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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 13, 2006
PEABODY ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
         
Delaware   1-16463   13-4004153
(State or other jurisdiction of   (Commission File Number)   (I.R.S. Employer Identification No.)
incorporation or organization)        
     
701 Market Street, St. Louis, Missouri   63101
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code (314) 342-3400
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 

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Item 8.01. Other Events
SIGNATURE

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Item 8.01. Other Events.
On October 25, 2006, Peabody Energy Corporation (“Peabody”) completed the acquisition of Excel Coal Limited, an independent coal company in Australia (the “Excel Acquisition”). Peabody funded the acquisition with net proceeds from its registered offering of senior notes and borrowings under its senior unsecured credit facility. Peabody expects to refinance certain borrowings made under its senior unsecured credit facility in connection with the Excel Acquisition through an offering of convertible junior subordinated debentures.
The following unaudited pro forma combined financial statements give effect to Peabody’s acquisition of Excel completed on October 25, 2006, the related acquisition financings and the refinancing of borrowings under our senior unsecured credit facility through an offering of convertible junior subordinated debentures. The unaudited pro forma combined balance sheet as of September 30, 2006 is presented as if the acquisition and the related financings had occurred on that date. The unaudited pro forma combined statement of operations for the nine months ended September 30, 2006 and for the year ended December 31, 2005 assume that the acquisition had occurred on January 1, 2005. The acquisition and the related financings are accounted for using the purchase method of accounting, with the purchase price allocated to the assets acquired and liabilities assumed based on estimated fair values, pending the completion of independent appraisals.
The unaudited pro forma combined financial statements should be read in conjunction with (i) Peabody’s historical audited financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” filed in our Annual Report on Form 10-K for the year ended December 31, 2005, (ii) our historical unaudited financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” filed in our Quarterly Report on Form 10-Q for the nine months ended September 30, 2006 and (iii) the historical audited financial statements of Excel, previously included in a Current Report on Form 8-K, filed on October 2, 2006.
The unaudited pro forma combined financial statements are for informational purposes only and are not necessarily indicative of the financial position that would have been obtained or the results of operations that would have occurred if the acquisition and the related financings had been consummated on the dates indicated, nor are they necessarily indicative of our financial position or results of operations in the future. The pro forma adjustments, as described in the Notes to Pro Forma Combined Financial Statements, are based upon available information and upon assumptions that Peabody’s management believes are reasonable. The actual amounts that Peabody records based on its final assessment of fair values may differ materially from the information presented in these unaudited pro forma combined financial statements.
Due to differing fiscal years between Peabody, which ends its fiscal year on December 31, and Excel, which ends its fiscal year on June 30, calculations were necessary to conform Excel’s financial information to the time periods presented.
Information related to Excel included in the unaudited pro forma combined balance sheet as of September 30, 2006 was translated from A$ to US$ using a foreign exchange rate of A$1.00=US$0.7480, based on the closing rate on September 29, 2006. The unaudited pro forma combined statement of operations for the nine months ended September 30, 2006 was translated from A$ to US$ using an exchange rate of A$1.00=US$0.7480, based on the average closing rates for the period from January 3, 2006 through September 29, 2006. The unaudited pro forma combined statement of operations for the year ended December 31, 2005 was translated from A$ to US$ using an exchange rate of A$1.00=US$0.7622, based on the average closing rates for the period from January 4, 2005 through December 30, 2005. Asset retirement obligation expense and depreciation, depletion and amortization were translated from A$ to US$ using a historical exchange rate equal to the opening rate on January 4, 2005 of A$1.00=US$0.7790 for all periods presented.

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PEABODY ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
(Dollars in thousands, except per share data)
                                 
    Peabody     Excel Coal              
    Energy     Limited     Pro Forma     Pro Forma  
    Historical     Historical     Adjustments     as Adjusted  
REVENUES
                                
Sales
   $ 4,545,323     $ 326,208             $ 4,871,531  
Other revenues
     99,130       2,130               101,260  
 
                        
Total revenues
     4,644,453       328,338       —       4,972,791  
 
                                
COSTS AND EXPENSES
                                
Operating costs and expenses
     3,715,836       221,509       7,000 (a)     3,944,345  
Depreciation, depletion and amortization
     316,114       17,864       19,800 (b)     353,778  
Asset retirement obligation expense
     35,901       4,279               40,180  
Selling and administrative expenses
     189,802       16,914               206,716  
Net (gain) loss on disposal or exchange of assets
     (101,487 )     1               (101,486 )
Income from equity affiliates
     (30,096 )     (3,445 )             (33,541 )
 
                        
OPERATING PROFIT
     518,383       71,216       (26,800 )     562,799  
Interest expense
     102,939       7,997       (7,997 )(c)     102,939  
 
                     123,840 (d)     123,840  
Interest income
     (10,641 )     (4,261 )     4,261 (c)     (10,641 )
 
                        
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
     426,085       67,480       (146,904 )     346,661  
Income tax provision (benefit)
     960       18,695       (41,499 )(e)     (21,844 )
Minority interests
     2,472       4,755               7,227  
 
                        
NET INCOME
   $ 422,653     $ 44,030     $ (105,405 )   $ 361,278  
 
                        
 
                                
Basic earnings per share
   $ 1.62     $ 0.17     $ (0.40 )   $ 1.38  
Diluted earnings per share
   $ 1.58     $ 0.16     $ (0.39 )   $ 1.35  
 
                                
Weighted average shares outstanding — basic
     261,519,424       261,519,424       261,519,424       261,519,424  
Weighted average shares outstanding — diluted
     268,013,476       268,013,476       268,013,476       268,013,476  

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PEABODY ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2006
(Dollars in thousands, except per share data)
                                 
    Peabody     Excel Coal              
    Energy     Limited     Pro Forma     Pro Forma  
    Historical     Historical     Adjustments     as Adjusted  
REVENUES
                                
Sales
   $ 3,805,838     $ 292,227             $ 4,098,065  
Other revenues
     87,348       2,805               90,153  
 
                        
Total revenues
     3,893,186       295,032       —       4,188,218  
 
                                
COSTS AND EXPENSES
                                
Operating costs and expenses
     3,078,880       183,110       7,000 (a)     3,268,990  
Depreciation, depletion and amortization
     263,103       17,503       14,430 (b)     295,036  
Asset retirement obligation expense
     25,911       1,933               27,844  
Selling and administrative expenses
     118,793       17,404               136,197  
Net gain on disposal or exchange of assets
     (94,309 )     (453 )             (94,762 )
(Income) loss from equity affiliates
     (19,132 )     129               (19,003 )
 
                        
OPERATING PROFIT
     519,940       75,406       (21,430 )     573,916  
Interest expense
     79,130       6,703       (6,703 )(c)     79,130  
 
                     92,874 (d)     92,874  
Interest income
     (6,026 )     (1,758 )     1,758 (c)     (6,026 )
 
                        
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
     446,836       70,461       (109,359 )     407,938  
Income tax provision
     10,905       21,052       (30,550 )(e)     1,407  
Minority interests
     10,267       3,874               14,141  
 
                        
NET INCOME
   $ 425,664     $ 45,535     $ (78,809 )   $ 392,390  
 
                        
 
                                
Basic earnings per share
   $ 1.61     $ 0.17     $ (0.30 )   $ 1.49  
Diluted earnings per share
   $ 1.58     $ 0.17     $ (0.29 )   $ 1.46  
 
                                
Weighted average shares outstanding — basic
     263,631,134       263,631,134       263,631,134       263,631,134  
Weighted average shares outstanding — diluted
     269,320,801       269,320,801       269,320,801       269,320,801  

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PEABODY ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2006
(Dollars in thousands)
                                 
    Peabody     Excel Coal     Pro forma        
    Energy     Limited     Adjustments        
    Historical     Historical     (g)     Total  
Assets
                                
Cash and cash equivalents
   $ 317,405     $ 30,052     $ 11,094     $ 358,551  
Accounts receivable, less allowance
     244,730       18,735       —       263,465  
Inventories
     181,444       35,321       7,000 (g)      223,765  
Assets from coal trading activities
     96,087       —       —       96,087  
Deferred income taxes
     94,124       —       —       94,124  
Other current assets
     84,409       5,346       —       89,755  
 
                        
Total current assets
     1,018,199       89,454       18.094       1,125,747  
Property, plant, equipment and mine development, net
     5,565,540       540,405       1,475,000 (g)      7,580,945  
Deferred income taxes
     —       19,185       —       19,185  
Goodwill
     —       —       99,457 (g)      99,457  
Investments and other assets
     644,798 (f)     167,761       (285,779 )(f)     526,780  
 
                        
Total assets
   $ 7,228,537     $ 816,805     $ 1,306,772     $ 9,352,114  
 
                        
 
                                
Liabilities and Stockholders’ Equity
                                
Current liabilities
                                
Current maturities of long-term debt
   $ 77,691     $ 17,122     $ (17,122 )(h)   $ 77,691  
Liabilities from coal trading activities
     80,695       —       —       80,695  
Accounts payable and accrued expenses
     853,003       135,317       —       988,320  
 
                        
Total current liabilities
     1,011,389       152,439       (17,122 )     1,146,706  
Long-term debt, less current maturities
     1,624,912       271,941 (h)     1,316,206 (h)     3,213,059  
Deferred income taxes
     254,387       24,220       —       278,607  
Asset retirement obligations
     407,365       7,171       —       414,536  
Workers’ compensation obligations
     240,312       —       —       240,312  
Accrued postretirement benefit costs
     975,413       3,357       —       978,770  
Other noncurrent liabilities
     329,621       23,056       323,000 (g)      675,677  
 
                        
Total liabilities
     4,843,399       482,184       1,622,084       6,947,667  
Minority interests
     15,506       18,298       —       33,804  
Stockholders’ equity
                                
Common stock
     2,667       215,368       (215,368 )(g)     2,667  
Additional paid-in capital
     1,562,113       —       —       1,562,113  
Retained earnings
     956,790       99,944       (99,944 )(g)     956,790  
Accumulated other comprehensive income (loss)
     (48,245 )     1,011       —       (47,234 )
Treasury stock
     (103,693 )     —       —       (103,693 )
 
                        
Total stockholders’ equity
     2,369,632       316,323       (315,312 )     2,370,643  
 
                        
Total liabilities and stockholders’ equity
   $ 7,228,537     $ 816,805     $ 1,306,772     $ 9,352,114  
 
                        

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NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
 
(a)   To adjust operating costs and expenses based on our estimated fair value adjustment to coal inventory.
 
(b)   To adjust depreciation, depletion and amortization based on the portion of the acquisition cost allocated to long-lived assets.
 
(c)   To reverse historical interest expense incurred by Excel, as well as historical interest income earned by Excel.
 
(d)   Represents pro forma interest expense, including the amortization of debt issuance costs where applicable, resulting from our new capital structure (dollars in thousands):
                 
            Nine Months  
    Year Ended     Ended  
    December 31,     September 30,  
    2005     2006  
Revolving credit facility (1)
     1,126       1,408  
Term loan facility (2)
     47,917       40,594  
7 7/8% Senior notes (3)
     20,150       15,113  
7 3/8% Senior notes (4)
     48,718       36,538  
6 7/8% Senior notes (5)
     47,746       36,012  
5 7/8% Senior notes (6)
     14,879       10,894  
Subordinated note (7)
     6,656       4,445  
Convertible junior subordinated debentures (8)
     25,321       18,991  
Surety bond expense (9)
     11,095       6,043  
Other long-term debt (10)
     3,172       1,966  
 
            
Total pro forma interest expense
     226,779       172,004  
Less historical interest expense
     102,939       79,130  
 
            
Net adjustment to interest expense
     123,840       92,874  
 
            
 
 
(1)
   Reflects pro forma amortization of debt issuance costs. Borrowings outstanding under this facility were limited to $312.0 million at September 30, 2006, which is assumed to be replaced by the convertible junior subordinated debentures. To the extent debt outstanding under the revolving credit facility is not repaid with proceeds from the convertible junior subordinated debentures, interest expense would increase by approximately $4.0 million.
 
(2)
   Reflects pro forma interest expense on our term loan facility at an assumed LIBOR plus 1% interest rate of 6.3%.
 
(3)
   Reflects pro forma interest expense on the 2026 senior notes at an interest rate of 7.88%.
 
(4)
   Reflects pro forma interest expense on the 2016 senior notes at an interest rate of 7.38%.
 
(5)
   Reflects historical interest expense on our 6 7/8% senior notes.
 
(6)
   Reflects historical interest expense on our 5 7/8% senior notes.
 
(7)
   Reflects historical interest expense on our 5% subordinated note.
(8)
   Reflects pro forma interest expense on our convertible junior subordinated debentures at an assumed rate of 5.0%. For each percentage point by which the average interest rate on the convertible junior subordinated debentures deviates from 5.0%, this adjustment would change by approximately $1.0 million per $100 million of convertible junior subordinated debentures.
 
(9)
   Reflects historical fees for surety bonds outstanding.
 
(10)
   Reflects historical letter of credit fees, interest on capital leases and the effect of interest rate swaps.
 
(e)   To record income tax expense (benefit) on the pro forma adjustments to results of operations using an assumed Australian effective tax rate of 28%.
 
(f)   The September 30, 2006 historical Peabody balance sheet includes an investment of $307.8 million for a 19.99% interest in Excel. The pro forma adjustment reversed this investment and assumes capitalization of $11.2 million of debt issue costs incurred in connection with the convertible junior subordinated debentures and $10.8 million of debt issue costs incurred related to Peabody’s issuance of $900 million aggregate principal amount of senior notes in October 2006.

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(g)   To record the purchase transaction and allocate the $1,525 million purchase price (and $49 million of transaction costs) to the assets acquired and the liabilities assumed based on the estimated fair values of each item as follows (dollars in thousands):
         
    Estimated  
    Fair Value  
Current assets
   $ 96,454  
Property, plant, equipment and mine development, net
     2,015,405  
Goodwill
     99,457  
Investments and other assets
     186,946  
Current liabilities
     (135,317 )
Long-term debt, including current maturities
     (289,063 )
Asset retirement obligations
     (11,530 )
Accrued postretirement benefit costs
     (3,357 )
Other noncurrent liabilities
     (365,917 )
Minority interest
     (18,298 )
Accumulated other comprehensive income
     (1,011 )
 
      
Total
   $ 1,573,769  
 
      
 
(h)   Reflects the issuance of additional debt to acquire Excel, the assumption of Excel’s outstanding debt, and the repayment of previously outstanding debt obligations. As of September 30, 2006, Peabody borrowed $312 million on the revolving credit facility to acquire the initial 19.99% interest in Excel. To finance the remaining portion of the Excel acquisition on October 25, 2006, Peabody borrowed $510 million under the Term Loan Facility and issued $900 million aggregate principal amount of senior notes ($896.9 million net of issue discount). Peabody expects to issue $500 million of convertible junior subordinated debentures and utilize the proceeds to repay the outstanding balance under the Revolving Credit Facility, and additional amounts related to the Term Loan Facility and Excel’s outstanding debt. A summary of these transactions are as follows:
         
Delayed draw term loan
   $ 510.0  
Senior notes issued
     896.9  
Convertible junior subordinated debentures
     500.0  
Excel debt assumed
     289.0  
 
      
 
     2,195.9  
 
        
Repayment of debt under revolving credit facility, term loan and assumed Excel debt
     (607.8 )
 
      
Additional debt to acquire Excel
   $ 1,588.1  
 
      

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
 
  PEABODY ENERGY CORPORATION    
 
        
Date: December 13, 2006
        
 
        
 
  /s/ RICHARD A. NAVARRE    
 
       
 
  Richard A. Navarre    
 
  Chief Financial Officer and    
 
    Executive Vice President of Corporate Development    

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