
(88,246 |
) |
|
$ |
(329,461 |
) |
|
|
|
|
|
|
|
Deferred taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
Current deferred income taxes
|
|
$ |
106,967 |
|
|
$ |
9,027 |
|
|
Noncurrent deferred income taxes
|
|
|
(195,213 |
) |
|
|
(338,488 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
(88,246 |
) |
|
$ |
(329,461 |
) |
|
|
|
|
|
|
|
The Companys deferred tax assets included alternative
minimum tax (AMT) credits of $32.8 million and
$26.2 million, U.S. net operating loss
(NOL) carryforwards of $538.0 million and
$553.1 million and foreign NOL and capital loss
carryforwards of $39.6 million and $0.2 million as of
December 31, 2006 and 2005, respectively. The AMT credits
and foreign NOL and capital loss carryforwards have no
expiration date and the U.S. NOL carryforwards begin to
expire in the year 2019. Utilization of these AMT credits and
U.S. NOL carryforwards is subject to various limitations
because of previous changes in ownership (as defined in the
Internal Revenue Code) of the Company, and ultimate realization
could be negatively impacted by market conditions and other
variables not known or anticipated at this time. The AMT credits
and U.S. NOL carryforwards are offset by a valuation
allowance of $215.7 million. The valuation allowance was
reduced by $169.9 million and $25.9 million for the
years ended December 31, 2006 and 2004, respectively. The
valuation allowance was increased by $216.9 million for the
year ended December 31, 2005, to correspond with an
increase in available NOLs. The Company evaluated and assessed
the expected near-term utilization of NOLs, book and taxable
income trends, available tax strategies and the overall deferred
tax position to determine the amount and timing of valuation
allowance adjustments. The foreign capital loss carryforwards
and a deferred tax asset related to
F-25
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
certain coal reserves are offset by a valuation allowance of
$6.6 million. The valuation allowance was increased by
$6.3 million for the year ended December 31, 2006.
During 2005, the Company completed a comprehensive and strategic
internal corporate restructuring project. This restructuring
focused on realigning the Companys subsidiary ownership on
a geographic and functional basis and facilitated the
consolidation of assets in a tax-efficient manner, better
positioning the Company to execute future strategic
transactions. One of the indirect consequences of the internal
corporate restructuring was a deduction for a deemed liquidation
of a subsidiary for tax purposes, which, as a result, increased
the Companys NOLs by $1.0 billion.
The Company establishes reserves for tax contingencies when,
despite the belief that the Companys tax return positions
are fully supported, certain positions are likely to be
challenged and may not be fully sustained. The tax contingency
reserves are analyzed on a quarterly basis and adjusted based
upon changes in facts and circumstances, such as the progress of
federal and state audits, case law and emerging legislation. The
Companys effective tax rate includes the impact of tax
contingency reserves and changes to the reserves, including
related interest, as considered appropriate by management. The
Company establishes the reserves based upon managements
assessment of exposure associated with permanent tax differences
(e.g., tax depletion expense). The tax contingency reserve was
decreased for the year ended December 31, 2006, by
$28.7 million reflecting the reduction in exposure due to
the completion of federal and state audits. The tax contingency
reserve was increased by $45.0 million for the tax year
ended December 31, 2005.
The total amount of undistributed earnings of foreign
subsidiaries for income tax purposes was approximately
$318.9 million and $156.0 million at December 31,
2006 and 2005, respectively. The Company has not provided
deferred taxes on foreign earnings because such earnings were
intended to be indefinitely reinvested outside the United
States. Should the Company repatriate all of these earnings, a
one-time income tax charge to the Companys consolidated
results of operations of up to $110 million could occur.
The Company made U.S. Federal tax payments totaling
$3.9 million and $1.4 million for the years ended
December 31, 2006 and 2004, respectively. The Company made
no U.S. Federal tax payments for the year ended
December 31, 2005. The Company paid state and local income
taxes totaling $0.5 million, $0.3 million and
$0.3 million for the years ended December 31, 2006,
2005 and 2004, respectively. The Company made
non-U.S. tax
payments totaling $23.1 million, $2.8 million and
$6.3 million for the years ended December 31, 2006,
2005 and 2004, respectively.
F-26
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys total indebtedness as of December 31,
2006 and 2005, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Term Loan under Senior Unsecured Credit Facility
|
|
$ |
547,000 |
|
|
$ |
|
|
Term Loan under Senior Secured Credit Facility
|
|
|
|
|
|
|
442,500 |
|
Convertible Junior Subordinated Debentures due 2066
|
|
|
732,500 |
|
|
|
|
|
7.375% Senior Notes due 2016
|
|
|
650,000 |
|
|
|
|
|
6.875% Senior Notes due 2013
|
|
|
650,000 |
|
|
|
650,000 |
|
7.875% Senior Notes due 2026
|
|
|
246,897 |
|
|
|
|
|
5.875% Senior Notes due 2016
|
|
|
231,845 |
|
|
|
239,525 |
|
5.0% Subordinated Note
|
|
|
59,504 |
|
|
|
66,693 |
|
6.84% Series C Bonds due 2016
|
|
|
43,000 |
|
|
|
|
|
6.34% Series B Bonds due 2014
|
|
|
21,000 |
|
|
|
|
|
6.84% Series A Bonds due 2014
|
|
|
10,000 |
|
|
|
|
|
Capital lease obligations
|
|
|
56,707 |
|
|
|
1,529 |
|
Fair value of interest rate swaps
|
|
|
(13,784 |
) |
|
|
(8,879 |
) |
Other
|
|
|
29,157 |
|
|
|
14,138 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,263,826 |
|
|
$ |
1,405,506 |
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured Credit Facility |
On September 15, 2006, the Company entered into a Third
Amended and Restated Credit Agreement (the
Agreement), which established a $2.75 billion
Senior Unsecured Credit Facility (the Senior Unsecured
Credit Facility) and which amended and restated in full
the Companys then existing $1.35 billion Senior
Secured Credit Facility (the Senior Secured Credit
Facility). The Senior Unsecured Credit Facility provides a
$1.8 billion Revolving Credit Facility (the
Revolver) and a $950.0 million Term
Loan Facility (the Term Loan Facility).
The Revolver replaced the Companys previous
$900.0 million revolving credit facility, and the increased
capacity is intended to accommodate working capital needs,
letters of credit, the funding of capital expenditures and other
general corporate purposes. The Revolver also includes a
$50.0 million sub-facility available for same-day swingline
loan borrowings. In September 2006, the Company borrowed
$312.0 million under the Revolver in conjunction with the
Excel acquisition and repaid this $312.0 million
outstanding balance in December 2006 with net proceeds from the
Debentures. As of December 31, 2006, the remaining
available borrowing capacity under the Revolver was
$1.29 billion.
The Term Loan Facility consisted of an unsecured
$440.0 million portion (the Term Loan), which
was drawn at closing to replace the previous term loan
($437.5 million balance at time of replacement;
$442.5 million at December 31, 2005) issued under the
Senior Secured Credit Facility. The Term Loan Facility also
includes a Delayed Draw Term Loan
Sub-Facility of up to
$510.0 million, which was fully drawn in October 2006 in
connection with the Excel acquisition. In December 2006,
$403.0 million of the outstanding balance of the Term
Loan Facility ($950.0 million was outstanding at time
of repayment) was repaid with the net proceeds from the
Debentures. In conjunction with the establishment of the Senior
Unsecured Credit Facility, the Company incurred
$8.6 million in financing costs, of which
F-27
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$5.6 million related to the Revolver and $3.0 million
related to the Term Loan. These debt issuance costs are being
amortized to interest expense over five years, the term of the
Senior Unsecured Credit Facility.
Loans under the facility are available to the Company in
U.S. dollars, with a sub-facility under the Revolver
available in Australian dollars, pounds sterling and Euros.
Letters of credit under the Revolver are available to the
Company in U.S. dollars with a sub-facility available in
Australian dollars, pounds sterling and Euros. The interest rate
payable on the Revolver and the Term Loan under the Senior
Unsecured Credit Facility is LIBOR plus 1.0% with step-downs to
LIBOR plus 0.50% based on improvement in the leverage ratio, as
defined in the Agreement. The rate applicable to the Term
Loan Facility was 6.35% at December 31, 2006.
Under the Senior Unsecured Credit Facility, the Company must
comply with certain financial covenants on a quarterly basis
including a minimum interest coverage ratio and a maximum
leverage ratio, as defined in the Agreement. The financial
covenants also place limitations on the Companys
investments in joint ventures, unrestricted subsidiaries,
indebtedness of non-loan parties and the imposition of liens on
Company assets. The new facility is less restrictive with
respect to limitations on the Companys dividend payments,
capital expenditures, asset sales and stock repurchases. The
Senior Unsecured Credit Facility matures on September 15,
2011.
|
|
|
Convertible Junior Subordinated Debentures |
On December 20, 2006, the Company issued
$732.5 million aggregate principal amount of
4.75% Convertible Junior Subordinated Debentures due 2066
(the Debentures), including $57.5 million
issued pursuant to the underwriters exercise of their
over-allotment option. Net proceeds from the offering, after
deducting underwriting discounts and offering expenses, were
$715.0 million and were used to repay indebtedness under
the Companys Senior Unsecured Credit Facility.
The Debentures will pay interest semiannually at a rate of
4.75% per year. The Company may elect to, and if and to the
extent that a mandatory trigger event (as defined in the
indenture governing the Debentures) has occurred and is
continuing will be required to, defer interest payments on the
Debentures. After five years of deferral at the Companys
option, or upon the occurrence of a mandatory trigger event, the
Company generally must sell warrants or preferred stock with
specified characteristics and use the funds from that sale to
pay deferred interest, subject to certain limitations. In no
event may the Company defer payments of interest on the
Debentures for more than ten years.
The Debentures are convertible at any time on or prior to
December 15, 2036 if any of the following conditions occur:
(i) the Companys closing common stock price exceeds
140% of the then applicable conversion price for the Debentures
(currently $86.73 per share) for at least 20 of the final
30 trading days in any quarter; (ii) a notice of redemption
is issued with respect to the Debentures; (iii) a change of
control, as defined in the indenture governing the Debentures;
(iv) satisfaction of certain trading price conditions; and
(v) other specified corporate transactions described in the
indenture governing the Debentures. In addition, the Debentures
are convertible at any time after December 15, 2036 to
December 15, 2041, the scheduled maturity date. In the case
of conversion following a notice of redemption or upon a
non-stock change of control, as defined in the indenture
governing the Debentures, holders may convert their Debentures
into cash in the amount of the principal amount of their
Debentures and shares of the Companys common stock for any
conversion value in excess of the principal amount. In all other
conversion circumstances, holders will receive perpetual
preferred stock (see Note 17) with a liquidation preference
equal to the principal amount of their Debentures, and any
conversion value in excess of the principal amount will be
settled with the Companys common stock. The consideration
delivered upon conversion will be based upon an initial
conversion rate of 16.1421 shares of common stock per
$1,000 principal amount of Debentures, subject to adjustment.
This conversion rate represents an
F-28
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
initial conversion price of approximately $61.95 per share,
a 40% premium over the closing stock price of $44.25 on
December 14, 2006, the date of the pricing of the offering
of the Debentures.
The Debentures are not subject to redemption prior to
December 20, 2011. Between December 20, 2011 and
December 19, 2036 the Company may redeem the Debentures, in
whole or in part, if for at least 20 out of the 30 consecutive
trading days immediately prior to the date on which notice of
redemption is given, the Companys closing common stock
price has exceeded 130% of the then applicable conversion price
for the Debentures. On or after December 20, 2036, whether
or not the redemption condition is satisfied, the Company may
redeem the Debentures, in whole or in part. The Company may not
redeem any Debentures unless (i) all accrued and unpaid
interest on the Debentures has been paid in full on or prior to
the redemption date and (ii) if any perpetual preferred
stock is outstanding, the Company has first given notice to
redeem the perpetual preferred stock in the same proportion as
the redemption of the Debentures. Any redemption of the
Debentures will be at a cash redemption price of 100% of the
principal amount of the Debentures to be redeemed, plus accrued
and unpaid interest to the date of redemption.
On December 15, 2041, the scheduled maturity date, the
Company will use commercially reasonable efforts, subject to the
occurrence of a market disruption event, as defined in the
indenture governing the Debentures, to issue securities of
equivalent equity content in an amount sufficient to pay the
principal amount of the Debentures, together with accrued and
unpaid interest. The final maturity date of the Debentures is
December 15, 2066, on which date the entire principal
amount of the Debentures will mature and become due and payable,
together with accrued and unpaid interest.
In connection with the issuance of the Debentures, the Company
entered into a Capital Replacement Covenant (the
CRC). Pursuant to the CRC, the Company covenanted
for the benefit of holders of covered debt, as defined in the
CRC (currently the Companys 7.875% Senior Notes due
2026, issued in the aggregate principal amount of
$250.0 million), that neither the Company nor any of its
subsidiaries shall repay, redeem or repurchase all or any part
of the Debentures on or after December 15, 2041 and prior
to December 15, 2046, except to the extent that the total
repayment, redemption or repurchase price does not exceed the
sum of: (i) 400% of the Companys net cash proceeds
from the sale of its common stock and rights to acquire its
common stock (including common stock issued pursuant to the
Companys dividend reinvestment plan or employee benefit
plans); (ii) the Companys net cash proceeds from the
sale of its mandatorily convertible preferred stock, as defined
in the CRC, or debt exchangeable for equity, as defined in the
CRC; and (iii) the Companys net cash proceeds from
the sale of other replacement capital securities, as defined in
the CRC, in each case, during the six months prior to the notice
date for the relevant payment, redemption or repurchase.
The Debentures are unsecured obligations of the Company, ranking
junior to all existing and future senior and subordinated debt
(excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business) except for any future debt
that ranks equal to or junior to the Debentures. The Debentures
will rank equal in right of payment with the Companys
obligations to trade creditors. Substantially, all of the
Companys existing indebtedness is senior to the
Debentures. In addition, the Debentures will be effectively
subordinated to all indebtedness of the Companys
subsidiaries. The indenture governing the Debentures places no
limitation on the amount of additional indebtedness that the
Company or any of the Companys subsidiaries may incur.
|
|
|
7.375% Senior Notes Due November 2016 and
7.875% Senior Notes Due November 2026 |
On October 12, 2006, the Company completed a
$650 million offering of 7.375%
10-year Senior Notes
due 2016 and $250 million of 7.875%
20-year Senior Notes
due 2026. The notes are general unsecured obligations of the
Company and rank senior in right of payment to any subordinated
indebtedness of the Company; equally in right of payment with
any senior indebtedness of the Company; effectively junior in
right of payment to the Companys existing and future
secured indebtedness, to the
F-29
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
extent of the value of the collateral securing that
indebtedness; and effectively junior to all the indebtedness and
other liabilities of the Companys subsidiaries that do not
guarantee the notes. Interest payments are scheduled to occur on
May 1 and November 1 of each year, commencing on
May 1, 2007.
The notes are guaranteed by the Companys Subsidiary
Guarantors, as defined in the note indenture. The note indenture
contains covenants that, among other things, limit the
Companys ability to create liens and enter into sale and
lease-back transactions. The notes are redeemable at a
redemption price equal to 100% of the principal amount of the
notes being redeemed plus a make-whole premium, if applicable,
and any accrued unpaid interest to the redemption date. Net
proceeds from the offering, after deducting underwriting
discounts and expenses, were $886.1 million.
|
|
|
6.875% Senior Notes Due March 2013 |
On March 21, 2003, the Company issued $650.0 million
of 6.875% Senior Notes due March 2013. The notes are senior
unsecured obligations of the Company and rank equally with all
of the Companys other senior unsecured indebtedness.
Interest payments are scheduled to occur on March 15 and
September 15 of each year. The notes are guaranteed by the
Companys Subsidiary Guarantors as defined in the note
indenture. The note indenture contains covenants which, among
other things, limit the Companys ability to incur
additional indebtedness and issue preferred stock, pay dividends
or make other distributions, make other restricted payments and
investments, create liens, sell assets and merge or consolidate
with other entities. The notes are redeemable prior to
March 15, 2008, at a redemption price equal to 100% of the
principal amount plus a make-whole premium (as defined in the
indenture) and on or after March 15, 2008, at fixed
redemption prices as set forth in the indenture.
|
|
|
5.875% Senior Notes Due March 2016 |
On March 23, 2004, the Company completed an offering of
$250.0 million of 5.875% Senior Notes due March 2016.
The notes are senior unsecured obligations of the Company and
rank equally with all of the Companys other senior
unsecured indebtedness. Interest payments are scheduled to occur
on April 15 and October 15 of each year, and commenced on
April 15, 2004. The notes are guaranteed by the
Companys Subsidiary Guarantors as defined in the note
indenture. The note indenture contains covenants which, among
other things, limit the Companys ability to incur
additional indebtedness and issue preferred stock, pay dividends
or make other distributions, make other restricted payments and
investments, create liens, sell assets and merge or consolidate
with other entities. The notes are redeemable prior to
April 15, 2009, at a redemption price equal to 100% of the
principal amount plus a make-whole premium (as defined in the
indenture) and on or after April 15, 2009, at fixed
redemption prices as set forth in the indenture. Net proceeds
from the offering, after deducting underwriting discounts and
expenses, were $244.7 million.
The 5.0% Subordinated Note is recorded net of discount with
interest and principal payable each March 1. The Company repaid
$10.0 million of principal in March 2006, with the
remaining $60.0 million due March 1, 2007. The
5.0% Subordinated Note is expressly subordinated in right
of payment to all prior indebtedness as disclosed above.
As of December 31, 2006, the Company had $74.0 million
in Series Bonds outstanding, which were assumed as part of
the Excel acquisition. The 6.84% Series A Bonds have a
balloon maturity in December 2014. The 6.34% Series B Bonds
mature in December 2014 and are payable in installments beginning
F-30
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 2008. The 6.84% Series C Bonds mature in December
2016 and are payable in installments beginning December 2012.
Interest payments occur in June and December of each year.
Prior to completion of the Senior Unsecured Credit Facility, the
Company had two $400.0 million interest rate swaps. A
$400.0 million notional amount
floating-to-fixed
interest rate swap was designated as a hedge of changes in
expected cash flows on the previous term loan under the Senior
Secured Credit Facility. Under this swap, the Company paid a
fixed rate of 6.764% and received a floating rate of LIBOR plus
2.5% that reset each March 15, June 15, September 15
and December 15 based upon the three-month LIBOR rate. A
$400.0 million notional amount
fixed-to-floating
interest rate swap was designated as a hedge of the changes in
the fair value of the 6.875% Senior Notes due 2013. Under
this swap, the Company paid a floating rate of LIBOR plus 1.97%
that reset each March 15, June 15, September 15 and
December 15 based upon the three-month LIBOR rate and received a
fixed rate of 6.875%.
In conjunction with the completion of the new Senior Unsecured
Credit Facility, the $400.0 million notional amount
floating-to-fixed
interest rate swap was terminated and resulted in payment to the
Company of $5.2 million. The Company recorded the
$5.2 million fair value of the swap in Accumulated
other comprehensive loss on the consolidated balance sheet
and will amortize this amount to interest expense over the
remaining term of the forecasted interest payments initially
hedged. The Company then entered into a $120.0 million
notional amount
floating-to-fixed
interest rate swap with a fixed rate of 6.25% and a floating
rate of LIBOR plus 1.0%. This interest rate swap was designated
as a hedge of the variable interest payments on the Term Loan
under the new Senior Unsecured Credit Facility.
The Company also terminated $280.0 million of its
$400.0 million notional amount
fixed-to-floating
interest rate swap designated as a hedge of the changes in fair
value of the 6.875% Senior Notes due 2013. Reducing the
notional amount of the interest rate swap to $120.0 million
resulted in payment of $5.2 million to the counterparty.
Reduction of the notional amount of the swap did not affect its
floating and fixed rates. The $5.2 million of fair value
associated with the termination of the $280.0 million
portion of the swap was recorded as an adjustment to the
carrying value of long-term debt and will be amortized to
interest expense through maturity of the 6.875% Senior
Notes due 2013.
Because the critical terms of the swaps and the respective debt
instruments they hedge coincide, there was no hedge
ineffectiveness recognized in the consolidated statements of
operations during the years ended December 31, 2006 and
2005. At December 31, 2006 there was an unrealized loss
related to the cash flow hedge of $2.5 million and at
December 31, 2005 there was an unrealized gain related to
the cash flow hedge of $2.3 million. As of
December 31, 2006 and 2005, net unrealized loss on the fair
value hedges discussed above was $13.8 million and
$8.9 million, respectively, which is reflected as an
adjustment to the carrying value of the Senior Notes (see table
above).
|
|
|
Capital Lease Obligations and Other |
Capital lease obligations include obligations assumed from the
Excel acquisition, primarily for mining equipment (see
Note 9 for additional information on the Companys
capital lease obligations).
Other long-term debt, which consists principally of notes
payable, is due in installments through 2016. The
weighted-average effective interest rate of this debt was 3.98%
as of December 31, 2006.
F-31
PEABODY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate amounts of long-term debt maturities subsequent to
December 31, 2006, including capital lease obligations,
were as follows:
|
|
|
|
|
|
Year of Maturity |
|
|
|
|
(Dollars in thousands) | |
2007
|
|
$ |
95,757 |
|
2008
|
|
|
47,078 |
|
2009
|
|
|
40,504 |
|
|