-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WW6697uCPaTVkdQw0axfKkfPiBq0KanXpa5OZn9aIqYgLvZU0LNR71SVL9yJIZB2 88UoNPPaVATzAoe6kGCHzQ== 0000950137-05-001867.txt : 20050216 0000950137-05-001867.hdr.sgml : 20050216 20050216122658 ACCESSION NUMBER: 0000950137-05-001867 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041202 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050216 DATE AS OF CHANGE: 20050216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEABODY ENERGY CORP CENTRAL INDEX KEY: 0001064728 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE SURFACE MINING [1221] IRS NUMBER: 134004153 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-16463 FILM NUMBER: 05619837 BUSINESS ADDRESS: STREET 1: 701 MARKET ST CITY: ST LOUIS STATE: MO ZIP: 63101-1826 BUSINESS PHONE: 3143423400 MAIL ADDRESS: STREET 1: 701 MARKET ST CITY: ST LOUIS STATE: MO ZIP: 63101-1826 FORMER COMPANY: FORMER CONFORMED NAME: P&L COAL HOLDINGS CORP DATE OF NAME CHANGE: 19980623 8-K/A 1 c91878e8vkza.htm AMENDMENT TO CURRENT REPORT e8vkza
 

 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A (Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) December 2, 2004

PEABODY ENERGY CORPORATION

(Exact name of registrant as specified in its charter)
         
Delaware   1-16463   13-4004153
(State or other jurisdiction of
incorporation or organization) 		  (Commission File Number)   (I.R.S. Employer Identification No.)
     
701 Market Street, St. Louis, Missouri
(Address of principal executive offices) 		  63101
(Zip Code)

Registrant’s telephone number, including area code (314) 342-3400

N/A
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 

 

 

Explanatory Note:

     Peabody Energy Corporation (“Peabody” or “the Company”), filed a Current Report on Form 8-K with the Securities and Exchange Commission (“SEC”) on December 8, 2004, related to its acquisition of a 25.5 percent interest in the Paso Diablo Mine in Venezuela. The purpose of this Current Report on Form 8-K/A (Amendment No. 1) is to amend the Current Report on Form 8-K filed on December 8, 2004 to include (i) the financial statements and pro forma financial information required by Item 9.01 and (ii) the consent of Espineira, Sheldon y Asociados.

Item 2.01. Completion of Acquisition or Disposition of Assets.

     On December 2, 2004, Peabody completed the acquisition of a 25.5 percent interest in Carbones del Guasare, S.A. (the owner of the Paso Diablo Mine) in Venezuela from RAG Coal International AG for a net purchase price of US$32.5 million. The purchase price was funded from currently available cash balances and the assumption of a short term payable to the Paso Diablo Mine.

     Paso Diablo is a 6.5 to 7.0 million tonne-per-year operation that exports coal for electricity generators and steelmakers in North America and Europe.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

     The audited financial statements of Carbones del Guasare, S.A. for the years ended and as of December 31, 2003 and 2002 are included in Exhibit 99.1 hereto. In addition, the condensed unaudited balance sheet as of September 30, 2004, condensed unaudited statements of income and cash flows for the nine month-periods ended September 30, 2004 and 2003, and notes thereto of Carbones del Guasare, S.A. are included in Exhibit 99.2 hereto, and are incorporated by reference herein.

(b) Pro Forma Financial Information

     An unaudited pro forma balance sheet as of September 30, 2004 and unaudited pro forma statements of operations of Peabody Energy Corporation for the year ended December 31, 2003 and nine months ended September 30, 2004 are furnished in Exhibit 99.3 hereto, and are incorporated by reference herein.

2

 

(c) Exhibits

     The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.

     
Exhibit    
No.   Description of Exhibit
2.1
  Share Purchase Agreement among RAG Coal International AG, BTU International B.V and Peabody Energy Corporation dated as of June 10, 2004 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 8, 2004).
 
    
23.1
  Consent of Espineira, Sheldon y Asociados
 
    
99.1
  Audited financial statements of Carbones del Guasare, S.A. for the years ended and as of December 31, 2003 and 2002
 
    
99.2
  Condensed unaudited balance sheet as of September 30, 2004, condensed unaudited statements of income and cash flows for the nine month-periods ended September 30, 2004 and 2003, and notes thereto of Carbones del Guasare, S.A.
 
    
99.3
  Unaudited proforma balance sheet as of September 30, 2004 and unaudited pro forma statements of operations of Peabody Energy Corporation for the year ended December 31, 2003 and nine months ended September 30, 2004

3

 

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  PEABODY ENERGY CORPORATION
 		  
Date: February 15, 2005  /s/ Richard A. Navarre  
  Richard A. Navarre   
  Executive Vice President and
Chief Financial Officer 		  
 

4

EX-23.1 2 c91878exv23w1.txt CONSENT OF ESPINEIRA, SHELDON Y ASOCIADOS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Registration Statement (Form S-3 No.333-109906) of Peabody Energy Corporation of our report dated March 16, 2004 relating to the financial statements of Carbones del Guasare S.A., which appears in the Current Report on Form 8-K/A of Peabody Energy Corporation dated February 15, 2005. Espineira, Sheldon y Asociados /s/ JOSE ANTONIO APOSTOLICO B. Maracaibo, Venezuela February 14, 2005 EX-99.1 3 c91878exv99w1.txt AUDITED FINANCIAL STATEMENTS EX-99.1 CARBONES DEL GUASARE, S.A. REPORT OF INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS IN U.S. DOLLARS PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (U.S. GAAP) DECEMBER 31, 2003 AND 2002 Member firm of ESPINEIRA, SHELDON Y ASOCIADOS [PRICEWATERHOUSECOOPER LOGO] Espineira, Sheldon y Asociados Avenida Principal de Chuao Edificio Del Rio P.O. Box 1789 Caracas 1010-A Venezuela Telephone: 700.66.66 Telecopier: 991.52.10 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Carbones del Guasare, S.A. In our opinion, the accompanying balance sheet and the related statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Carbones del Guasare, S.A. at December 31, 2003 and 2002, and the results of its operations and its cash flows for the two-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America. 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. ESPINEIRA, SHELDON Y ASOCIADOS /s/ Jose Antonio Apostolico B. - ------------------------------ Jose Antonio Apostolico B. CPC 18575 Maracaibo, Venezuela March 16, 2004 CARBONES DEL GUASARE, S.A. BALANCE SHEET
December 31, ------------------- 2003 2002 ------- ------- (Thousands of U.S.dollars) Assets Current assets: Cash and cash equivalents 33,986 55,230 Accounts receivable - Trade 84 60 Shareholders and related companies (Note 3) 57,220 16,286 Employees and other (Note 4) 972 2,008 Advances to suppliers 955 1,342 Inventories, net (Note 5) 15,728 21,561 Prepaid expenses 211 272 Value added tax (Note 10) 14,170 7,456 ------- ------- Total current assets 123,326 104,215 Long-term accounts receivable (Note 4) 1,940 2,678 Fixed assets, net (Note 6) 64,567 70,527 Net deferred income tax 2,530 - Asset retirement obligations (Notes 2-k and 12) 960 1,013 Other assets 72 268 ------- ------- 193,395 178,701 ======= =======
The accompanying notes are an integral part of the financial statements CARBONES DEL GUASARE, S.A. BALANCE SHEET
December 31, ----------------- 2003 2002 ------- ------- (Thousands of U.S. dollars) Liabilities and Shareholders' Equity Current liabilities: Bank loans (Note 7) 6,250 - Accounts payable - Contractors and suppliers 26,149 17,359 Shareholder and related companies (Note 3) 3,443 2,817 Accruals and other payables (Note 8) 10,243 9,436 Taxes (Note 10) 10,676 25,683 ------- ------- Total current liabilities 56,761 55,295 Accrual for employee termination benefits 1,274 1,277 Provision for asset retirement obligations (Notes 2-k and 12) 2,823 2,730 ------- ------- Total liabilities 60,858 59,302 ------- ------- Commitments and contingencies (Note 13) Shareholders' equity, see accompanying statement (Note 9): Capital stock 79,699 79,699 Additional paid-in capital 1,014 1,014 Treasury stock (1,034) (1,034) Retained earnings - Legal reserve 1,135 1,135 Unappropriated 51,723 38,585 ------- ------- Total shareholders' equity 132,537 119,399 ------- ------- 193,395 178,701 ======= =======
The accompanying notes are an integral part of the financial statements CARBONES DEL GUASARE, S.A. STATEMENT OF INCOME
Years ended December 31, ------------------- 2003 2002 ------- ------- (Thousands of U.S. dollars) Income: Sales of coal (Notes 2 and 3) 200,433 235,314 ------- ------- Costs and expenses: Operating costs 107,774 111,125 General, selling and administrative expenses 6,999 8,484 Contractor compensation (Note 1-b) 4,579 5,193 Depreciation (Notes 6 and 12) 14,101 13,759 Accretion expense (Note 12) 93 89 Leasing of coal mines (Note 1-b) 19,949 23,452 Exploitation tax (Note 10) 4,177 5,676 ------- ------- 157,672 167,778 ------- ------- Operating income 42,761 67,536 ------- ------- Interest income 1,335 2,226 Interest expenses (Note 8) (1,610) - Other income net 95 9 Remeasurement adjustment 2,464 (1,411) ------- ------- 2,284 824 ------- ------- Income before taxes and cumulative effect of change in accounting principle 45,045 68,360 Taxes (Note 10) 11,899 30,965 ------- ------- Income before cumulative effect of change in accounting principle 33,146 37,395 Cumulative effect of change in accounting principle, net of taxes (Notes 2-k and 12) - 1,040 ------- ------- Net income 33,146 36,355 ======= =======
The accompanying notes are an integral part of the financial statements CARBONES DEL GUASARE, S.A. STATEMENT OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2003 AND 2002
Retained earnings Additional --------------------- Total Capital paid-in Treasury Legal shareholders' stock capital stock reserve Unappropriated equity ------- ---------- -------- ------- -------------- ------------- (Thousands of U.S. dollars) Balances at December 31, 2001 79,699 1,014 (1,034) 1,135 72,244 153,058 Net income for 2002 - - - - 36,355 36,355 Dividends paid (Note 9): Common shares - - - - (70,000) (70,000) Preferred shares - - - - (14) (14) ------ ----- ------ ----- ------- ------- Balances at December 31, 2002 79,699 1,014 (1,034) 1,135 38,585 119,399 Net income for 2003 - - - - 33,146 33,146 Dividends paid (Note 9): Common shares - - - - (20,000) (20,000) Preferred shares - - - - (8) (8) ------ ----- ------ ----- ------- ------- Balances at December 31 , 2003 79,699 1,014 (1,034) 1,135 51,723 132,537 ====== ===== ====== ===== ======= =======
The accompanying notes are an integral part of the financial statements CARBONES DEL GUASARE, S.A. STATEMENT OF CASH FLOWS
Years ended December 31, -------------------- 2003 2002 ------ -------- (Thousands of U.S. dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income 33,146 36,355 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation of fixed assets and asset retirement obligations 14,101 13,759 Accretion expense 93 89 Remeasurement adjustment (2,464) 1,411 Cumulative effect of change in accounting principle, net of taxes - 1,040 Deferred income tax (2,530) - Accrual for employee termination benefits 712 2,764 Payment of employee termination benefits (715) (3,394) Net change in operating assets and liabilities - Accounts receivable (40,897) 20,581 Inventories 5,833 789 Prepaid expenses 61 (55) Value added tax (6,714) 1,121 Other assets 196 (3) Long-term accounts receivable 738 3,040 Accounts payable, accruals and other taxes (1,810) 9,499 ------- -------- Net cash provided by (used in) operating activities (250) 86,996 ------- -------- NET CASH USED IN FINANCING INVESTING ACTIVITIES: Additions to fixed assets (8,088) (23,394) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Loans 6,250 - Dividends paid (20,008) (70,014) ------- -------- Net cash used in financing activities (13,758) (70,014) ------- -------- EFFECT OF REMEASUREMENT ADJUSTMENT ON CASH AND CASH EQUIVALENTS 852 488 ------- -------- CASH AND CASH EQUIVALENTS: Net change for the year (21,244) (5,924) At the beginning of the year 55,230 61,154 ------- -------- At the end of the year 33,986 55,230 ======= ======== SUPPLEMENTARY INFORMATION: Cash paid during the year for - Interest 1,317 - Taxes 29,436 10,019
The accompanying notes are an integral part of the financial statements CARBONES DEL GUASARE, S.A. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 NOTE 1 - INCORPORATION AND OPERATIONS: a) Incorporation Carbones del Guasare, S.A. (the Company) is engaged in the exploration and exploitation of coal mines located in the region of Guasare, Zulia State, Venezuela. Net assets of Carbozulia related to the mining project were transferred as payment for capital stock subscribed in 1988 by the shareholders Carbones del Zulia, S.A. (Carbozulia) and Agipcoal Antilles, N.V. In 1988 the Company's shareholders entered into a joint venture agreement for the Gran Mineria project which includes the Paso Diablo and Socuy (PIP) concessions. In July 1995, pursuant to certain purchase agreements, Rig Deelneming Maatschappij, B.V. (Ruhrkohle) and Shell Coal (South America) Limited (Shell) purchased all Class "B" shares in the Company and undertook to assume all rights and obligations derived from the joint venture agreement entered into in 1988 by the shareholders. In October 1995 the aforementioned agreement was amended as a result of the acquisition of Class "B" shares by Ruhrkohle and Shell and interest expressed by Carbozulia, Ruhrkohle and Shell in assessing joint exploration, development and exploitation of the Paso Diablo and Socuy mining concessions. In this regard, the Company was authorized to make disbursements in respect of this project, which would be later funded by each of the participating shareholders according to their proportionate ownership of Class "A" and Class "B" shares. The joint venture agreement entered into by the Company's shareholders entailed an initial phase, or temporary plan, based on which the Company is currently operating, and a second, or subsequent development phase, calling for additional investment and decisions on the part of the partners. In March 2001 this joint venture agreement was amended to indicate that expansion of the mine would depend on the Company's ability to produce and export coal. In March 2001 Shell Coal (South America) Limited sold its interest to Anglo Coal (Venezuela) Limited. b) Operations Leasing of coal mining - In 1986 Corporacion de Desarrollo de la Region Zuliana (Corpozulia) entered into a contract with the shareholder of Carbozulia, Petroleos de Venezuela, S.A. (PDVSA), whereby the latter undertakes to lease coal mining concessions in the Guasare region for thirty years. Carbozulia and PDVSA are government related entities. Under this lease contract, Corpozulia will be paid, for each metric ton of coal exported, an amount in bolivars equivalent to 10% of the sales price at a Venezuelan port, calculated in accordance with certain predetermined rules. In 1988 PDVSA entered into a contract with Carbozulia whereby the former assigned and transferred to Carbozulia all rights and obligations arising out of this lease contract. It further established that Carbozulia would partially assign the aforementioned lease contract to the Company. During the year ended December 31, 2003, lease contract costs amounted to US$19.9 million (US$23.4 million in 2002). At December 31, 2003, accounts payable to Corpozulia amount to US$3.3 million paid during 2004 (US$2.7 million in 2002 paid during 2003) (see Note 3). Contractor compensation - In April 1999 the Company awarded a management contract for the Paso Diablo Mine to the contractor Morrison Knudsen Venezuela, S.A. to ensure the use of best practices for coal mining, among other things, as a means of reducing operating costs and increasing productivity in all mining-related areas. This contract is for five years until June 30, 2004 and has a total cost of US$26.5 million. During the year ended December 31, 2003, the cost amounted to US$4.6 million (US$5.2 million in 2002). Other - On December 2, 2002, employers' and workers' organizations, together with political and civic organizations began a National Civic Work-stoppage in Venezuela, which seriously affected many of the country's economic activities, especially the oil industry. As a result of these circumstances, the Company partially suspended operations due to lack of fuel and transportation services between December 2002 and January 2003. The Company considers itself as operating in a single business segment (coal) in one country only (Venezuela). At December 31, 2003 and 2002, the Company has 1,048 and 1,019 employees, respectively, on its monthly professional and non-professional payrolls. At a PDVSA Board of Directors' Meeting held on October 30, 2003, the Directors resolved to accept the terms for the transfer of activities, assets and shares held by PDVSA in Carbozulia (the Company's shareholder) to Corporacion de Desarrollo de la Region Zuliana (Corpozulia) and to submit it for approval at PDVSA's Shareholders' Meeting. This free-of-charge transfer to Corpozulia of all ownership rights to Carbozulia shares held by PDVSA was published in the Official Gazette on February 2, 2004. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: The Company maintains its accounting books and records in Venezuelan bolivars and prepares its financial statements in accordance with accounting principles generally accepted in (2) Venezuela, which provide the basis for the payment of dividends. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and have been remeasured into U.S. dollars as discussed below. a) Measurement currency and remeasurement into U.S. dollars The Company's main economic operating environment is the international coal market, and its functional currency is the U.S. dollar. Most income, as well as costs, expenses and investments, is denominated in U.S. dollars. The financial statements in nominal bolivars were remeasured into U.S. dollars in accordance with criteria established in Statement of Financial Accounting Standards No. 52 (SFAS 52) "Foreign currency translation" as applicable to an entity whose functional currency is the U.S. dollar. Pursuant to SFAS 52, the balances in nominal bolivars have been remeasured into U.S. dollars as follows:
Account Exchange rate - ------------------------------------------- --------------- Current assets Current Inventories, fixed assets, and other assets Historic Liabilities Current Shareholders' equity Historic Depreciation and amortization Historic Income and expense Monthly average
Company revenue is derived from export sales mainly billed in U.S. dollars and their equivalent amounts in bolivars. The remeasurement adjustment is included in the statement of income. Exchange gains and losses arise mainly from the effect of exchange rate fluctuations on net monetary items in the financial statements and are included in the statement of income. At December 31, the Company has the following monetary assets and liabilities denominated in currencies other than the U.S. dollar (mainly bolivars), shown at their equivalent amounts:
2003 2002 ------ ------- (Thousands of U.S. dollars) Monetary assets 53,909 15,398 Monetary liabilities 32,516 39,373 ------ ------- Total net monetary assets (liabilities)(equivalent in U.S. dollars) 21,393 (23,975) ====== =======
(3) The Company does not engage in hedging activities on its balances and transactions in bolivars. The year-end exchange rate, the average exchange rate, and the interannual increase of the Consumer Price Index (CPI), published by the Central Bank of Venezuela (BCV), were as follows:
2003 2002 -------- -------- Purchase exchange rate at December 31 (Bs/US$1) 1,596.00 1,399.50 Average exchange rate for the year (Bs/US$1) 1,617.13 1,161.65 Interannual increase of the CPI (%) 27.08 31.22
b) Cash and cash equivalents Cash and cash equivalents consist of money market certificates and other high quality instruments initially maturing within three months or less. Such investments are stated at cost, which approximates market value. Publicly traded securities purchased for sale in the short-term are classified as trading securities and carried at fair value. Changes in fair value and cost are included in the statement of income. c) Inventories Mined coal inventories are valued based on the "first-in, first-out" (FIFO) method. Inventories of spare parts and supplies are valued at average cost, net of an estimated amount for obsolescence and low turnover to cover possible losses. These costs do not exceed net realizable value. Costs include labor and exploitation costs. d) Fixed assets Fixed assets are recorded at cost, net of accumulated depreciation. Additions, renewals and improvements that significantly increase the productivity or useful lives of the assets are capitalized; disbursements for maintenance and repairs are expensed. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets (ten years for buildings, eight years for machinery and ten years for furniture and other). e) Accrual for employee termination benefits, retirement and profit-sharing The Company accrues for its liability in respect of employee termination benefits, which are a vested right of employees based on the Venezuelan Labor Law and the Company's personnel benefit policies. The Company deposits employee termination benefits in a trust fund in the name of each employee. Under certain circumstances, this Law provides for an additional indemnity for unjustified dismissals. (4) In addition, the Venezuelan Labor Law calls for a profit-sharing bonus payable to employees for an annual amount equivalent to 15% of the Company's pre-tax income. This bonus will range from a minimum of 15 days' salary to a maximum of 120 days' salary. During the years ended 2003 and 2002, the Company accrued and paid a profit-sharing bonus equivalent to 120 days of salary. In 1992 the Company set up a retirement plan to benefit a specific number of employees, particularly professional personnel who voluntarily accept the plan and meet length-of-service and age requirements set out in the plan. The plan consists of defined contributions and is limited to a specific number of monthly payments. The plan does not provide for acquired rights after reaching retirement age and is based on certain considerations. The contribution for the year is expensed. f) Deferred income tax The Company accounts for income taxes in accordance with SFAS No. 109 "Accounting for income taxes" (SFAS 109). SFAS 109 requires an asset and liability method of accounting for income tax. Under this method, deferred income taxes reflect the net effect of the expected future tax consequences of: (a) "temporary differences" by applying statutory tax rates applicable to future years to differences between the amounts in the financial statements and the tax bases of existing assets and liabilities, and (b) tax credits and tax loss carryforwards. Additionally, under SFAS 109, the effect on deferred income taxes of a change in tax rates is recognized as part of income for the year. If it is more likely than not that some portion or the entire deferred income tax asset will not be realized, an appropriate valuation allowance is recorded. As described in Note 10, for Venezuelan tax purposes, the Company is required to adjust the tax bases of its respective nonmonetary assets and liabilities for the effects of inflation as from the 1993 fiscal year. Under SFAS 109, deferred income tax assets are not recognized for the future net benefits from initial and annual inflation adjustments. g) Fair value of financial instruments The fair value of a financial instrument is defined as the amount for which an instrument can be exchanged in normal transactions between two knowledgeable and willing parties. At December 31, 2003, the net carrying value of cash, investment securities, accounts receivable, bank loans, accounts payable and other accrued liabilities approximates their estimated fair value due to the short-term maturities of these instruments. Long-term accounts receivable comprise balances in respect of sales to employees of housing facilities to be amortized over ten years. (5) h) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses for the reporting period. Actual results may differ from those estimates. i) Concentration of credit risk The financial instruments exposed to concentration of credit risk consist primarily of cash equivalents and trade accounts receivable. The Company's cash is placed with a diversified group of financial institutions. Accounts receivable are currently concentrated with related companies (see Note 3). j) Recognition of revenue, costs and expenses As agreed with its customers, Company's revenue is derived mostly from coal export sales in U.S. dollars or their equivalent amount in bolivars, which is recognized when risk and ownership of coal sold is transferred. Costs and expenses are expensed as incurred. k) Accounting for asset retirement obligations SFAS No. 143, which was adopted by the Company on January 1, 2002, addresses financial accounting and reporting for obligations associated with the retirement of tangible, long-lived assets and the associated asset retirement costs. The Company's asset retirement obligation (ARO) liabilities primarily consist of spending estimates to reclaim surface land and support facilities at both surface and underground mines, in accordance with laws, standards and decrees issued by the Venezuelan government to protect the environment and coal mine concession. The Company estimates its ARO liabilities for final reclamation and mine closure based on detailed engineering calculations of the amount and timing of future cash spending for a third party to perform the required work. Spending estimates are escalated for inflation, 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 straight-line method over the life of the coal mining concession until 2021 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-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. (6) The statement of income at December 31, 2002 includes the effect of the adoption of this standard on Cumulative effect of change in accounting principle. l) Accounting for impairment of long-lived assets SFAS No. 144 "Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of (SFAS 144) requires that assets to be disposed of be reported at the lower of carrying amount or fair value and recoverable value. The Company reviews for impairment its long-lived assets to be held or used, whenever events indicate that the carrying value of an asset may not be recoverable. If it is not expected that an asset will be recovered through future undiscounted cash flows, then the asset is written down to fair value, which is generally determined from estimated discounted net future cash flows. m) Comprehensive income (loss) SFAS No. 130 "Reporting comprehensive income" establishes guidelines for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income represents changes in the Company's shareholders' equity for the period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity for the period, except those resulting from investments by owners and distributions to owners. The Company has not identified any other component of other comprehensive income. n) Segment reporting SFAS No. 131 "Disclosures about segments of an enterprise and related information" requires a business enterprise to report financial and descriptive information about its operating segments. Generally, presentation of segment financial information is required on the same or similar basis as used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company considers itself as operating in a single business segment (coal) in one country only (Venezuela). NOTE 3 - BALANCES AND TRANSACTIONS WITH SHAREHOLDERS AND RELATED COMPANIES: The Company belongs to a group of related companies and conducts transactions and maintains balances for significant amounts with other members of the group derived from export sales, services rendered, administrative services charges and leasing coal mining. (7) Balances with shareholders and related companies at December 31 comprise the following:
2003 2002 ---- ---- (Thousands of U.S. dollars) Receivables: Guasare Coal International, N.V. 30,116 5,588 Anglo Coal Marketing, Ltd. (shareholder) 18,899 8,400 Rag Trading Americas Corporation, USA (shareholder) 5,812 246 Rag Trading GMBH 2,097 1,794 Carbones de la Guajira, S.A. 296 258 ------ ------ 57,220 16,286 ====== ====== Payables: Corpozulia (Note 1-b) 3,293 2,683 Carbozulia (shareholder) 150 131 Ruhrkohle (former shareholder) - 3 ------ ------ 3,443 2,817 ====== ======
Balances receivable from shareholders and related companies are interest-free and have short-term maturities. The Company exports all of its products to related companies abroad. As from September 2003, the Company and the related company Guasare Coal International, N.V. made coal sales amounting to Bs 61,477 million, equivalent to US$38 million (see Note 14). Accounts receivable from Guasare Coal International, N.V., Anglo Coal Marketing, Ltd., Rag Trading Americas Corporation, USA and Rag Trading GMBH are mainly in respect of coal sales. During the years ended December 31, 2003 and 2002, coal sales to shareholders and related companies were as follows:
2003 2002 ------- ------- (Thousands of U.S. dollars) Guasare Coal International, N.V. 105,680 127,378 Anglo Coal Marketing, Ltd. (shareholder) 44,664 52,466 Rag Trading Americas Corporation, USA (shareholder) 35,631 15,106 Rag Trading GMBH 14,458 33,268 ------- ------- 200,433 228,218 ======= =======
(8) Accounts receivable from Carbones de la Guajira, S.A. are mainly in respect of charges made for services rendered. Accounts payable to Carbozulia are mainly in respect of administrative service charges. Accounts payable to Ruhrkohle are in respect of dividends declared at December 31, 2002 and paid during 2003. NOTE 4 - ACCOUNTS RECEIVABLE FROM EMPLOYEES AND OTHER: Accounts receivable from employees and other comprise the following:
2003 2002 ----- ----- (Thousands of U.S. dollars) Housing Plan 2,306 3,125 Other 606 1,561 ----- ----- 2,912 4,686 Less-current portion 972 2,008 ----- ----- Long-term portion 1,940 2,678 ===== =====
The Housing Plan entails the sale to Company employees of houses located on "Mi Fortuna" lots, as approved at the Board of Directors' Meeting of November 1998. During 2003 the amortization of long-term accounts receivable amounted to US$417,000, as included in the statement of income and was determined based on a ten-year amortization period as per Company's policies. NOTE 5 - INVENTORIES: Inventories at December 31 comprise the following:
2003 2002 ------ ------ (Thousands of U.S. dollars) Coal 4,039 8,840 Spare parts and supplies, net of provision for obsolescence of US$3,200,000 in 2003 and 2002 11,689 12,721 ------ ------ 15,728 21,561 ====== ======
At December 31, 2003, coal inventories amount to 164,335 metric tons (603,440 metric tons in 2002). (9) At December 31, 2003, US$8.5 million of the spare parts and supplies balance is classified as low or slow-moving based on subledgers. The Company has set aside a provision for inventory obsolescence amounting to US$3.2 million. NOTE 6 - FIXED ASSETS: Fixed assets at December 31 comprise the following:
2003 2002 -------- --------- (Thousands of U.S. dollars) Buildings 50,138 48,061 Machinery 187,544 186,244 Furniture and other 14,344 16,233 -------- --------- 252,026 250,538 Less - Accumulated depreciation (195,114) (184,374) -------- --------- 56,912 66,164 Work in progress 7,516 4,224 Land 139 139 -------- --------- 64,567 70,527 ======== =========
At December 31, 2003 and 2002, fixed asset depreciation expense amounts to US$14,048,000 and US$13,706,000, respectively. At December 31, 2003, the balance of other projects in progress includes improvements (mainly acquisition and installation of hardware) to the technological platform used by the Company scheduled for completion in 2004. NOTE 7 - BANK LOANS: At December 31, 2003, the Company has bank loans with local financial institutions for working capital denominated in bolivars of Bs 10,000 million (equivalent to US$6,250,000). These loans bear 19.5% average annual interest and mature in February 2004. They were renewed on February 2004 until April 2004. (10) NOTE 8 - ACCRUALS AND OTHER PAYABLES: Accruals and other payables at December 31 comprise the following:
2003 2002 ---- ---- (Thousands of U.S. dollars) Accrual for contingencies (Note 13) 1,944 1,705 Labor benefits and social contributions (Note 11) 2,511 2,521 Withholdings to third parties and other 2,048 594 Other payables and municipal taxes 932 1,650 Other 2,808 2,966 ------ ----- 10,243 9,436 ====== =====
NOTE 9 - SHAREHOLDERS' EQUITY: Capital stock - At December 31, 2003 and 2002, the Company's capital stock is represented by 1,192,488,159 shares with a par value of Bs 1 each and shareholders' interests as follows:
Thousands of Shareholders Class of shares Number of shares U.S. dollars - ------------------------------ --------------- ---------------- ------------ Carbozulia, S.A. A 576,822,452 39,463 Rag Coal International AG B 285,186,555 19,512 Anglo Coal (Venezuela) Limited B 285,186,555 19,512 Carbones del Guasare, S.A. C 15,292,597 1,034 Rag Coal International AG P 15,000,000 89 Anglo Coal (Venezuela) Limited P 15,000,000 89 ------------- ------ 1,192,488,159 79,699 Less - Treasury stock: Carbones del Guasare, S.A. C (15,292,597) (1,034) ------------- ------ Total 1,177,195,562 78,665 ============= ======
Among other matters, the Company's incorporation papers set out the following: a) all shareholders have equal rights, except regarding the election of the Board of Directors and the Chairman; the Board of Directors will be comprised of four principal directors and eight alternates elected as follows: two principal directors, one to act as Chairman of the Board and four alternates to be appointed by the majority of Class "A" shareholders; two principal directors and four alternates to be appointed by the majority of Class "B" shareholders; b) Class "C" shares will be offered to private Venezuelan investors through a trust fund set up for this purpose; c) Class "C" shares may not be owned by Class "A" and "B" shareholders, by any other than Venezuelan individuals or corporations, or by legal entities in which the Venezuelan government has more than a 50% interest, and d) preferred Class "P" shares shall only be entitled to a preferred dividend equivalent to the average lending rate at certain local (11) banks. Preferred shares shall entitle their holders to no further rights with regard to the distribution of the Company's earnings and will be redeemed once most Class "A" shares are owned by one or more companies whose owner is not, directly or indirectly, the Bolivarian Republic of Venezuela. Class "P" shares will be redeemed upon payment of subscription price plus any dividends outstanding at the date of redemption and will entitle their holders to voting rights only on those matters set out in the Company's bylaws. Dividends - In 2003 the Company paid preferred cash dividends of US$8,000 (US$14,000 in 2002). The average lending rates for 2003 and 2002 of preferred dividends were 41.06 % and 51.08 %, respectively. In addition, at Special Shareholders' Meetings held in February and November 2003, the shareholders declared cash dividends payable to holders of common shares of US$20 million (US$70 million in 2002). NOTE 10 - TAXES: Estimated tax expense at December 31 comprises the following:
2003 2002 ------ ------ (Thousands of U.S. dollars) Income tax 14,429 30,430 Deferred income tax (2,530) - Other - 535 ------ ------ Total tax expense 11,899 30,965 ====== ======
Income tax - The Venezuelan Income Tax Law requires annual inflation adjustments to calculate taxable income. The main reconciling items between book and tax income, which affected computation of the income tax expense for the year, arise primarily from the annual inflation adjustment, which is calculated by adjusting all nonmonetary assets and liabilities and initial fiscal shareholders' equity in accordance with changes in the Consumer Price Index (CPI) accrued for the year or as from the date of acquisition of nonmonetary assets, assumption of nonmonetary liabilities or increase or decrease in initial fiscal inflation-adjusted shareholders' equity. This Law allows investment tax credits to be carried forward for three years to offset tax expenses. During 2003 the Company used the whole of the investment tax credit balance for the year of US$350,000 (US$1,100,000 in 2002), and tax credits in respect of environment-related investments of US$59,000 (US$248,000 in 2002). Under the Venezuelan Income Tax Law, differences result between the amount of income tax computed by the Company at 34% (12) statutory income tax rates and the effective income tax rates for the years reported as summarized below:
2003 2002 ----- ------ (Thousands of U.S. dollars) Notional tax expense at the statutory income tax rate 15,267 23,193 Increase (decrease) in the statutory tax rate resulting from: Effect of the annual inflation adjustment (6,935) (4,950) Nontaxable and nondeductible items 341 (708) Utilization of investment and environmental tax credits (409) (1,348) Taxable exchange gain from financial statements expressed in bolivars 8,629 12,832 Remeasurement adjustment (2,464) 1,411 Deferred income tax, net of provision (2,530) - Other - 535 ------ ------ Book expense 11,899 30,965 ====== ======
Net deferred income tax assets at December 31 comprise the following:
2003 2002 ----- ------ (Thousands of U.S. dollars) Difference between accounting base and tax base and other nondeductible provisions until payment 3,188 3,171 Provision for deferred income tax assets (658) (3,171) ----- ------ Total deferred income tax assets 2,530 - ===== ======
Business assets tax - Business assets tax is a minimum tax, complementary to income tax. It is calculated as 1% of the simple average of the inflation-adjusted nonmonetary and monetary assets based on amounts at the beginning and end of the year. Under current regulation, in 2003 and 2002 the company computed this tax together with income tax. No business assets tax was computed for the years. (13) Below is a breakdown of tax computation and utilization of investment tax credits during the years ended December 31:
2003 2002 ------ ------- Thousands of U.S. dollars) Income tax for the year 14,838 31,778 Utilization of investment and environmental tax credits (409) (1,348) ------ ------- Tax expense 14,429 30,430 ====== =======
Exploitation tax - Exploitation tax is paid based on mined coal and amounts to 3% of production value at pithead calculated in accordance with guidelines established by the Ministry of Energy and Mines. Value added tax - At December 31, 2003, the Company has US$14.1 million, in respect of value added tax credits, net of provision. This balance includes US$7 million (US$1.5 million in 2002) in respect of tax reimbursement certificates approved by the National Integrated Tax Administration Service (SENIAT) during 2003 for the October 2002 to July 2003 tax periods. It also includes US$1.1 million, for the August 2003 tax period in respect of tax reimbursement certificates to date not approved by SENIAT. Tax credits of US$5.1 million pending for the September to December 2003 tax period are also included. The aforementioned balance also includes tax credits of US$1.5 million in respect of the August 1994 to October 2002 tax period, which were rejected by SENIAT and for which the Company filed appeals with Tax Courts of US$1.7 million. To date, the Company has set aside a provision for rejected tax credits of US$709,000. During 2003 tax credits of US$875,000 were sold for the September 2002 tax period. In addition, US$1.2 million was offset against the estimated income tax return and US$14,000 was charged to income. On December 10, 2003, the Company filed a tax appeal in respect of value added tax through administrative resolutions RZ-DR-CR-2003-1090, RZ-DR-CR-2003-1092, RZ-DR-CR-2003-1465 and RZ-DR-CR-2003-1476 for March, April, May and June 2003. Tax credits amounting to US$134,000 were rejected. An appeal for constitutional protection for US$3,186,000 was also filed in respect of tax credits for exporters approved through resolutions issued by SENIAT that the Company has been unable to use since tax reimbursement certificates have not been issued. (14) Transfer pricing - In October 1999 the Venezuelan government enacted Decree No. 307 for the partial reform of the Income Tax Law to introduce transfer-pricing regulations. According to this reform, taxpayers that conduct transactions with related parties abroad are required to calculate income, costs and deductions applying the methodology set out in the Law. The Company conducts significant transactions with related parties abroad and, at December 31, 2003, management is making the study needed to determine the effect on taxable income that computation of transfer prices might have. For the year ended December 31, 2002, the Company is completing this study and has determined no impact on taxable income at that date. Bank debit tax - The Venezuelan government enacted by decree the Bank Debit Tax Law in March 2002. This tax is levied upon debits or withdrawals made from current and savings accounts, custody deposits, or any other type of demand deposit, liquid asset funds, trust funds and other financial market funds or financial instruments transacted by individuals or corporations with Venezuelan banks and financial institutions. In March 2003 a partial reform of the Bank Debit Tax Law was enacted mainly to modify the tax rate. Bank debit tax rates were set at 1% until June 30, 2003 and 0.75% as from that date. At December 31, 2003, the Company recorded bank debit tax expense of US$765,000 (US$547,000 in 2002), included under Operating expenses. NOTE 11 - ACCRUAL FOR DEFINED CONTRIBUTIONS RETIREMENT PLAN: In December 1992 the Company set up a retirement plan to benefit a specific number of employees, particularly professional personnel who voluntarily accept the plan and meet length-of-service and age requirements set out in the plan. The plan consists of defined contributions and is limited to 180 monthly payments after the retirement date and an additional payment at the end of each year. The Company's contributions are determined in accordance with the employee's last salary (at December 31, 2003, the percentage was 26% of the monthly base salary). Registered employees contribute 3% of their monthly base salary. For the year ended December 31, 2003, expenses in this connection amounted to US$151,000 (US$182,000 in 2002), included under General, selling and administrative expenses. The first retirement took place during 2003 in respect of which payments of US$2,027 were made. Company's management used actuarial studies to determine liabilities at the beginning of the plan in respect of benefits included in the retirement plan for eligible personnel. At December 31, 2003, the liability amounts to US$1.3 million, shown under Accruals and other payables. (15) Accrued pension plan liability at December 31 comprises the following:
2003 2002 ----- ----- (Thousands of U.S. dollars Active employees 1,203 1,144 Retired employees 64 - ----- ----- Total liability 1,267 1,144 ===== =====
NOTE 12 - PROVISION FOR ASSET RETIREMENT OBLIGATION: Reconciliation of the Company's provision for asset retirement obligation for the years ended December 31, 2003 and 2002 is as follows:
2003 2002 ---- ---- (Thousands of U.S. dollars) Provision at the beginning of the year 2,730 - Upon adoption at January 1, 2002 - 1,812 cumulative effect of change in accounting principle - 829 Accretion expense of the year 93 89 ----- ----- Provision at the end of the year 2,823 2,730 ===== =====
At December 31, 2003 and 2002, asset retirement depreciation expense amounts to US$53,000. The effect of accumulated depreciation of asset between 1988 and January 1, 2002 (the date this standard was adopted) of approximately US$746,000 is recorded in the statement of income for 2002 under Cumulative effect of change in accounting principle. Cumulative effect of change in accounting principle as of December 31, 2002 comprises the following:
(Thousands of U.S. dollars) Effects of accumulated: Accretion of liability between 1998 and January 1, 2002 829 Depreciation of asset between 1998 and January 1, 2002 746 Taxes (535) ----- Cumulative effect of change in accounting principle 1,040 =====
(16) NOTE 13 - CONTINGENCIES: Tax claims - In 1995 and 1994, the Tax Authorities issued additional tax assessments in respect of the Company's income tax returns for 1988 through 1994. These assessments disallowed tax exemptions on income earned during those years. In 1995 and 1996, the Company appealed these tax assessments and requested and obtained correction of its tax payment forms. In 1996 the Board of Directors availed itself of the Tax Amnesty Law and paid US$5,600,000 in connection with 1991 to 1994 tax years. In July 1998 the Company received settlement notices for 1991-1994; settlement for 1990 is still pending. At December 31, 2003, the Company has accrued US$1.5 million to cover any additional liability in this connection. In the opinion of Company's management and its legal counsel, the outcome will be favorable to the Company since disallowance is not well grounded in law. Labor-related claims and assessments - In the normal course of its business, labor-related claims and tax assessments by the Tax Authorities have been filed against the Company for which respective appeals have been filed. Company's management and its legal counsel expect a favorable outcome; however, a provision of US$453,000 has been set aside to cover this contingent liability. NOTE 14 - EXCHANGE CONTROL: On January 21, 2003, the Venezuelan government announced the closure of the foreign exchange market in Venezuela. On February 5, 2003, BCV and the Ministry of Finance began to publish the legal instruments regulating the exchange control regime, one of which established official exchange rates of Bs 1,596/US$1 (purchase) and Bs 1,600/US$1 (sale). On that same date, the government created the Commission for the Administration of Foreign Currency (CADIVI) with the task of establishing the detailed rules and regulations and generally administering the exchange control regime. Among other things, the first of these legal instruments requires the sale of all incoming currency to BCV and temporarily suspends all purchases and sales in local currency of securities issued by the Venezuelan government in foreign currency. BCV now centralizes all currency purchases and sales in the country. CADIVI has subsequently issued resolutions on different requirements in connection with the administration of the exchange control regime, such as user registration, guidelines for importers and exporters, and the registration of private-sector foreign debt at January 22, 2003. Until March 16, 2004, the Company has applied to CADIVI for a total of US$19.4 million to pay for imports, of which US$13.9 million has already been approved. Of these amounts, at March 16, 2004, US$2.9 million had actually been received from BCV. (17) As an exporter, the Company has sold US$152 million to BCV from exports made as from the effective date of the new exchange control regime and actually collected up to March 16, 2004. On February 6, 2004, the Ministry of Finance and BCV established new official exchange rates, as from that date, of Bs 1,915.20/US$1 (purchase) and Bs 1,920/US$1 (sale). This change in the official exchange rates resulted in an increase in the Company's assets and an exchange gain of Bs 4,903 million to be included in the results for 2004. Currency purchases authorized by CADIVI in process of settlement by BCV (Authorizations for Currency Liquidation, as defined in the exchange regulations) prior to February 6, 2004, will be settled at the official exchange rates effective at the date such authorizations were issued by CADIVI. In this regard, on February 6, 2004, the Company had received Authorizations for Currency Liquidation from CADIVI of US$11 million in the process of settlement by BCV at the official exchange rate of Bs 1,600/US$1. As described in Note 3, as from September 2003, the Company's exports to Guasare Coal International, N.V. are denominated in bolivars. In the opinion of Company's management and its legal counsel, income received in bolivars as a result of transactions abroad is not subject to the exchange control regime since it regulates transactions generating U.S. dollars or other currencies coming into the country. NOTE 15 - RECENTLY ISSUED ACCOUNTING STANDARDS: In April 2002 the FASB issued SFAS No. 145 "Rescission of FASB Statement Nos. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" (SFAS 145). The most significant provision of this Statement is the rescission of FASB Statement No. 4 "Reporting gains and losses from extinguishment of debt" (FASB 4), which required that gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. The provisions of this Statement, in respect of the rescission of Statement No. 4, shall be applied for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt, classified as an extraordinary item in prior periods and not meeting the criteria in APB Opinion No. 30 for classification as an extraordinary item, shall be reclassified. The adoption of SFAS 145 did not have an impact on the Company's financial position or the results of its operations. In June 2002 the FASB issued SFAS No. 146 "Accounting for costs associated with exit or disposal activities" (SFAS 146). SFAS 146 addresses financial accounting and reporting of costs associated with exit and disposal activities, including restructuring activities, and nullifies Emerging Issues Task Force Issue No. 94-3 "Liability recognition for certain employee termination benefits and other costs to exit an activity (including certain costs incurred in a restructuring)" (EITF 94-3). SFAS 146 requires that the liability for a cost associated with an exit or disposal activity be recognized when incurred. The provisions of this Statement are (18) effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have an impact on the Company's financial position or the results of its operations. SFAS No. 148 "Accounting for stock-based compensation - Transition and disclosure - An amendment of SFAS No. 123" was issued in December 2002. SFAS 148 is effective for years beginning after December 15, 2002 and provides three methods of transition for voluntary change to the fair value-based method of accounting for stock-based employee compensation. The Company considers that adoption of this Statement will not have an impact on its financial position or the results of its operations. In April 2003 the FASB issued SFAS No. 149 Amendment of Statement No. 133 "Derivative instruments and hedging activities" applicable for contracts entered into or modified or hedging relationships designated after June 30, 2003. This Statement amends and clarifies accounting and reporting for derivative instruments and requires all derivatives to be recognized as either assets or liabilities on the balance sheet, measured at fair values. The Statement permits special hedge accounting for fair value, cash flows and foreign currency hedges provided specific criteria are met. Certain aspects of the required hedge criteria do not allow portfolio hedging. The adoption of this Statement did not have an impact on the Company's financial position or the results of its operations. In May 2003 the FASB issued SFAS No. 150 "Accounting for certain financial instruments with characteristics of both liabilities and equity." SFAS 150 improves accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that these instruments be classified as liabilities in statements of financial position. SFAS 150 is applicable to all financial instruments entered into or modified after May 31, 2003 and is otherwise applicable for the Company's fiscal year ending December 31, 2003. The Company considers that adoption of this Statement will not have an impact on its financial statements. In November 2002 the FASB issued Interpretation No. 45 "Guarantor's accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others" (FIN 45), which requires a liability to be recorded at the inception of certain guarantees for the fair value of the obligation. The offsetting entry is dependent on the nature of the guarantee of the asset being recorded, such as the consideration received for providing a letter of credit or prepaid rent for a residual value guarantee in an operating lease. The liability recorded will typically be reduced by a credit to the results of operations as the guarantee lapses, which generally will occur on a systematic basis over the term of the guarantee or its settlement. The initial measurement and recognition of FIN 45 provisions are effective for applicable guarantees written or modified after December 31, 2002 with disclosure requirements applicable to the Company for the year ended December 31, 2003. The adoption of this Statement did not have an impact on the Company's financial position or the results of its operations. (19) In January 2003 the FASB issued Interpretation 46 "Consolidation of variable interest entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51 "Consolidated financial statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. These types of entities are referred to as VIEs. FIN 46 provides a new framework for identifying variable interest entities (VIEs) and determining when a company should include assets, liabilities, non-controlling interests and results of activities of a VIE. It is immediately applicable to all VIEs created after January 31, 2003 and effective beginning the third quarter for VIEs created prior to issuance of the interpretation. The adoption of this pronouncement did not have an impact on the Company's financial position or the results of its operations. (20) EX-99.2 4 c91878exv99w2.txt UNAUDITED BALANCE SHEET . . . EXHIBIT 99.2 CARBONES DEL GUASARE, S.A. CONDENSED BALANCE SHEETS
(UNAUDITED) (AUDITED) SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ (THOUSANDS OF U.S. DOLLARS) ASSETS CURRENT ASSETS: Cash and cash equivalents 36,058 33,986 Accounts receivable - Shareholders and related companies 84,144 57,220 Employees and other 3,102 972 Advances to suppliers and other 659 1,039 Inventories, net 26,523 15,728 Prepaid expenses 185 211 Value added tax 16,982 14,170 ------------ ------------ TOTAL CURRENT ASSETS 167,653 123,326 Long-term accounts receivable 1,806 1,940 Fixed assets, net 62,149 64,567 Net deferred income tax 2,530 2,530 Asset retirement obligations 919 960 Other assets 26 72 ------------ ------------ TOTAL ASSETS 235,083 193,395 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Bank loans 5,208 6,250 Accounts payable - Contractors and suppliers 39,253 26,149 Shareholder and related companies 17,672 3,443 Accruals and other payables 10,738 10,243 Taxes 15,467 10,676 ------------ ------------ TOTAL CURRENT LIABILITIES 88,338 56,761 Accrual for employee termination benefits 1,357 1,274 Provision for asset retirement obligations 2,897 2,823 ------------ ------------ TOTAL LIABILITIES 92,592 60,858 ------------ ------------ Commitments and contingencies SHAREHOLDERS' EQUITY Capital stock 79,699 79,699 Additional paid-in capital 1,014 1,014 Treasury stock (1,034) (1,034) Retained earnings - Legal reserve 1,135 1,135 Unappropriated 61,677 51,723 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 142,491 132,537 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 235,083 193,395 ============ ============
CARBONES DEL GUASARE, S.A. UNAUDITED CONDENSED STATEMENTS OF INCOME (THOUSANDS OF U.S. DOLLARS)
(UNAUDITED) NINE MONTH - PERIOD ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ------------------ ------------------ Income: Sales of coal $ 185,871 $ 149,444 Costs and expenses: Operating costs 92,789 76,278 General, selling and administrative expenses 6,282 5,660 Contractor compensation 2,996 3,640 Depreciation 9,363 10,580 Accretion expense 74 70 Leasing of coal mines 18,455 14,861 Exploitation tax 4,468 3,075 --------- --------- OPERATING INCOME 51,444 35,280 Interest income 367 971 Interest expenses (656) (1,281) Other income(Expenses) net (252) 970 Remeasurement adjustment (2,275) 1,659 --------- --------- Income before taxes 48,628 37,599 Taxes 18,670 9,776 --------- --------- NET INCOME $ 29,958 $ 27,823 ========= =========
CARBONES DEL GUASARE, S.A. UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (THOUSANDS OF U.S. DOLLARS)
(UNAUDITED) NINE MONTH - PERIOD ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ------------------ ------------------ Net cash provided by (used in) operating activities $ 28,527 $ (6,294) Net cash used in investing activities: Additions to fixed assets (6,905) (2,077) Cash flows from financing activities: New borrowings 5,208 34,375 Repayments (6,250) (25,000) Dividends paid (20,004) (10,004) ----------------- ----------------- Net cash used in financing activities (21,046) (629) Effect of remeasurement adjustment on cash and cash equivalents 1,496 (449) Cash and Cash equivalents: ----------------- ----------------- Net change for the period 2,072 (9,449) At the beginning of the period 33,986 55,230 ----------------- ----------------- At the end of the period 36,058 $ 45,781 ================= ================= Supplementary Information: Cash paid during the period for - Interest $ 730 $ 818 Taxes 12,482 24,605
CARBONES DEL GUASARE, S.A. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 AND 2003 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS The accompanying unaudited condensed financial statements as of September 30, 2004 and for the nine-month periods ended September 30, 2004 and 2003, and the notes thereto, are unaudited. However, in the opinion of management, these financial statements reflect all normal, recurring adjustments necessary for a fair presentation of the results of the periods presented. The balance sheet information as of December 31, 2003 has been derived from the Company's audited balance sheet. The comparative information as of December 31, 2003 is available from the audited financial statements. The results of operations for the nine month - period ended September 30, 2004 are not necessarily indicative of the results to be expected for future quarter or for the year ending December 31, 2004. For purposes of these unaudited condensed financial statements, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These unaudited statements should be read in conjunction with the audited financial statements and notes as of December 31, 2003 included elsewhere in this document. 2. SIGNIFICANT ESTIMATES 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. INVENTORIES Inventories at September 30, 2004 and at December 31, 2003 comprise the following:
September 30, December 31, 2004 2003 ------------- ------------- (Thousands of U.S. dollars) Coal 5,481 4,039 Spare parts and supplies, net of provision for obsolescence of US$3,200,000 in 2004 and 2003 21,042 11,689 ------------- ------------- 26,523 15,728 ============= =============
At September 30, 2004, coal inventories amount to 361,999 metric tons (164,335 metric tons at December, 2003). At September 30, 2004, US$6.6 million of the spare parts and supplies balance is classified as low or slow-moving based on subledgers. The Company has set aside a provision for inventory obsolescence amounting to US$3.2 million. 4. INCOME TAX PROVISION The company calculates the provision for income taxes for interim periods, by applying to the income before taxes, the rate which is expected to be the effective tax rate at the end of the year. 5. SHAREHOLDERS' EQUITY Change in shareholder's equity from January 1, 2004 to September 30, 2004 comprises the following:
(Thousands of U.S. dollars) Balance at January 1, 2004 132,537 Dividends paid (20,004) Net income of the period 29,958 ------- Balance at September 30, 2004 142,491 =======
EX-99.3 5 c91878exv99w3.txt UNAUDITED PROFORMA BALANCE SHEET Exhibit 99.3 PEABODY ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements give effect to two acquisitions completed by the Company during 2004. On December 2, 2004, the Company completed the acquisition of a 25.5% interest in Carbones del Guasare, S.A. (the owner of the Paso Diablo Mine) from RAG Coal International AG for $32.5 million, including $9.5 million of cash and a $23.0 million assumption of a short-term payable from affiliates of RAG Coal International AG. On April 15, 2004, the Company completed the acquisition of all of the outstanding ordinary shares and redeemable preference shares of RAG Australia Coal Pty Limited ("RAG Australia") and all of the outstanding shares of capital stock of Twentymile Coal Company, Colorado Yampa Coal Company, RAG Empire Corporation and RAG Shoshone Coal Corporation (collectively, "RAG Colorado"). The purchase price of RAG Australia was $256.2 million, and the purchase price of RAG Colorado was $186.0 million. The Company financed the purchase price of the RAG Australia and RAG Colorado acquisitions with the issuance, on March 23, 2004, of $250.0 million of 5.875% Senior Notes due 2016 and 8,825,000 shares of the Company's common stock, priced at $45.00 per share. Proceeds from the debt and equity offerings in excess of the purchase price for the RAG Australia and RAG Colorado acquisitions were used for general corporate purposes. The RAG Australia and RAG Colorado acquisitions are also discussed in Note 4 to the Company's September 30, 2004 Quarterly Report on Form 10-Q and in a Current Report on Form 8-K filed on March 10, 2004. The unaudited pro forma combined statement of operations for the year ended December 31, 2003 assumes that the acquisitions and related financings occurred on January 1, 2003 and the unaudited pro forma combined statement of operations for the nine months ended September 30, 2004 assumes that the acquisitions and related financings occurred on January 1, 2004. The unaudited pro forma combined balance sheet as of September 30, 2004 is presented as if the acquisition of the 25.5% interest in Carbones del Guasare, S.A. had occurred on that date. The RAG Australia and RAG Colorado acquisitions and related financings occurred prior to September 30, 2004. The unaudited pro forma combined financial statements should be read in conjunction with (i) the historical audited financial statements of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in its Annual Report on Form 10-K for the year ended December 31, 2003 and its Quarterly Report on Form 10-Q for the nine months ended September 30, 2004, (ii) the historical audited financial statements of Carbones del Guasare, S.A. included in this Form 8-K and (iii) the historical audited financial statements of RAG Australia and RAG Colorado included in the Form 8-K filed by the Company on March 10, 2004. The unaudited pro forma combined financial statements are for informational purposes only and are not necessarily indicative of the financial position that would have been obtained or the results of operations that would have occurred if the acquisitions had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments, as described in the Notes to Pro Forma Combined Financial Statements, are based upon available information and upon assumptions that the Company's management believes are reasonable. The actual amounts the Company records based on its final assessment of fair values may differ materially from the information presented in these unaudited pro forma combined financial statements. 1 Exhibit 99.3 PEABODY ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 (Dollars in thousands, except per share data)
Peabody Energy RAG Colorado RAG Australia Pro Forma Pro Forma Historical Historical Historical Adjustments as Adjusted ------------ ------------ ------------- ----------- ------------ REVENUES Sales $ 2,729,323 $ 146,514 $ 241,473 $ -- $ 3,117,310 Other revenues 100,157 441 2,278 8,756 (a) 111,632 ------------ ----------- ------------ --------- ------------ Total revenues 2,829,480 146,955 243,751 8,756 3,228,942 COSTS AND EXPENSES Operating costs and expenses 2,335,800 104,107 165,460 (887)(b) 2,604,480 Depreciation, depletion and amortization 234,336 23,668 26,666 (27,488)(c) 257,182 Asset retirement obligation expense 31,156 495 1,142 1,868 (d) 34,661 Selling and administrative expenses 108,525 1,956 8,438 -- 118,919 Net (gain) loss on property and equipment disposals (25,123) (140) 90 -- (25,173) ------------ ----------- ------------ --------- ----------- OPERATING PROFIT 144,786 16,869 41,955 35,263 238,873 Interest expense 98,540 2 6,427 (6,429)(e) 113,644 15,104 (f) Early debt extinguishment costs 53,513 -- -- 53,513 Interest income (4,086) (47) (3,367) 3,414 (e) (4,086) ------------ ----------- ------------ --------- ----------- INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS (3,181) 16,914 38,895 23,174 75,802 Income tax provision (benefit) (47,708) 6,438 11,546 4,705 (g) (25,019) Minority interests 3,035 -- -- -- 3,035 ------------ ----------- ------------ --------- ----------- INCOME FROM CONTINUING OPERATIONS $ 41,492 $ 10,476 $ 27,349 $ 18,469 $ 97,786 ============ =========== ============ ============= =========== Basic earnings per share $ 0.78 $ 1.57 Diluted earnings per share 0.76 1.54 Weighted average shares outstanding - basic 53,409,521 8,825,000 62,234,521 Weighted average shares outstanding - diluted 54,835,628 8,825,000 63,660,628
2 PEABODY ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2004 (Dollars in thousands, except per share data)
RAG Colorado RAG Australia Historical Historical Peabody For the Period For the Period Energy January 1 to January 1 to Pro Forma Pro Forma Historical April 15, 2004 April 15, 2004 Adjustments as Adjusted (h) (h) (h) (h) ----------- --------------- -------------- ----------- ------------ REVENUES Sales $ 2,538,189 $40,881 $ 83,144 $ -- $ 2,662,214 Other revenues 93,584 98 1,239 7,747 (a) 102,668 ----------- ------- -------- --------- ----------- Total revenues 2,631,773 40,979 84,383 7,747 2,764,882 COSTS AND EXPENSES Operating costs and expenses 2,147,956 26,963 84,543 (258)(b) 2,259,204 Depreciation, depletion and amortization 202,992 6,434 8,610 (6,962)(c) 211,074 Asset retirement obligation expense 31,810 144 333 864 (d) 33,151 Selling and administrative expenses 93,559 -- 583 -- 94,142 Net (gain) loss on property and equipment disposals (4,267) -- -- -- (4,267) ----------- ------- -------- --------- ----------- OPERATING PROFIT 159,723 7,438 (9,686) 14,103 171,578 Interest expense 70,849 1 1,713 (1,714)(e) 74,304 3,455 (f) Early debt extinguishment gains (556) -- -- -- (556) Interest income (3,212) -- (672) 672 (e) (3,212) ----------- ------- -------- --------- ----------- INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS 92,642 7,437 (10,727) 11,690 101,042 Income tax provision (benefit) (15,756) 2,975 (3,217) 1,269 (g) (14,729) Minority interests 900 -- -- -- 900 ----------- ------- -------- --------- ----------- INCOME FROM CONTINUING OPERATIONS $ 107,498 $ 4,462 $ (7,510) $ 10,421 $ 114,871 =========== ======= ======== ========= =========== Basic earnings per share $ 1.75 $ 1.80 Diluted earnings per share 1.71 1.76 Weighted average shares outstanding - basic 61,354,266 2,608,850 63,963,116 Weighted average shares outstanding - diluted 62,820,996 2,608,850 65,429,846
3 PEABODY ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2004 (Dollars in thousands)
Peabody Energy Pro Forma Historical Adjustments (i) Total ---------- --------------- ---------- Assets Current assets Cash and cash equivalents $ 401,835 $ (9,529) $ 392,306 Accounts receivable, less allowance 173,006 -- 173,006 Materials and supplies 57,587 -- 57,587 Coal inventory 265,452 -- 265,452 Assets from coal trading activities 131,082 -- 131,082 Deferred income taxes 15,778 -- 15,778 Other current assets 47,455 -- 47,455 ---------- -------- ---------- Total current assets 1,092,195 (9,529) 1,082,666 Property, plant, equipment and mine development, net 4,725,843 -- 4,725,843 Investments and other assets 320,893 32,472 353,365 ---------- -------- ---------- Total assets $6,138,931 $ 22,943 $6,161,874 ========== ======== ========== Liabilities and Stockholders' Equity Current liabilities Current maturities of long-term debt $ 18,918 $ -- $ 18,918 Liabilities from coal trading activities 101,398 -- 101,398 Accounts payable and accrued expenses 665,999 22,943 688,942 ---------- -------- ---------- Total current liabilities 786,315 22,943 809,258 Long-term debt, less current maturities 1,398,023 -- 1,398,023 Deferred income taxes 415,567 -- 415,567 Asset retirement obligations 412,056 -- 412,056 Workers' compensation obligations 223,332 -- 223,332 Accrued postretirement benefit costs 944,336 -- 944,336 Obligation to industry fund 41,996 -- 41,996 Other noncurrent liabilities 280,835 -- 280,835 ---------- -------- ---------- Total liabilities 4,502,460 22,943 4,525,403 Minority interests 1,991 1,991 Stockholders' equity 1,634,480 -- 1,634,480 ---------- -------- ---------- Total liabilities and stockholders' equity $6,138,931 $ 22,943 $6,161,874 ========== ======== ==========
4 Exhibit 99.3 PEABODY ENERGY CORPORATION NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) (a) To record the Company's pro rata share (25.5%) of earnings related to the investment in Carbones del Guasare, S.A., including the amortization of the difference between cost of the investment and the underlying equity in the net assets of Carbones del Guasare at the date of the investment. (b) To adjust operating costs and expenses related to postretirement and pension benefits based on the portion of the acquisition cost allocated to postretirement benefit and pension obligations. (c) To adjust depreciation, depletion and amortization based on the portion of the acquisition cost allocated to long-lived assets and coal supply agreements. (d) To adjust asset retirement obligation expense based on the portion of the acquisition cost allocated to asset retirement obligations. (e) To reverse historical interest expense incurred by RAG Colorado and RAG Australia, as well as historical interest income earned by RAG Colorado and RAG Australia. (f) To reflect the interest expense on $250 million aggregate principal amount of new senior notes, including the amortization of $5.3 million of debt issuance costs. (g) To record income tax expense (benefit) on the pro forma adjustments to results of operations using the statutory rates in effect in the United States and Australia. (h) The Company's historical results for the nine months ended September 30, 2004 include the results of operations of RAG Colorado and RAG Australia from April 16, 2004 to September 30, 2004. The historical results of RAG Colorado and RAG Australia for the period from January 1, 2004 to April 15, 2004 and the pro forma adjustments noted in (b) through (g) above give effect to these acquisitions as if they occurred on January 1, 2004. (i) To record the purchase of the 25.5% interest in Carbones del Guasare, S.A. 5 -----END PRIVACY-ENHANCED MESSAGE-----