Filed Pursuant to Rule 424(b)(3)
Registration No. 333-102516
The information in this preliminary prospectus supplement and the accompanying
prospectus is not complete and may be changed. A final prospectus supplement and
prospectus will be delivered to purchasers of these securities. This preliminary
prospectus supplement and the accompanying prospectus is not an offer to sell
nor does it seek an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
Subject to Completion, dated July 28, 2003
PROSPECTUS SUPPLEMENT
(To Prospectus Dated January 21, 2003)
5,400,000 Shares
[PEABODY LOGO]
PEABODY ENERGY CORPORATION
Common Stock
--------------------------------------------------------------------------------
This is an offering of 5,400,000 shares of common stock of Peabody Energy
Corporation. All of the shares of common stock in this offering are being sold
by the selling stockholders named in this prospectus supplement, which are
affiliates of Lehman Brothers. We will not receive any of the proceeds from the
sale of the shares by the selling stockholders.
Our common stock is traded on the New York Stock Exchange under the symbol
"BTU." On July 28, 2003, the last reported sale price of our common stock on the
New York Stock Exchange was $33.08 per share.
Investing in the shares involves risks. "Risk Factors" begin on page S-11 of the
prospectus supplement and page 2 of the accompanying prospectus.
Per Share Total
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to the selling stockholders...... $ $
The selling stockholders have granted the underwriters a 30-day option to
purchase up to an additional 105,661 shares of common stock on the same terms
and conditions as set forth above to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about August , 2003.
--------------------------------------------------------------------------------
LEHMAN BROTHERS
MERRILL LYNCH & Co.
MORGAN STANLEY & Co.
BEAR, STEARNS & Co. Inc.
A.G. EDWARDS & Sons, Inc.
, 2003
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Peabody Energy Corporation.................................. S-2
The Offering................................................ S-7
Summary Financial and Operating Data........................ S-8
Risk Factors................................................ S-11
Use of Proceeds............................................. S-13
Selling Stockholders........................................ S-13
Underwriting................................................ S-14
Notice to Canadian Investors................................ S-17
Legal Matters............................................... S-18
PROSPECTUS
PAGE
----
About This Prospectus....................................... i
Cautionary Notice Regarding Forward-Looking Statements...... i
The Company................................................. 1
Risk Factors................................................ 2
Use of Proceeds............................................. 8
Selling Stockholders........................................ 9
Description of Capital Stock................................ 10
Plan of Distribution........................................ 16
Validity of Our Common Stock................................ 17
Experts..................................................... 17
Where You Can Find Additional Information................... 17
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering. The second part
is the accompanying prospectus, which gives more general information, some of
which may not apply to this offering.
If the description of the offering varies between the prospectus supplement
and the accompanying prospectus, you should rely on the information in the
prospectus supplement.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with additional or different information.
If anyone provides you with additional, different or inconsistent information,
you should not rely on it. We are offering to sell the shares, and seeking
offers to buy the shares, only in jurisdictions where offers and sales are
permitted. You should not assume that the information we have included in this
prospectus supplement or the accompanying prospectus is accurate as of any date
other than the date of this prospectus supplement or the accompanying prospectus
or that any information we have incorporated by reference is accurate as of any
date other than the date of the document incorporated by reference. Our
business, financial condition, results of operations and prospects may have
changed since those dates.
S-1
This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus supplement and accompanying prospectus carefully, including the
matters discussed under the caption "Risk Factors" and the detailed information
and financial statements included or incorporated by reference in this
prospectus supplement and the accompanying prospectus. When used in this
prospectus supplement and the accompanying prospectus, the terms "we," "our,"
and "us," except as otherwise indicated or as the context otherwise indicates,
refer to Peabody Energy Corporation and/or its applicable subsidiary or
subsidiaries.
PEABODY ENERGY CORPORATION
We are the largest private sector coal company in the world. Our sales of
197.9 million tons of coal in 2002 accounted for 17.9% of all U.S. coal sales
and were more than 70% greater than the sales of our closest U.S. competitor.
During the period, we sold coal to more than 280 electric generating and
industrial plants, fueling the generation of more than 9% of all electricity in
the United States and 2% of all electricity in the world. At December 31, 2002,
we had 9.1 billion tons of proven and probable coal reserves, approximately
double the reserves of any other U.S. coal producer. During 2002, our total
revenues, net income, net cash provided by operating activities and Adjusted
EBITDA (as defined in "Summary Financial and Operating Data") were $2.7 billion,
$105.5 million, $231.2 million and $406.1 million, respectively.
As of December 31, 2002, we owned majority interests in 33 coal operations
located throughout all major U.S. coal producing regions, with 73% of our U.S.
2002 coal sales shipped from the western United States and the remaining 27%
from the eastern United States. Most of our production in the western United
States is low sulfur coal from the Powder River Basin, the largest and
fastest-growing major U.S. coal-producing region. Our overall western U.S. coal
production has increased from 37.0 million tons in fiscal year 1990 to 128.0
million tons during 2002, representing a compounded annual growth rate of 11%.
In the West, we own and operate mines in Arizona, Colorado, Montana, New Mexico
and Wyoming. In the East, we own and operate mines in Illinois, Indiana,
Kentucky and West Virginia. We produced 78% of our 2002 sales volume from
non-union mines.
During 2002, 94% of our sales were to U.S. electricity generators. The U.S.
coal industry continues to fuel more electricity generation than all other
energy sources combined. In 2002, coal-fueled plants generated an estimated
50.2% of the nation's electricity, followed by nuclear (20.3%), gas-fired
(17.9%) and hydroelectric (6.9%) units. We believe that competition for
cost-efficient energy will strengthen the demand for coal. We also believe that
U.S. and world coal consumption will continue to increase as coal-fueled
generating plants utilize their existing excess capacity and as new coal-fueled
plants are constructed. Coal is an attractive fuel for electricity generation
because it is:
- Abundant: Coal makes up more than 85% of fossil fuel reserves in
the United States. The nation has an estimated 250-year supply of
coal, based on current usage rates.
- Low-Cost: At an average delivered price of $1.23 per million
British thermal units, or Btu, in 2001, and $1.22 in 2002, coal's
cost advantage over natural gas is significant. The delivered price
of natural gas averaged $4.49 per million Btu in 2001 and $3.65 in
2002, while market prices have recently ranged from $5.00 to $10.00.
In 2001, 20 of the 25 lowest cost major generating plants in the
United States were coal-fueled.
- Increasingly Clean: Aggregate emissions from U.S. coal-fueled
plants have declined significantly since 1970, even as coal
consumption by electricity generators has more than tripled.
Approximately 97% of our coal sales during 2002 were under long-term
contracts. As of December 31, 2002, our sales backlog, including backlog subject
to price reopener and/or extension provisions, approximated one billion tons.
The remaining terms of our long-term contracts range from one to 18 years and
have an average volume weighted remaining term of approximately 4.4 years. As of
June 30, 2003, we had entered into commitments to sell 159 million tons, or
approximately 80%, of our expected 2004 coal production. We are essentially sold
out for 2003 at planned production levels, although
S-2
approximately two to three million tons per quarter of additional production is
available should market conditions warrant.
In addition to our mining operations, our other energy-related businesses
include marketing, brokering and trading coal and emissions allowances, coalbed
methane production, transportation-related services, third-party coal contract
restructuring and the development of coal-fueled generating plants.
COMPETITIVE STRENGTHS
We believe our strengths will enable us to enhance our industry-leading
position and increase shareholder value.
- We are the world's largest private-sector producer and marketer of coal
and the largest reserve holder of any U.S. coal company.
- We are the largest producer and marketer of low sulfur coal in the United
States, with the number one position in the Powder River Basin, the
fastest growing U.S. coal producing region.
- We have a large portfolio of long-term coal supply agreements that are
complemented by available production in attractive markets for sale at
market prices.
- We are one of the most productive and lowest-cost producers of coal in
the United States.
- We serve a broad range of high quality customers with mining operations
located throughout all major U.S. coal producing regions.
- Our emphasis on innovative research and development has increased our
productivity.
- We are a leader in reclamation management and have received numerous
state and national awards for our commitment to environmental excellence.
- Our management team has a proven record of success.
TRANSFORMATION OF PEABODY
Since 1990, we have grown significantly and our management has transformed
our company from a largely high sulfur, high-cost coal company to a
predominantly low sulfur, low-cost coal producer, marketer and trader. We have
increased our sales of low sulfur coal from 57% of our total volume in 1990 to
77% in 2002. We are also well positioned to continue selling higher sulfur coal
to customers that invest in emissions control technology, buy emissions
allowances or blend higher sulfur coal with low sulfur coal. Our average cost
per ton sold decreased 42% from 1990 to 2002. The following chart demonstrates
our transformation:
PERCENT
1990 2002 IMPROVEMENT
------ ------ -----------
Sales volume (million tons)................................. 93.0 197.9 113%
U.S. market share(1)........................................ 9.1% 17.9% 97
Low sulfur sales volume (million tons)...................... 52.7 153.0 190
Total coal reserves (billion tons)(2)....................... 7.0 9.1 30
Low sulfur reserves (billion tons)(2)(3).................... 2.5 4.0 60
Safety (incidents per 200,000 hours)........................ 16.1 5.4 66
Productivity (tons per miner shift)......................... 33.5 95.6 185
Average cost per ton sold(4)................................ $19.25 $11.25 42
Employees (approximate)..................................... 10,200 6,500 36
---------------
(1) Market share is calculated by dividing our U.S. sales volume by estimated
total U.S. coal demand, as reported by the Energy Information
Administration.
S-3
(2) As of January 1, 1990 and as of December 31, 2002.
(3) Represents our estimated proven and probable coal reserves with a sulfur
content of 1% or less by weight.
(4) Represents operating costs and expenses.
BUSINESS STRATEGIES
Our transformation discussed above has resulted in part from the successful
implementation of our three core business strategies:
- Managing safe, low-cost operations.
- Adding value through world-class sales, brokerage and trading techniques.
- Aggressively managing our vast natural resource position.
RECENT DEVELOPMENTS
Results for the Six Months Ended June 30, 2003. We recently reported
results for the six months ended June 30, 2003. We reported a net loss of $12.4
million, or $0.24 per share. Income was $51.3 million, or $0.98 per share,
before $53.5 million in early debt extinguishment charges and $10.2 million in
charges related to the cumulative effect of accounting changes. First half
income also included tax benefits of $41.0 million, or $0.78 per share.
Revenues of $1,374.5 million were 3% higher than the prior year, as higher
prices and volumes in the Powder River Basin and increased brokerage sales
overcame lower pricing in West Virginia on agreements reached during less
favorable market conditions in 2002.
EBITDA and Adjusted EBITDA are calculated as follows (unaudited):
SIX MONTHS ENDED
JUNE 30,
-----------------------
2003 2002
---------- ----------
(Dollars in thousands)
Income (loss) before accounting changes..................... $ (2,241) $ 46,812
Income tax provision (benefit).............................. (41,023) 6,033
Interest expense............................................ 55,044 50,941
Interest income............................................. (2,178) (1,068)
Depreciation, depletion and amortization.................... 115,565 117,317
-------- --------
EBITDA...................................................... 125,167 220,035
Early debt extinguishment costs............................. 53,513 --
Asset retirement obligation expense......................... 13,091 --
Minority interests.......................................... 1,708 7,477
-------- --------
Adjusted EBITDA............................................. $193,479 $227,512
======== ========
Adjusted EBITDA for the six months ended June 30, 2003 was $193.5 million
compared with $227.5 million for the prior year. Customer repairs and weather
disruptions reduced first half shipments and results, partially offset by higher
pricing in the Powder River Basin and increased resource management
contributions. Operating profit of $64.8 million included the above factors, and
was also reduced by approximately $16 million of expenses related to higher
health care and pensions and the adoption of Statement of Financial Accounting
Standard 143 (SFAS 143), the new accounting standard for recording asset
retirement obligations, which include post-mining reclamation liabilities.
S-4
Income, excluding several special items in the six-month period, totaled
$51.3 million, or $0.98 per share. The special items included:
- A charge of $53.5 million ($1.02 per share) related to the early
extinguishment of debt.
- A net charge of $10.2 million ($0.20 per share) for the cumulative effect
of accounting changes, primarily related to a $9.1 million non-cash
cumulative effect gain due to the adoption of SFAS 143, "Accounting for
Asset Retirement Obligations," and a $20.2 million non-cash cumulative
effect charge related to new accounting standards for energy trading
contracts as required by Emerging Issues Task Force (EITF) Issue No.
02-03.
Net Impact of Special Items in the Six Months Ended June 30, 2003.
Earnings Per Share Before Special Items..................... $ 0.98
Early Debt Extinguishment Costs............................. (1.02)
Cumulative Effect of Accounting Changes..................... (0.20)
------
Basic and Diluted Earnings Per Share........................ $(0.24)
======
Capital expenditures for the six-month period totaled $92 million, led by
investments in the Highland No. 9 and Federal East mines.
Black Beauty Coal Company (Black Beauty). In April 2003, we purchased the
remaining 18.3% of Black Beauty for $90 million and other contingent
consideration.
Refinancing. Beginning in March 2003, we entered into a series of
transactions to refinance a substantial portion of our outstanding indebtedness.
Proceeds of $1.1 billion resulted from a $450.0 million term loan under a new
$1.05 billion senior secured credit facility and the issuance of $650 million of
new 6 7/8% Senior Notes due 2013. The proceeds were used to retire $109.1
million of 8 7/8% Senior Notes due 2008 and $134.0 million of 9 5/8% Senior
Subordinated Notes due 2008 pursuant to a tender offer, to prepay substantially
all of the indebtedness of Black Beauty, to pay fees and expenses related to the
transactions and to complete the Black Beauty acquisition described above. The
balance of the proceeds from the transactions was used to retire the remaining
$208.0 million of 8 7/8% Senior Notes and $258.2 million of 9 5/8% Senior
Subordinated Notes on May 15, 2003. The senior secured credit facility also
includes a new revolving credit facility that bears interest at LIBOR plus 2.0%
and expires in March 2008. The revolving credit facility provides for maximum
borrowings and/or letters of credit of $600.0 million. We had letters of credit
outstanding under the facility of $232.7 million as of June 30, 2003, leaving
$367.3 million available for borrowing.
Legal Proceedings.
Oklahoma Lead Litigation. One of our subsidiaries, Gold Fields Mining
Corporation, was named in June 2003 as a defendant, along with five other
companies, in a class action lawsuit filed in the U.S. District Court for the
Northern District of Oklahoma. The plaintiffs have asserted nuisance and
trespass claims predicated on allegations of intentional lead exposure by the
defendants, including Gold Fields, and are seeking compensatory damages for
diminution of property value, punitive damages and the implementation of medical
monitoring and relocation programs for the affected individuals. A predecessor
of Gold Fields formerly operated two lead mills near Picher, Oklahoma prior to
the 1950's. The plaintiff classes include all persons who have lived in the
vicinity of Pitcher within a specified time period. Gold Fields has agreed to
indemnify one of the other defendants, which is a former subsidiary of our
company. Gold Fields is also a defendant, along with other companies, in 11
individual lawsuits arising out of the same lead mill operations involved in the
class action. Plaintiffs in these actions are seeking compensatory and punitive
damages for alleged personal injuries from lead exposure. Two of those lawsuits
have been consolidated for a trial currently set for August 18, 2003 in the U.S.
District Court for the Northern District of Oklahoma.
S-5
Mohave Generating Station. One of our subsidiaries, Peabody Western,
has a long-term coal supply agreement with the owners of the Mohave Generating
Station that expires on December 31, 2005. In a July 2003 filing with the
California Public Utilities Commission, the operator affirmed that the Mohave
plant is not forecast to return to service as a coal-fired resource until
mid-2009 at the earliest. We are in active discussions to resolve the complex
issues critical to the continuation of the operation of the Mohave Generating
Station and the renewal of the coal supply agreement after December 31, 2005.
There is no assurance that the issues critical to the continued operation of the
Mohave plant will be resolved. If these issues are not resolved in a timely
manner, the operation of the Mohave plant will cease or be suspended on December
31, 2005. The Mohave plant is the sole customer of the Black Mesa Mine, which
sold 4.6 million tons of coal in 2002. See "Risk Factors -- The loss of, or
significant reduction in, purchases by our largest customers could adversely
affect our revenues."
Citizens Power. During the period that we owned Citizens Power, which
was sold in August 2000, a Citizens Power subsidiary (now called Edison Mission
Marketing & Trading) entered into a power purchase agreement to sell power to
another Citizens Power subsidiary in connection with a restructured power supply
agreement that runs through 2016. The Citizens Power subsidiary subsequently
entered into a power sales agreement with NRG Power Marketing Inc. for the same
term with a guarantee from its parent, NRG Energy Inc. In May 2003 NRG Power
Marketing and NRG Energy filed a Chapter 11 bankruptcy petition. On June 12,
2003 NRG Power Marketing filed an omnibus motion with the bankruptcy court for
an order rejecting a number of contracts including the power sales agreement
with Edison Mission Marketing & Trading. Edison Mission Marketing & Trading has
filed objections with the bankruptcy court and we expect that the bankruptcy
court will hear the objections on August 6, 2003. Edison Mission Marketing &
Trading has also asked the bankruptcy court for a determination that the
automatic stay provision does not apply to its proposed complaint to be filed
with the Federal Energy Regulatory Commission (FERC). The proposed complaint
asks the FERC to issue an order requiring NRG Power Marketing to continue to
deliver power until such time as NRG Power Marketing obtains FERC approval to
cease deliveries under the contract. NRG Power Marketing is continuing to
deliver power under the Edison Mission Marketing & Trading contract. The NRG
power sales contract is one of the contracts covered by our indemnity of Edison
Mission Energy, the purchaser of Citizens Power, but our indemnity does not
apply to losses caused by the negligent act or omission of Edison Mission
Marketing & Trading, Edison Mission Energy or its affiliates.
S-6
THE OFFERING
Common stock offered by the selling
stockholders: 5,400,000 million shares
Common stock outstanding on July 24, 2003: 54.1 million shares
Use of proceeds: We will not receive any of the proceeds from the sale of
shares by the selling stockholders. The selling
stockholders will receive all net proceeds from the sale
of shares of our common stock offered in this prospectus
supplement.
New York Stock Exchange symbol: BTU
As of July 24, 2003, we had outstanding options to acquire 2.9 million and
1.7 million shares of common stock at weighted-average exercise prices of $14.29
and $28.00 per share, respectively.
S-7
SUMMARY FINANCIAL AND OPERATING DATA
In July 2001, we changed our fiscal year end from March 31 to December 31.
The change was first effective with respect to the nine months ended December
31, 2001. We have derived the summary historical financial data for our
predecessor for the period from April 1, 1998 to May 19, 1998 and the summary
historical financial data for our company for the period from May 20, 1998 to
March 31, 1999, the years ended and as of March 31, 2000 and 2001, the nine
months ended and as of December 31, 2001, the year ended and as of December 31,
2002, and the quarter ended and as of March 31, 2003 from our predecessor
company's and our audited and unaudited financial statements. You should read
the following table in conjunction with the financial statements, the related
notes to those financial statements, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," which are incorporated by
reference in this prospectus supplement.
In early 1999, we increased our equity interest in Black Beauty from 43.3%
to 81.7%. Our results of operations include the consolidated results of Black
Beauty, effective January 1, 1999. Prior to that date, we accounted for our
investment in Black Beauty under the equity method, under which we reflected our
share of Black Beauty's results of operations as a component of "Other revenues"
in the statements of operations, and our interest in Black Beauty's net assets
within "Investments and other assets" in the balance sheets. We purchased the
remaining 18.3% of Black Beauty in April 2003.
In anticipation of the sale of Citizens Power, our power marketing
subsidiary, which occurred in August 2000, we 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. We have adjusted our results of
operations to reflect the classification of Citizens Power as a discontinued
operation for all periods presented.
Results of operations for the year ended March 31, 2000 included a $144.0
million income tax benefit associated with an increase in the tax basis of a
subsidiary's assets due to a change in federal income tax regulations.
On January 29, 2001, we sold our Australian operations. The following
summary financial and other data includes results of operations from these
Australian operations prior to the date of sale and also includes the gain on
this sale. Results of operations for the year ended March 31, 2001 included a
pretax gain of $171.7 million, or $124.2 million net of income taxes, from the
sale of our Australian operations. In August 2002, we re-entered Australia by
purchasing a coal mine in Queensland.
In connection with our initial public offering in May 2001, we converted
our preferred stock and our Class A common stock and Class B common stock to a
single class of common stock, all on a one-for-one basis.
Results of operations for the year ended December 31, 2002 included an
income tax benefit of $40.0 million. This benefit resulted primarily from
significant tax benefits realized as a result of utilizing net operating loss
carryforwards to offset taxable gains recognized in connection with property
sale transactions. Utilization of the loss carryforwards required the reduction
of a previously recorded valuation allowance that had reduced the book value of
the loss carryforwards. Also in 2002, due to a change in accounting principle,
we began recording revenues related to all coal trading activities on a net
basis in "Other revenues," and all prior period amounts were reclassified. Had
our physically settled trading transactions been recorded on a gross basis,
total revenues and operating costs would have been $41.6 million, $88.8 million
and $161.9 million higher for the year ended March 31, 2001, the nine months
ended December 31, 2001 and the year ended December 31, 2002, respectively.
During the quarter ended March 31, 2003, we incurred early debt
extinguishment costs of $21.2 million associated with the refinancing referred
to in "Recent Developments" above. As a result of the adoption of SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13 and Technical Corrections," which was effective for us as of January 1, 2003,
gains and losses on debt extinguishments are presented as a component of results
of continuing operations unless the extinguishment meets the criteria for
classification as an extraordinary item in Accounting Principles Board Opinion
No. 30. The effect of this adoption and application of this new standard for the
quarter ended March 31, 2003 was to decrease income from continuing operations
by $21.2 million, before income taxes. Losses associated with early debt
extinguishments for the year ended March 31, 2001 and the nine months ended
December 31, 2001 continue to be classified as extraordinary items.
S-8
PREDECESSOR
COMPANY MAY 20, YEAR
---------------- 1998 TO TOTAL ENDED
APRIL 1, 1998 TO MARCH 31, FISCAL MARCH 31,
MAY 19, 1998 1999 1999 2000
---------------- ------------ ----------- -----------
(Dollars in thousands, except per share data)
(Unaudited)
RESULTS OF OPERATIONS DATA
Revenues:
Sales..................... $ 278,930 $ 1,970,957 $ 2,249,887 $ 2,610,991
Other revenues............ 11,728 85,875 97,603 99,509
---------- ------------ ----------- -----------
Total revenues...... 290,658 2,056,832 2,347,490 2,710,500
Costs and expenses........ 281,333 1,899,788 2,181,121 2,517,263
---------- ------------ ----------- -----------
Operating profit............ $ 9,325 $ 157,044 $ 166,369 $ 193,237
========== ============ =========== ===========
Income (loss) from
continuing operations..... $ 2,240 $ (5,433) $ (3,193) $ 118,570
Income (loss) from
discontinued operations... (1,764) 6,442 4,678 (90,360)
Extraordinary loss from
early extinguishment of
debt...................... -- -- -- --
Cumulative effect of
accounting changes........ -- -- -- --
---------- ------------ ----------- -----------
Net income (loss)........... $ 476 $ 1,009 $ 1,485 $ 28,210
========== ============ =========== ===========
Basic earnings (loss) per
share from continuing
operations................
Diluted earnings (loss) per
share from continuing
operations................
Basic and diluted earnings
(loss) per Class A/B share
from continuing
operations................ $ (0.16) $ 3.43
Weighted average shares
outstanding:
Basic..................... 26,823,383 27,586,370
Diluted................... 26,823,383 27,586,370
Dividends declared per
share..................... -- --
OTHER DATA
Net cash provided by (used
in):
Operating activities...... $ (28,157) $ 282,022 $ 253,865 $ 262,911
Investing activities...... (21,550) (2,249,336) (2,270,886) (185,384)
Financing activities...... 23,537 2,161,281 2,184,818 (205,181)
Tons sold (unaudited, in
millions):
United States............. 20.9 147.7 168.6 179.2
Australia................. 0.8 6.6 7.4 11.1
Operating profit:
United States............. $ 6,375 $ 124,368 $ 130,743 $ 144,882
Australia................. 2,950 32,676 35,626 48,355
Depreciation, depletion and
amortization:
United States............. 22,475 155,220 177,695 216,327
Australia................. 3,041 23,962 27,003 33,455
Adjusted EBITDA
(unaudited):(1)
United States............. 28,850 279,588 308,438 361,209
Australia................. 5,991 56,638 62,629 81,810
Capital expenditures:
United States............. 13,582 110,622 124,204 150,130
Australia................. 7,292 63,898 71,190 28,624
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets................ $6,406,587 $ 7,023,931 $ 7,023,931 $ 5,826,849
Total debt.................. 633,562 2,542,379 2,542,379 2,076,166
Total stockholders'
equity.................... 1,497,374 495,230 495,230 508,426
YEAR NINE MONTHS QUARTER
ENDED ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31,
2001 2001 2002 2003
----------- ------------ ------------ -----------
(Dollars in thousands, except per share data)
(Unaudited)
RESULTS OF OPERATIONS DATA
Revenues:
Sales..................... $ 2,534,964 $ 1,869,321 $ 2,630,371 $ 657,829
Other revenues............ 93,164 68,619 86,727 23,465
----------- ----------- ----------- -----------
Total revenues...... 2,628,128 1,937,940 2,717,098 681,294
Costs and expenses........ 2,286,289 1,822,409 2,543,410 646,763
----------- ----------- ----------- -----------
Operating profit............ $ 341,839 $ 115,531 $ 173,688 $ 34,531
=========== =========== =========== ===========
Income (loss) from
continuing operations..... $ 102,680 $ 19,287 $ 105,519 $ (937)
Income (loss) from
discontinued operations... 12,925 -- -- --
Extraordinary loss from
early extinguishment of
debt...................... (8,545) (28,970) -- --
Cumulative effect of
accounting changes........ -- -- -- (10,144)
----------- ----------- ----------- -----------
Net income (loss)........... $ 107,060 $ (9,683) $ 105,519 $ (11,081)
=========== =========== =========== ===========
Basic earnings (loss) per
share from continuing
operations................ $ 0.40 $ 2.02 $ (0.02)
Diluted earnings (loss) per
share from continuing
operations................ $ 0.38 $ 1.96 $ (0.02)
Basic and diluted earnings
(loss) per Class A/B share
from continuing
operations................ $ 2.97
Weighted average shares
outstanding:
Basic..................... 27,524,626 48,746,444 52,165,735 52,414,041
Diluted................... 27,524,626 50,524,978 53,821,760 52,414,041
Dividends declared per
share..................... -- $ 0.20 $ 0.40 $ 0.10
OTHER DATA
Net cash provided by (used
in):
Operating activities...... $ 151,980 $ 114,492 $ 231,204 $ 57,551
Investing activities...... 388,462 (172,989) (144,078) (53,059)
Financing activities...... (543,337) 34,396 (54,798) (4,353)
Tons sold (unaudited, in
millions):
United States............. 181.6 146.5 197.5 47.8
Australia................. 10.8 -- 0.4 0.2
Operating profit:
United States............. $ 288,462 $ 115,531 $ 170,909 $ 32,819
Australia................. 53,377 -- 2,779 1,712
Depreciation, depletion and
amortization:
United States............. 215,450 174,587 232,177 55,855
Australia................. 25,518 -- 236 192
Adjusted EBITDA
(unaudited):(1)
United States............. 503,912 290,118 403,086 95,164
Australia................. 78,895 -- 3,015 1,904
Capital expenditures:
United States............. 151,358 194,246 208,390 58,502
Australia................. 35,702 -- 172 342
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets................ $ 5,209,487 $ 5,150,902 $ 5,140,177 $ 5,783,864
Total debt.................. 1,405,621 1,031,067 1,029,211 1,659,583
Total stockholders'
equity.................... 631,238 1,035,472 1,081,138 1,065,980
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(1) EBITDA, a measure used by management to measure operating performance, is
defined as income from continuing operations before deducting net interest
expense, income taxes, depreciation, depletion and amortization. EBITDA is
further adjusted to exclude minority interests to arrive at Adjusted EBITDA.
We believe that the supplementary adjustment to EBITDA is appropriate to
provide additional information to investors about our ability to meet debt
service and capital expenditure requirements. We believe that the amounts
shown for Adjusted EBITDA as presented in this prospectus supplement are not
materially different from the amounts calculated under the definition of
Consolidated Cash Flow used in the indentures for the senior notes and the
senior subordinated notes.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not
purport to be alternatives to operating income, net income or cash flows
from operating activities as determined in accordance with GAAP as a measure
of profitability or liquidity. Because not all companies use identical
calculations, these presentations of EBITDA and Adjusted EBITDA may not be
comparable to other similarly titled measures of other companies.
Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of
free cash flow for management's discretionary use, as they do not consider
certain cash requirements such as interest payments, tax payments and debt
service requirements.
EBITDA and Adjusted EBITDA are calculated as follows (unaudited):
PREDECESSOR MAY 20, YEAR YEAR
COMPANY 1998 TO ENDED ENDED NINE MONTHS QUARTER
---------------- MARCH TOTAL MARCH MARCH ENDED YEAR ENDED ENDED
APRIL 1, 1998 TO 31, FISCAL 31, 31, DECEMBER 31, DECEMBER 31, MARCH 31,
MAY 19, 1998 1999 1999 2000 2001 2001 2002 2003
---------------- -------- -------- --------- -------- ------------ ------------ ---------
(In thousands)
Income (loss) from
continuing operations.... $ 2,240 $ (5,433) $ (3,193) $ 118,570 $102,680 $ 19,287 $105,519 $ (937)
Income tax provision
(benefit)................ 4,530 3,012 7,542 (141,522) 42,690 2,465 (40,007) (12,246)
Interest expense........... 4,222 176,105 180,327 205,056 197,686 88,686 102,458 26,152
Interest income............ (1,667) (18,527) (20,194) (4,421) (8,741) (2,155) (7,574) (672)
Depreciation, depletion and
amortization............. 25,516 179,182 204,698 249,782 240,968 174,587 232,413 56,047
------- -------- -------- --------- -------- -------- -------- --------
EBITDA..................... 34,841 334,339 369,180 427,465 575,283 282,870 392,809 68,344
Early debt extinguishment
costs.................... -- -- -- -- -- -- -- 21,184
Asset retirement obligation
expense.................. -- -- -- -- -- -- -- 6,490
Minority interests......... -- 1,887 1,887 15,554 7,524 7,248 13,292 1,050
------- -------- -------- --------- -------- -------- -------- --------
Adjusted EBITDA............ $34,841 $336,226 $371,067 $ 443,019 $582,807 $290,118 $406,101 $ 97,068
======= ======== ======== ========= ======== ======== ======== ========
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RISK FACTORS
THE LOSS OF, OR SIGNIFICANT REDUCTION IN, PURCHASES BY OUR LARGEST CUSTOMERS
COULD ADVERSELY AFFECT OUR REVENUES.
For the year ended December 31, 2002, we derived 28% of our total coal
revenues from sales to our five largest customers. At December 31, 2002, we had
31 coal supply agreements with these customers that expire at various times from
2003 to 2015. We are currently discussing the extension of existing agreements
or entering into new long-term agreements with some of these customers, but
these negotiations may not be successful and those customers may not continue to
purchase coal from us under long-term coal supply agreements. If a number of
these customers were to significantly reduce their purchases of coal from us, or
if we were unable to sell coal to them on terms as favorable to us as the terms
under our current agreements, our financial condition and results of operations
could suffer materially.
In addition, we sold 4.6 million tons of coal to the Mohave Generating
Station in 2002. We have a long-term coal supply agreement with the owners of
the Mohave Generating Station that expires on December 31, 2005, but may be
renewed as provided in the agreement. There is a dispute with the Hopi Tribe
regarding the use of groundwater in the transportation of coal by pipeline to
the Mohave Generating Station. Also, Southern California Edison (the majority
owner and operator of the plant) is involved in a California Public Utility
Commission proceeding related to recovery of future capital expenditures for new
pollution abatement equipment for the station. In a July 2003 filing with the
California Public Utilities Commission, Southern California Edison affirmed that
the Mohave Generating Station is not forecast to return to service as a
coal-fired resource until mid-2009 at the earliest. We are in active discussions
to resolve the complex issues critical to the continuation of the operation of
the Mohave Generating Station and the renewal of the coal supply agreement after
December 31, 2005. We cannot assure you that the issues critical to the
continued operation of the Mohave Generating Station will be resolved. If the
issues are not resolved in a timely manner, the Mohave Generating Station will
cease or be suspended on December 31, 2005. The Mohave Generating Station is the
sole customer of our Black Mesa Mine, which produces and sells 4.5 to 5.0
million tons of coal per year. If we are unable to renew the coal supply
agreement with the Mohave Generating Station, our financial condition and
results of operations could be adversely affected after 2005.
OUR FINANCIAL PERFORMANCE COULD BE ADVERSELY AFFECTED BY OUR SUBSTANTIAL DEBT.
Our financial performance could be affected by our substantial
indebtedness. As of June 30, 2003, our total indebtedness was approximately
$1,203.6 million, and we had $367.3 million of borrowings available under our
new revolving credit facility. We may also incur additional indebtedness in the
future.
The degree to which we are leveraged could have important consequences,
including, but not limited to:
- making it more difficult for us to pay interest and satisfy our debt
obligations;
- increasing our vulnerability to general adverse economic and industry
conditions;
- requiring the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of the cash flow to fund
working capital, capital expenditures, research and development or other
general corporate uses;
- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, research and development or other
general corporate requirements;
- limiting our flexibility in planning for, or reacting to, changes in our
business and in the coal industry; and
- placing us at a competitive disadvantage compared to less leveraged
competitors.
In addition, our indebtedness subjects us to financial and other
restrictive covenants. Failure by us to comply with these covenants could result
in an event of default that, if not cured or waived, could have a
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material adverse effect on us. Furthermore, substantially all of our assets
secure our indebtedness under our new credit facility.
If our cash flows and capital resources are insufficient to fund our debt
service obligations, we may be forced to sell assets, seek additional capital or
seek to restructure or refinance our indebtedness. These alternative measures
may not be successful and may not permit us to meet our scheduled debt service
obligations. In the absence of such operating results and resources, we could
face substantial liquidity problems and might be required to sell material
assets or operations to attempt to meet our debt service and other obligations.
The new credit facility and the indenture governing the notes restrict our
ability to sell assets and use the proceeds from the sales. We may not be able
to consummate those sales or to obtain the proceeds which we could realize from
them and these proceeds may not be adequate to meet any debt service obligations
then due.
OUR EXPENDITURES FOR POSTRETIREMENT BENEFIT AND PENSION OBLIGATIONS COULD BE
MATERIALLY HIGHER THAN WE HAVE PREDICTED IF OUR UNDERLYING ASSUMPTIONS PROVE TO
BE INCORRECT.
We provide postretirement health and life insurance benefits to eligible
union and non-union employees. We calculated the total accumulated
postretirement benefit obligation under Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." We had a liability of $1,033.5 million as of June 30, 2003, $72.1
million of which was a current liability. We have estimated these unfunded
obligations based on assumptions described in the notes to our audited financial
statements incorporated by reference in this prospectus. If our assumptions do
not materialize as expected, cash expenditures and costs that we incur could be
materially higher. Moreover, regulatory changes could increase our obligations
to provide these or additional benefits.
We are party to an agreement with the Pension Benefit Guaranty Corporation,
or the PBGC, and TXU Europe Limited, an affiliate of our former parent
corporation, under which we are required to make specified contributions to two
of our defined benefit pension plans and to maintain a $37.0 million letter of
credit in favor of the PBGC. If we or the PBGC give notice of an intent to
terminate one or more of the covered pension plans in which liabilities are not
fully funded, or if we fail to maintain the letter of credit, the PBGC may draw
down on the letter of credit and use the proceeds to satisfy liabilities under
the Employee Retirement Income Security Act of 1974, as amended. The PBGC,
however, is required to first apply amounts received from a $110.0 million
guaranty in place from TXU Europe Limited in favor of the PBGC before it draws
on our letter of credit. On November 19, 2002 TXU Europe Limited was placed
under the administration process in the United Kingdom (a process similar to
bankruptcy proceedings in the United States). As a result of these proceedings,
TXU Europe Limited may be liquidated or otherwise reorganized in such a way as
to relieve it of its obligations under its guaranty.
In addition, certain of our subsidiaries participate in two multi-employer
pension funds and have an obligation to contribute to a multi-employer defined
contribution benefit fund. Contributions to these funds could increase as a
result of future collective bargaining with the United Mine Workers of America,
a shrinking contribution base as a result of the insolvency of other coal
companies who currently contribute to these funds, lower than expected returns
on pension fund assets, higher medical and drug costs or other funding
deficiencies. Certain of our subsidiaries are statutorily obligated to
contribute to the 1992 Fund under the Coal Industry Retiree Health Benefit Act
of 1992.
LEHMAN BROTHERS MERCHANT BANKING HAS SIGNIFICANT INFLUENCE ON ALL STOCKHOLDER
VOTES AND MAY HAVE CONFLICTS OF INTEREST WITH OTHER STOCKHOLDERS IN THE FUTURE.
After the offering of all of the shares offered in this prospectus,
assuming the underwriters exercise their over-allotment option in full, Lehman
Brothers Merchant Banking and its affiliates will beneficially own approximately
18.8% of our common stock. As a result, Lehman Brothers Merchant Banking will
have significant influence on the election of our directors and the
determination of our corporate and management policies and actions, including
potential mergers or acquisitions, asset sales and other significant corporate
transactions. The interests of Lehman Brothers Merchant Banking may not coincide
with the interests of other holders of our common stock. We have retained
affiliates of Lehman Brothers Merchant Banking to perform advisory and financing
services for us in the past, and may continue to do so in the future.
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USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling stockholders. The selling stockholders will receive all net proceeds
from the sale of shares of our common stock offered in this prospectus
supplement.
SELLING STOCKHOLDERS
The following table sets forth information concerning ownership of our
capital stock as of July 24, 2003 by each selling stockholder. As of July 24,
2003, there were 54.1 million shares of our common stock outstanding.
NUMBER OF SHARES TO BE
BENEFICIALLY OWNED AFTER
NUMBER THE SALE OF THE
AS OF OF SHARES NUMBER OF SHARES
JULY 24, 2003 TO BE SOLD IN THIS OFFERING
---------------------- IN THIS ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT OFFERING(1) SHARES PERCENT
------------------------------------ ---------- ------- ------------ ----------- --------
Lehman Brothers Merchant Banking
Partners II L.P. and affiliates(2)
c/o Lehman Brothers Holdings Inc.
745 Seventh Avenue, 25th Floor
New York, NY 10019................. 15,667,169 28.9% 5,400,000 10,267,169 19.0%
---------------
(1) All shares allocated to selling stockholders in the accompanying prospectus
that have not been sold have been reallocated to Lehman Brothers Merchant
Banking Partners II L.P. and its affiliates to be sold in this offering.
(2) An aggregate of 15,667,169 shares (before the offering) are held by Lehman
Brothers Merchant Banking Partners II L.P., Lehman Brothers Offshore
Investment Partners II L.P., Lehman Brothers Capital Partners III L.P.,
Lehman Brothers Capital Partners IV L.P., Lehman Brothers MBG Partners 1998
(A) L.P., Lehman Brothers MBG Partners 1998 (B) L.P., Lehman Brothers MBG
Partners 1998 (C) L.P. and LB I Group Inc. Affiliates of Lehman Brothers
Merchant Banking Partners II L.P. have provided various services to us in
the past.
In addition, Lehman Brothers Merchant Banking Partners II L.P. and certain
of its affiliates have granted the underwriters the right to purchase up to an
additional 105,661 shares of common stock to cover over-allotments. If the
underwriters exercise this over-allotment option in full, Lehman Brothers
Merchant Banking Partners II L.P. and its affiliates will beneficially own
10,161,508 shares, or 18.8%, of our common stock after this offering.
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UNDERWRITING
Under the terms of an underwriting agreement, which will be filed as an
exhibit to a current report on Form 8-K and incorporated by reference into this
prospectus supplement and the accompanying prospectus, each of Lehman Brothers
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, Bear, Stearns & Co. Inc. and A.G. Edwards & Sons, Inc. have
severally agreed to purchase from the selling stockholders the respective number
of shares of common stock opposite their names below:
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
Lehman Brothers Inc. .......................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Morgan Stanley & Co. Incorporated...........................
Bear, Stearns & Co. Inc. ...................................
A.G. Edwards & Sons, Inc. ..................................
---------
Total............................................. 5,400,000
=========
The underwriting agreement provides that the underwriters' obligation to
purchase shares of common stock depends on the satisfaction of the conditions
contained in the underwriting agreement, namely:
- the obligation to purchase all of the shares hereby, if any of the shares
are purchased;
- the representations and warranties made by us and the selling
stockholders to the underwriters are true;
- there is no material change in the financial markets; and
- we and the selling stockholders deliver customary closing documents to
the underwriters.
OVER-ALLOTMENT OPTION
The selling stockholders have granted the underwriters a 30-day option to
purchase up to 105,661 shares at the public offering price less underwriting
discounts and commissions. This option may be exercised to cover
over-allotments, if any. To the extent that the option is exercised, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares proportionate to the underwriter's initial
commitment as indicated in the preceding table, and the selling stockholders
will be obligated, pursuant to the option, to sell these shares to the
underwriters.
COMMISSIONS AND EXPENSES
The underwriters have advised us and the selling stockholders that the
underwriters propose to offer shares of common stock directly to the public at
the public offering price on the cover of this prospectus supplement and to
selected dealers, who may include the underwriters, at such offering price less
a selling concession not in excess of $ per share. The underwriters may
allow, and the selected dealers may re-allow, a discount from the concession not
in excess of $ per share to other dealers. After the offering, the
underwriters may change the public offering price and other offering terms.
The following table summarizes the underwriting discounts and commissions
the selling stockholders will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase up to 105,661 additional shares. The underwriting fee is the
difference between the initial price to the public and the amount the
underwriters pay the selling stockholders for the shares.
NO EXERCISE FULL EXERCISE
----------- -------------
Per share................................................... $ $
---------- ----------
Total............................................. $ $
========== ==========
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $200,000. We have agreed to pay
expenses incurred in connection with
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the offering that are customarily paid by the registering company. We will not
pay any underwriting discounts or commissions.
LISTING
Our common stock is traded on the New York Stock Exchange under the symbol
"BTU."
STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids or purchases for the purpose
of pegging, fixing or maintaining the price of the common stock, in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended:
- Over-allotment involves sales by the underwriter of shares in excess of
the number of shares the underwriter is obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriter is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriter may close out any short position by either
exercising its over-allotment option and/or purchasing shares in the open
market.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriter will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriter sells more shares than could be
covered by the over-allotment option, which is called a naked short
position, the position can only be closed out by buying shares in the
open market. A naked short position is more likely to be created if the
underwriter is concerned that there could be downward pressure on the
price of the shares in the open market after pricing that could adversely
affect investors who purchase shares in the offering.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the common stock originally sold by the syndicate
member is purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
common stock or preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Neither we, the selling stockholders, nor any of the underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the common stock. In
addition, neither we, the selling stockholders, nor the underwriters make any
representation that the underwriters will engage in these stabilizing
transactions or that any transaction, once commenced, will not be discontinued
without notice.
LOCK-UP AGREEMENTS
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, without the prior written
consent of Lehman Brothers Inc. for a period of 60 days after the date of this
prospectus supplement, except issuances pursuant to the exercise of options
outstanding on the date hereof,
S-15
grants of employee stock options pursuant to the terms of a plan in effect on
the date hereof, issuances pursuant to the exercise of such options, the filing
of registration statements on Form S-8 and amendments thereto in connection with
those stock options or our employee stock purchase plans in existence on the
date hereof and the issuance of shares or options in acquisitions in which the
acquiror of such shares agrees to the foregoing restrictions.
The selling stockholders have agreed under lock-up agreements that, without
the prior written consent of Lehman Brothers Inc., they will not offer, sell or
otherwise dispose of any shares of capital stock or any securities which may be
converted into or exchanged for any shares of capital stock for a period ending
60 days after the date of this prospectus supplement, other than the common
stock sold under this prospectus supplement. Certain of our executive officers
have also agreed under lock-up agreements that, without the prior written
consent of Lehman Brothers Inc., they will not offer, sell or otherwise dispose
of more than 50% of the shares of capital stock beneficially owned by them for a
period ending 60 days after the date of this prospectus supplement. In addition,
certain of those executive officers have further agreed under their lock-up
agreements that, without the prior written consent of Lehman Brothers Inc., they
will not offer, sell or otherwise dispose of any shares of capital stock
beneficially owned by them for a period ending 14 days after the date of this
prospectus supplement.
INDEMNIFICATION
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities relating to the offering, including liabilities under the
Securities Act and liabilities arising from breaches of the representations and
warranties contained in the underwriting agreement, and to contribute to
payments that the underwriters may be required to make for these liabilities.
STAMP TAXES
Purchasers of the shares of our common stock offered by this prospectus
supplement may be required to pay stamp taxes and other charges under the laws
and practices of the country of purchase, in addition to the offering price
listed on the cover of this prospectus supplement. Accordingly, we urge you to
consult a tax advisor with respect to whether you may be required to pay those
taxes or charges, as well as any other tax consequences that may arise under the
laws of the country of purchase.
ELECTRONIC DISTRIBUTION
A prospectus in electronic format may be made available on the Internet
sites or through other online services maintained by the underwriters and/or one
or more of the selling group members participating in this offering, or by their
affiliates. In those cases, prospective investors may view offering terms online
and, depending upon the underwriter or the particular selling group member,
prospective investors may be allowed to place orders online. The underwriters
may agree with us to allocate a specific number of shares for sale to online
brokerage account holders. Any such allocation for online distributions will be
made by the underwriters on the same basis as other allocations.
Other than the prospectus in electronic format, the information on the
underwriters' or any selling group member's web site and any information
contained in any other web site maintained by the underwriter or any selling
group member is not part of the prospectus supplement, the accompanying
prospectus or the registration statement of which this prospectus supplement and
the accompanying prospectus form a part, has not been approved and/or endorsed
by us or the underwriters or any selling group member in its capacity as
underwriter or selling group member and should not be relied upon by investors.
OUR RELATIONSHIPS WITH THE UNDERWRITERS/NASD CONDUCT RULE
Messrs. Goodspeed, Lentz, Schlesinger and Washkowitz, each of whom is one
of our directors, are also affiliated with Lehman Brothers Inc. Mr. Goodspeed is
an Advisory Director of, Mr. Lentz is a consultant to, Dr. Schlesinger is a
Senior Advisor and consultant to, and Mr. Washkowitz is a Managing Director of
Lehman Brothers Inc.
Lehman Brothers Inc. and its affiliates have performed and expect to
continue to perform financial advisory investment banking services for us for
which they have received and will receive customary
S-16
compensation. Lehman Brothers Merchant Banking Partners II L.P. and other of its
affiliates (collectively, the "Lehman Selling Stockholders"), each of which is
an affiliate of Lehman Brothers Inc., are selling stockholders in this offering
and, together, beneficially own more than 10% of our common stock and will
receive more than 10% of the net proceeds from this offering. Lehman Brothers
Inc. was the initial purchaser in connection with the sale of our 1998 issuance
of senior notes and our senior subordinated notes, and served as the dealer
manager in connection with the offer to purchase those notes. Lehman Brothers
Inc. served as the lead underwriter in connection with the initial public
offering of our common stock. In April 2002 and May 2003, Lehman Brothers served
as the lead underwriter in connection with the offering of our common stock by
the Lehman Selling Stockholders and certain other selling stockholders. Lehman
Commercial Paper Inc. served as a joint lead arranger, joint book-running
manager and syndication agent in connection with our new credit facility.
Because of these relationships, the offering is being conducted in accordance
with Rule 2720 of the National Association of Securities Dealers, or NASD.
Because a bona fide independent market exists for our common stock, the NASD
does not require that we use a qualified independent underwriter for this
offering.
DISCRETIONARY ACCOUNTS
The underwriters have informed us and the selling stockholders that they do
not intend to confirm sales to discretionary accounts over which they have
discretionary authority without the prior written approval of the customer.
NOTICE TO CANADIAN INVESTORS
RESALE RESTRICTIONS
The distribution of the securities in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of securities are made. Any resale of the securities in Canada must be
made under applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made under available statutory
exemptions or under a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the securities.
REPRESENTATIONS OF PURCHASERS
By purchasing securities in Canada and accepting a purchase confirmation, a
purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the securities without the benefit of a prospectus qualified
under those securities laws;
- where required by law, that the purchaser is purchasing as principal and
not as agent; and
- the purchaser has reviewed the text in the above under "Resale
Restrictions."
RIGHTS OF ACTIONS -- ONTARIO PURCHASERS
Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of the shares,
for rescission against us in the event that this prospectus contains a
misrepresentation. A purchaser will be deemed to have relied on the
misrepresentation. The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first had knowledge of the
facts giving rise to the cause of action and three years from the date on which
payment is made for the shares. The right of action for rescission is
exercisable not later than 180 days from the date on which payment is made for
the shares. If a purchaser elects to exercise the right of action for
rescission, the purchaser will have no right of action for damages against us.
In no case will the amount recoverable in any action exceed the price at which
the shares were offered to the purchaser and if the purchaser is shown to have
purchased the securities with knowledge of the misrepresentation, we will have
no liability. In the case of an action for damages, we will not be liable for
all or any portion of the damages that are
S-17
proven to not represent the depreciation in value of the shares as a result of
the misrepresentation relied upon. These rights are in addition to, and without
derogation from, any other rights or remedies available at law to an Ontario
purchaser. The foregoing is a summary of the rights available to an Ontario
purchaser. Ontario purchasers should refer to the complete text of the relevant
statutory provisions.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named herein may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon us or those
persons. All or a substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against us or those persons in Canada or to
enforce a judgment obtained in Canadian courts against us or those persons
outside of Canada.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of securities should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the securities
in their particular circumstances and about the eligibility of the securities
for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
The validity of the sale of the shares of common stock to be sold in the
offering will be passed upon for us by our counsel, Simpson Thacher & Bartlett
LLP, New York, New York. Weil, Gotshal & Manges LLP, New York, New York,
represented the underwriters in this offering.
S-18
PROSPECTUS
11,255,661 Shares
[PEABODY LOGO]
PEABODY ENERGY CORPORATION
Common Stock
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The selling stockholders named in this prospectus may offer from time to time
all of the shares of common stock in this offering. We will not receive any of
the proceeds from the sale of the shares by the selling stockholders.
You should read this prospectus and any supplement carefully before you invest
in any of our common stock.
Our common stock is traded on the New York Stock Exchange under the symbol
"BTU." On January 13, 2003, the last reported sale price of our common stock on
the New York Stock Exchange was $28.48 per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 2.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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January 21, 2003
TABLE OF CONTENTS
PAGE
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About This Prospectus................. i
Cautionary Notice Regarding Forward-
Looking Statements.................. i
The Company........................... 1
Risk Factors.......................... 2
Use of Proceeds....................... 8
Selling Stockholders.................. 9
PAGE
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Description of Capital Stock.......... 10
Plan of Distribution.................. 16
Validity of Our Common Stock.......... 17
Experts............................... 17
Where You Can Find Additional
Information......................... 17
ABOUT THIS PROSPECTUS
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement or term sheet. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the front of these
documents.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus or any prospectus
supplement and the documents we have incorporated by reference contain
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.
These statements relate to future events or our future financial performance. We
use words such as "anticipate," "believe," "expect," "may," "project," "will" or
other similar words to identify forward-looking statements.
Without limiting the foregoing, all statements relating to our future
outlook, anticipated capital expenditures, future cash flows and borrowings, and
sources of funding are forward-looking statements. These forward-looking
statements are based on numerous assumptions that we believe are reasonable, but
they are open to a wide range of uncertainties and business risks and actual
results may differ materially from those discussed in these statements.
Among the factors that could cause actual results to differ materially are:
- growth in coal and power markets;
- coal's market share of electricity generation;
- timing of reductions in customer coal inventories;
- the pace and extent of the economic recovery;
- severity of weather;
- railroad and other transportation performance and costs;
- the ability to renew sales contracts upon expiration or renegotiation;
- the ability to successfully implement operating strategies;
- the effectiveness of our cost-cutting measures;
- regulatory and court decisions;
- future legislation;
- changes in postretirement benefit and pension obligations;
- credit, market and performance risk associated with our customers;
- modification or termination of our long-term coal supply agreements;
i
- reduction of purchases by major customers;
- risks inherent to mining, including geologic conditions or unforeseen
equipment problems;
- terrorist attacks or threats affecting our or our customers' operations;
- replacement of recoverable reserves;
- implementation of new accounting standards;
- inflationary trends, interest rates and access to capital markets; and
- other factors, including those discussed in "Risk Factors."
When considering these forward-looking statements, you should keep in mind
the cautionary statements in this document or any prospectus supplement and the
documents incorporated by reference. We will not update these statements unless
the securities laws require us to do so.
ii
THE COMPANY
We are the largest private-sector coal company in the world. During the
nine months ended September 30, 2002, we sold 147.9 million tons of coal. During
this period, we sold coal to more than 280 electric generating and industrial
plants, fueling the generation of more than 9% of all electricity in the United
States and 2.5% of all electricity in the world. At September 30, 2002, we had
9.0 billion tons of proven and probable coal reserves in the U.S., approximately
double the reserves of any other U.S. coal producer.
We own majority interests in 35 coal operations located throughout all
major U.S. coal producing regions, with 73% of our U.S. mining operation's coal
sales in the nine months ended September 30, 2002 shipped from the western
United States and the remaining 27% from the eastern United States. Most of our
production in the western United States is low sulfur coal from the Powder River
Basin. Our overall western U.S. coal production increased from 37.0 million tons
in fiscal year 1990 to 127.1 million tons in calendar year 2001, representing a
compounded annual growth rate of 12%. In the west, we own and operate mines in
Arizona, Colorado, Montana, New Mexico and Wyoming. In the east, we own and
operate mines in Illinois, Indiana, Kentucky and West Virginia. We produced 78%
of our sales volume in the nine months ended September 30, 2002 from non-union
mines.
For the nine months ended September 30, 2002, 93% of our sales were to U.S.
electricity generators, 4% were to the U.S. industrial sector and the remainder
were to customers outside the United States. Approximately 97% of our coal sales
during the nine months ended September 30, 2002 were under long-term contracts.
As of September 30, 2002, nearly one billion tons of our future coal production
were committed under long-term contracts, with remaining terms ranging from one
to 18 years and an average volume-weighted remaining term of approximately 4.5
years. As of December 31, 2002, we had nine million tons and 76 million tons of
expected production available for sale at market-based prices in calendar year
2003 and 2004, respectively. We have the ability to increase production by 15 to
20 million tons annually within three to six months by running our current
operations at their full capacity.
In addition to our mining operations, we market, broker and trade coal and
emission allowances. Our total tons traded were 55.8 million for the nine months
ended September 30, 2002. Our other related energy related businesses include
coalbed methane production, transportation-related services, third-party coal
contract restructuring and the development of coal-fueled generating plants.
Our principal executive offices are located at 701 Market Street, St.
Louis, Missouri 63101-1826, telephone (314) 342-3400.
1
RISK FACTORS
An investment in our common stock involves risks. You should consider
carefully, in addition to the other information contained in this prospectus,
the following risk factors before deciding to purchase any common stock.
RISKS RELATING TO OUR COMPANY
IF A SUBSTANTIAL PORTION OF OUR LONG-TERM COAL SUPPLY AGREEMENTS TERMINATE, OUR
REVENUES AND OPERATING PROFITS COULD SUFFER IF WE WERE UNABLE TO FIND ALTERNATE
BUYERS WILLING TO PURCHASE OUR COAL ON COMPARABLE TERMS TO THOSE IN OUR
CONTRACTS.
A substantial portion of our sales are made under coal supply agreements,
which are important to the stability and profitability of our operations. The
execution of a satisfactory coal supply agreement is frequently the basis on
which we undertake the development of coal reserves required to be supplied
under the contract. For the nine months ended September 30, 2002, 97% of our
sales volume was sold under long-term coal supply agreements. At September 30,
2002, our coal supply agreements had remaining terms ranging from one to 18
years and an average volume-weighted remaining term of approximately 4.5 years.
Many of our coal supply agreements contain provisions that permit the
parties to adjust the contract price upward or downward at specified times. We
may adjust these contract prices based on inflation and/or changes in the
factors affecting the cost of producing coal, such as taxes, fees, royalties and
changes in the laws regulating the mining, production, sale or use of coal. In a
limited number of contracts, failure of the parties to agree on a price under
those provisions may allow either party to terminate the contract. We have also
experienced a similar reduction in coal prices in new long-term coal supply
agreements replacing some of our expiring contracts. Coal supply agreements also
typically contain force majeure provisions allowing temporary suspension of
performance by us or the customer during the duration of specified events beyond
the control of the affected party. Most coal supply agreements contain
provisions requiring us to deliver coal meeting quality thresholds for certain
characteristics such as Btu, sulfur content, ash content, grindability and ash
fusion temperature. Failure to meet these specifications could result in
economic penalties, including price adjustments, the rejection of deliveries or
termination of the contracts. Moreover, some of these agreements permit the
customer to terminate the contract if transportation costs, which our customers
typically bear, increase substantially. In addition, some of these contracts
allow our customers to terminate their contracts in the event of changes in
regulations affecting our industry that increase the price of coal beyond
specified limits.
The operating profits we realize from coal sold under supply agreements
depend on a variety of factors. In addition, price adjustment and other
provisions may increase our exposure to short-term coal price volatility
provided by those contracts. If a substantial portion of our coal supply
agreements were modified or terminated, we could be materially adversely
affected to the extent that we are unable to find alternate buyers for our coal
at the same level of profitability. Some of our coal supply agreements are for
prices above current market prices. Although market prices for coal increased in
most regions in 2001, market prices for coal decreased in most regions in 2002.
As a result, we cannot predict the future strength of the coal market and cannot
assure you that we will be able to replace existing long-term coal supply
agreements at the same prices or with similar profit margins when they expire.
In addition, two of our coal supply agreements are the subject of ongoing
litigation and arbitration.
THE LOSS OF, OR SIGNIFICANT REDUCTION IN, PURCHASES BY OUR LARGEST CUSTOMERS
COULD ADVERSELY AFFECT OUR REVENUES.
For the nine months ended September 30, 2002, we derived 25% of our total
coal revenues from sales to our five largest customers. At September 30, 2002,
we had 27 coal supply agreements with these customers that expire at various
times from 2003 to 2015. We are currently discussing the extension of existing
agreements or entering into new long-term agreements with some of these
customers, but these negotiations may not be successful and those customers may
not continue to purchase coal from us under
2
long-term coal supply agreements. If a number of these customers were to
significantly reduce their purchases of coal from us, or if we were unable to
sell coal to them on terms as favorable to us as the terms under our current
agreements, our financial condition and results of operations could suffer
materially.
In addition, we sold 3.4 million tons of coal to the Mohave Generating
Station in the nine months ended September 30, 2002. We have a long-term coal
supply agreement with the owners of the Mohave Generating Station that expires
on December 31, 2005, but may be renewed as provided in the agreement. There is
a dispute with the Hopi Tribe regarding the use of groundwater in the
transportation of coal by pipeline to the Mohave Generating Station. Also,
Southern California Edison (the majority owner and operator of the plant) is
involved in a California Public Utility Commission proceeding related to
recovery of future capital expenditures for new pollution abatement equipment
for the station. As a result of these issues, the owners of the Mohave
Generating Station have announced that they expect to idle the plant for at
least six to 12 months beginning in 2006. We are in active discussions to
resolve the complex issues critical to the continuation of the operation of the
Mohave Generating Station and the renewal of the coal supply agreement after
December 31, 2005. There is no assurance that the issues critical to the
continued operation of the Mohave Generating Station will be resolved. The
Mohave Generating Station is the sole customer of our Black Mesa Mine, which
produces and sells 4.5 to 5 million tons of coal per year. If we are unable to
renew the coal supply agreement with the Mohave Generating Station, our
financial condition and results of operations could be adversely affected after
2005.
OUR FINANCIAL PERFORMANCE COULD BE ADVERSELY AFFECTED BY OUR SUBSTANTIAL DEBT.
Our financial performance could be affected by our substantial
indebtedness. As of September 30, 2002, we had total indebtedness of $1,047.8
million. We currently have total borrowing capacity under our and Black Beauty's
revolving credit facilities of $490.0 million. We may also incur additional
indebtedness in the future.
Our ability to pay principal and interest on our debt depends upon the
operating performance of our subsidiaries, which will be affected by, among
other things, prevailing economic conditions in the markets they serve, some of
which are beyond our control. Our business may not generate sufficient cash flow
from operations and future borrowings may not be available under our revolving
credit facilities or otherwise in an amount sufficient to enable us to service
our indebtedness or to fund our other liquidity needs.
The degree to which we are leveraged could have important consequences,
including, but not limited to: (1) making it more difficult for us to pay
dividends and satisfy our debt obligations; (2) increasing our vulnerability to
general adverse economic and industry conditions; (3) requiring the dedication
of a substantial portion of our cash flow from operations to the payment of
principal of, and interest on, our indebtedness, thereby reducing the
availability of the cash flow to fund working capital, capital expenditures,
research and development or other general corporate uses; (4) limiting our
ability to obtain additional financing to fund future working capital, capital
expenditures, research and development or other general corporate requirements;
(5) limiting our flexibility in planning for, or reacting to, changes in our
business; and (6) placing us at a competitive disadvantage compared to less
leveraged competitors. In addition, our indebtedness subjects us to financial
and other restrictive covenants. Failure by us to comply with these covenants
could result in an event of default which, if not cured or waived, could have a
material adverse effect on us. Furthermore, substantially all of our assets,
except for the assets of Black Beauty Coal Company and its affiliates, secure
our indebtedness under our senior credit facility.
IF TRANSPORTATION FOR OUR COAL BECOMES UNAVAILABLE OR UNECONOMIC FOR OUR
CUSTOMERS, OUR ABILITY TO SELL COAL COULD SUFFER.
Transportation costs represent a significant portion of the total cost of
coal, and as a result, the cost of transportation is a critical factor in a
customer's purchasing decision. Increases in transportation costs could make
coal a less competitive source of energy or could make some of our operations
less competitive than other sources of coal. Certain coal supply agreements
permit the customer to terminate the contract if the cost of transportation
increases by an amount ranging from 10% to 20% in any given 12-month period.
3
Coal producers depend upon rail, barge, trucking, overland conveyor and
other systems to deliver coal to markets. While U.S. coal customers typically
arrange and pay for transportation of coal from the mine to the point of use,
disruption of these transportation services because of weather-related problems,
strikes, lock-outs or other events could temporarily impair our ability to
supply coal to our customers and thus could adversely affect our results of
operations. For example, the high volume of coal shipped from all Southern
Powder River Basin mines could create temporary congestion on the rail systems
servicing that region.
RISKS INHERENT TO MINING COULD INCREASE THE COST OF OPERATING OUR BUSINESS.
Our mining operations are subject to conditions beyond our control that can
delay coal deliveries or increase the cost of mining at particular mines for
varying lengths of time. These conditions include weather and natural disasters,
unexpected maintenance problems, key equipment failures, variations in coal seam
thickness, variations in the amount of rock and soil overlying the coal deposit,
variations in rock and other natural materials and variations in geologic
conditions.
THE GOVERNMENT EXTENSIVELY REGULATES OUR MINING OPERATIONS, WHICH IMPOSES
SIGNIFICANT COSTS ON US, AND FUTURE REGULATIONS COULD INCREASE THOSE COSTS OR
LIMIT OUR ABILITY TO PRODUCE COAL.
Federal, state and local authorities regulate the coal mining industry with
respect to matters such as employee health and safety, permitting and licensing
requirements, air quality standards, water pollution, plant and wildlife
protection, reclamation and restoration of mining properties after mining is
completed, the discharge of materials into the environment, surface subsidence
from underground mining and the effects that mining has on groundwater quality
and availability. In addition, significant legislation mandating specified
benefits for retired coal miners affects our industry. Numerous governmental
permits and approvals are required for mining operations. We are required to
prepare and present to federal, state or local authorities data pertaining to
the effect or impact that any proposed exploration for or production of coal may
have upon the environment. The costs, liabilities and requirements associated
with these regulations may be costly and time-consuming and may delay
commencement or continuation of exploration or production operations. The
possibility exists that new legislation and/or regulations and orders may be
adopted that may materially adversely affect our mining operations, our cost
structure and/or our customers' ability to use coal. New legislation or
administrative regulations (or judicial interpretations of existing laws and
regulations), including proposals related to the protection of the environment
that would further regulate and tax the coal industry, may also require us or
our customers to change operations significantly or incur increased costs. The
majority of our coal supply agreements contain provisions that allow a purchaser
to terminate its contract if legislation is passed that either restricts the use
or type of coal permissible at the purchaser's plant or results in specified
increases in the cost of coal or its use. These factors and legislation, if
enacted, could have a material adverse effect on our financial condition and
results of operations.
In addition, the United States and over 160 other nations are signatories
to the 1992 Framework Convention on Climate Change, which is intended to limit
emissions of greenhouse gases, such as carbon dioxide. In December 1997, in
Kyoto, Japan, the signatories to the convention established a binding set of
emission targets for developed nations. Although the specific emission targets
vary from country to country, the United States would be required to reduce
emissions to 93% of 1990 levels over a five-year budget period from 2008 through
2012. Although the United States has not ratified the emission targets and no
comprehensive regulations focusing on U.S. greenhouse gas emissions are in
place, these restrictions, whether through ratification of the emission targets
or other efforts to stabilize or reduce greenhouse gas emissions, could
adversely impact the price of and demand for coal. According to the Energy
Information Administration's Emissions of Greenhouse Gases in the United States
2001, coal accounts for 32% of greenhouse gas emissions in the United States,
and efforts to control greenhouse gas emissions could result in reduced use of
coal if electricity generators switch to sources of fuel with lower carbon
dioxide emissions. Further developments in connection with regulations or other
limits on carbon dioxide emissions could have a material adverse effect on our
financial condition or results of operations.
4
OUR EXPENDITURES FOR POSTRETIREMENT BENEFIT AND PENSION OBLIGATIONS COULD BE
MATERIALLY HIGHER THAN WE HAVE PREDICTED IF OUR UNDERLYING ASSUMPTIONS PROVE TO
BE INCORRECT.
We provide postretirement health and life insurance benefits to eligible
union and non-union employees. We calculated the total accumulated
postretirement benefit obligation under Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which we estimate had a present value of $1,032.4 million as of
September 30, 2002, $70.4 million of which was a current liability. We have
estimated these unfunded obligations based on assumptions described in Note 18
to our audited financial statements incorporated by reference in this
prospectus. If our assumptions do not materialize as expected, cash expenditures
and costs that we incur could be materially higher. Moreover, regulatory changes
could increase our obligations to provide these or additional benefits.
We are party to an agreement with the Pension Benefit Guaranty Corporation,
or the PBGC, and TXU Europe Limited, an affiliate of our former parent
corporation, under which we are required to make specified contributions to two
of our defined benefit pension plans and to maintain a $37.0 million letter of
credit in favor of the PBGC. If we or the PBGC gives notice of an intent to
terminate one or more of the covered pension plans in which liabilities are not
fully funded, or if we fail to maintain the letter of credit, the PBGC may draw
down on the letter of credit and use the proceeds to satisfy liabilities under
the Employee Retirement Income Security Act of 1974, as amended. The PBGC,
however, is required to first apply amounts received from a $110.0 million
guaranty in place from TXU Europe Limited in favor of the PBGC before it draws
on our letter of credit. On November 19, 2002 TXU Europe Limited was placed
under the administration process in the United Kingdom (a process similar to
bankruptcy proceedings in the United States). As a result of these proceedings,
TXU Europe Limited may be liquidated or otherwise reorganized in such a way as
to relieve it of its obligations under its guaranty.
OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO CONTINUE ACQUIRING AND DEVELOPING
COAL RESERVES THAT ARE ECONOMICALLY RECOVERABLE.
Our recoverable reserves decline as we produce coal. We have not yet
applied for the permits required or developed the mines necessary to use all of
our reserves. Furthermore, we may not be able to mine all of our reserves as
profitably as we do at our current operations. Our future success depends upon
our conducting successful exploration and development activities or acquiring
properties containing economically recoverable reserves. Our current strategy
includes increasing our reserve base through acquisitions of government and
other leases and producing properties and continuing to use our existing
properties. The federal government also leases natural gas and coalbed methane
reserves in the west, including in the Powder River Basin. Some of these natural
gas and coalbed methane reserves are located on, or adjacent to, some of our
Powder River Basin reserves, potentially creating conflicting interests between
us and lessees of those interests. Other lessees' rights relating to these
mineral interests could prevent, delay or increase the cost of developing our
coal reserves. These lessees may also seek damages from us based on claims that
our coal mining operations impair their interests. Additionally, the federal
government limits the amount of federal land that may be leased by any company
to 150,000 acres nationwide. As of September 30, 2002, we leased or had applied
to lease a total of 66,797 acres from the federal government. The limit could
restrict our ability to lease additional federal lands.
Our planned development and exploration projects and acquisition activities
may not result in significant additional reserves and we may not have continuing
success developing additional mines. Most of our mining operations are conducted
on properties owned or leased by us. Because title to most of our leased
properties and mineral rights are not thoroughly verified until a permit to mine
the property is obtained, our right to mine some of our reserves may be
materially adversely affected if defects in title or boundaries exist. In
addition, in order to develop our reserves, we must receive various governmental
permits. We cannot predict whether we will continue to receive the permits
necessary for us to operate profitably in the future. We may not be able to
negotiate new leases from the government or from private parties or obtain
mining contracts for properties containing additional reserves or maintain our
leasehold interest in properties on which mining operations are not commenced
during the term of the lease. From time to time, we have experienced litigation
with lessors of our coal properties and with royalty holders.
5
IF THE COAL INDUSTRY EXPERIENCES OVERCAPACITY IN THE FUTURE, OUR PROFITABILITY
COULD BE IMPAIRED.
During the mid-1970s and early 1980s, a growing coal market and increased
demand for coal attracted new investors to the coal industry, spurred the
development of new mines and resulted in added production capacity throughout
the industry, all of which led to increased competition and lower coal prices.
Similarly, an increase in future coal prices could encourage the development of
expanded capacity by new or existing coal producers. Any overcapacity could
reduce coal prices in the future.
OUR FINANCIAL CONDITION COULD BE NEGATIVELY AFFECTED IF WE FAIL TO MAINTAIN
SATISFACTORY LABOR RELATIONS.
As of September 30, 2002, the United Mine Workers of America represented
approximately 33% of our employees, who produced 20% of our coal sales volume
during the nine months ended September 30, 2002. An additional 4% of our
employees are represented by labor unions other than the United Mine Workers of
America. These employees produced 3% of our coal sales volume during the nine
months ended September 30, 2002. Because of the higher labor costs and the
increased risk of strikes and other work-related stoppages that may be
associated with union operations in the coal industry, our non-unionized
competitors may have a competitive advantage in areas where they compete with
our unionized operations. If some or all of our current non-union operations
were to become unionized, we could incur an increased risk of work stoppages,
reduced productivity and higher labor costs. The ten-month United Mine Workers
of America strike in 1993 had a material adverse effect on us. Two of our
subsidiaries, Peabody Coal Company and Eastern Associated Coal Corp., operate
under a union contract that is in effect through December 31, 2006. Peabody
Western Coal Company operates under a union contract that is in effect through
September 1, 2005.
OUR OPERATIONS COULD BE ADVERSELY AFFECTED IF WE FAIL TO MAINTAIN REQUIRED
SURETY BONDS.
Federal and state laws require bonds to secure our obligations to reclaim
lands used for mining, to pay federal and state workers' compensation, to secure
coal lease obligations and to satisfy other miscellaneous obligations. As of
September 30, 2002, we had outstanding surety bonds with third parties for
post-mining reclamation totaling $682.3 million. Furthermore, we had an
additional $194.2 million of surety bonds in place for workers' compensation and
retiree healthcare obligations and $68.8 million of surety bonds securing coal
leases. These bonds are typically renewable on a yearly basis. It has become
increasingly difficult for us to secure new surety bonds or renew bonds without
the posting of partial collateral. In addition, surety bond costs have increased
while the market terms of surety bonds have generally become less favorable to
us. Surety bond issuers and holders may not continue to renew the bonds or may
demand additional collateral upon those renewals. Our failure to maintain, or
inability to acquire, surety bonds that are required by state and federal law
would have a material adverse effect on us. That failure could result from a
variety of factors including the following:
- lack of availability, higher expense or unfavorable market terms of new
surety bonds;
- restrictions on the availability of collateral for current and future
third-party surety bond issuers under the terms of our indentures or
senior credit facility; and
- the exercise by third-party surety bond issuers of their right to refuse
to renew the surety.
LEHMAN BROTHERS MERCHANT BANKING HAS SIGNIFICANT INFLUENCE ON ALL STOCKHOLDER
VOTES AND MAY HAVE CONFLICTS OF INTEREST WITH OTHER STOCKHOLDERS IN THE FUTURE.
Prior to the offering of any of the shares offered in this prospectus,
Lehman Brothers Merchant Banking and its affiliates beneficially owned
approximately 41% of our common stock. As a result, Lehman Brothers Merchant
Banking will effectively continue to be able to influence the election of our
directors and determine our corporate and management policies and actions,
including potential mergers or acquisitions, asset sales and other significant
corporate transactions. The interests of Lehman Brothers Merchant Banking may
not coincide with the interests of other holders of our common stock. We have
retained affiliates of Lehman Brothers Merchant Banking to perform advisory and
financing services for us in the past, and may continue to do so in the future.
6
OUR ABILITY TO OPERATE OUR COMPANY EFFECTIVELY COULD BE IMPAIRED IF WE LOSE KEY
PERSONNEL.
We manage our business with a number of key personnel, the loss of a number
of whom could have a material adverse effect on us. In addition, as our business
develops and expands, we believe that our future success will depend greatly on
our continued ability to attract and retain highly skilled and qualified
personnel. We cannot assure you that key personnel will continue to be employed
by us or that we will be able to attract and retain qualified personnel in the
future. We do not have "key person" life insurance to cover our executive
officers. Failure to retain or attract key personnel could have a material
adverse effect on us.
TERRORIST ATTACKS AND THREATS, ESCALATION OF MILITARY ACTIVITY IN RESPONSE TO
SUCH ATTACKS OR ACTS OF WAR MAY NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Terrorist attacks and threats, escalation of military activity in response
to such attacks or acts of war may negatively affect our business, financial
condition and results of operations. Our business is affected by general
economic conditions, fluctuations in consumer confidence and spending, and
market liquidity, which can decline as a result of numerous factors outside of
our control, such as terrorist attacks and acts of war. The 2001 terrorist
attacks in the United States, as well as future events occurring in response to,
or in connection with, the attacks, including future terrorist attacks against
U.S. targets, rumors or threats of war, actual conflicts involving the United
States or its allies, or military or trade disruptions affecting our customers,
may materially adversely affect our operations. As a result, there could be
delays or losses in transportation and deliveries of coal to our customers,
decreased sales of our coal and extension of time for payment of accounts
receivable from our customers. Strategic targets such as energy-related assets
may be at greater risk of future terrorist attacks than other targets in the
United States. In addition, disruption or significant increases in energy prices
could result in government-imposed price controls. It is possible that any, or a
combination, of these occurrences could have a material adverse effect on our
business, financial condition and results of operations.
OUR ABILITY TO COLLECT PAYMENTS FROM OUR CUSTOMERS COULD BE IMPAIRED IF THEIR
CREDITWORTHINESS DETERIORATES.
Our ability to receive payment for coal sold and delivered depends on the
continued creditworthiness of our customers. Our customer base is changing with
deregulation as utilities sell their power plants to their non-regulated
affiliates or third parties. These new power plant owners may have credit
ratings that are below investment grade. In addition, the creditworthiness of
certain of our customers and trading counterparties has deteriorated due to
lower than anticipated demand for energy and lower volume and volatility in the
traded energy markets in 2002.
We have taken steps to reduce our credit exposure to customers or
counterparties whose credit has deteriorated and who may pose a higher risk, as
determined by our credit management function, of failure to perform under their
contractual obligations. These steps include obtaining letters of credit, cash
collateral, prepayments for shipments or the creation of customer trust accounts
held for our benefit to fund the payment for coal under existing coal supply
agreements. While these steps can mitigate or eliminate losses related to
existing amounts due from these customers, should a customer become unable to
perform in the future under an existing coal supply agreement, our business
could be adversely affected.
If deterioration of the creditworthiness of other electric power generator
customers or trading counterparties continues, our $140.0 million accounts
receivable securitization program and our business could be adversely affected.
RISKS RELATED TO THIS REGISTRATION STATEMENT
IF WE OR OUR EXISTING STOCKHOLDERS SELL ADDITIONAL SHARES OF OUR COMMON STOCK
AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE.
The market price of our common stock could decline as a result of sales of
a large number of shares of common stock in the public market or the perception
that such sales could occur. These sales, or the
7
possibility that these sales may occur, also might make it more difficult for us
to sell equity securities in the future at a time and at a price that we deem
appropriate.
Sales of our common stock are restricted by lock-up agreements that our
directors, officers and all of our stockholders who acquired shares prior to our
initial public offering have entered into with us. The lock-up agreements
restrict our directors, certain of our officers and those stockholders, subject
to specified exceptions, from selling or otherwise disposing of any shares for a
period of 14 days prior to and 90 days after the date of any offering under the
registration statement of which this prospectus forms a part without the prior
written consent of the managing underwriter in the context of an underwritten
offering. The managing underwriter, in the case of an underwritten offering may,
however, in its sole discretion and without notice, release all or any portion
of the shares from the restrictions in the lock-up agreements.
As of January 1, 2003, we had approximately 52.4 million shares of common
stock outstanding. Of those shares, 39.7 million shares will be freely tradeable
if all of the shares registered under this registration statement are sold. Of
the remaining 12.7 million restricted shares, 200,000 may be resold under Rule
144(k) without regard to volume limitations and approximately 12.5 million
shares may be sold subject to the volume, manner of sale and other conditions of
Rule 144. Lehman Brothers Merchant Banking and its affiliates, which will
collectively own 11.3 million shares after the sale of all shares of common
stock being registered under this registration statement, will have the ability
to cause us to register the resale of their shares under their registration
rights agreement.
In addition, approximately 5.8 million shares are issuable upon the
exercise of presently outstanding stock options under our 1998 Stock Purchase
and Option Plan and our Long-Term Equity Incentive Plan. Shares acquired upon
the exercise of vested options under our 1998 Stock Purchase and Option Plan for
Key Employees will first become eligible for resale in May 2003. In addition,
awards that have been granted under our Long-Term Equity Incentive Plan already
have begun to vest. We plan to file a registration statement to register the
shares issuable upon the exercise of all stock options under our 1998 Stock
Purchase and Option Plan for Key Employees. We filed a registration statement
registering the shares issuable upon the exercise of all stock options under our
Long-Term Equity Incentive Plan on May 22, 2001.
OUR CERTIFICATE OF INCORPORATION AND BY-LAWS INCLUDE PROVISIONS THAT MAY
DISCOURAGE A TAKEOVER ATTEMPT.
Provisions contained in our certificate of incorporation and by-laws and
Delaware law could make it more difficult for a third party to acquire us, even
if doing so might be beneficial to our stockholders. Provisions of our by-laws
and certificate of incorporation impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. For example, a change of control of our company may
be delayed or deterred as a result of the stockholders' rights plan adopted by
our board of directors. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of our common stock
and may have the effect of delaying or preventing a change in control.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling stockholders. The selling stockholders will receive all net proceeds
from the sale of shares of our common stock offered in this prospectus.
8
SELLING STOCKHOLDERS
The following table sets forth information concerning ownership of our
capital stock as of January 1, 2003 by each selling stockholder. As of January
1, 2003, there were 52.4 million shares of our common stock outstanding.
NUMBER OF SHARES TO BE
BENEFICIALLY OWNED AFTER
AS OF MAXIMUM THE SALE OF THE MAXIMUM
JANUARY 1, 2003 NUMBER NUMBER OF SHARES
---------------------- OF SHARES ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) PERCENT TO BE SOLD SHARES(1) PERCENT
------------------------------------ ---------- ------- ------------ ----------- --------
Lehman Brothers Merchant Banking
Partners II L.P. and affiliates(2)
c/o Lehman Brothers Holdings Inc
745 Seventh Avenue, 25th Floor,
New York, NY 10019................. 21,284,994 40.6% 10,000,000 11,284,994 21.5%
Co-Investment Partners, L.P.
c/o Lexington Partners Inc.
660 Madison Avenue, 23rd Floor
New York, NY 10021................. 1,000,000 1.9% 1,000,000 0 0%
Michael V. Altrudo(3)(5)............. 35,798 * 1,435 34,363 *
Ian S. Craig(3)(4)................... 95,197 * 34,919 60,278 *
Irl F. Engelhardt(3)(6).............. 703,260 1.3 100,000 603,260 1.1
Sharon D. Fiehler(3)(7).............. 144,025 * 15,000 129,025 *
Jeffery L. Klinger(3)(4)............. 143,178 * 15,000 128,178 *
Richard A. Navarre(3)(8)............. 194,550 * 20,000 174,550 *
Jiri Nemec(3)(4)..................... 64,630 * 9,164 55,466 *
Dianna K. Tickner(3)(4).............. 50,874 * 10,035 40,839 *
Roger B. Walcott, Jr.(3)(9).......... 224,575 * 20,000 204,575 *
John L. Wasik(3)(4).................. 74,894 * 5,498 69,396 *
Richard M. Whiting(3)(10)............ 223,671 * 19,675 203,996 *
Gregg P. Wickstra(3)(11)............. 43,466 * 4,935 38,531 *
---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and investment power with respect to shares. Unless
otherwise indicated, the persons named in the table have sole voting and
sole investment control with respect to all shares beneficially owned.
(2) An aggregate of 21,284,994 shares (before the offering) are held by Lehman
Brothers Merchant Banking Partners II L.P., Lehman Brothers Offshore
Investment Partners II L.P., Lehman Brothers Capital Partners III L.P.,
Lehman Brothers Capital Partners IV L.P., Lehman Brothers MBG Partners 1998
(A) L.P., Lehman Brothers MBG Partners 1998 (B) L.P., Lehman Brothers MBG
Partners 1998 (C) L.P. and LB I Group Inc. Affiliates of Lehman Brothers
Merchant Banking Partners II L.P. have provided various services to us in
the past.
(3) Includes options exercisable within 60 days after January 1, 2003.
(4) Member of our management.
(5) All of the shares are held by the Altrudo Living Trust. Mr. Altrudo is the
beneficial owner of all of the shares. Mr. Altrudo is also a member of our
management team.
(6) All of the shares are held by the Irl Fredrick Engelhardt Revocable Trust.
Mr. Engelhardt is the beneficial owner of all of the shares and also our
Chief Executive Officer and a Director.
(7) All of the shares are held by the Sharon D. Fiehler Trust. Ms. Fiehler is
the beneficial owner of all of the shares. Ms. Fiehler is also an executive
officer of our company.
(8) All of the shares are held by the Richard A. Navarre Revocable Trust. Mr.
Navarre is the beneficial owner of all of the shares. Mr. Navarre is also
an executive officer of our company.
(9) All of the shares are held by the Roger B. Walcott, Jr. Revocable Trust.
Mr. Walcott and his spouse, as co-trustees, are the beneficial owners of
all of the shares. Mr. Walcott is also an executive officer of our company.
(10) All of the shares are held by the Indenture of Trust of Richard M. Whiting.
Mr. Whiting is the beneficial owner of all of the shares and also an
executive officer of our company.
(11) All of the shares are held by the Wickstra Living Trust. Mr. Wickstra and
his spouse, as co-trustees, are the beneficial owners of all of the shares.
Mr. Wickstra is also a member of our management team.
9
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (1) 150 million shares of common
stock, par value $.01 per share, of which 52.4 million shares were outstanding
on January 1, 2003, (2) 10 million shares of preferred stock, par value $.01 per
share, of which no shares are issued or outstanding, (3) 40 million shares of
series common stock, par value $.01 per share, of which no shares are issued or
outstanding and (4) 1.5 million shares of Series A Junior Participating
Preferred Stock of which no shares are issued or outstanding. As of January 2,
2003, there were 123 holders of our common stock. The following description of
our capital stock and related matters is qualified in its entirety by reference
to our certificate of incorporation and by-laws.
The following summary describes elements of our certificate of
incorporation and by-laws.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders and vote together, as one class, with the
holders of our Series A Junior Participating Preferred Stock. The holders of
common stock do not have cumulative voting rights in the election of directors.
Holders of common stock are entitled to receive ratably dividends if, as and
when dividends are declared from time to time by our board of directors out of
funds legally available for that purpose, after payment of dividends required to
be paid on outstanding preferred stock or series common stock, as described
below. Upon liquidation, dissolution or winding up, any business combination or
a sale or disposition of all or substantially all of the assets, the holders of
common stock are entitled to receive ratably the assets available for
distribution to the stockholders after payment of liabilities and accrued but
unpaid dividends and liquidation preferences on any outstanding preferred stock
or series common stock. The common stock has no preemptive or conversion rights
and is not subject to further calls or assessment by us. There are no redemption
or sinking fund provisions applicable to the common stock.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Holders of shares of Series A Junior Participating Preferred Stock are
entitled to receive quarterly dividend payments equal to the greater of $1.00
per share or 100 times the per share dividend declared on our common stock.
Holders of Series A preferred stock are entitled to 100 votes per share on all
matters to be voted upon by the stockholders and vote together, as one class,
with the holders of common stock. Upon liquidation, dissolution or winding up,
holders of our Series A preferred stock are entitled to a liquidation preference
of $100 per share plus all accrued and unpaid dividends and distributions on the
Series A preferred stock or 100 times the amount to be distributed per share on
our common stock, whichever is greater. Liquidation distributions will be made
ratably with all shares ranking on parity with the Series A preferred stock. In
the event of any merger, consolidation, combination or other transaction in
which shares of our common stock are exchanged for other securities, cash or
property, each share of the Series A preferred stock will be exchanged for 100
times the amount received per share on our common stock. Each of these rights of
our Series A preferred stock is protected by customary anti-dilution provisions.
The Series A preferred stock is not redeemable and it will rank junior to any
other series of our preferred stock with respect to the payment of dividends and
the distribution of assets.
PREFERRED STOCK AND SERIES COMMON STOCK
Our certificate of incorporation authorizes our board of directors to
establish one or more series of preferred stock or series common stock. With
respect to any series of series common stock, our board of directors is
authorized to determine the terms and rights of that series, including:
- the designation of the series;
- the number of shares of the series, which our board may, except where
otherwise provided in the preferred stock or series common stock
designation, increase or decrease, but not below the number of shares
then outstanding;
- whether dividends, if any, will be cumulative or non-cumulative and the
dividend rate of the series;
10
- the dates at which dividends, if any, will be payable;
- the redemption rights and price or prices, if any, for shares of the
series;
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series;
- the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding-up of the affairs of
our company;
- whether the shares of the series will be convertible into shares of any
other class or series, or any other security, of our company or any other
corporation, and, if so, the specification of the other class or series
or other security, the conversion price or prices or rate or rates, any
rate adjustments, the date or dates as of which the shares will be
convertible and all other terms and conditions upon which the conversion
may be made;
- restrictions on the issuance of shares of the same series or of any other
class or series; and
- the voting rights, if any, of the holders of the series.
Unless required by law or by any stock exchange, the authorized shares of
preferred stock and series common stock, as well as shares of common stock, are
available for issuance without further action by you.
Although we have no intention at the present time of doing so, we could
issue a series of preferred stock or series common stock that could, depending
on the terms of the series, impede the completion of a merger, tender offer or
other takeover attempt. We will make any determination to issue preferred stock
or series common stock based on our judgment as to the best interests of the
company and our stockholders. We, in so acting, could issue preferred stock or
series common stock having terms that could discourage an acquisition attempt or
other transaction that some, or a majority, of you might believe to be in your
best interests or in which you might receive a premium for your common stock
over the market price of the common stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the New York Stock
Exchange, which would apply so long as the common stock remains listed on the
New York Stock Exchange, require stockholder approval of certain issuances equal
to or exceeding 20% of the then-outstanding voting power or then-outstanding
number of shares of common stock. These additional shares may be used for a
variety of corporate purposes, including future public offerings, to raise
additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved common
stock, preferred stock or series common stock may be to enable our board of
directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of our company by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of our management and possibly deprive the
stockholders of opportunities to sell their shares of common stock at prices
higher than prevailing market prices.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BY-LAWS
Delaware Law
Our company is a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law. Section 203 provides that, subject to certain
exceptions specified in the law, a Delaware corporation
11
shall not engage in certain "business combinations" with any "interested
stockholder" for a three-year period following the time that the stockholder
became an interested stockholder unless:
- prior to such time, our board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding certain shares; or
- at or subsequent to that time, the business combination is approved by
our board of directors and by the affirmative vote of holders of at least
66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale
or other transaction resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested shareholder" is a
person who together with that person's affiliates and associates owns, or within
the previous three years did own, 15% or more of our voting stock.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring our company to
negotiate in advance with our board of directors because the stockholder
approval requirement would be avoided if our board of directors approves either
the business combination or the transaction which results in the stockholder
becoming an interested stockholder. These provisions also may have the effect of
preventing changes in our board of directors and may make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests.
Certificate of Incorporation; By-laws
Our certificate of incorporation and by-laws contain provisions that could
make more difficult the acquisition of the company by means of a tender offer, a
proxy contest or otherwise.
Classified Board. Our certificate of incorporation provides that our board
of directors will be divided into three classes of directors, with the classes
to be as nearly equal in number as possible. As a result, approximately
one-third of the board of directors will be elected each year. The
classification of directors will have the effect of making it more difficult for
stockholders to change the composition of our board. Our certificate of
incorporation provides that, subject to any rights of holders of preferred stock
or series common stock to elect additional directors under specified
circumstances, the number of directors will be fixed in the manner provided in
our by-laws. Our certificate of incorporation and by-laws provide that the
number of directors will be fixed from time to time exclusively pursuant to a
resolution adopted by the board, but must consist of not less than three
directors. In addition, our certificate of incorporation provides that, subject
to any rights of holders of preferred stock or series common stock and unless
the board otherwise determines, any vacancies will be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum.
Removal of Directors. Under Delaware General Corporation Law, unless
otherwise provided in our certificate of incorporation, directors serving on a
classified board may only be removed by the stockholders for cause. In addition,
our certificate of incorporation and by-laws provide that directors may be
removed only for cause and only upon the affirmative vote of holders of at least
75% of the voting power of all the outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single class.
Stockholder Action. Our certificate of incorporation and by-laws provide
that stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent in lieu of a meeting. Our
certificate of incorporation and by-laws provide that special meetings of
stockholders can be called only by our chief executive officer or pursuant to a
resolution adopted by our
12
board of directors. Stockholders are not permitted to call a special meeting or
to require that the board of directors call a special meeting of stockholders.
Advance Notice Procedures. Our by-laws establish an advance notice
procedure for stockholders to make nominations of candidates for election as
directors, or bring other business before an annual or special meeting of our
stockholders. This notice procedure provides that only persons who are nominated
by, or at the direction of our board of directors, the chairman of the board, or
by a stockholder who has given timely written notice to the secretary of our
company prior to the meeting at which directors are to be elected, will be
eligible for election as directors. This procedure also requires that, in order
to raise matters at an annual or special meeting, those matters be raised before
the meeting pursuant to the notice of meeting we deliver or by, or at the
direction of, our chairman or by a stockholder who is entitled to vote at the
meeting and who has given timely written notice to the secretary of our company
of his intention to raise those matters at the annual meeting. If our chairman
or other officer presiding at a meeting determines that a person was not
nominated, or other business was not brought before the meeting, in accordance
with the notice procedure, that person will not be eligible for election as a
director, or that business will not be conducted at the meeting.
Amendment. Our certificate of incorporation provides that the affirmative
vote of the holders of at least 75% of the voting power of the outstanding
shares entitled to vote, voting together as a single class, is required to amend
provisions of our certificate of incorporation relating to the prohibition of
stockholder action without a meeting, the number, election and term of our
directors and the removal of directors. Our certificate of incorporation further
provides that our by-laws may be amended by our board or by the affirmative vote
of the holders of at least 75% of the outstanding shares entitled to vote,
voting together as a single class.
Rights Agreement
On July 23, 2002, our board of directors adopted a preferred share purchase
rights plan. In connection with the rights plan, our board of directors declared
a dividend of one preferred share purchase right for each outstanding share of
our common stock. The rights dividend was paid on August 12, 2002 to the
stockholders of record on that date.
Purchase Price. Each right entitles the registered holder to purchase from
us one one-hundredth of a share of our Series A Junior Participating Preferred
Stock, or preferred shares, par value $0.01 per share, at a price of $110 per
one one-hundredth of a preferred share, subject to adjustment.
Flip-In. In the event that any person or group of affiliated or associated
persons acquires beneficial ownership of 15% or more of our outstanding common
stock, each holder of a right, other than rights beneficially owned by the
acquiring person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of shares of our common stock having a
market value of two times the exercise price of the right.
Flip-Over. If we are acquired in a merger or other business combination
transaction or 50% or more of our consolidated assets or earning power are sold
after a person or group acquires beneficial ownership of 15% or more of our
outstanding common stock, each holder of a right (other than rights beneficially
owned by the acquiring person, which will be void) will thereafter have the
right to receive that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the right.
None of Lehman Brothers Holdings Inc., a Delaware corporation, Lehman
Brothers Inc., a Delaware corporation, LB I Group Inc., a Delaware corporation,
Lehman Brothers Merchant Banking Partners II Inc., a Delaware corporation,
Lehman Brothers Offshore Partners II Ltd, a Bermuda company, Lehman Brothers
Merchant Banking Partners II L.P., a Delaware limited partnership, Lehman
Brothers Offshore Investment Partners II L.P., a Bermuda exempted limited
partnership, Lehman Brothers Capital Partners III, L.P., a Delaware limited
partnership, Lehman Brothers Capital Partners IV, L.P., a Delaware limited
partnership, Lehman Brothers MBG partners 1998 (A) L.P., a Delaware limited
partnership,
13
Lehman Brothers MBG partners 1998 (B) L.P., a Delaware limited partnership, and
Lehman Brothers MBG partners 1998 (C) L.P., a Delaware limited partnership,
shall be deemed to be an acquiring person, as long as the Lehman parties and
their affiliates in the aggregate beneficially own no more than the greater of
(1) 15% or more of our common stock then outstanding and (2) 21,284,994 shares
of our common stock less the sum of all of our common stock disposed of by the
Lehman parties to non-affiliates after July 24, 2002.
Distribution Date. The distribution date is the earlier of
(1) 10 days following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial ownership of 15%
or more of our outstanding common stock; or
(2) 10 business days (or such later date as may be determined by
action of our board of directors prior to such time as any person or group
of affiliated persons acquires beneficial ownership of 15% or more of our
outstanding common stock) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of 15%
or more of our outstanding common stock.
Transfer and Detachment. Until the distribution date, the rights will be
evidenced either by book entry in our direct registration system or, with
respect to any of our common stock certificates outstanding as of August 12,
2002, by such common stock certificate with a copy of the Summary of Rights
attached thereto. Until the distribution date (or earlier redemption or
expiration of the rights), the rights will be transferred with and only with the
common stock, and transfer of those shares will also constitute transfer of the
rights.
As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of our
common stock as of the close of business on the distribution date and the
separate certificates evidencing the rights alone will thereafter evidence the
rights.
Exercisability. The rights are not exercisable until the distribution
date. The rights will expire at the earliest of (1) August 11, 2012, unless that
date is extended, (2) the time at which we redeem the rights, as described
below, or (3) the time at which we exchange the rights, as described below.
Adjustments. The purchase price payable, and the number of preferred
shares or other securities or property issuable, upon exercise of the rights are
subject to adjustment from time to time to prevent dilution in the event of
stock dividends, stock splits, reclassifications, or certain distributions with
respect to the preferred shares. The number of outstanding rights and the number
of one one-hundredths of a preferred share issuable upon exercise of each right
are also subject to adjustment if, prior to the distribution date, there is a
stock split of our common stock or a stock dividend on our common stock payable
in common stock or subdivisions, consolidations or combinations of our common
stock. With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional preferred shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a preferred
share, which may, at our election, be evidenced by depositary receipts) and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the preferred shares on the last trading day prior to the date of exercise.
Preferred Shares. Preferred shares purchasable upon exercise of the rights
will not be redeemable. Each preferred share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of common
stock. In the event of liquidation, the holders of the preferred shares will be
entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment of 100 times the payment made per share
of common stock. Each preferred share will have 100 votes, voting together with
the common stock. Finally, in the event of any merger, consolidation or other
transaction in which shares of our common stock are exchanged, each preferred
share will be entitled to receive 100 times the amount received per share of
common stock. These rights are protected by customary anti-dilution provisions.
14
The value of the one one-hundredth interest in a preferred share
purchasable upon exercise of each right should, because of the nature of the
preferred shares' dividend, liquidation and voting rights, approximate the value
of one share of our common stock.
Exchange. At any time after any person or group acquiring beneficial
ownership of 15% or more of our outstanding common stock, and prior to the
acquisition by such person or group of beneficial ownership of 50% or more of
our outstanding common stock, our board of directors may exchange the rights
(other than rights owned by the acquiring person, which will have become void),
in whole or in part, at an exchange ratio of one share of our common stock, or
one one-hundredth of a preferred share (subject to adjustment).
Redemption. At any time prior to any person or group acquiring beneficial
ownership of 15% or more of our outstanding common stock, our board of directors
may redeem the rights in whole, but not in part, at a price of $0.001 per right.
The redemption of the rights may be made effective at such time on such basis
with such conditions as our board of directors in its sole discretion may
establish. Immediately upon any redemption of the rights, the right to exercise
the rights will terminate and the only right of the holders of rights will be to
receive the redemption price.
Amendments. The terms of the rights may be amended by our board of
directors without the consent of the holders of the rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (1) the sum of .001% and the largest percentage of our outstanding
common stock then known to us to be beneficially owned by any person or group of
affiliated or associated persons and (2) 10%, except that from and after such
time as any person or group of affiliated or associated persons acquires
beneficial ownership of 15% or more of our outstanding common stock, no such
amendment may adversely affect the interests of the holders of the rights.
Rights and Holders. Until a right is exercised, the holder thereof, as
such, will have no rights as a stockholder of our company, including, without
limitation, the right to vote or to receive dividends.
Anti-takeover Effects. The rights have certain anti-takeover effects. The
rights will cause substantial dilution to a person or group that attempts to
acquire us on terms not approved by our board of directors, except pursuant to
any offer conditioned on a substantial number of rights being acquired. The
rights should not interfere with any merger or other business combination
approved by our board of directors since the rights may be redeemed by us at the
redemption price prior to the time that a person or group has acquired
beneficial ownership of 15% or more of our common stock.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the common stock is EquiServe Trust
Company, N.A.
LISTING
The common stock is listed on the New York Stock Exchange under the symbol
"BTU."
15
PLAN OF DISTRIBUTION
We are registering the shares of our common stock on behalf of the selling
stockholders. The selling stockholders may offer their shares of our common
stock at various times in one or more of the following transactions:
- to or through underwriting syndicates represented by managing
underwriters;
- through one or more underwriters without a syndicate for them to offer
and sell to the public;
- through dealers or agents; or
- to investors directly in negotiated sales or in competitively bid
transactions.
The prospectus supplement for the shares of common stock the selling
stockholders sell will describe that offering, including:
- the name or names of any underwriters;
- the purchase price and the proceeds to the selling stockholders from that
sale;
- any underwriting discounts and other items constituting underwriters'
compensation; and
- any discounts or concessions allowed or reallowed or paid to dealers.
UNDERWRITERS
If underwriters are used in the sale, we and the selling stockholders will
execute an underwriting agreement with those underwriters relating to the shares
of common stock that the selling stockholders will offer. Unless otherwise set
forth in the prospectus supplement, the obligations of the underwriters to
purchase the shares of common stock will be subject to conditions. The
underwriters will be obligated to purchase all of the shares of common stock if
any are purchased.
The shares of common stock subject to the underwriting agreement will be
acquired by the underwriters for their own account and may be resold by them
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may be deemed to have received compensation
from the selling stockholders in the form of underwriting discounts or
commissions and may also receive commissions from the purchasers of the common
stock for whom they may act as agent. Underwriters may sell the shares of common
stock to or through dealers. These dealers may receive compensation in the form
of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent. Any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
AGENTS
The selling stockholders may also sell the shares of common stock through
agents designated by the selling stockholders from time to time. The selling
stockholders will name any agent involved in the offer or sale of the common
stock and will list commissions payable by the selling stockholders to these
agents in the prospectus supplement. These agents will be acting on a best
efforts basis to solicit purchases for the period of their appointment, unless
the selling stockholders state otherwise in the prospectus supplement.
DIRECT SALES
The selling stockholders may sell the shares of common stock directly to
purchasers. In this case, the selling stockholders will not engage underwriters
or agents in the offer and sale of the shares of common stock.
16
RULE 144
The selling stockholders also may sell all or a portion of their shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of that rule.
INDEMNIFICATION
The selling stockholders may indemnify underwriters, dealers or agents, or
the controlling persons of any of them, who participate in the distribution of
common stock against certain liabilities, including liabilities under the
Securities Act of 1933 and agree to contribute to payments which these
underwriters, dealers or agents, or the controlling persons of any of them, may
be required to make.
VALIDITY OF OUR COMMON STOCK
The validity of the shares of common stock to be offered in this prospectus
will be passed upon for us by our counsel, Simpson Thacher & Bartlett LLP, New
York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included or incorporated by reference in our
annual report on Form 10-K for the nine months ended December 31, 2001, as set
forth in their report, which are incorporated by reference in this prospectus
and elsewhere in the registration statement. Our financial statements and
schedule are incorporated by reference in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports and other information with
the SEC. You may access and read our SEC filings, including the complete
registration statement of which this prospectus is a part and all of the
exhibits to it, through the SEC's Internet site at www.sec.gov. This site
contains reports and other information that we file electronically with the SEC.
You may also read and copy any document we file at the SEC's public reference
room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room.
We have filed with the SEC a registration statement under the Securities
Act with respect to the common stock offered by this prospectus. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information presented in the registration statement and its
exhibits and schedules. Our descriptions in this prospectus of the provisions of
documents filed as exhibits to the registration statement or otherwise filed
with the SEC are only summaries of the terms of those documents that we consider
material. If you want a complete description of the content of the documents,
you should obtain the documents yourself by following the procedures described
above.
We have elected to "incorporate by reference" certain information into this
prospectus, which means we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus.
We incorporate by reference our:
- annual report on Form 10-K for the nine months ended December 31, 2001,
filed with the SEC on March 12, 2002;
- quarterly report on Form 10-Q for the quarter ended March 31, 2002, filed
with the SEC on May 13, 2002;
17
- quarterly report on Form 10-Q for the quarter ended June 30, 2002, filed
with the SEC on August 7, 2002;
- quarterly report on Form 10-Q/A for the quarter ended September 30, 2002,
filed with the SEC on November 18, 2002;
- current reports on Form 8-K, filed with the SEC on April 9, 2002, July
23, 2002, July 23, 2002, July 24, 2002, October 17, 2002 and December 23,
2002;
- registration statement on Form 8-A filed with the SEC on July 24, 2002;
and
- proxy statement on Schedule 14A, filed with the SEC on April 1, 2002.
We are also incorporating by reference all other reports that we file with
the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this prospectus and the date of the completion of any
offering. Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this prospectus modifies
or supersedes that statement. Any statement that is modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus.
You may request copies of the filings, at no cost, by telephone at (314)
342-3400 or by mail at: Peabody Energy Corporation, 701 Market Street, Suite
700, St. Louis, Missouri 63101, attention: Investor Relations.
18
[GLOBE LOGO]
5,400,000 Shares
[PEABODY LOGO]
PEABODY ENERGY CORPORATION
Common Stock
---------------------------
PROSPECTUS SUPPLEMENT
, 2003
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LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
BEAR, STEARNS & CO. INC.
A.G. EDWARDS & SONS, INC.