SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ending December 31, 2002
Commission File Number 1-16463
Full title of the plan and the address of the plan, if different from that of
the issuer named below:
PEABODY HOLDING COMPANY, INC. EMPLOYEE RETIREMENT ACCOUNT
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Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
PEABODY ENERGY CORPORATION
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701 MARKET STREET, ST. LOUIS, MISSOURI 63101-1826
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(Address of principal executive offices) (Zip Code)
TABLE OF CONTENTS
Report of Independent Auditors.................................................. 1
Financial Statements
Statements of Net Assets Available for Benefits -
December 31, 2002 and December 31, 2001.................................... 2
Statements of Changes in Net Assets Available for Benefits -
Years Ended December 31, 2002 and 2001..................................... 3
Notes to Financial Statements.............................................. 4
Supplemental Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of Year).................. 10
Signatures...................................................................... 12
Exhibit Index................................................................... 13
Exhibit 23 - Consent of Independent Auditors.................................... 14
Exhibit 99.1 - Certification of Periodic Financial Reports...................... 15
Report of Independent Auditors
The Employee Retirement Account Committee
Peabody Holding Company, Inc.
We have audited the accompanying statements of net assets available for benefits
of Peabody Holding Company, Inc. Employee Retirement Account as of December 31,
2002 and 2001, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2002 and 2001, and the changes in its net assets available for
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2002 is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
St. Louis, Missouri
May 16, 2003
1
Peabody Holding Company, Inc.
Employee Retirement Account
Statements of Net Assets Available for Benefits
(In Thousands)
DECEMBER 31
2002 2001
-------------------------
ASSETS
Investments, at fair value:
Investments in mutual funds $ 111,385 $ 134,783
Investment in common/collective trust 84,965 78,113
Investment in Peabody Energy Stock Fund 449 243
Participant notes receivable 8,303 8,359
-------------------------
Total investments 205,102 221,498
Receivables:
Employer contributions 793 2,232
-------------------------
Net assets available for benefits $ 205,895 $ 223,730
=========================
See accompanying notes.
2
Peabody Holding Company, Inc.
Employee Retirement Account
Statements of Changes in Net Assets Available for Benefits
(In Thousands)
YEAR ENDED DECEMBER 31
2002 2001
------------------------
ADDITIONS
Interest and dividends $ 6,650 $ 7,240
Net realized and unrealized depreciation of investments (30,041) (20,881)
------------------------
Net investment loss (23,391) (13,641)
------------------------
Contributions:
Employee 13,660 12,638
Employer 6,713 10,645
Rollover 499 582
------------------------
Total contributions 20,872 23,865
------------------------
Transfers from other plans 32 -
------------------------
Total additions (2,487) 10,224
------------------------
DEDUCTIONS
Withdrawals by participants (15,338) (17,026)
Administrative expenses (10) (13)
------------------------
Total deductions (15,348) (17,039)
------------------------
Net decrease in net assets available for benefits (17,835) (6,815)
Net assets available for benefits at beginning of year 223,730 230,545
------------------------
Net assets available for benefits at end of year $ 205,895 $ 223,730
========================
See accompanying notes.
3
Peabody Holding Company, Inc.
Employee Retirement Account
Notes to Financial Statements
Years Ended December 31, 2002 and 2001
1. DESCRIPTION OF THE PLAN
The following description of the Peabody Holding Company, Inc. (the Company)
Employee Retirement Account (the Plan) provides only general information.
Participants should refer to the plan documents for a more complete description
of the Plan's provisions. The Plan was amended and restated effective April 1,
1999.
GENERAL
The Plan is a defined contribution plan, and participation in the Plan is
voluntary. All salaried employees of the Company and certain of its
participating subsidiary companies as well as the salaried employees of
participating affiliated companies (collectively referred to as the "Employer")
are eligible for participation on the date of their employment or at any time
afterward. It is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
The Plan allows participants to invest among several mutual funds and
common/collective trusts. Effective October 2001, the Plan allows participants
to invest in the Peabody Energy Stock Fund, as a result of Peabody Energy
Corporation's initial public offering of common stock in May 2001. All
investments in the Plan are participant-directed.
CONTRIBUTIONS
Each year, participants may contribute from 2% to 50% of pretax or after-tax
annual compensation, as defined in the Plan. Prior to April 1, 2002,
participants could contribute up to 16% of pretax or after-tax annual
compensation, as defined in the Plan. Participants who were employees of Powder
River Coal Company could contribute up to 19% of pretax or after-tax annual
compensation. Participants may also contribute amounts representing
distributions from other qualified defined benefit or defined contribution
plans. Participants direct the investment of their contributions into various
investment options offered by the Plan.
Effective April 1, 2002, in the calendar year that a participant is age 50 or
older and each year thereafter, certain participants meeting additional specific
criteria will be permitted to make catch-up contributions to the Plan.
Participants will be able to contribute amounts over and above the maximum
otherwise permitted by the Plan, subject to certain limitations.
4
Peabody Holding Company, Inc.
Employee Retirement Account
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
The Company makes matching contributions of an amount equal to 100% on the first
3% of base pay and 75% on the next 4% of base pay that a participant contributes
to the Plan. For participants who are employed by Powder River Coal Company, the
Company makes matching contributions of an amount equal to 50% of the first 6%
of compensation that a participant contributes to the Plan. Prior to August 1,
2002, for participants who were employed by Patriot Coal Company, the Company
made matching contributions of an amount equal to 50% of the first 4% of
compensation that a participant contributed to the Plan.
Employees direct the investment of Company contributions. All contributions are
subject to certain limitations.
Effective April 1, 1999, the Company's Board of Directors set desired minimum
and maximum performance targets that will require the Company to pay into the
account of each active employee of the Company and its participating
subsidiaries and affiliates an amount between 0% and 4% of the employee's base
salary as of the end of the fiscal year.
Effective January 1, 2002, if the Company does not meet the minimum performance
targets set by the Board for the Company's fiscal year, the Board may authorize
the Company to contribute to the Plan a discretionary amount.
In July 2001, the Company changed its fiscal year-end from March 31 to December
31. This change was first effective with respect to the nine months ended
December 31, 2001. The Plan's year-end of December 31 remained unchanged.
During the 2002 plan year, a receivable of approximately $0.8 million was
recorded, which represented a discretionary contribution of 1% of eligible
employees' salaries for the year ended December 31, 2002. During the 2001 plan
year, a performance contribution of approximately $2.8 million was made, which
represented 4% of eligible employees' salaries for the fiscal year ended March
31, 2001, and a receivable of approximately $2.2 million was recorded, which
represented 3% of eligible employees' salaries for the nine months ended
December 31, 2001.
FORFEITED ACCOUNTS
Employer contributions are reduced by forfeitures of nonvested amounts. The
forfeiture credits amounted to $58,486 and $26,689 for the years ended December
31, 2002 and 2001, respectively. As of December 31, 2002, $55,038 of the current
year forfeiture credits were unapplied.
5
Peabody Holding Company, Inc.
Employee Retirement Account
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their vested account balance.
The loans are secured by the balance in the participant's account and bear
interest at rates commensurate with the prime interest rate as published in The
Wall Street Journal on the first business day of the month in which the loan was
made. Principal and interest is paid ratably through payroll deductions.
Effective October 1, 2002, loan fees are paid by participants.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution and
allocations of (a) the Company's contribution and (b) plan earnings. Allocations
are based on participant eligible compensation or account balances, as defined.
The benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested account.
PAYMENT OF BENEFITS
On termination of service due to death, disability, or retirement, a participant
may elect to receive either a lump-sum amount equal to the value of the
participant's vested interest in his or her account, annual installments, or a
combination of the two. For termination of service for other reasons, a
participant may receive the value of the vested interest in his or her account
as a lump-sum distribution. Participants may also elect to receive a lump-sum
distribution from their after-tax account.
Participants who have attained the age of 59 1/2 have the right to receive part
or all of their vested account balance upon request. Withdrawals in cases of
hardship, as defined in the Plan, are also permitted.
6
Peabody Holding Company, Inc.
Employee Retirement Account
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
VESTING
Participants are vested immediately in their contributions plus actual earnings
thereon. Vesting in the Company matching contribution portion of their accounts
is based on years of continuous service or when the participant attains the age
of 62, whichever occurs first. Employer matching contributions and earnings
thereon become vested based upon years of service (25% per year after two years
of service with 100% vesting after five years) with the Company. Employer
performance contributions, if any, are 100% vested immediately.
PLAN TERMINATION
The Plan is voluntary on the part of the Employer. The Employer may terminate
the Plan in whole or in part subject to the provisions of ERISA. Upon
termination or complete discontinuance of all contributions to the Plan,
participants' accounts become fully vested. Currently, the Employer has no
intention to terminate the Plan.
ADMINISTRATIVE EXPENSES
All significant administrative expenses of the Plan, including recordkeeping and
trustee fees, are paid by the Employer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of the Plan are prepared under the accrual method of
accounting.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at the date of the
financial statements, and reported amounts of additions and deductions during
the reporting period. Actual results could differ from these estimates.
7
Peabody Holding Company, Inc.
Employee Retirement Account
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS AND INCOME RECOGNITION
The Plan's investments are stated at fair value. Shares of mutual funds are
valued at quoted market prices, which represent the net asset value of shares
held by the Plan at year-end. Units in common/collective trust are valued at net
asset value at year-end. The stock fund is valued at year-end unit closing price
(comprised of the year-end market price plus any uninvested cash position).
Participant loans are valued at cost, which approximates market value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded when earned. Dividends are recorded on the ex-dividend date.
Capital gain distributions are included in dividend income.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
3. INVESTMENTS
The Plan's investments (including investments purchased or sold, as well as held
during the year) appreciated (depreciated) in fair value as determined by quoted
market prices as follows:
2002 2001
---------------------------
(In Thousands)
Mutual funds $ (30,368) $ (20,927)
Peabody Energy Stock Fund 327 46
---------------------------
$ (30,041) $ (20,881)
===========================
8
Peabody Holding Company, Inc.
Employee Retirement Account
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Investments that represent 5% or more of the fair value of the Plan's net assets
at December 31 are as follows:
2002 2001
-------------------------
(In Thousands)
Mutual funds:
Vanguard 500 Index Fund $ 36,822 $ 47,842
Vanguard PRIMECAP Fund 14,933 20,163
Common/collective trust:
Vanguard Retirement Savings Trust 84,965 78,113
4. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
(IRS) dated September 29, 1995 stating that the Plan is qualified under Section
401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust
is exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan was amended
subsequent to the IRS determination letter. The Plan's administrator believes
the Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes the Plan is qualified and the related trust is
tax-exempt. The Plan's sponsor has indicated that it will take the necessary
steps, if any, to maintain the Plan's qualified status.
9
Supplemental Schedule
Peabody Holding Company, Inc.
Employee Retirement Account
Employer ID #13-2871045
Plan #003
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002
DESCRIPTION OF
IDENTITY OF ISSUE INVESTMENT TYPE CURRENT VALUE
--------------------------------------------------------------------------------------------
AIM Premier Equity Fund* 46,815 shares of mutual fund $ 351,583
Ariel Growth Fund* 26,892 shares of mutual fund 947,686
Baron Asset Fund* 2,991 shares of mutual fund 102,952
Deutsche International Equity Fund* 36 shares of mutual fund 569
Fidelity Equity-Income II Fund* 10,245 shares of mutual fund 178,158
Fidelity Blue Chip Growth Fund* 15,305 shares of mutual fund 488,840
Gabelli Growth Fund* 23,677 shares of mutual fund 449,632
Harbor Capital Appreciation* 34,858 shares of mutual fund 704,473
Janus Fund* 101,638 shares of mutual fund 1,811,195
Janus Worldwide Fund* 39,759 shares of mutual fund 1,277,459
Lazard Small Cap Portfolio 32,776 shares of mutual fund 459,845
Managers Special Equity Fund* 5,100 shares of mutual fund 280,908
Oppenheimer Quest Value 4,889 shares of mutual fund 73,929
Putnam Int'l Growth A* 23,529 shares of mutual fund 386,118
Sound Shore Fund* 3,844 shares of mutual fund 99,207
T. Rowe Price Mid-Cap Growth* 21,482 shares of mutual fund 666,805
T. Rowe Science & Technology Fund* 227,052 shares of mutual fund 2,822,251
T. Rowe Price Small-Cap Stock* 16,165 shares of mutual fund 347,557
Vanguard 500 Index Fund* 453,746 shares of mutual fund 36,821,500
Vanguard Explorer Fund* 174,633 shares of mutual fund 7,944,071
Vanguard Extend Mkt Index Fund* 35,173 shares of mutual fund 659,144
Vanguard GNMA Fund* 129,579 shares of mutual fund 1,392,977
Vanguard High-Yield Corp.* 51,123 shares of mutual fund 300,601
Vanguard Int'l Growth Fund* 305,046 shares of mutual fund 3,709,363
Vanguard LifeSt Conserv Growth* 572,007 shares of mutual fund 7,333,128
Vanguard LifeSt Growth Fund* 342,016 shares of mutual fund 4,911,343
Vanguard LifeSt Income Fund* 55,052 shares of mutual fund 678,245
Vanguard LifeSt Moderate Growth* 313,686 shares of mutual fund 4,350,825
Vanguard LT Bond Index* 71,777 shares of mutual fund 837,632
Vanguard LT Treasury Fund* 91,319 shares of mutual fund 1,073,907
Vanguard PRIMECAP Fund* 386,258 shares of mutual fund 14,932,717
10
Supplemental Schedule
Peabody Holding Company, Inc.
Employee Retirement Account
Employer ID #13-2871045
Plan #003
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) (continued)
December 31, 2002
DESCRIPTION OF
IDENTITY OF ISSUE INVESTMENT TYPE CURRENT VALUE
------------------------------------------------------------------------------------------------
Vanguard REIT Index Fund* 73,677 shares of mutual fund 872,332
Vanguard Sm-Cap Index Fund* 19,583 shares of mutual fund 306,665
Vanguard Total Bond Mkt Index* 507,631 shares of mutual fund 5,269,205
Vanguard Total Stock Mkt Index* 23,323 shares of mutual fund 468,094
Vanguard U.S. Growth* 101,579 shares of mutual fund 1,225,044
Vanguard Windsor Fund* 460,065 shares of mutual fund 5,520,782
Vanguard Windsor II Fund* 63,879 shares of mutual fund 1,328,679
Vanguard Retirement Savings Trust* 84,964,569 shares of common/
collective trust 84,964,569
Peabody Energy Stock Fund* 36,439 units of stock fund 448,565
Various participants Participant loans, interest rates
from 4.65% to 9.5%, maturities
through 10/16/2012 8,303,368
---------
$ 205,101,923
==============
* Parties-in-interest.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the plan
administrator of the Peabody Holding Company, Inc. Employee Retirement Account
has duly caused this annual report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Peabody Holding Company, Inc.
Employee Retirement Account
Date: June 20, 2003 By: /s/ SHARON D. FIEHLER
-----------------------------------
Sharon D. Fiehler
Peabody Energy Corporation
Executive Vice President,
Human Resources & Administration
12
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit
No. Description of Exhibit
------- ----------------------
23 Consent of Ernst & Young LLP, Independent Auditors
99.1 Certification of the December 31, 2002 Annual Report on Form 11-K,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the
Principal Executive Officer of the Plan and Principal Financial
Officer of the Plan.
13