PERIOD ENDED DECEMBER 31, 2003 Annual ... - Peabody Energy

Dear Shareholder,The phrase “rock solid” brings forth a numberof images: strong… decisive… consistent…reliable. These qualities apply both to PeabodyEnergy and its employees. We are at an excitingtime in the history of both our company and ourindustry, with an expanding array of opportunitiesto grow the company and create value.●flexibilityand interest expense through a comprehensive$1.7 billion refinancing; andWas named “Coal Company of the Year“ atthe Platts and Business Week Global EnergyAwards ceremony, and earned four U.S.Department of the Interior Excellence in SurfaceMining Awards for reclamation.Peabody’s team of 6,900 employees reached anumber of rock-solid milestones in 2003, andour company is positioned well for future growth.Peabody Energy (NYSE: BTU) is the world’s largestcoal company. In 2003, our products fueledapproximately 9.8 percent of America’s electricityand nearly 2.5 percent of the world’s electricity.Among our 2003 accomplishments, Peabody:●●Improved sales volume, revenues, Adjusted EBITDAand share price for the third consecutive year;Continued our industry leadership position forthe 34th consecutive year, setting an industryrecord with coal sales of 203 million tons;These accomplishments have led to superior shareprice performance. BTU’s total shareholder return was45 percent in 2003, and Peabody’s share price hasoutperformed the S&P 500 every year since ourMay 2001 initial public offering. Those who invested$1,000 in shares of BTU at the time of our initialpublic offering had $1,490 at year-end, comparedwith just $847 for a comparable investment in theS&P 500 and $738 for our three largest peers.I’m pleased to report that Peabody is currentlyexperiencing some of the strongest coal marketfundamentals that I’ve seen in my 13-plus yearsas CEO. And the remarkable aspect of the marketstrength is its existence in most coal markets around(From left) Peabody’s senior management team includes Executive Vice President of Legal and External Affairs and Secretary Fred Palmer;Executive Vice President of Human Resources and Administration Sharon Fiehler; Executive Vice President and Chief Financial Officer Rick Navarre;Chairman and Chief Executive Officer Irl Engelhardt; Executive Vice President of Sales, Marketing and Trading Rick Whiting; President andChief Operating Officer Greg Boyce; and Executive Vice President of Corporate Development Roger Walcott.achieve higher electricity output due to the strengtheningeconomy and problems with competing fuels. matched by consistent action. Simply put, we focusnatural resource position. These words have beenLonger term, the development of new coal plants on executing the fundamentals at our portfolio ofis progressing at its strongest levels since the 1970s. operations and in our business relationships. WePromising technologies such as coal gasification and then add value by trading around our sales position,hydrogen initiatives are gaining increased attention. managing our extensive holdings of coal reservesAnd America’s generators continue to invest in emissioncontrol equipment for current and future plants, through accretive acquisitions. By implementingand surface lands, and growing organically andimproving emissions from coal-fueled generation these strategies, we have posted results that areas coal use increases.unmatched by other publicly traded coal companies.●Improved our accident rate 18 percent whileoperating the most productive mine in Americaand three of the six most productive mines;the world. For a low-cost, reliable producer likePeabody, with operations that serve a number ofmarkets, the future is very bright.Peabody is positioned to grow and prosper, bothnear and long term, through the execution of ourthree strategies: (1) Managing safe, low-costWe welcome Greg Boyce as President and ChiefOperating Officer and expect him to take us to a higherlevel in safety, productivity and cost management at our●Achieved our targeted earnings per share andIn the near term, existing generating plants in theoperations; (2) Applying world-class sales and tradingoperations. Prior to joining us in October 2003, GregAdjusted EBITDA each quarter, while improvingUnited States are expected to increase coal use totechniques; and (3) Aggressively managing our vastwas the chief executive officer for energy at Rio Tinto.23