UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended       March 31, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                      

Commission File Number:    1-16463

PEABODY ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		13-4004153
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

701 Market Street, St. Louis, Missouri		63101-1826
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

      Large accelerated filer þ               Accelerated filer o                         Non-accelerated filer o                         Smaller reporting company o

                                        (Do not check if a smaller reporting company)

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2008 and 2007			1
Condensed Consolidated Balance Sheet as of March 31, 2008 (Unaudited) and December 31, 2007			2
Unaudited Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2008 and 2007			3
Notes to Unaudited Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			36
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			37
SIGNATURE			38
EXHIBIT INDEX			39
Third Amendment to and Waiver Under Amended and Restated Receivables Purchase Agreement
Fourth Amendment to Amended and Restated Receivables Purchase Agreement
Section 302 Certification
Section 302 Certification
Section 906 Certification
Section 906 Certification

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

PEABODY ENERGY CORPORATION

		Three Months Ended March 31,
		2008				2007
		(Dollars in thousands, except share
		and per share data)
Revenues
Sales		$	1,189,737			$	1,059,512
Other revenues			86,214				50,280
Total revenues			1,275,951				1,109,792
Costs and Expenses
Operating costs and expenses			1,013,667				846,653
Depreciation, depletion and amortization			94,002				81,925
Asset retirement obligation expense			6,800				5,683
Selling and administrative expenses			50,883				31,722
Other operating income:
Net gain on disposal or exchange of assets			(59,415	)			(1,422	)
Income from equity affiliates			(2,655	)			(2,153	)
Operating Profit			172,669				147,384
Interest expense			59,238				57,484
Interest income			(1,112	)			(2,762	)
Income From Continuing Operations Before Income Taxes and Minority Interests			114,543				92,662
Income tax provision			44,118				10,995
Minority interests			879				(251	)
Income From Continuing Operations			69,546				81,918
Income (loss) from discontinued operations, net of tax			(12,381	)			6,588
Net Income		$	57,165			$	88,506
Basic Earnings Per Share
Income from continuing operations		$	0.26			$	0.31
Income (loss) from discontinued operations			(0.05	)			0.03
Net income		$	0.21			$	0.34
Weighted Average Shares Outstanding — Basic			269,204,883				263,031,869
Diluted Earnings Per Share
Income from continuing operations		$	0.26			$	0.30
Income (loss) from discontinued operations			(0.05	)			0.03
Net income		$	0.21			$	0.33
Weighted Average Shares Outstanding — Diluted			272,142,973				269,358,728
Dividends Declared Per Share		$	0.06			$	0.06

See accompanying notes to unaudited condensed consolidated financial statements.

PEABODY ENERGY CORPORATION

		(Unaudited)
		March 31, 2008				December 31, 2007
		(Dollars in thousands, except
		share and per share data)
ASSETS
Current assets
Cash and cash equivalents		$	82,547			$	45,279
Accounts receivable, net of allowance for doubtful accounts of $14,479 at March 31, 2008 and $11,888 at December 31, 2007			278,959				257,950
Inventories			251,316				268,862
Assets from coal trading activities			556,105				349,784
Deferred income taxes			98,633				98,633
Other current assets			304,265				290,021
Total current assets			1,571,825				1,310,529
Property, plant, equipment and mine development
Land and coal interests			7,217,198				7,198,090
Buildings and improvements			701,158				700,509
Machinery and equipment			1,306,757				1,267,328
Less accumulated depreciation, depletion and amortization			(1,891,599	)			(1,833,527	)
Property, plant, equipment and mine development, net			7,333,514				7,332,400
Investments and other assets			432,862				408,614
Total assets		$	9,338,201			$	9,051,543
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt		$	227,692			$	134,373
Liabilities from coal trading activities			474,640				301,832
Accounts payable and accrued expenses			1,092,036				1,134,017
Total current liabilities			1,794,368				1,570,222
Long-term debt, less current maturities			3,137,356				3,138,727
Deferred income taxes			351,826				315,604
Asset retirement obligations			377,443				369,547
Accrued postretirement benefit costs			785,037				785,708
Other noncurrent liabilities			316,277				351,363
Total liabilities			6,762,307				6,531,171
Minority interests			1,978				701
Stockholders’ equity
Preferred Stock – $0.01 per share par value; 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2008 or December 31, 2007			—				—
Series A Junior Participating Preferred Stock – 1,500,000 shares authorized, no shares issued or outstanding as of March 31, 2008 or December 31, 2007			—				—
Perpetual Preferred Stock – 750,000 shares authorized, no shares issued or outstanding as of March 31, 2008 or December 31, 2007			—				—
Series Common Stock – $0.01 per share par value; 40,000,000 shares authorized, no shares issued or outstanding as of March 31, 2008 or December 31, 2007			—				—
Common Stock – $0.01 per share par value; 800,000,000 shares authorized, 274,234,731 shares issued and 271,201,232 shares outstanding as of March 31, 2008 and 272,911,564 shares issued and 270,066,621 shares outstanding as of December 31, 2007			2,742				2,729
Additional paid-in capital			1,777,018				1,750,627
Retained earnings			982,294				941,424
Accumulated other comprehensive loss			(69,652	)			(67,066	)
Treasury shares, at cost: 3,033,499 shares as of March 31, 2008 and 2,844,943 shares as of December 31, 2007			(118,486	)			(108,043	)
Total stockholders’ equity			2,573,916				2,519,671
Total liabilities and stockholders’ equity		$	9,338,201			$	9,051,543

See accompanying notes to unaudited condensed consolidated financial statements.

PEABODY ENERGY CORPORATION

		Three Months Ended March 31,
		2008				2007
		(Dollars in thousands)
Cash Flows From Operating Activities
Net income		$	57,165			$	88,506
Loss (income) from discontinued operations			12,381				(6,588	)
Income from continuing operations			69,546				81,918
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation, depletion and amortization			94,002				81,925
Deferred income taxes			28,925				(2,461	)
Amortization of debt discount and debt issuance costs			1,674				2,169
Net gain on disposal or exchange of assets			(59,415	)			(1,422	)
Income from equity affiliates			(2,655	)			(2,153	)
Dividends received from equity affiliates			19,888				12,927
Changes in current assets and liabilities:
Accounts receivable, including securitization			(14,870	)			72,345
Inventories			17,546				6,102
Net assets from coal trading activities			(79,582	)			(13,736	)
Other current assets			11,433				10,071
Accounts payable and accrued expenses			74				(10,502	)
Asset retirement obligations			6,611				2,707
Workers’ compensation obligations			88				(8,510	)
Accrued postretirement benefit costs			(671	)			(1,508	)
Distributions to minority interests			(925	)			(875	)
Other, net			(3,579	)			6,505
Net cash provided by continuing operations			88,090				235,502
Net cash provided by (used in) discontinued operations			(29,159	)			16,396
Net cash provided by operating activities			58,931				251,898
Cash Flows From Investing Activities
Additions to property, plant, equipment and mine development			(59,291	)			(118,292	)
Investment in Prairie State			(10,822	)			—
Federal coal lease expenditures			(59,829	)			(59,829	)
Proceeds from disposal of assets, net of notes receivable			23,749				2,101
Additions to advance mining royalties			(1,901	)			(1,779	)
Investments in joint ventures			—				(622	)
Net cash used in continuing operations			(108,094	)			(178,421	)
Net cash used in discontinued operations			—				(2,789	)
Net cash used in investing activities			(108,094	)			(181,210	)
Cash Flows From Financing Activities
Change in revolving line of credit			93,300				—
Payments of long-term debt			(9,362	)			(93,146	)
Dividends paid			(16,260	)			(15,881	)
Payment of debt issuance costs			—				(830	)
Excess tax benefit related to stock options exercised			10,445				2,510
Proceeds from stock options exercised			5,509				2,378
Proceeds from employee stock purchases			2,799				3,097
Net cash provided by (used in) financing activities			86,431				(101,872	)
Net increase (decrease) in cash and cash equivalents			37,268				(31,184	)
Cash and cash equivalents at beginning of period			45,279				326,511
Cash and cash equivalents at end of period		$	82,547			$	295,327

See accompanying notes to unaudited condensed consolidated financial statements.

PEABODY ENERGY CORPORATION

(1) Basis of Presentation

     The condensed consolidated financial statements include the accounts of Peabody Energy Corporation (the Company) and its controlled affiliates. All intercompany transactions, profits, and balances have been eliminated in consolidation.

     The Company classifies items within discontinued operations in the unaudited condensed 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. For more information on discontinued operations, see Note 3.

     The accompanying condensed consolidated financial statements as of March 31, 2008 and for the three months ended March 31, 2008 and 2007, 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, 2007 has been derived from the Company’s audited consolidated balance sheet. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2008. Certain amounts in prior periods have been reclassified to conform to report classifications as of March 31, 2008 and for the three months ended March 31, 2008, with no effect on previously reported net income or stockholders’ equity.

(2) New Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under accounting pronouncements that require or permit fair value measurements, and the standard does not require any new fair value measurements. In February 2008, the FASB amended SFAS No. 157 to exclude leasing transactions and to delay the effective date by one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company adopted SFAS No. 157 on January 1, 2008. See Note 11 for further information.

     In April 2007, the FASB issued FASB Staff Position (FSP) FASB Interpretation Number (FIN) 39-1, “Amendment of FASB Interpretation No. 39” (FSP FIN 39-1). FSP FIN 39-1 amends certain provisions of FIN 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset fair value amounts recognized for cash collateral receivables or payables against fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting arrangement. Prior to the implementation of FSP FIN 39-1, all positions executed with common counterparties were presented gross in the appropriate balance sheet line items. Effective January 1, 2008, in accordance with the provisions of FSP FIN 39-1, the Company offset its asset and liability coal trading derivative positions and other corporate hedging activities on a counterparty-by-counterparty basis if the contractual agreement provides for the net settlement of contracts with the counterparty in the event of default or termination of any one contract. The December 31, 2007 balances were adjusted to conform with the provisions of FSP FIN 39-1. See Note 4 for a presentation of the assets and liabilities from coal trading activities on a gross basis (pre-FSP FIN 39-1) and on a net basis (post-FSP FIN 39-1).

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 provides all entities with an option to report selected financial assets and liabilities at fair value. SFAS No. 159 was effective for the Company for the fiscal year beginning January 1, 2008. SFAS No. 159 did not have an impact on the accompanying unaudited condensed consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests in partially-owned consolidated subsidiaries and the loss of control of subsidiaries. SFAS No. 160 requires noncontrolling interests (minority interests) to be reported as a separate component of equity. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (January 1, 2009 for the Company). Early adoption is not allowed. The Company does not expect the adoption of SFAS No. 160 to have a material effect on its financial statements.

     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)), which replaces SFAS No. 141. SFAS No. 141(R) changes the principles and requirements for the recognition and measurement of the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree in the financial statements of the acquirer. This statement also provides guidance for the recognition and measurement of goodwill acquired in the business combination and related disclosure. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (January 1, 2009 for the Company).

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 expands the disclosure requirements for derivative instruments and hedging activities. This statement specifically requires entities to provide enhanced disclosures addressing the following: (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008 (January 1, 2009 for the Company). While the Company is currently evaluating the impact SFAS No. 161 will have on its disclosures, the adoption of SFAS No. 161 will not affect the Company’s results of operations or financial condition.

(3) Discontinued Operations

     On October 31, 2007, the Company spun-off portions of its Eastern U.S. Mining operations business segment through a dividend of all outstanding shares of Patriot Coal Corporation (Patriot), which is now an independent public company traded on the New York Stock Exchange (symbol PCX). The spin-off included eight company-operated mines, two joint venture mines, and numerous contractor operated mines serviced by eight coal preparation facilities along with 1.2 billion tons of proven and probable coal reserves. Revenues, pretax income (loss) and the income tax provision (benefit) related to discontinued operations were as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Revenues		$	115,293			$	269,116
Income (loss) before income taxes and minority interests			(20,465	)			9,281
Income tax provision (benefit)			(8,084	)			1,619

     Discontinued operations’ revenues are the result of supply agreements the Company entered into with Patriot to meet commitments under non-assignable pre-existing customer agreements sourced from Patriot mining operations. The Company makes no profit as part of these arrangements and only sources coal from Patriot to meet customer obligations. The loss from discontinued operations in the period ended March 31, 2008 was primarily due to the write-off of a $19.4 million receivable following an adverse April 15, 2008 Supreme Court ruling related to excise tax refunds paid on export shipments from discontinued operations. See Note 12 for further discussions related to this receivable.

     The Company had also entered into a transition services agreement to provide certain administrative and other services to Patriot for a period of six months ending April 30, 2008. Patriot exercised its option to extend this agreement for an additional term of three months that will expire on July 31, 2008, with an additional option, under certain circumstances, to extend it to October 31, 2008. Under this agreement, the Company billed $0.8 million for transitional services in the first three months of 2008.

     The assets and liabilities of the discontinued operations as of March 31, 2008 and December 31, 2007 are shown below:

		March 31, 2008				December 31, 2007
		(Dollars in thousands)
Assets
Current assets
Other current assets		$	51,251			$	74,093
Total current assets			51,251				74,093
Total assets		$	51,251			$	74,093
Liabilities
Current liabilities
Accounts payable and accrued expenses		$	137,078			$	180,356
Total current liabilities			137,078				180,356
Other noncurrent liabilities			22,336				33,236
Total liabilities		$	159,414			$	213,592

     Other current assets included receivables from customers in relation to the supply agreements with Patriot, and accounts payable and accrued expenses included the amounts due to Patriot on these pass-through transactions. Also included in liabilities was an accrual for charges related to losses on firm purchase commitments that extend through 2010.

(4) Assets and Liabilities from Coal Trading Activities

     The fair value of assets and liabilities from coal trading activities is as set forth below:

		March 31, 2008				December 31, 2007
		(Dollars in thousands)
Assets from coal trading activities		$	556,105			$	349,784
Liabilities from coal trading activities			474,640				301,832
Net value of coal trading positions		$	81,465			$	47,952

     The recent increase in coal pricing, volatility and trading volumes have significantly increased the relative value of the Company’s trading asset and liability portfolio. As of March 31, 2008, forward contracts made up 56.1% and 27.3% of the Company’s trading assets and liabilities, respectively; financial swaps represent most of the remaining balances. Assets and liabilities from coal trading activities included net mark-to-market liabilities on cash flows hedges of anticipated future sales of $89.9 million and $53.3 million as of March 31, 2008 and December 31, 2007, respectively. The net value of trading positions, including those designated as hedges of future cash flows, represents the expected future realizable value of the trading portfolio.

     Of the coal trading derivatives and related hedge contracts in the Company’s trading portfolio as of March 31, 2008, 97% were valued utilizing prices from over-the-counter market sources, adjusted for coal quality and traded transportation differentials, and 3% of the Company’s contracts were valued based on similar market transactions.

     As discussed in Note 2, the Company adopted FSP FIN 39-1 effective January 1, 2008. As a result, the Company offset its asset and liability coal trading derivative positions on a counterparty-by-counterparty basis if the contractual agreement provides for the net settlement of contracts with the counterparty in the event of default or termination of any one contract. The effect of FSP FIN 39-1 on the Company’s trading asset and liability portfolio is set forth below:

		March 31, 2008								December 31, 2007
		(Dollars in thousands)
		Pre-FSP FIN 39-1				Post-FSP FIN 39-1				Pre-FSP FIN 39-1				Post-FSP FIN 39-1
Assets from coal trading activities		$	1,886,455			$	556,105			$	966,548			$	349,784
Liabilities from coal trading activities			1,804,990				474,640				918,596				301,832
Net value of coal trading positions		$	81,465			$	81,465			$	47,952			$	47,952

     As of March 31, 2008, the estimated future realization of the value of the Company’s trading portfolio was as follows:

Year of		Percentage
Expiration		of Portfolio
2008			32	%
2009			53	%
2010			8	%
2011			6	%
2012			1	%
			100	%

     At March 31, 2008, 34% of the Company’s credit exposure related to coal trading activities was with investment grade counterparties and 66% was with non-investment grade counterparties, including unrated entities. The Company’s coal trading operations traded 53.2 million tons and 31.5 million tons for the quarters ended March 31, 2008 and 2007, respectively.

(5) Other Commercial Events

     During the three months ended March 31, 2008, the Company sold approximately 58 million tons of non-strategic coal reserves and surface lands located in Kentucky for $21.5 million cash proceeds and a note receivable of $54.9 million with a recognized gain of $54.0 million. The note receivable is expected to be paid in two installments. The first payment is due in December of 2008 with the remaining balance to be paid in June of 2009. The non-cash portion of this transaction was excluded from the investing section of the unaudited condensed consolidated statement of cash flows.

(6) Inventories

     Inventories consisted of the following:

		March 31, 2008				December 31, 2007
		(Dollars in thousands)
Materials and supplies		$	97,908			$	90,242
Raw coal			39,474				55,524
Saleable coal			113,934				123,096
Total		$	251,316			$	268,862

(7) Long-Term Debt

     The Company’s total indebtedness as of March 31, 2008 and December 31, 2007, consisted of the following:

		March 31,				December 31,
		2008				2007
		(Dollars in thousands)
Term Loan under the Senior Unsecured Credit Facility		$	502,721			$	509,084
Revolving Credit Facility			191,000				97,700
Convertible Junior Subordinated Debentures due 2066			732,500				732,500
7.375% Senior Notes due 2016			650,000				650,000
6.875% Senior Notes due 2013			650,000				650,000
7.875% Senior Notes due 2026			246,983				246,965
5.875% Senior Notes due 2016			218,090				218,090
6.84% Series C Bonds due 2016			43,000				43,000
6.34% Series B Bonds due 2014			21,000				21,000
6.84% Series A Bonds due 2014			10,000				10,000
Capital lease obligations			89,476				92,186
Fair value hedge adjustment			9,597				1,604
Other			681				971
Total		$	3,365,048			$	3,273,100

Long-Term Debt Repayments

     During the three months ended March 31, 2008, the Company repaid $9.4 million of its outstanding debt, which included $6.4 million of its outstanding balance of the Term Loan under the Senior Unsecured Credit Facility and payments related to capital lease and other obligations. As of March 31, 2008, the Revolving Credit Facility’s remaining available borrowing capacity under the Senior Unsecured Credit Facility was $1.21 billion.

Interest Rate Swaps

     The Company has entered into various interest rate swaps in previous years, including the following: a series of fixed-to-floating interest rate swaps with combined notional amounts totaling $320.0 million that were designated to hedge changes in fair value of the 6.875% Senior Notes due 2013; a series of fixed-to-floating interest rate swaps with combined notional amounts totaling $100.0 million that were designated to hedge changes in fair value of the 5.875% Senior Notes due 2016; and 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% that was designated to hedge changes in expected cash flows on the Term Loan under the Senior Unsecured Credit Facility.

     Included in the fair value hedge adjustment was $3.9 million related to the remaining portion of a $5.2 million payment received in conjunction with a previous interest rate swap termination in September of 2006. This payment is being amortized to interest expense through the maturity of the 6.875% Senior Notes.

     In addition, the Company had two additional swaps, with a combined notional amount of $100.0 million, that were terminated during the three months ended March 31, 2008. The combined settlement amount of $3.4 million was recorded as an adjustment to the fair value hedge adjustment and will be amortized to interest expense over the remaining maturity period of the 6.875% Senior Notes.

(8) Comprehensive Income

     The following table sets forth the after-tax components of comprehensive income for the three months ended March 31, 2008 and 2007:

		Three Months Ended March 31,
		2007				2006
		(Dollars in thousands)
Net income		$	57,165			$	88,506
Increase (decrease) in fair value of cash flow hedges, net of tax provision of $3,757 and $8,857 for the three months ended March 31, 2008 and 2007, respectively			(5,720	)			14,261
Amortization of actuarial loss and prior service cost realized in net income, net of tax provision of $2,049 and $3,387 for the three months ended March 31, 2008 and 2007, respectively			3,134				7,562
Comprehensive income		$	54,579			$	110,329

     Comprehensive income differs from net income by the amount of unrealized gain or loss resulting from valuation changes of the Company’s cash flow hedges during the periods (which include fuel and natural gas hedges, currency forwards, traded coal index contracts and interest rate swaps) and the amortization of actuarial loss and prior service cost. The values of the Company’s cash flow hedging instruments are affected by changes in interest rates, crude oil and natural gas prices, and the U.S. dollar/Australian dollar exchange rate.

(9) Pension and Postretirement Benefit Costs

     Net periodic pension costs included the following components:

		Three Months Ended March 31,
		2008				2007
		(Dollars in thousands)
Service cost for benefits earned		$	700			$	2,250
Interest cost on projected benefit obligation			12,725				11,975
Expected return on plan assets			(15,150	)			(14,075	)
Amortization of actuarial loss and other			150				4,175
Net periodic pension (benefit) costs		$	(1,575	)		$	4,325

     Net periodic postretirement benefit costs included the following components:

		Three Months Ended March 31,
		2008				2007
		(Dollars in thousands)
Service cost for benefits earned		$	2,602			$	2,098
Interest cost on accumulated postretirement benefit obligation			13,544				12,284
Amortization of prior service cost and actuarial loss			4,511				4,610
Net periodic postretirement benefit costs		$	20,657			$	18,992

(10) Segment Information

     The Company reports its operations primarily through the following reportable operating segments: “Western U.S. Mining,” “Eastern U.S. Mining,” “Australian Mining” and “Trading and Brokerage.” The Company’s chief operating decision maker uses Adjusted EBITDA as the primary measure of segment profit and loss. 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.

     Operating segment results for the three months ended March 31, 2008 and 2007 were as follows:

		Three Months Ended
		March 31,
		2008				2007
		(Dollars in thousands)
Revenues:
Western U.S. Mining		$	591,470			$	484,459
Eastern U.S. Mining			266,755				257,013
Australian Mining			300,228				286,991
Trading and Brokerage			110,052				76,261
Corporate and Other			7,446				5,068
Total		$	1,275,951			$	1,109,792
Adjusted EBITDA:
Western U.S. Mining		$	153,702			$	139,199
Eastern U.S. Mining			32,950				49,726
Australian Mining			3,847				62,561
Trading and Brokerage			91,758				36,590
Corporate and Other (1)			(8,786	)			(53,084	)
Total		$	273,471			$	234,992

     A reconciliation of Adjusted EBITDA to consolidated income from continuing operations before income taxes and minority interests follows:

		Three Months Ended
		March 31,
		2008				2007
		(Dollars in thousands)
Total Adjusted EBITDA		$	273,471			$	234,992
Depreciation, depletion and amortization			94,002				81,925
Asset retirement obligation expense			6,800				5,683
Interest expense			59,238				57,484
Interest income			(1,112	)			(2,762	)
Income from continuing operations before income taxes and minority interests		$	114,543			$	92,662

     Total assets of the Trading and Brokerage segment have changed significantly since December 31, 2007 due to an increase in the Company’s trading asset portfolio. The total assets of the segment were $632.2 million and $346.8 million as of March 31, 2008 and December 31, 2007. For further discussion of the Company’s trading portfolio, see Note 4.

(11) Fair Value Measurements

     As discussed in Note 2, the Company adopted SFAS No. 157 effective January 1, 2008. Although the adoption of SFAS No. 157 did not materially impact the Company’s financial condition, results of operations or cash flows, additional disclosures related to fair value measurements are now required. SFAS No. 157 establishes a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. These levels include: Level 1, inputs are quoted prices in active markets for the identical assets or liabilities; Level 2, inputs other than quoted prices included in Level 1 that are directly or indirectly observable through market-corroborated inputs; and Level 3, inputs are unobservable, requiring the Company to make assumptions about pricing by market participants.

     The Company’s financial assets and liabilities consist of hedging positions, presented on a net basis, related to natural gas and crude oil commodities consumed in the Company’s business ($59.9 million), foreign currency hedging positions related to the Company’s Australian operations ($158.3 million), interest rate swaps utilized to manage interest rate exposure on the Company’s debt ($10.1 million) and physical commodity purchase/sale contracts and commodity swaps related to the Company’s coal trading operations ($81.5 million). The following table sets forth as of March 31, 2008 the hierarchy of the Company’s financial assets and liabilities for which fair value is measured on a recurring basis:

		Level 1				Level 2				Level 3				Total
		(Dollars in thousands)
Assets:
Physical commodity purchase/sale contracts		$	14,928			$	104,416			$	169,420			$	288,764
Foreign currency forwards and options			—				158,330				—				158,330
Commodity swaps			—				—				4,478				4,478
Interest rate swaps			—				10,113				—				10,113
Total assets		$	14,928			$	272,859			$	173,898			$	461,685
Liabilities:
Commodity swaps		$	(3,560	)		$	(148,320	)		$	—			$	(151,880	)
Total liabilities		$	(3,560	)		$	(148,320	)		$	—			$	(151,880	)

     For Level 1 and 2 financial assets and liabilities, the Company utilizes both direct and indirect observable price quotes, including LIBOR yield curves, NYMEX indices and other market quotes. Below is a summary of the Company’s valuation techniques for Level 1 and 2 financial assets and liabilities:

	•		Commodity swap transactions for coal and freight — generally valued based on unadjusted quoted prices in active markets (Level 1) or a valuation that is corroborated by the use of market-based pricing (Level 2).
	•		Physical commodity purchase and sale contracts — exchange-cleared contracts based on unadjusted quoted prices in active markets (Level 1), or purchases and sales at locations with significant market activity corroborated by market-based information (Level 2).
	•		Interest rate swaps — valued utilizing inputs obtained in quoted public markets (Level 2).
	•		Foreign currency forwards and options — valued based on quoted inputs from counterparties corroborated by market-based pricing (Level 2).

     Commodity swap and physical commodity purchase/sale contracts transacted in less liquid markets or contracts, such as long-term arrangements, with limited price availability were classified in Level 3. These instruments or contracts are valued based on quoted inputs from brokers or counterparties, or reflect methodologies that consider historical relationships among similar commodities to derive the Company’s best estimate of fair value. The Company has consistently applied these valuation techniques in all periods presented, and believes it has obtained the most accurate information available for the types of derivative contracts held.

     The following table summarizes the changes in the Company’s recurring Level 3 assets and liabilities for the three months ended March 31, 2008:

						Total gains or losses
						(realized/unrealized)
										Included in				Purchases,
						Included				other				issuances
		January				in				comprehensive				and				March
		1, 2008				earnings				income				settlements				31, 2008
		(Dollars in thousands)
Assets:
Physical commodity purchase/sale contracts		$	127,198			$	22,513			$	64			$	19,645			$	169,420
Commodity swaps			1,543				4,197				(1,262	)			—				4,478
Total assets		$	128,741			$	26,710			$	(1,198	)		$	19,645			$	173,898

     Total unrealized gains reflected in earnings related to assets held as of March 31, 2008 were $32.3 million. Unrealized gains and losses for the period from Level 3 items are offset by unrealized gains and losses on positions classified in Level 1 or 2, as well as positions that have been realized during the period. Gains and losses (realized and unrealized) included in earnings related to Level 3 physical commodity contracts are reported in “Other revenues,” while gains and losses related to Level 2 foreign currency forwards and options are reported in “Operating costs and expenses.”

(12) Commitments and Contingencies

Commitments

     As of March 31, 2008, purchase commitments for capital expenditures were $37.6 million and federal coal reserve lease payments due over the next two years totaled $246.7 million.

     From time to time, the Company or its subsidiaries are involved in legal proceedings arising in the ordinary course of business or related to indemnities or historical operations. The Company believes it has recorded adequate reserves for these liabilities and that there is no individual case pending that is likely to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company discusses its significant legal proceedings below.

Litigation Relating to Continuing Operations

Navajo Nation Litigation

     On June 18, 1999, the Navajo Nation served three of the Company’s subsidiaries, including Peabody Western Coal Company (Peabody Western), with a complaint that had been filed in the U.S. District Court for the District of Columbia. The Navajo Nation has alleged 16 claims, including Civil Racketeer Influenced and Corrupt Organizations Act (RICO) violations and fraud. The complaint alleges that the defendants jointly participated in unlawful activity to obtain favorable coal lease amendments. The plaintiff is seeking various remedies including actual damages of at least $600 million, which could be trebled under the RICO counts, punitive damages of at least $1 billion, a determination that Peabody Western’s two coal leases have terminated due to Peabody Western’s breach of these leases and a reformation of these leases to adjust the royalty rate to 20%. Subsequently, the court allowed the Hopi Tribe to intervene in this lawsuit and the Hopi Tribe is also seeking unspecified actual damages, punitive damages and reformation of its coal lease. One of the Company’s subsidiaries named as a defendant is now a subsidiary of Patriot. However, the Company is responsible for this litigation under the Separation Agreement entered into with Patriot in connection with the spin-off. On February 9, 2005, the U.S. District Court for the District of Columbia granted a consent motion to stay the litigation until further order of the court to allow parties to mediate. The mediation terminated without resolution and in March 2008 the Court lifted the stay and the litigation resumed.

     The outcome of this litigation is subject to numerous uncertainties. Based on the Company’s evaluation of the issues and their potential impact, the amount of any future loss cannot be reasonably estimated. However, based on current information, the Company believes this matter is likely to be resolved without a material adverse effect on its financial condition, results of operations or cash flows.

Salt River Project Agricultural Improvement and Power District — Mine Closing and Retiree Health Care

     Salt River Project and the other owners of the Navajo Generating Station filed a lawsuit on September 27, 1996, in the Superior Court of Maricopa County in Arizona seeking a declaratory judgment that certain costs relating to final reclamation, environmental monitoring work and mine decommissioning and costs primarily relating to retiree health care benefits are not recoverable by the Company’s subsidiary, Peabody Western, under the terms of a coal supply agreement dated February 18, 1977. The contract expires in 2011. The trial court subsequently ruled that the mine decommissioning costs were subject to arbitration but that the retiree health care costs were not subject to arbitration. The Company has recorded a receivable for mine decommissioning costs of $90.4 million and $87.7 million included in “Investments and other assets” in the condensed consolidated balance sheets as of March 31, 2008 and December 31, 2007, respectively. The parties negotiated a final comprehensive settlement and are in the process of obtaining all required approvals of the settlement documents.

Gulf Power Company Litigation

     On June 22, 2006, Gulf Power Company filed a breach of contract lawsuit against a Company subsidiary in the U.S. District Court, Northern District of Florida, contesting the force majeure declaration by the Company’s subsidiary under a coal supply agreement with Gulf Power Company and seeking damages for alleged past and future tonnage shortfalls of nearly 5 million tons under the agreement, which expired on December 31, 2007. In February 2008, the Court denied the Company’s motion to dismiss the Florida lawsuit or to transfer it to Illinois and retained jurisdiction over the case.

     The outcome of this litigation is subject to numerous uncertainties. Based on the Company’s evaluation of the issues and their potential impact, the amount of any future loss cannot reasonably be estimated. However, based on current information, the Company believes this matter is likely to be resolved without a material adverse effect on its financial condition, results of operations or cash flows.

Claims and Litigation Relating to Indemnities or Historical Operations

Oklahoma Lead Litigation

     Gold Fields Mining, LLC (Gold Fields) is a dormant, non-coal producing entity that was previously managed and owned by Hanson PLC, the Company’s predecessor owner. In a February 1997 spin-off, Hanson PLC transferred ownership of Gold Fields to the Company, despite the fact that Gold Fields had no ongoing operations and the Company had no prior involvement in its past operations. Gold Fields is currently one of the Company’s subsidiaries. The Company indemnified TXU Group with respect to certain claims relating to a former affiliate of Gold Fields. A predecessor of Gold Fields formerly operated two lead mills near Picher, Oklahoma prior to the 1950s and mined, in accordance with lease agreements and permits, approximately 0.15% of the total amount of the crude ore mined in the county.

     Gold Fields and two other companies are defendants in two class action lawsuits allegedly involving past operations near Picher, Oklahoma. The plaintiffs have asserted claims predicated on allegations of intentional lead exposure by the defendants and are seeking compensatory damages, punitive damages and the implementation of medical monitoring and relocation programs for the affected individuals. In December 2003, the Quapaw Indian tribe and certain Quapaw land owners filed a lawsuit against Gold Fields, five other companies and the United States. The plaintiffs are seeking compensatory and punitive damages based on a variety of theories. In December 2007, the court dismissed the tribe’s medical monitoring claim. Gold Fields has filed a third-party complaint against the United States and other parties. In February 2005, the state of Oklahoma on behalf of itself and several other parties sent a notice to Gold Fields and other companies regarding a possible natural resources damage claim. All of the lawsuits are pending in the U.S. District Court for the Northern District of Oklahoma.

     The outcome of litigation and these claims are subject to numerous uncertainties. Based on the Company’s evaluation of the issues and their potential impact, the amount of any future loss cannot be reasonably estimated. However, based on current information, the Company believes this matter is likely to be resolved without a material adverse effect on its financial condition, results of operations or cash flows.

Environmental Claims and Litigation

     Environmental claims have been asserted against Gold Fields related to activities of Gold Fields or a former affiliate. Gold Fields or the former affiliate has been named a potentially responsible party (PRP) at five national priority list sites based on the Superfund Amendments and Reauthorization Act of 1986. Claims were asserted at 12 additional sites, bringing the total to 17, which have since been reduced to 12 by completion of work, transfer or regulatory inactivity. The number of PRP sites in and of itself is not a relevant measure of liability, because the nature and extent of environmental concerns varies by site, as does the estimated share of responsibility for Gold Fields or the former affiliate. Undiscounted liabilities for environmental cleanup-related costs for all of the sites noted above were $42.6 million as of March 31, 2008 and $43.5 million as of December 31, 2007, $6.2 million and $7.1 million of which was reflected as a current liability, respectively. These amounts represent those costs that the Company believes are probable and reasonably estimable. In September 2005, Gold Fields and other PRPs received a letter from the U.S. Department of Justice alleging that the PRPs’ mining operations caused the Environmental Protection Agency (EPA) to incur approximately $125 million in residential yard remediation costs at Picher, Oklahoma and will cause the EPA to incur additional remediation costs relating to historical mining sites. Gold Fields has participated in the settlement discussions. Gold Fields believes it has meritorious defenses to these claims. Gold Fields is involved in other litigation in the Picher area, and the Company indemnified TXU Group with respect to a defendant as is more fully discussed under the “Oklahoma Lead Litigation” caption above. 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 this provision. Based on the Company’s evaluation of the issues and their potential impact, the amount of any future loss cannot be reasonably estimated. However, based on current information, the Company believes these claims and litigation are likely to be resolved without a material adverse effect on its financial condition, results of operations or cash flows.

Other

     Certain former subsidiaries of the Company previously paid black lung excise taxes to the Federal Black Lung Trust Fund (the Trust Fund) on export shipments. Collections of excise taxes on export shipments were ruled unconstitutional and as a result, the Company had a receivable for excise tax refunds paid on export shipments of $19.4 million as of December 31, 2007. In a January 2007 decision, a federal appellate court confirmed the Company’s position, ruling that coal companies are entitled to a refund of the Black Lung tax paid on export shipments for certain years and that they are also entitled to collect interest on the refund. On April 15, 2008, the U.S. Supreme Court reversed the appellate court’s decision ruling that companies are not entitled to a refund of the Black Lung tax paid on export shipments paid outside the Internal Revenue Service’s three-year statute of limitations. The Company recorded a charge to discontinued operations of $19.4 million in the first quarter of 2008 to eliminate the receivable as described in Note 3.

     In addition, at times the Company becomes a party to other claims, lawsuits, arbitration proceedings and administrative procedures in the ordinary course of business in the U.S., Australia and other countries where the Company does business. The outcome of such matters is subject to numerous uncertainties. Based on current information, the Company believes that the ultimate resolution of such other pending or threatened proceedings is not reasonably likely to have a material adverse effect on its financial position, results of operations or cash flows.

New York Office of the Attorney General Subpoena

     The New York Office of the Attorney General sent a letter to the Company dated September 14, 2007. The letter referred to the Company’s “plans to build new coal-fired electric generating units,” and said that the “increase in CO₂ emissions from the operation of these units, in combination with Peabody Energy’s other coal-fired power plants, will subject Peabody Energy to increased financial, regulatory, and litigation risks.” The Company currently has no electricity generating capacity in place. The letter included a subpoena issued under New York state law, which seeks information and documents relating to the Company’s analysis of the risks associated with climate change and possible climate change legislation or regulations, and its disclosure of such risks to investors. The Company believes that it has made full and proper disclosure of these potential risks.

Alaskan Villages’ Claims

     In February 2008, the Native Village of Kivalina and the City of Kivalina filed a lawsuit in the United States District Court for the Northern District of California against the Company, several owners of electricity generating facilities and several oil companies. The plaintiffs are the

governing bodies of a village in Alaska that they contend is being destroyed by erosion allegedly caused by global warming that the plaintiffs attribute to emissions of greenhouse gases by the defendants. The plaintiffs assert claims for nuisance, and allege that the defendants have acted in concert and are jointly and severally liable for the plaintiffs’ damages. The suit seeks damages for lost property values and for the cost of relocating the village, which cost is alleged to be $95 million to $400 million. The Company believes that this lawsuit is without merit and intends to defend against and oppose it vigorously, but cannot predict its outcome.

(13) Guarantees

     In the normal course of business, the Company is a party to guarantees and financial instruments with off-balance-sheet risk, such as bank letters of credit, performance or surety bonds and other guarantees and indemnities, which are not reflected in the accompanying condensed consolidated balance sheets. Such financial instruments are valued based on the amount of exposure under the instrument and the likelihood of required performance. In the Company’s past experience, virtually no claims have been made against these financial instruments.

     As of March 31, 2008, the Company owned a 30.0% interest in a partnership that leases a coal export terminal from the Peninsula Ports Authority of Virginia under a 30-year lease that permits the partnership to purchase the terminal at the end of the lease term for a nominal amount. The partners have severally (but not jointly) agreed to make payments under various agreements which in the aggregate provide the partnership with sufficient funds to pay rents and to cover the principal and interest payments on the floating-rate industrial revenue bonds issued by the Peninsula Ports Authority, and which are supported by letters of credit from a commercial bank. As of March 31, 2008, the Company’s maximum reimbursement obligation to the commercial bank was in turn supported by a letter of credit totaling $42.8 million. Subsequent to March 31, 2008, the Company increased its equity position in the partnership to 37.5%.

     The Company is party to an agreement with the PBGC and TXU Europe Limited, an affiliate of the Company’s former parent corporation, under which the Company is required to make special contributions to two of the Company’s defined benefit pension plans and to maintain a $37.0 million letter of credit in favor of the PBGC. If the Company or the PBGC gives notice of an intent to terminate one or more of the covered pension plans in which liabilities are not fully funded, or if the Company fails 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 Employee Retirement Income Security Act of 1974, as amended. The PBGC, however, is required to first apply amounts received from a $110.0 million guarantee in place from TXU Europe Limited in favor of the PBGC before it draws on the Company’s 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 March 31, 2008. As a result of these proceedings, TXU Europe Limited may be liquidated or otherwise reorganized in such a way as to relieve it of its obligations under its guarantee.

Other Guarantees

     As part of arrangements through which the Company obtains exclusive sales representation agreements with small coal mining companies (the Counterparties), the Company issued financial guarantees on behalf of the Counterparties. These guarantees facilitate the Counterparties’ efforts to obtain bonding or financing. In 2007, the Company purchased approximately 345 million tons of coal reserves and surface lands in the Illinois Basin. In conjunction with this purchase, the Company agreed to provide up to $64.8 million of reclamation and bonding commitments to a third-party coal company. The Company has recognized the full amount of these commitments as a liability as of March 31, 2008.

     The Company is the lessee under numerous equipment and property leases. It is common in such commercial lease transactions for the Company, as the lessee, to agree to indemnify the lessor for the value of the property or equipment leased, should the property be damaged or lost during the course of the Company’s operations. The Company expects that losses with respect to leased property would be covered by insurance (subject to deductibles). The Company and certain of its subsidiaries have guaranteed other subsidiaries’ performance under their various lease obligations. Aside from indemnification of the lessor for the value of the property leased, the Company’s maximum potential obligations under its leases are equal to the respective future minimum lease payments and the Company assumes that no amounts could be recovered from third parties.

     The Company has provided financial guarantees under certain long-term debt agreements entered into by its subsidiaries, and substantially all of the Company’s subsidiaries provide financial guarantees under long-term debt agreements entered into by the Company. The maximum amounts payable under the Company’s debt agreements are equal to the respective principal and interest payments. For the descriptions of the Company’s (and its subsidiaries’) debt, see Part IV, Item 15 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Supplemental guarantor/non-guarantor financial information is provided in Note 14.

     As part of the Patriot spin-off, the Company agreed to maintain in force several letters of credit that secured Patriot obligations for certain employee benefits and workers’ compensation obligations. These letters of credit are to be released upon Patriot satisfying the beneficiaries with alternate letters of credit or insurance, which is expected to occur in 2008. If Patriot is unable to satisfy the primary beneficiaries by June 30, 2011, Patriot is required to provide directly to the Company a letter of credit for the amount of the remaining obligation. The amount of letters of credit securing Patriot obligations was $74.7 million and $136.8 million as of March 31, 2008 and December 31, 2007, respectively. On April 1, 2008, an additional $61.8 million of letters of credit securing Patriot obligations were released.

(14) Supplemental Guarantor/Non-Guarantor Financial Information

     In accordance with the indentures governing the 6.875% Senior Notes due March 2013, the 5.875% Senior Notes due March 2016, the 7.375% Senior Notes due November 2016 and the 7.875% Senior Notes due November 2026, certain wholly-owned U.S. subsidiaries of the Company have fully and unconditionally guaranteed these Senior Notes, on a joint and several basis. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management believes that such information is not material to the Senior Note holders. The following historical financial statement information is provided for the Guarantor/Non-Guarantor Subsidiaries.

Peabody Energy Corporation
Unaudited Supplemental Condensed Consolidated Statements of Operations

		Three Months Ended March 31, 2008
		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(Dollars in thousands)
Total revenues		$	—			$	1,002,144			$	327,297			$	(53,490	)		$	1,275,951
Costs and expenses:
Operating costs and expenses			(35,350	)			757,660				344,847				(53,490	)			1,013,667
Depreciation, depletion and amortization			—				61,572				32,430				—				94,002
Asset retirement obligation expense			—				5,938				862				—				6,800
Selling and administrative expenses			2,428				45,527				2,928				—				50,883
Other operating income:
Net gain on disposal or exchange of assets			—				(59,374	)			(41	)			—				(59,415	)
(Income) loss from equity affiliates			(86,098	)			1,006				(3,661	)			86,098				(2,655	)
Interest expense			63,336				21,679				13,086				(38,863	)			59,238
Interest income			(3,748	)			(30,176	)			(6,051	)			38,863				(1,112	)
Income (loss) from continuing operations before income taxes and minority interests			59,432				198,312				(57,103	)			(86,098	)			114,543
Income tax provision			(10,114	)			59,165				(4,933	)			—				44,118
Minority interests			—				(34	)			913				—				879
Income (loss) from continuing operations			69,546				139,181				(53,083	)			(86,098	)			69,546
Loss from discontinued operations, net of tax			(12,381	)			—				—				—				(12,381	)
Net income (loss)		$	57,165			$	139,181			$	(53,083	)		$	(86,098	)		$	57,165

Peabody Energy Corporation
Unaudited Supplemental Condensed Consolidated Statements of Operations

		Three Months Ended March 31, 2007
		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(Dollars in thousands)
Total revenues		$	—			$	814,137			$	330,812			$	(35,157	)		$	1,109,792
Costs and expenses:
Operating costs and expenses			1,518				616,250				264,042				(35,157	)			846,653
Depreciation, depletion and amortization			—				57,536				24,389				—				81,925
Asset retirement obligation expense			—				5,390				293				—				5,683
Selling and administrative expenses			6,157				24,763				802				—				31,722
Other operating income:
Net (gain) loss on disposal or exchange of assets			—				(1,517	)			95				—				(1,422	)
(Income) loss from equity affiliates			(126,195	)			1,524				(3,677	)			126,195				(2,153	)
Interest expense			70,091				(49,456	)			6,017				30,832				57,484
Interest income			(4,680	)			40,559				(7,809	)			(30,832	)			(2,762	)
Income (loss) from continuing operations before income taxes and minority interests			53,109				119,088				46,660				(126,195	)			92,662
Income tax provision (benefit)			(28,809	)			30,201				9,603				—				10,995
Minority interests			—				—				(251	)			—				(251	)
Income (loss) from continuing operations			81,918				88,887				37,308				(126,195	)			81,918
Income from discontinued operations, net of tax			6,588				—				—				—				6,588
Net income (loss)		$	88,506			$	88,887			$	37,308			$	(126,195	)		$	88,506

Peabody Energy Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets

		March 31, 2008
		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(Dollars in thousands)
Assets
Current assets
Cash and cash equivalents		$	35,370			$	33,484			$	13,693			$	—			$	82,547
Accounts receivable, net			8,853				789				269,317				—				278,959
Inventories			—				150,235				101,081				—				251,316
Assets from coal trading activities			—				556,105				—				—				556,105
Deferred income taxes			—				98,633				—				—				98,633
Other current assets			177,464				81,044				45,757				—				304,265
Total current assets			221,687				920,290				429,848				—				1,571,825
Property, plant, equipment and mine development
Land and coal interests			—				4,611,273				2,605,925				—				7,217,198
Buildings and improvements			—				577,938				123,220				—				701,158
Machinery and equipment			—				1,104,830				201,927				—				1,306,757
Less accumulated depreciation, depletion and amortization			—				(1,638,506	)			(253,093	)			—				(1,891,599	)
Property, plant, equipment and mine development, net			—				4,655,535				2,677,979				—				7,333,514
Investments and other assets			7,801,090				307,667				4,428				(7,680,323	)			432,862
Total assets		$	8,022,777			$	5,883,492			$	3,112,255			$	(7,680,323	)		$	9,338,201
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities of long-term debt		$	215,939			$	36			$	11,717			$	—			$	227,692
Payables and notes payable to affiliates, net			1,864,942				(2,162,254	)			297,312				—				—
Liabilities from coal trading activities			—				474,640				—				—				474,640
Accounts payable and accrued expenses			183,087				690,171				218,778				—				1,092,036
Total current liabilities			2,263,968				(997,407	)			527,807				—				1,794,368
Long-term debt, less current maturities			2,984,951				155				152,250				—				3,137,356
Deferred income taxes			83,380				(91,822	)			360,268				—				351,826
Other noncurrent liabilities			116,562				1,284,844				77,351				—				1,478,757
Total liabilities			5,448,861				195,770				1,117,676				—				6,762,307
Minority interests			—				—				1,978				—				1,978
Stockholders’ equity			2,573,916				5,687,722				1,992,601				(7,680,323	)			2,573,916
Total liabilities and stockholders’ equity		$	8,022,777			$	5,883,492			$	3,112,255			$	(7,680,323	)		$	9,338,201

Peabody Energy Corporation
Unaudited Supplemental Condensed Consolidated Balance Sheets

		December 31, 2007
		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(Dollars in thousands)
Assets
Current assets
Cash and cash equivalents		$	6,909			$	6,086			$	32,284			$	—			$	45,279
Accounts receivable, net			9,241				569				248,140				—				257,950
Inventories			—				138,285				130,577				—				268,862
Assets from coal trading activities			—				349,784				—				—				349,784
Deferred income taxes			—				98,633				—				—				98,633
Other current assets			176,239				55,223				58,559				—				290,021
Total current assets			192,389				648,580				469,560				—				1,310,529
Property, plant, equipment and mine development
Land and coal interests			—				4,563,046				2,635,044				—				7,198,090
Buildings and improvements			—				577,044				123,465				—				700,509
Machinery and equipment			—				1,065,015				202,313				—				1,267,328
Less accumulated depreciation, depletion and amortization			—				(1,582,947	)			(250,580	)			—				(1,833,527	)
Property, plant, equipment and mine development, net			—				4,622,158				2,710,242				—				7,332,400
Investments and other assets			7,734,604				(287,306	)			4,096				(7,042,780	)			408,614
Total assets		$	7,926,993			$	4,983,432			$	3,183,898			$	(7,042,780	)		$	9,051,543
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities of long-term debt		$	122,681			$	9			$	11,683			$	—			$	134,373
Payables and notes payable to affiliates, net			1,903,040				(2,127,786	)			224,746				—				—
Liabilities from coal trading activities			—				301,832				—				—				301,832
Accounts payable and accrued expenses			204,354				670,604				259,059				—				1,134,017
Total current liabilities			2,230,075				(1,155,341	)			495,488				—				1,570,222
Long-term debt, less current maturities			2,983,262				197				155,268				—				3,138,727
Deferred income taxes			65,734				(100,833	)			350,703				—				315,604
Other noncurrent liabilities			128,251				1,278,314				100,053				—				1,506,618
Total liabilities			5,407,322				22,337				1,101,512				—				6,531,171
Minority interests			—				(4,145	)			4,846				—				701
Stockholders’ equity			2,519,671				4,965,240				2,077,540				(7,042,780	)			2,519,671
Total liabilities and stockholders’ equity		$	7,926,993			$	4,983,432			$	3,183,898			$	(7,042,780	)		$	9,051,543

Peabody Energy Corporation
Unaudited Supplemental Condensed Consolidated Statements of Cash Flows

		Three Months Ended March 31, 2008
		Parent				Guarantor				Non-Guarantor
		Company				Subsidiaries				Subsidiaries				Consolidated
		(Dollars in thousands)
Cash Flows From Operating Activities
Net cash provided by (used in) continuing operations		$	6,289			$	(152,757	)		$	234,558			$	88,090
Net cash used in discontinued operations			(29,159	)			—				—				(29,159	)
Net cash provided by (used in) operating activities			(22,870	)			(152,757	)			234,558				58,931
Cash Flows From Investing Activities
Additions to property, plant, equipment and mine development			—				(46,593	)			(12,698	)			(59,291	)
Federal coal lease expenditures			—				(59,829	)			—				(59,829	)
Additions to advance mining royalties			—				(1,754	)			(147	)			(1,901	)
Proceeds from disposal of assets, net of notes receivable			—				23,587				162				23,749
Investment in Prairie State			—				(10,822	)			—				(10,822	)
Net cash used in investing activities			—				(95,411	)			(12,683	)			(108,094	)
Cash Flows From Financing Activities
Payments of long-term debt			(6,364	)			(15	)			(2,983	)			(9,362	)
Dividends paid			(16,260	)			—				—				(16,260	)
Proceeds from employee stock purchases			2,799				—				—				2,799
Excess tax benefit related to stock options exercised			10,445				—				—				10,445
Proceeds from stock options exercised			5,509				—				—				5,509
Change in revolving line of credit			93,300				—				—				93,300
Transactions with affiliates, net			(38,098	)			275,580				(237,482	)			—
Net cash provided by (used in) financing activities			51,331				275,565				(240,465	)			86,431
Net increase (decrease) in cash and cash equivalents			28,461				27,397				(18,590	)			37,268
Cash and cash equivalents at beginning of period			6,909				6,086				32,284				45,279
Cash and cash equivalents at end of period		$	35,370			$	33,483			$	13,694			$	82,547