SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended  June 30, 2001
                                ------------------------------------------------
                                       or

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(D) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                        to
                                ----------------------   -----------------------

Commission File Number  1-16463
                        --------------------------------------------------------

                           PEABODY ENERGY CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

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

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

                                       N/A
--------------------------------------------------------------------------------
                    (Former name, former address and former
                   fiscal year, if changed since last report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

 X Yes             No
 -----           ------

     Number of shares outstanding of each of the Registrant's  classes of Common
Stock,  as of July 31,  2001:  Common  Stock,  par value  $0.01 per share,  51.9
million shares outstanding.

                                     INDEX


PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements                                           Page
                                                                        --------

           Unaudited Condensed Consolidated Statements of Operations
           for the Quarters Ended June 30, 2001 and 2000.......................1

           Condensed Consolidated Balance Sheets as of June 30, 2001
           (unaudited) and March 31, 2001......................................2

           Unaudited Condensed Consolidated Statements of Cash Flows
           for the Quarters Ended June 30, 2001 and 2000.......................3

           Notes to Unaudited Condensed Consolidated Financial Statements......4

  Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations..........................................11

  Item 3.  Quantitative and Qualitative Disclosures About Market Risk.........14


PART II. OTHER INFORMATION

  Item 1.  Legal Proceedings..................................................16

  Item 2.  Changes in Securities and Use of Proceeds..........................16

  Item 6.  Exhibits and Reports on Form 8-K...................................17

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                           PEABODY ENERGY CORPORATION
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars in thousands, except share information)




                                                            Quarter Ended
                                                               June 30,
                                                          2001          2000
                                                      ------------  ------------
REVENUES
    Sales                                             $   625,890   $   658,653
    Other revenues                                         31,372        14,368
                                                      ------------  ------------
         Total revenues                                   657,262       673,021
COSTS AND EXPENSES
    Operating costs and expenses                          532,446       550,558
    Depreciation, depletion and amortization               59,324        60,467
    Selling and administrative expenses                    22,526        22,803
    Net gain on property and equipment disposals           (7,061)       (1,764)
                                                      ------------  ------------
OPERATING PROFIT                                           50,027        40,957
    Interest expense                                       34,533        51,470
    Interest income                                        (1,342)       (4,560)
                                                      ------------  ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
  MINORITY INTERESTS                                       16,836        (5,953)
    Income tax provision                                    4,264           336
    Minority interests                                      2,666         2,181
                                                      ------------  ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                    9,906        (8,470)
    Gain from disposal of discontinued operations,
      net of income tax provision of $3,180                   -           8,820
                                                      ------------  ------------
INCOME BEFORE EXTRAORDINARY ITEM                            9,906           350
    Extraordinary loss from early extinguishment
      of debt, net of income tax benefit of $9,203        (27,604)          -
                                                      ------------  ------------
NET INCOME (LOSS)                                     $   (17,698)  $       350
                                                      ============  ============

BASIC EARNINGS (LOSS) PER SHARE:
    Income (loss) from continuing operations          $      0.23   $     (0.25)
    Gain from disposal of discontinued operations             -            0.26
    Extraordinary loss from early extinguishment
      of debt                                               (0.65)          -
                                                      ------------  ------------
    Net income (loss)                                 $     (0.42)  $      0.01
                                                      ============  ============
WEIGHTED AVERAGE SHARES OUTSTANDING                    42,215,878    27,511,978
                                                      ============  ============

DILUTED EARNINGS (LOSS) PER SHARE:
    Income (loss) from continuing operations          $      0.22   $     (0.25)
    Gain from disposal of discontinued operations             -            0.26
    Extraordinary loss from early extinguishment
      of debt                                               (0.62)          -
                                                      ------------  ------------
    Net income (loss)                                 $     (0.40)  $      0.01
                                                      ============  ============
WEIGHTED AVERAGE SHARES OUTSTANDING                    44,213,833    27,511,978
                                                      ============  ============

                                     - 1 -

                 See accompanying notes to unaudited condensed
                       consolidated financial statements.

                           PEABODY ENERGY CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share information)

                                                      (Unaudited)
                                                        June 30,      March 31,
                                                          2001          2001
                                                      ------------  ------------
ASSETS
Current assets
    Cash and cash equivalents                         $    31,155   $    62,723
    Accounts receivable, less allowance for doubtful
      accounts of $1,213 at June 30, 2001 and
      March 31, 2001                                      162,513       147,808
    Materials and supplies                                 40,293        38,733
    Coal inventory                                        172,333       171,479
    Assets from coal and emission allowance trading
      activities                                          128,439       172,330
    Deferred income taxes                                   7,982        12,226
    Other current assets                                   24,900        24,656
                                                      ------------  ------------
         Total current assets                             567,615       629,955
Property, plant, equipment and mine development, net
  of accumulated depreciation, depletion and
  amortization of $585,862 at June 30, 2001
  and $537,360 at March 31, 2001                        4,312,676     4,322,639
Investments and other assets                              265,288       256,893
                                                      ------------  ------------
         Total assets                                 $ 5,145,579   $ 5,209,487
                                                      ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
    Short-term borrowings and current maturities
      of long-term debt                               $    27,690   $    36,305
    Liabilities from coal and emission allowance
      trading activities                                  116,416       163,713
    Accounts payable and accrued expenses                 506,893       576,967
                                                      ------------  ------------
         Total current liabilities                        650,999       776,985

Long-term debt, less current maturities                   993,308     1,369,316
Deferred income taxes                                     562,482       570,705
Accrued reclamation and other environmental
  liabilities                                             447,486       447,713
Workers' compensation obligations                         212,182       210,780
Accrued postretirement benefit costs                      980,731       974,079
Obligation to industry fund                                52,257        52,172
Other noncurrent liabilities                              137,052       135,041
                                                      ------------  ------------
         Total liabilities                              4,036,497     4,536,791
Minority interests                                         41,916        41,458
Stockholders' equity:
    Preferred Stock -  $0.01 per share par value;
      14,000,000 shares authorized, 7,000,000 shares
      issued and outstanding as of March 31, 2001             -              70
    Common Stock - Class A, $0.01 per share par
      value; 42,000,000 shares authorized,
      26,600,000 shares issued and outstanding
      as of March 31, 2001                                    -             266
    Common Stock - Class B, $0.01 per share par
      value; 4,200,000 shares authorized,
      1,033,490 shares issued and 1,010,509 shares
      outstanding as of March 31, 2001                        -              10
    Common Stock - $0.01 per share par value;
      150,000,000 shares authorized, 51,950,541
      shares issued and 51,939,026 shares
      outstanding as of June 30, 2001                         520           -
    Additional paid-in capital                            951,554       498,100
    Retained earnings                                     118,581       136,279
    Employee stock loans                                   (2,584)       (2,553)
    Accumulated other comprehensive loss                     (862)         (862)
    Treasury shares, at cost: 11,515 and 22,981
      shares as of June 30, 2001 and March 31,
      2001, respectively                                      (43)          (72)
                                                      ------------  ------------
         Total stockholders' equity                     1,067,166       631,238
                                                      ------------  ------------
             Total liabilities and
               stockholders' equity                   $ 5,145,579   $ 5,209,487
                                                      ============  ============

                                     - 2 -

                 See accompanying notes to unaudited condensed
                       consolidated financial statements.

                           PEABODY ENERGY CORPORATION
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                                            Quarter Ended
                                                               June 30,
                                                          2001          2000
                                                      ------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                     $   (17,698)  $       350
    Gain from disposal of discontinued operations             -          (8,820)
    Extraordinary loss from early extinguishment
      of debt                                              27,604           -
                                                      ------------  ------------
         Income (loss) from continuing operations           9,906        (8,470)
Adjustments to reconcile income (loss) from continuing
  operations to net cash provided by (used in)
  operating activities:
    Depreciation, depletion and amortization               59,324        60,467
    Deferred income taxes                                   4,121        (4,717)
    Amortization of debt discount and debt
      issuance costs                                        2,888         4,216
    Net gain on property and equipment disposals           (7,061)       (1,764)
    Minority interests                                      2,666         2,181
    Changes in current assets and liabilities:
      Sale of accounts receivable                             -          25,000
      Accounts receivable, net of sale                    (14,536)      (29,479)
      Materials and supplies                               (1,510)       (1,384)
      Coal inventory                                         (854)        3,571
      Net assets from coal and emission allowance
        trading activities                                 (3,406)          369
      Other current assets                                   (244)          494
      Accounts payable and accrued expenses               (70,424)      (42,402)
    Accrued reclamation and related liabilities            (1,877)       (4,425)
    Workers' compensation obligations                         902           631
    Accrued postretirement benefit costs                    2,102         3,793
    Obligation to industry fund                                85            30
    Other, net                                            (13,993)        5,147
                                                      ------------  ------------
         Net cash provided by (used in) operating
           activities                                     (31,911)       13,258
                                                      ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, equipment and
  mine development                                        (43,022)      (29,338)
Additions to advance mining royalties                      (3,103)       (6,252)
Proceeds from property and equipment disposals              4,640         4,243
Proceeds from sale-leaseback transactions                   6,968        23,787
                                                      ------------  ------------
         Net cash used in investing activities            (34,517)       (7,560)
                                                      ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term borrowings and
  long-term debt                                           11,851         3,702
Payments of short-term borrowings and long-term debt     (427,566)      (26,950)
Net proceeds from initial public offering                 451,832           -
Distributions to minority interests                        (2,208)         (844)
Other                                                         951           -
                                                      ------------  ------------
         Net cash provided by (used in) financing
           activities                                      34,860       (24,092)
Effect of exchange rate changes on cash and cash
  equivalents                                                 -            (230)
                                                      ------------  ------------
Net decrease in cash and cash equivalents                 (31,568)      (18,624)
Cash and cash equivalents at beginning of period           62,723        65,618
                                                      ------------  ------------
Cash and cash equivalents at end of period            $    31,155   $    46,994
                                                      ============  ============

                                     - 3 -

                 See accompanying notes to unaudited condensed
                       consolidated financial statements.

                           PEABODY ENERGY CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)  Basis of Presentation

     The accompanying  condensed  consolidated  financial statements include the
consolidated statements of operations, balance sheets, and cash flows of Peabody
Energy Corporation (the "Company").  The statements of operations and cash flows
for the three months  ended June 30, 2001 and the balance  sheets as of June 30,
2001 and March 31, 2001 include the  subsidiaries  of Peabody  Holding  Company,
Inc.  ("Peabody  Holding  Company")  and Gold Fields Mining  Corporation  ("Gold
Fields") which owns Lee Ranch Coal Company ("Lee  Ranch").  In addition to these
entities, the statements of operations and cash flows for the three months ended
June 30, 2000 also include the results of the Company's  Australian  operations,
which were sold in January 2001.

     The accompanying condensed consolidated financial statements as of June 30,
2001 and for the  three  months  ended  June 30,  2001 and  2000,  and the notes
thereto, are unaudited.  However, in the opinion of management,  these financial
statements  reflect all  adjustments  necessary for a fair  presentation  of the
results of the periods presented. The results of operations for the three months
ended June 30, 2001 are not necessarily indicative of the results to be expected
for the nine-month period ended December 31, 2001.

     In July 2001, the Company announced that it will change its fiscal year-end
from March 31 to December 31. This change will first be  effective  with respect
to the nine-month transition period ending December 31, 2001.

(2)  Initial Public Offering

     On May 22,  2001,  the  Company  completed  an initial  public  offering of
17,250,000  shares of common  stock.  Net  proceeds  from the offering of $451.8
million were primarily used to repay debt. See further  discussion of these debt
repayments in Note 3 below.

(3)  Extraordinary Loss from Early Extinguishment of Debt

     During the three months ended June 30, 2001,  the Company used the majority
of the $451.8 million of net proceeds from its initial public  offering to repay
debt. The Company repaid its remaining outstanding tranche B term loan under its
Senior  Credit  Facility  of $125.0  million  and used  $100.0  million to repay
borrowings under the revolving credit facility that were used to repay a portion
of the  Company's  5%  subordinated  note.  The Company  used $173.0  million of
proceeds  from the  offering to  repurchase  $80.0  million in  principal of the
Senior Notes and $80.0  million in principal  of the Senior  Subordinated  Notes
pursuant to a previously announced tender offer.  Finally, the Company used $3.1
million and $12.7 million of proceeds to  repurchase an additional  $2.9 million
in principal  of the Senior  Notes and $11.7  million in principal of the Senior
Subordinated Notes, respectively, in a private transaction.

     The repayments  resulted in an extraordinary loss of $27.6 million,  net of
income taxes,  which represented the excess of cash paid over the carrying value
of the debt retired and the accelerated write-off of debt issuance costs related
to the debt repaid.

(4)  Adoption of New Accounting Standards

     Effective  April 1,  2001,  the  Company  adopted  Statement  of  Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and Hedging  Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments  and  Hedging  Activities-Deferral  of the  Effective  Date  of FASB
Statement  No.  133,"  and SFAS No.  138,  "Accounting  for  Certain  Derivative
Instruments and Certain Hedging  Activities." The adoption of SFAS Nos. 133, 137
and 138 did not have a significant impact on the Company's financial statements.

     In addition, the Derivatives Implementation Group, ("DIG") has concluded on
certain SFAS Nos. 133 and 138 Implementation  Issues, some of which could affect
the Company  beginning on July 1, 2001. While the Company  continues to evaluate
the impact of the DIG  interpretive  guidance,  it currently does not anticipate
that it will have a material impact on its results of operations.

                                     - 4 -

(5)  Earnings Per Share

Quarter Ended June 30, 2001

     In connection  with the Company's  initial public offering in May 2001, all
outstanding  shares of preferred stock,  Class A common stock and Class B common
stock were converted into a single class of common stock on a one-for-one basis.
A reconciliation of the weighted average shares  outstanding as of June 30, 2001
follows:
                                                                      Quarter
                                                                       Ended
                                                                      June 30,
                                                                        2001
                                                                    ------------
Weighted average shares outstanding - basic
  earnings per share                                                 42,215,878

Dilutive impact of stock options                                      1,997,955
                                                                    ------------
Weighted average shares outstanding - diluted
  earnings per share                                                 44,213,833
                                                                    ============

Quarter Ended June 30, 2000

     Prior to its initial public  offering,  the Company  applied the "two-class
method" of computing  income per share as prescribed in SFAS No. 128,  "Earnings
Per Share." In  accordance  with SFAS No. 128,  income or loss is  allocated  to
preferred  stock,  Class A common  stock and Class B common  stock on a pro-rata
basis.  Basic and diluted  earnings  (loss) per share is  calculated by dividing
loss from continuing operations,  gain from disposal of discontinued  operations
and net income,  respectively,  that is attributed to the Company's  Class A and
Class  B  common  shares  by  the  weighted  average  number  of  common  shares
outstanding for each class of common stock.

     A reconciliation of loss from continuing operations,  gain from disposal of
discontinued operations and net income follows (in thousands):
                                                                      Quarter
                                                                       Ended
                                                                      June 30,
                                                                        2000
                                                                    ------------
Loss from continuing operations attributed to:
  Preferred stock                                                   $    (1,718)
  Class A common stock                                                   (6,528)
  Class B common stock                                                     (224)
                                                                    ------------
                                                                    $    (8,470)
                                                                    ============
Gain from disposal of discontinued operations attributed to:
  Preferred stock                                                   $     1,789
  Class A common stock                                                    6,798
  Class B common stock                                                      233
                                                                    ------------
                                                                    $     8,820
                                                                    ============
Net income attributed to:
  Preferred stock                                                   $        71
  Class A common stock                                                      270
  Class B common stock                                                        9
                                                                    ------------
                                                                    $       350
                                                                    ============

     Any potential  difference between basic and diluted income (loss) per share
is solely  attributable  to stock options.  For the quarter ended June 30, 2000,
all stock options  outstanding  were excluded from the diluted  income per share
calculations   for  the  Company's  Class  A  common  stock  because  they  were
anti-dilutive.

(6)  Comprehensive Loss

     The following table sets forth the components of comprehensive loss for the
quarters ended June 30, 2001 and 2000 (in thousands):
                                                            Quarter Ended
                                                               June 30,
                                                          2001          2000
                                                      ------------  ------------
Net income (loss)                                     $   (17,698)  $       350
Foreign currency translation adjustment                       -          (4,654)
                                                      ------------  ------------
Comprehensive loss                                    $   (17,698)  $    (4,304)
                                                      ============  ============

                                     - 5 -

(7)  Segment Information

     The Company's  industry and geographic data for continuing  operations were
as follows (in thousands):
                                                            Quarter Ended
                                                               June 30,
                                                          2001          2000
                                                      ------------  ------------
Revenues:
   U.S. Mining                                        $   654,031   $   603,503
   Non U.S. Mining                                            -          69,312
   Other                                                    3,231           206
                                                      ------------  ------------
                                                      $   657,262   $   673,021
                                                      ============  ============
Operating profit:
   U.S. Mining                                        $    48,122   $    28,123
   Non U.S. Mining                                            -          12,649
   Other                                                    1,905           185
                                                      ------------  ------------
                                                      $    50,027   $    40,957
                                                      ============  ============
Revenues:
   United States                                      $   657,262   $   603,709
   Non U.S.                                                   -          69,312
                                                      ------------  ------------
                                                      $   657,262   $   673,021
                                                      ============  ============
Operating profit:
   United States                                      $    50,027   $    28,308
   Non U.S.                                                   -          12,649
                                                      ------------  ------------
                                                      $    50,027   $    40,957
                                                      ============  ============

(8)  Commitments and Contingencies

     Environmental claims have been asserted against a subsidiary of the Company
at 18  sites  in the  United  States.  Some of  these  claims  are  based on the
Comprehensive  Environmental Response Compensation and Liability Act of 1980, as
amended, and on similar state statutes.  The majority of these sites are related
to activities of former subsidiaries of the Company.

     The Company's policy is to accrue environmental  cleanup-related costs of a
noncapital  nature  when those  costs are  believed  to be  probable  and can be
reasonably estimated.  The quantification of environmental exposures requires an
assessment  of  many   factors,   including   changing  laws  and   regulations,
advancements in environmental technologies, the quality of information available
related to specific  sites,  the  assessment  stage of each site  investigation,
preliminary  findings  and  the  length  of  time  involved  in  remediation  or
settlement.   For  certain  sites,  the  Company  also  assesses  the  financial
capability of other potentially  responsible  parties and, where allegations are
based on tentative findings, the reasonableness of the Company's  apportionment.
The Company has not anticipated any recoveries from insurance  carriers or other
potentially  responsible third parties in its consolidated  balance sheets.  The
undiscounted  liabilities for  environmental  cleanup-related  costs recorded in
"Accrued reclamation and other environmental liabilities" were $47.0 million and
$48.0  million at June 30, 2001 and March 31,  2001,  respectively.  This amount
represents  those costs that the Company  believes are  probable and  reasonably
estimable.

     On June 18,  1999,  The  Navajo  Nation  served our  subsidiaries,  Peabody
Holding  Company,  Inc.,  Peabody Coal Company and Peabody Western Coal Company,
with a complaint that had been filed in the U.S. District Court for the District
of Columbia.  Other  defendants in the litigation are one customer,  one current
employee  and one  former  employee.  The Navajo  Nation has  alleged 16 claims,
including Civil  Racketeer  Influenced and Corrupt  Organizations  Act, or RICO,
violations and fraud and tortious  interference with contractual  relationships.
The  complaint  alleges that the  defendants  jointly  participated  in unlawful
activity to obtain favorable coal lease amendments.  Plaintiff also alleges that
defendants interfered with the fiduciary  relationship between the United States
and the Navajo  Nation.  The  plaintiff is seeking  various  remedies  including
actual  damages of at least $600 million,  which could be trebled under the RICO
counts,  punitive damages of at least $1 billion,  a determination  that Peabody
Western Coal Company's two coal leases for the Kayenta and Black Mesa mines have
terminated  due to a breach of these  leases and a  reformation  of the two coal
leases to adjust the royalty rate to 20%. All  defendants  have filed motions to
dismiss  the  complaint.  On March  15,  2001,  the  court  denied  the  Peabody
defendants' motions to dismiss.

     In March 2000,  the Hopi Tribe filed a motion to intervene in this lawsuit.
The Hopi Tribe has alleged  seven  claims,  including  fraud.  The Hopi Tribe is
seeking various  remedies,  including  unspecified  actual and punitive damages,
reformation of its coal lease and a termination of the coal lease.  On March 15,
2001, the court granted the Hopi Tribe's motion.  On April 17, 2001, the Company
filed a motion to dismiss the Hopi complaint.

                                     - 6 -

     In  addition,  the  Company at times  becomes a party to claims,  lawsuits,
arbitration proceedings and administrative  procedures in the ordinary course of
business.  Management  believes  that the  ultimate  resolution  of  pending  or
threatened  proceedings  will  not  have a  material  effect  on  the  financial
position, results of operations or liquidity of the Company.

(9)  Supplemental Guarantor/Non-Guarantor Financial Information

     In  accordance  with the  indentures  governing the Senior Notes and Senior
Subordinated Notes,  certain wholly owned U.S.  subsidiaries of the Company have
fully and  unconditionally  guaranteed the Senior Notes and Senior  Subordinated
Notes on a joint and several  basis.  Separate  financial  statements  and other
disclosures  concerning  the Guarantor  Subsidiaries  are not presented  because
management  believes that such information is not material to the holders of the
Senior Notes and Senior Subordinated  Notes. The following condensed  historical
financial  statement  information  is provided for such  Guarantor/Non-Guarantor
Subsidiaries.


                           PEABODY ENERGY CORPORATION
     Unaudited Supplemental Condensed Consolidated Statements of Operations
                          Quarter Ended June 30, 2001
                                 (In thousands)

                                                        Parent        Guarantor     Non-Guarantor
                                                        Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                                      -------------  -------------  -------------  -------------  -------------
                                                                                                   
Total revenues                                        $        -     $    517,672   $    162,051   $    (22,461)  $    657,262
Costs and expenses
    Operating costs and expenses                               -          423,242        131,665        (22,461)       532,446
    Depreciation, depletion and amortization                   -           46,398         12,926            -           59,324
    Selling and administrative expenses                        822         17,246          4,458            -           22,526
    Net (gain) loss on property and equipment
      disposals                                                -           (7,075)            14            -           (7,061)
    Interest expense                                        28,279         26,004          2,453        (22,203)        34,533
    Interest income                                        (17,129)        (6,320)           (96)        22,203         (1,342)
                                                      -------------  -------------  -------------  -------------  -------------
Income (loss) before income taxes and
  minority interests                                       (11,972)        18,177         10,631            -           16,836
    Income tax provision (benefit)                          (3,218)         4,792          2,690            -            4,264
    Minority interests                                         -              -            2,666            -            2,666
                                                      -------------  -------------  -------------  -------------  -------------
Income (loss) before extraordinary item                     (8,754)        13,385          5,275            -            9,906
    Extraordinary loss from early
     extinguishment of debt, net of income taxes           (16,574)       (11,030)           -              -          (27,604)
                                                      -------------  -------------  -------------  -------------  -------------
Net income (loss)                                     $    (25,328)  $      2,355   $      5,275   $        -     $    (17,698)
                                                      =============  =============  =============  =============  =============




                           PEABODY ENERGY CORPORATION
     Unaudited Supplemental Condensed Consolidated Statements of Operations
                          Quarter Ended June 30, 2000
(In thousands)
                                                        Parent        Guarantor     Non-Guarantor
                                                        Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                                      -------------  -------------  -------------  -------------  -------------
                                                                                                   
Total revenues                                        $        -     $    480,964   $    202,338   $    (10,281)  $    673,021
Costs and expenses
    Operating costs and expenses                               -          406,124        154,715        (10,281)       550,558
    Depreciation, depletion and amortization                   -           42,928         17,539            -           60,467
    Selling and administrative expenses                        108         17,376          5,319            -           22,803
    Net gain on property and equipment disposals               -           (1,236)          (528)           -           (1,764)
    Interest expense                                        42,034         22,255          4,281        (17,100)        51,470
    Interest income                                        (17,111)        (4,384)          (165)        17,100         (4,560)
                                                      -------------  -------------  -------------  -------------  -------------
Income (loss) before income taxes and
  minority interests                                       (25,031)        (2,099)        21,177            -           (5,953)
    Income tax provision (benefit)                          (6,283)          (526)         7,145            -              336
    Minority interests                                         -              -            2,181            -            2,181
                                                      -------------  -------------  -------------  -------------  -------------
Income (loss) from continuing operations                   (18,748)        (1,573)        11,851            -           (8,470)
    Gain from disposal of discontinued operations,
      net of income taxes                                       88          8,732            -              -            8,820
                                                      -------------  -------------  -------------  -------------  -------------
Net income (loss)                                     $    (18,660)  $      7,159   $     11,851   $        -     $        350
                                                      =============  =============  =============  =============  =============


                                     - 7 -


                           PEABODY ENERGY CORPORATION
          Unaudited Supplemental Condensed Consolidated Balance Sheets
                              As of June 30, 2001
                                 (In thousands)

                                                        Parent        Guarantor     Non-Guarantor
                                                        Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                                      -------------  -------------  -------------  -------------  -------------
                                                                                                   
ASSETS
Current assets
    Cash and cash equivalents                         $          7   $     25,056   $      6,092   $        -     $     31,155
    Accounts receivable                                        -          159,839         99,030        (96,356)       162,513
    Inventories                                                -          197,865         14,761            -          212,626
    Assets from coal and emission allowance
      trading activities                                       -          128,439            -              -          128,439
    Deferred income taxes                                      -            7,982            -              -            7,982
    Other current assets                                     3,692         12,872          8,336            -           24,900
                                                      -------------  -------------  -------------  -------------  -------------
           Total current assets                              3,699        532,053        128,219        (96,356)       567,615

Property, plant, equipment and mine
  development - at cost                                        -        4,466,210        432,328            -        4,898,538
Less accumulated depreciation, depletion
  and amortization                                             -         (520,662)       (65,200)           -         (585,862)
                                                      -------------  -------------  -------------  -------------  -------------
Property, plant, equipment and mine development, net           -        3,945,548        367,128            -        4,312,676
Investments and other assets                             2,215,003        951,874        529,364     (3,430,953)       265,288
                                                      -------------  -------------  -------------  -------------  -------------
           Total assets                               $  2,218,702   $  5,429,475   $  1,024,711   $ (3,527,309)  $  5,145,579
                                                      =============  =============  =============  =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
    Short-term borrowings and current maturities
      of long-term debt                               $        -     $     10,605   $     17,085   $        -     $     27,690
    Payable to affiliates, net                             355,305       (376,224)        20,919            -              -
    Liabilities from coal and emission allowance
      trading activities                                       -          116,416            -              -          116,416
    Accounts payable and accrued expenses                   72,428        477,249         53,572        (96,356)       506,893
                                                      -------------  -------------  -------------  -------------  -------------
           Total current liabilities                       427,733        228,046         91,576        (96,356)       650,999
 Long-term debt, less current maturities                   723,801         79,036        190,471            -          993,308
 Deferred income taxes                                         -          562,482            -              -          562,482
 Other noncurrent liabilities                                    2      1,821,037          8,669            -        1,829,708
                                                      -------------  -------------  -------------  -------------  -------------
           Total liabilities                             1,151,536      2,690,601        290,716        (96,356)     4,036,497
 Minority interests                                            -              -           41,916            -           41,916
 Stockholders' equity                                    1,067,166      2,738,874        692,079     (3,430,953)     1,067,166
                                                      -------------  -------------  -------------  -------------  -------------
           Total liabilities and stockholders'
              equity                                  $  2,218,702   $  5,429,475   $  1,024,711   $ (3,527,309)  $  5,145,579
                                                      =============  =============  =============  =============  =============


                                     - 8 -


                           PEABODY ENERGY CORPORATION
               Supplemental Condensed Consolidated Balance Sheets
                              As of March 31, 2001
                                 (In thousands)

                                                        Parent        Guarantor     Non-Guarantor
                                                        Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                                      -------------  -------------  -------------  -------------  -------------
                                                                                                   
ASSETS
Current assets
    Cash and cash equivalents                         $        173   $     57,194   $      5,356   $        -     $     62,723
    Accounts receivable                                        -          122,582        105,298        (80,072)       147,808
    Inventories                                                -          195,082         15,130            -          210,212
    Assets from coal and emission allowance
      trading activities                                       -          172,330            -              -          172,330
    Deferred income taxes                                      -           12,226            -              -           12,226
    Other current assets                                     4,250         12,370          8,036            -           24,656
                                                      -------------  -------------  -------------  -------------  -------------
         Total current assets                                4,423        571,784        133,820        (80,072)       629,955
Property, plant, equipment and mine
  development - at cost                                        -        4,435,413        424,586            -        4,859,999
Less accumulated depreciation,
  depletion and amortization                                   -         (479,655)       (57,705)           -         (537,360)
                                                      -------------  -------------  -------------  -------------  -------------
Property, plant, equipment and mine development, net           -        3,955,758        366,881            -        4,322,639
Investments and other assets                             2,225,022        951,971        503,223     (3,423,323)       256,893
                                                      -------------  -------------  -------------  -------------  -------------
         Total assets                                 $  2,229,445   $  5,479,513   $  1,003,924     (3,503,395)  $  5,209,487
                                                      =============  =============  =============  =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
    Short-term borrowings and current
      maturities of long-term debt                    $        -     $     20,395   $     15,910   $        -     $     36,305
    Payable to affiliates, net                             486,736       (495,111)         8,375            -              -
    Liabilities from coal and emission allowance
      trading activities                                       -          163,713            -              -          163,713
    Accounts payable and accrued expenses                   88,555        520,602         47,882        (80,072)       576,967
                                                      -------------  -------------  -------------  -------------  -------------
         Total current liabilities                         575,291        209,599         72,167        (80,072)       776,985
Long-term debt, less current maturities                  1,022,916        151,319        195,081            -        1,369,316
Deferred income taxes                                          -          570,657             48            -          570,705
Other noncurrent liabilities                                   -        1,811,419          8,366            -        1,819,785
                                                      -------------  -------------  -------------  -------------  -------------
         Total liabilities                               1,598,207      2,742,994        275,662        (80,072)     4,536,791
Minority interests                                             -              -           41,458            -           41,458
Stockholders' equity                                       631,238      2,736,519        686,804     (3,423,323)       631,238
                                                      -------------  -------------  -------------  -------------  -------------
         Total liabilities and stockholders'
            equity                                    $  2,229,445   $  5,479,513   $  1,003,924   $ (3,503,395)  $  5,209,487
                                                      =============  =============  =============  =============  =============

                                     - 9 -



                           PEABODY ENERGY CORPORATION
     Unaudited Supplemental Condensed Consolidated Statements of Cash Flows
                          Quarter Ended June 30, 2001
                                 (In thousands)
                                                                        Parent       Guarantor     Non-Guarantor
                                                                        Company     Subsidiaries   Subsidiaries   Consolidated
                                                                     -------------  -------------  -------------  -------------
                                                                                                      
Net cash provided by (used in) operating activities                  $    (30,451)  $    (30,663)  $     29,203   $    (31,911)
                                                                     -------------  -------------  -------------  -------------
Additions to property, plant, equipment and mine development                  -          (23,435)       (19,587)       (43,022)
Additions to advance mining royalties                                         -           (1,429)        (1,674)        (3,103)
Proceeds from property and equipment disposals                                -            2,878          1,762          4,640
Proceeds from sale-leaseback transactions                                     -              -            6,968          6,968
                                                                     -------------  -------------  -------------  -------------
Net cash used in investing activities                                         -          (21,986)       (12,531)       (34,517)
                                                                     -------------  -------------  -------------  -------------

Proceeds from long-term debt                                                  -            1,800         10,051         11,851
Payments of long-term debt                                               (313,842)      (100,238)       (13,486)      (427,566)
Net proceeds from initial public offering                                 451,832            -              -          451,832
Distributions to minority interests                                           -              -           (2,208)        (2,208)
Net distributions to member                                                22,837            -          (22,837)           -
Transactions with affiliates                                             (131,431)       118,887         12,544            -
Other                                                                         889             62            -              951
                                                                     -------------  -------------  -------------  -------------
Net cash provided by (used in) financing activities                        30,285         20,511        (15,936)        34,860
                                                                     -------------  -------------  -------------  -------------
Net increase (decrease) in cash and cash equivalents                         (166)       (32,138)           736        (31,568)
Cash and cash equivalents at beginning of period                              173         57,194          5,356         62,723
                                                                     -------------  -------------  -------------  -------------
Cash and cash equivalents at end of period                           $          7   $     25,056   $      6,092   $     31,155
                                                                     =============  =============  =============  =============





                           PEABODY ENERGY CORPORATION
     Unaudited Supplemental Condensed Consolidated Statements of Cash Flows
                          Quarter Ended June 30, 2000
                                 (In thousands)

                                                                        Parent       Guarantor     Non-Guarantor
                                                                        Company     Subsidiaries   Subsidiaries   Consolidated
                                                                     -------------  -------------  -------------  -------------
                                                                                                      
Net cash provided by operating activities                            $      1,920   $     10,866   $        472   $    13,258
                                                                     -------------  -------------  -------------  -------------
Additions to property, plant, equipment and
  mine development                                                            -           (8,572)       (20,766)       (29,338)
Additions to advance mining royalties                                         -           (2,566)        (3,686)        (6,252)
Proceeds from property and equipment disposals                                -            1,390          2,853          4,243
Proceeds from sale-leaseback transactions                                     -           17,500          6,287         23,787
                                                                     -------------  -------------  -------------  -------------
Net cash provided by (used in) investing activities                           -            7,752        (15,312)        (7,560)
                                                                     -------------  -------------  -------------  -------------
Proceeds from short-term borrowings and long-term debt                        -              -            3,702          3,702
Payments of short-term borrowings and long-term debt                      (10,000)          (433)       (16,517)       (26,950)
Distributions to minority interests                                           -              -             (844)          (844)
Transactions with affiliates                                                7,747        (36,234)        28,487            -
                                                                     -------------  -------------  -------------  -------------
Net cash provided by (used in) financing activities                        (2,253)       (36,667)        14,828        (24,092)
                                                                     -------------  -------------  -------------  -------------
Effect of exchange rate changes on cash and equivalents                       -              -             (230)          (230)
                                                                     -------------  -------------  -------------  -------------
Net decrease in cash and cash equivalents                                    (333)       (18,049)          (242)       (18,624)
Cash and cash equivalents at beginning of period                              347         45,931         19,340         65,618
                                                                     -------------  -------------  -------------  -------------
Cash and cash equivalents at end of period                           $         14   $     27,882   $     19,098   $     46,994
                                                                     =============  =============  =============  =============


                                     - 10 -

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

Cautionary Notice Regarding Forward-Looking Statements

     This quarterly report includes statements of the Company's and management's
expectations,  intentions,  plans and beliefs that  constitute  "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933 and
Section  21E of the  Securities  Exchange  Act of 1934 and are  intended to come
within the safe harbor  protection  provided by those sections.  Forward-looking
statements involve risks and uncertainties, and a variety of factors could cause
actual results to differ  materially  from the Company's  current  expectations,
including but not limited to: coal and power market  conditions and fluctuations
in the demand for coal as an energy source,  weather  conditions,  the continued
availability of long-term coal supply contracts,  railroad performance,  changes
in economic conditions,  changes in mining costs for labor, fuel and operational
reasons,  changes in the government regulation and legislation of the mining and
electric power  industries,  risks inherent to mining,  changes in the Company's
leverage position,  the ability to successfully  implement operating  strategies
and other factors  discussed in the Company's  filings with the  Securities  and
Exchange Commission.

     Readers are cautioned not to place undue reliance on these  forward-looking
statements,  which speak only as of the date hereof.  The Company  undertakes no
obligation   to  publicly   release  the  results  of  any   revisions  to  such
forward-looking  statements that may be made to reflect events or  circumstances
after  the date  hereof,  or  thereof,  as the case may be,  or to  reflect  the
occurrence of anticipated or unanticipated events.

Factors Affecting Comparability

  Sale of Australian Operations

     On January 29, 2001, the Company sold its  Australian  operations to Coal &
Allied Industries Limited ("Coal & Allied"), a 71%-owned subsidiary of Rio Tinto
Limited.  The selling price was $446.8  million in cash.  Under the terms of the
agreement,  Coal & Allied  obtained  ownership  of all  assets and  assumed  all
liabilities of the Company's Australian operations. The statements of operations
and cash flows for the three  months  ended June 30, 2000 include the results of
the Company's Australian operations.

  Discontinued Operations

     On March 13, 2000,  the Board of Directors  authorized  management  to sell
Citizens  Power,  a wholly owned  subsidiary  that engaged in power  trading and
power contract restructuring transactions. The Company classified Citizens Power
as a discontinued operation as of March 31, 2000, and recorded an estimated loss
on the sale of $78.3 million,  net of income taxes, during fiscal year 2000. The
Company  completed the sale of operations  and the  monetization  of non-trading
assets held by Citizens  Power during the fiscal year ended March 31, 2001.  The
Company reduced its estimated  after-tax loss on disposal by $8.8 million during
the quarter ended June 30, 2000.

Quarter ended June 30, 2001 Compared to Quarter ended June 30, 2000

     Sales.  Sales for the quarter  ended June 30, 2001 for the U.S.  operations
were $625.9  million,  a $27.7  million,  or 4.6%,  increase from the prior year
quarter.  The increase was primarily due to improved  sales volume at the Powder
River Basin and Midwest (which includes the Company's  81.7%-owned  Black Beauty
operations) regions,  and improved pricing in Appalachia.  U.S. operations sales
volume was 46.8  million  tons for the current  year  quarter,  compared to 43.8
million tons for the prior year  quarter,  an increase of 6.8%.  Sales volume at
the  Company's  Powder  River Basin and  Midwest  operations  led the  increase.
Average  sales prices  increased  in the Powder  River Basin and at  Appalachia,
driven by strong customer  demand.  However,  overall U.S.  operations'  average
sales price was 2.0% lower in the current  quarter due to a change in sales mix,
as  lower-priced  sales  from  the  Powder  River  Basin  represented  a  higher
percentage  of overall  sales in the current year quarter  compared to the prior
year quarter.  Overall sales for the quarter ended June 30, 2001 decreased $32.8
million, or 5.0%, from the prior year quarter.  Sales from Australian operations
included in the prior year quarter were $60.5 million,  from sales volume of 3.3
million tons.

     Powder  River sales  increased  $12.0  million,  due to  improved  customer
demand.  Sales in the  Midwest  region  increased  $10.5  million,  as  improved
operational  performance and stronger customer demand at Black Beauty operations
were only  partially  offset by lower  production at the Camps mine related to a
longwall  move in the  current  year  quarter.  Sales  in the  Southwest  region
increased $4.7 million,  primarily as a result of expanded  production  from the
Lee Ranch mine in the current year quarter to meet new sales commitments.  Sales
from brokerage and trading activities increased $1.9 million, as increased sales
contributions from the Company's  developing trading operations more than offset
a decrease in broker sales volume.  Appalachian sales decreased $1.3 million, as
lower  sales  volume  resulted  from  decreased  production  as a result  of two
longwall moves and flooding problems in the current year quarter.  The effect of
lower sales volume in  Appalachia  was nearly  offset by improved  demand-driven
pricing in the region during the quarter.

                                     - 11 -

     Other  Revenues.  Other revenues  increased  $17.0 million  compared to the
prior year quarter. Coal royalty income increased $8.1 million, primarily due to
a $9.0  million  non-refundable  advance  royalty  received  during the quarter.
Current quarter other revenues also include $5.5 million for the monetization of
a coal brokerage  agreement that had increased in value due to favorable  market
conditions.  The remainder of the increase was primarily due to higher  revenues
from coal trading transactions.

     Depreciation,  Depletion  and  Amortization.  Depreciation,  depletion  and
amortization  expense of $59.3 million  decreased  $1.2 million  compared to the
quarter ended June 30, 2000.  Excluding $8.2 million of depreciation,  depletion
and amortization  expense from Australian  operations included in the prior year
quarter,  depreciation,   depletion  and  amortization  expense  increased  $7.0
million. The increase was due to $3.0 million of additional depletion associated
with the new coal royalty agreement discussed above, and increased depreciation,
depletion, and amortization due to higher volume in the current year.

     Net Gain on Property  and  Equipment  Disposals.  Net gain on property  and
equipment disposals  increased $5.3 million in the current year quarter,  mainly
due to a $6.4  million  gain on the sale of certain  idle coal  reserves  in the
current year quarter.

     Operating Profit.  Operating profit was $50.0 million for the quarter ended
June 30, 2001, an increase of $9.0 million, or 22.0%, compared to the prior year
quarter.  Operating  profit from U.S.  operations  increased  $21.6 million,  or
76.1%.  Operating profit of $12.6 million from Australian operations is included
in the prior year quarter.

     Profit from trading and brokerage  operations  increased $11.3 million over
the prior year quarter,  due to the  monetization of a coal brokerage  agreement
discussed  above,  coupled  with  higher  profits  from  trading  and  brokerage
activities.  Operating  profit also improved due to the gain on the sale of coal
reserves and a $6.0 million  operating  profit increase from the  non-refundable
advance royalty discussed above.

     Operating profit from U.S. mining operations  decreased $4.6 million in the
current year quarter.  Increased  fuel,  explosives  and power costs  negatively
impacted  operating profit by $7.7 million at the Company's  western  operations
and in the Midwest region. In the east, at the Company's  Appalachia and Midwest
operations,  higher mining costs resulted from flooding and three longwall moves
during the current year quarter, two more than in the prior year quarter.

     The Powder River region's  operating profit increased $1.6 million over the
prior year quarter,  as higher  volumes and slightly  improved  prices  overcame
higher fuel and explosives  costs. In the Southwest,  operating profit decreased
$1.3  million,  as slightly  higher  sales volume was more than offset by higher
fuel and power costs.

     Operating profit in the Midwest declined $3.2 million compared to the prior
year quarter,  as higher sales volume and improved  productivity at Black Beauty
operations were more than offset by higher fuel costs and higher operating costs
associated  with a  longwall  move at the Camps  mine in the  current  year.  In
Appalachia,  operating  profit  decreased $1.6 million.  The region  experienced
production  difficulties  associated with flooding and had two longwall moves in
the  current  year  quarter,  versus one in the prior year.  As a result,  lower
overall productivity more than offset price improvements during the quarter.

     Operating  costs in the  current  and prior year  quarter  include  expense
reductions related to the recognition of refunds on certain excise taxes paid on
export sales of coal that have been determined to be  unconstitutional.  Current
quarter  operating  costs were reduced by $15.1 million  related to excise taxes
previously  paid on export  shipments  made from January 1, 1991 to December 31,
1993.  Prior year  operating  costs were  reduced  by $13.7  million  related to
similar excise taxes  previously  paid on export  shipments made from January 1,
1994 to March 31, 1998.

     Interest  Expense.  Interest  expense for the quarter was $34.5 million,  a
$17.0 million decrease,  or 32.9%, from the prior year quarter. The decrease was
due to the significant  debt repayments made by the Company since June 30, 2000.
Utilizing proceeds from sales of the Company's Citizens Power subsidiary and its
Australian  operations,  combined with proceeds from its initial public offering
in May 2001,  the Company has reduced debt by $1.0 billion from June 30, 2000 to
June 30, 2001.

     Interest Income.  Interest income decreased $3.3 million,  to $1.3 million,
for the quarter  ended June 30,  2001.  The  decrease was due to $3.6 million of
interest income included in the prior year period associated with the excise tax
refunds for the period from January 1, 1994 to March 31, 1998.

     Income Taxes.  For the quarter ended June 30, 2001,  income tax expense was
$4.3  million on income  before  income  taxes and  minority  interests of $16.8
million, compared to income tax expense of $0.3 million on a pretax loss of $6.0
million  in the  prior  year.  Excluding  the  effect of  Australian  operations
included  in the prior  year  period,  there was an income  tax  benefit of $4.3
million on a loss before income taxes and minority  interests of $17.2  million.
The Company's effective U.S. income tax rate was 25% for both periods.

                                     - 12 -

     Gain from  Disposal of  Discontinued  Operations.  During the quarter ended
June 30, 2000,  the Company  reduced its estimated  loss on the sale of Citizens
Power by $8.8 million,  net of income taxes.  Citizens Power was classified as a
discontinued  operation  effective  March 31, 2000,  and the sale was  completed
during the fiscal year ended March 31, 2001.

     Extraordinary  Loss from Early  Extinguishment  of Debt. During the quarter
ended  June 30,  2001,  the  Company  recorded  an  extraordinary  loss of $27.6
million,  net of income taxes, which represents the excess of cash paid over the
carrying  value of the debt  retired and the  write-off of debt  issuance  costs
associated with the debt retired.

Liquidity and Capital Resources

     Cash used in operating  activities  was $31.9  million in the quarter ended
June 30, 2001,  compared to cash  provided  from  operating  activities of $13.3
million  in the prior  year.  Current  year cash  flow uses  related  to a $22.2
million decrease in working capital, mainly from increased receivables and lower
payables.  The prior  year  quarter  benefited  from $25.0  million of  proceeds
received related to the Company's accounts receivable securitization program.

     Net cash used in  investing  activities  was $34.5  million for the current
year quarter,  an increase of $26.9  million over the prior year,  due to higher
capital expenditures and lower proceeds from sale-leaseback  transactions in the
current year.  Current year capital  expenditures were $13.7 million higher than
the prior year, mainly due to increased outlays in the Powder River Basin and at
Black Beauty to help meet  increased  customer  demand and to service  long-term
contracts.  The prior year quarter  benefited from $16.8 million higher proceeds
from sale-leaseback transactions.

     Total capital  expenditures for the nine months ended December 31, 2001 are
expected  to range  from $200 to $220  million,  and will  primarily  be used to
acquire  additional coal reserves,  develop  existing  reserves,  replace or add
equipment and fund cost reduction initiatives. The Company had $130.9 million of
committed capital expenditures at June 30, 2001. The Company anticipates funding
these capital expenditures through available cash and credit facilities.

     Net cash provided by financing activities was $34.9 million for the quarter
ended June 30,  2001,  an increase of $59.0  million over the prior year period.
The Company made debt payments of $427.6 million during the quarter, principally
from proceeds received from the Company's  initial public offering.  The Company
has  reduced  its net debt to capital  ratio from 79% at June 30, 2000 to 47% at
June 30, 2001.

     On May 22,  2001,  the  Company  completed  an initial  public  offering of
17,250,000  shares of common  stock.  Net proceeds from the offering were $451.8
million.  The Company used $413.8  million of the proceeds  from the offering to
repay debt,  and the  remaining  $38.0  million of proceeds  were used for other
operating needs.

     Subsequent  to March 31,  2001,  the  Company's  various  debt ratings were
reviewed by Moody's, Standard & Poor's and Fitch. Moody's upgraded the Company's
senior  implied  rating to Ba2 from Ba3,  its senior  secured  revolving  credit
facility to Ba1 from Ba2, and its 9.625%  Senior  Subordinated  Notes to B1 from
B2. Standard & Poor's upgraded the Company's  corporate credit rating to BB from
BB-, its 8.875%  Senior Notes to BB from B+ and its 9.625%  Senior  Subordinated
Notes to B+ from B. Fitch upgraded the Company's senior secured revolving credit
facility to BB+ from BB-,  it's 8.875% Senior Notes to BB from B+ and its 9.625%
Senior Subordinated Notes to B+ from B-.

     As of June 30, 2001,  the  Company's  total  indebtedness  consisted of the
following (in thousands):

9.625% Senior Subordinated Notes due 2008
 ("Senior Subordinated Notes")                                      $   407,426
8.875% Senior Notes due 2008 ("Senior Notes")                           316,374
Indebtedness of Black Beauty subsidiary                                 207,556
5.0% Subordinated Note                                                   86,241
Other                                                                     3,401
                                                                    ------------
                                                                    $ 1,020,998
                                                                    ============

     During the quarter  ended June 30,  2001,  the  Company  amended its Senior
Credit  Facility.  The  amendment,  which  became  effective  at the time of the
initial  public  offering,  permits  the  payment  of cash  dividends  and other
restricted  payments  subject to  specified  limitations,  increases  the amount
available for borrowing under the Revolving  Credit Facility from $200.0 million
to  $350.0  million  and  permits  additional  joint  venture  investments.   In
connection  with the  amendment,  the  Company  agreed  to  reduce  the  maximum
permitted  debt to EBITDA  ratio and  increase  the  minimum  required  interest
coverage ratio. All other terms and conditions remained unchanged.

     As of June 30, 2001,  the Company had no borrowings  outstanding  under the
Revolving Credit  Facility.  Revolving loans under the Revolving Credit Facility
bear  interest  based  on  the  Base  Rate  (as  defined  in the  Senior  Credit
Facilities),  or  LIBOR  (as  defined  in the  Senior  Credit  Facility)  at the
Company's option.

                                     - 13 -

     The  indentures  governing the Senior Notes and Senior  Subordinated  Notes
permit  the  Company  and  its  Restricted   Subsidiaries  to  incur  additional
indebtedness, including secured indebtedness, subject to certain limitations. In
addition,  the  indentures  limit the Company and its  Restricted  Subsidiaries'
ability  to:  pay  dividends  or make  other  distributions;  lease,  convey  or
otherwise  dispose of all or  substantially  all of its assets;  issue specified
types of capital  stock;  enter into  guarantees of  indebtedness;  incur liens;
restrict  its  subsidiaries'  ability  to  make  dividend  payments;   merge  or
consolidate  with any other person or enter into  transactions  with affiliates;
and repurchase junior securities or make specified types of investments.

     Black Beauty replaced its $100.0 million  revolving  credit facility with a
new $120.0 million revolving credit facility on April 16, 2001. The new facility
matures on April 17,  2004.  Borrowings  outstanding  under the  $100.0  million
revolving credit facility on April 16, 2001 were refinanced under the new $120.0
million  revolving credit facility.  Black Beauty may elect one or a combination
of interest  rates based on LIBOR or the corporate base rate plus a margin which
fluctuates based on specified leverage ratios.  Borrowings outstanding under the
Black Beauty revolving credit agreement  totaled $63.0 million at June 30, 2001.
The revolving credit facility contains customary restrictive covenants including
limitations on additional debt, investments and dividends.

     Black Beauty's senior unsecured notes include $31.4 million of senior notes
and three series of notes with an aggregate principal amount of $60.0 million as
of June 30, 2001. The senior notes bear interest at 9.2%, payable quarterly, and
are pre-payable in whole or in part at any time,  subject to certain  make-whole
provisions.  The three series of notes include Series A, B and C notes, totaling
$45.0 million, $5.0 million and $10.0 million,  respectively. The Series A notes
bear interest at an annual rate of 7.5% and are due in November 2007. The Series
B notes bear interest at an annual rate of 7.4% and are due November  2003.  The
Series C notes bear  interest  at an annual rate of 7.4% and are due in November
2002.  The  senior  unsecured  notes  contain  customary  restrictive  covenants
including limitations on additional debt, investments and dividends.

     As of June 30, 2001, the revolving and working capital borrowing facilities
referred to above totaled  $470.0  million,  and borrowings  thereunder  totaled
$63.0 million.  The Company was in compliance with the restrictive  covenants of
all of its debt agreements as of June 30, 2001.

     Non wholly-owned subsidiaries of Black Beauty maintain borrowing facilities
with banks and other lenders with customary restrictive covenants. The aggregate
amount of outstanding  indebtedness under those facilities totaled $53.2 million
as of June 30, 2001.

Other

     Recent Accounting  Pronouncements.  In June 2001, the Financial  Accounting
Standards Board issued SFAS No. 141, "Business  Combinations," and SFAS No. 142,
"Goodwill and Other  Intangible  Assets,"  effective for fiscal years  beginning
after December 15, 2001  (effective  January 1, 2002 for the Company).  SFAS No.
141 prohibits the use of the pooling-of-interests method to account for business
combinations initiated after June 30, 2001, expands the disclosure  requirements
related to business  combinations  and changes the criteria for  recognition  of
intangible  assets  apart  from  goodwill.  Under  SFAS No.  142,  goodwill  and
intangible  assets deemed to have  indefinite  lives will no longer be amortized
but  will be  subjected  to  annual  impairment  tests  in  accordance  with the
Statement. The Company does not anticipate the adoption of SFAS Nos. 141 and 142
will have a material effect on its financial condition or results of operations.

     In addition, the Derivatives Implementation Group, ("DIG") has concluded on
certain SFAS Nos. 133 and 138 Implementation  Issues, some of which could affect
the Company  beginning on July 1, 2001. While the Company  continues to evaluate
the impact of the DIG  interpretive  guidance,  it currently does not anticipate
that it will have a material impact on its results of operations.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Trading Activities

     The  Company  markets  and  trades  coal  and  emission  allowances.  These
activities  give rise to market risk,  which  represents the potential loss that
can be caused by a change in the market  value of a particular  commitment.  The
Company  actively  measures,  monitors and  attempts to control  market risks to
ensure compliance with management policies.  For example,  policies are in place
that limit the amount of total  exposure  the Company may assume at any point in
time.

     The Company accounts for coal and emission allowance trading using the fair
value method, which requires that financial instruments with third parties, such
as forwards,  futures,  options and swaps,  are reflected at market value in the
consolidated financial statements.

                                     - 14 -

Non-trading Activities

     The Company manages  commodity price risk for non-trading  purposes through
the use of  long-term  coal supply  agreements,  rather than  through the use of
derivative  instruments.  For the period from  January 1 to June 30,  2001,  the
Company entered into sales  commitments for approximately 129 million tons to be
shipped in calendar years 2002 through 2005. The Company has  substantially  all
of its calendar 2001 production  committed,  and  approximately  90% of calendar
2002 production is committed under long-term coal supply agreements.

     Some of the products used in mining  activities,  such as diesel fuel,  are
subject to price  volatility.  The  Company,  through  its  suppliers,  utilizes
forward contracts to manage the exposure related to this volatility. The Company
has  exposure  to  changes  in  interest  rates  due to its  existing  level  of
indebtedness.  As of June 30, 2001, the Company had $904.8 million of fixed-rate
borrowings  and  approximately   $116.2  million  of  variable-rate   borrowings
outstanding.  A one percentage  point increase in interest rates would result in
an  annualized  increase to interest  expense of  approximately  $1.2 million on
variable-rate   borrowings.   With  respect  to  fixed-rate  borrowings,  a  one
percentage  point  increase in interest  rates would  result in a $44.2  million
decrease in the fair value of these borrowings.














































                                     - 15 -

                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

Southern California Edison Company

     In response to a demand for arbitration by one of our subsidiaries, Peabody
Western Coal Company  ("Peabody  Western"),  Southern  California Edison and the
other owners of the Mohave  Generating  Station filed a lawsuit on June 20, 1996
in the  Superior  Court  of  Maricopa  County,  Arizona.  The  lawsuit  sought a
declaratory  judgment that mine  decommissioning  costs and retiree  health care
costs are not  recoverable  by Peabody  Western under the terms of a coal supply
agreement dated May 26, 1976. The contract expires in 2005.

     Peabody Western filed a motion to compel arbitration,  which was granted by
the trial court.  Southern  California Edison appealed this order to the Arizona
Court of Appeals,  which  denied its  appeal.  Southern  California  Edison then
appealed the order to the Arizona Supreme Court,  which remanded the case to the
Arizona  Court of Appeals and ordered the appellate  court to determine  whether
the trial court was correct in determining  that Peabody  Western's  claims were
arbitrable. The Arizona Court of Appeals ruled that neither mine decommissioning
costs nor retiree  health care costs  could be  arbitrated  and that both issues
should be  resolved  in  litigation.  The matter has been  remanded  back to the
Superior  Court of  Maricopa  County,  Arizona.  Peabody  Western  answered  the
complaint  and  asserted  counterclaims.   The  court  then  permitted  Southern
California  Edison to amend its  complaint to add a claim of  overcharges  of at
least $19.2 million by Peabody Western.

     By order filed July 2, 2001, the court granted Peabody Western's Motion for
Summary Judgment on Liability with respect to retiree healthcare costs.  Peabody
Western has filed a Supplemental  Motion for Summary  Judgment on Liability with
respect to the issue of mine  decommissioning  costs. The original September 11,
2001 trial date has been  cancelled.  The  Company  expects the court will set a
trial date to address Peabody's  monetary damages as well as counterclaims  made
by Southern  California Edison. That trial will follow the court's resolution of
the mine decommissioning cost liability issue.

     While the outcome of  litigation  is subject to  uncertainties,  based on a
preliminary  evaluation of the issues and the  potential  impact on the Company,
and based on outcomes in similar  proceedings,  the  Company  believes  that the
matter  will be  resolved  without a material  adverse  effect on its  financial
condition or results of operations.

Item 2.  Changes in Securities and Use of Proceeds.

     The Company  completed the sale of 17,250,000 shares of common stock on May
22,  2001 and  raised net  proceeds  of $451.8  million  after  deducting  total
expenses  of  $31.2  million,  comprised  of  the  underwriters'  discounts  and
commissions  of $27.2 million and other fees and expenses of $4.0  million.  The
Company  did not make any direct or indirect  payments to any of our  directors,
officers or their  associates under the offering;  however,  usual and customary
underwriting  discounts and  commissions  were paid to Lehman  Brothers Inc. and
Lehman  Brothers  International  (Europe),  each an affiliate of Lehman Brothers
Merchant Banking which beneficially owns 57% of the Company's common stock.

     The Company used the net proceeds  from the offering to repay the remaining
tranche B term loan  outstanding  under the  Senior  Credit  Facility  of $125.0
million and used $100.0 million to repay  borrowings  under the revolving credit
facility  that were used to repay a portion  of the 5%  subordinated  note.  The
Company also used $173.0 million of net proceeds to repurchase  $80.0 million in
principal  of the  Senior  Notes and $80.0  million in  principal  of the Senior
Subordinated  Notes  pursuant to a tender offer.  In addition,  the Company used
$3.1  million  and $12.7  million of  proceeds  to  repurchase  $2.9  million in
principal  of the  Senior  Notes and $11.7  million in  principal  of the Senior
Subordinated Notes, respectively,  in a private transaction. The remaining $38.0
million of proceeds  were used for other  operating  needs.  Except as described
above,  none of the net proceeds from the initial  public  offering were used to
make direct or indirect payments to (1) any of our directors,  officers or their
associates,  (2) any person owning 10% or more of our equity securities,  or (3)
any of our affiliates.

     Concurrent   with  the  initial  public  offering  on  May  22,  2001,  all
outstanding  shares of the Company's  preferred stock,  Class A common stock and
Class B common  stock were  converted  into a single  class of common stock on a
one-for-one basis.



                                     - 16 -

Item 6.  Exhibits and Reports on Form 8-K.

  (a)    Exhibits

         None.

  (b)    Reports on Form 8-K

         On June 4,  2001, the Company  filed  a Form 8-K  under  Item 5,  Other
         Events,  announcing  a pretax gain of approximately $15 million related
         to a refund  from  favorable  litigation  to  be  recorded  during  the
         quarter ended June 30, 2001.




















































                                     - 17 -

                                   SIGNATURE


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                       PEABODY ENERGY CORPORATION

Date: August 13, 2001        By:            RICHARD A. NAVARRE
                                 -----------------------------------------------
                                             Richard A. Navarre
                            Executive Vice President and Chief Financial Officer
                                        (Principal Financial Officer)




















































                                     - 18 -