Peabody Energy (BTU) 8-K Other Events

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))

TABLE OF CONTENTS

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.

2

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

3

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

4

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

5

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.

6

(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

7

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

8