PERIOD ENDED DECEMBER 31, 2005 Annual ... - Peabody Energy

A detailed discussion of our debt instruments is included in Note 14 to our consolidatedfinancial statements. Dividends are subject to limitations imposed by our 6.875% SeniorNotes, 5.875% Senior Notes and Senior Secured Credit Facility covenants. As of December 31,2005 and 2004, our total indebtedness consisted of the following:December 31, December 31(Dollars in thousands) 2005 2004Term Loan under Senior Secured Credit Facility $ 442,500 $ 448,7506.875% Senior Notes due 2013 650,000 650,0005.875% Senior Notes due 2016 239,525 239,525Fair value of interest rate swaps — 6.875% Senior Notes (8,879) 5,1895.0% Subordinated Note 66,693 73,621Other 15,667 7,880Total $1,405,506 $1,424,965On May 9, 2005, we filed a shelf registration statement on Form S-3 with the SEC, whichwas declared effective in June 2005. The universal shelf registration statement permits usto offer and sell from time to time up to an aggregate maximum of $3 billion of securities,including common stock, preferred stock, debt securities, warrants and units. Relatedproceeds could be used for general corporate purposes including repayment of other debt,capital expenditures, possible acquisitions and any other purposes that may be stated in anyprospectus supplement. As of December 31, 2005, no securities had been issued under theuniversal shelf registration statement, which remains effective.As of December 31, 2005, we had letters of credit outstanding under our RevolvingCredit Facility of $406.7 million, leaving $493.3 million available for borrowing. This providesus with available borrowing capacity under the line of credit to fund strategic acquisitionsor meet other financing needs. We were in compliance with all of the covenants of theSenior Secured Credit Facility, the 6.875% Senior Notes and the 5.875% Senior Notes as ofDecember 31, 2005.In May 2003, we entered into and designated four interest rate swaps with notionalamounts totaling $100.0 million as a fair value hedge of our 6.875% Senior Notes. Underthe swaps, we pay a floating rate that resets each March 15 and September 15, based uponthe six-month LIBOR rate, for a period of ten years ending March 15, 2013, and receives afixed rate of 6.875%. The average applicable floating rate of the four swaps was 7.09% as ofDecember 31, 2005.In September 2003, we entered into two $400.0 million interest rate swaps. One$400.0 million notional amount floating-to-fixed interest rate swap, expiring March 15, 2010,was designated as a hedge of changes in expected cash flows on the term loan under theSenior Secured Credit Facility. Under this swap we pay a fixed rate of 6.764% and receivea floating rate of LIBOR plus 2.5% (6.99% at December 31, 2005) that resets each March 15,June 15, September 15 and December 15 based upon the three-month LIBOR rate. Another$400.0 million notional amount fixed-to-floating interest rate swap, expiring March 15, 2013,was designated as a hedge of the changes in the fair value of the 6.875% Senior Notes due2013. Under this swap, we pay a floating rate of LIBOR plus 1.97% (6.46% at December 31,2005) that resets each March 15, June 15, September 15 and December 15 based upon thethree-month LIBOR rate and receive a fixed rate of 6.875%. The swaps will lower our overallborrowing costs on $400.0 million of debt principal by 0.64% over the term of the floatingto-fixedswap. This results in annualized interest savings of $2.6 million over the term of thefixed-to-floating swap.42 Peabody Energy