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  1. 1. 2007 Report Corporate & Social ReSponSibility
  2. 2. Summary | Economic | Employee | Environmental | Public | Appendix Our Mission: Peabody’s mission is to be a leading worldwide producer and supplier of sustainable energy solutions, which power economic prosperity and result in a better quality of life. Our Values Our Results On the Cover Employees at Peabody’s Our culture is driven by strong corporate governance We operated the safest U.S. large surface mine, and the past Farmersburg Mine in Indiana were n n honored by the U.S. Department of and a continuous focus on safety, stewardship, three years have been the safest in our 125-year history Labor this past year for operating sustainability and best-in-class performance We earned half of the U.S. Department of the Interior’s awards n the safest large mine in America. for reclamation excellence and good neighbor practices Safety is core to our mission, and our employees n Inside commit to a vision of an incident-free workplace We earned global recognition for sustainable practices on n Peabody’s Caballo Mine in Arizona’s Black Mesa Wyoming won the U.S. Interior We believe that greater use of clean coal drives n Bronze Good Neighbor Award for We joined China’s centerpiece GreenGen near-zero emissions energy security, economic growth and environmental n an innovative partnership with initiative as the only non-Chinese company solutions area ranchers to reclaim land We set records for sales volume, revenues and EBITDA and that is twice as productive for n We are the global leader advancing clean coal n grazing. delivered 64% total shareholder return initiatives to achieve near-zero emissions We ranked first among peers in Fortune’s Most Admired listing, n We believe clean, affordable electricity improves n with the number-one score in every category, including social quality of life and longevity responsibility 2 Peab od y Ener gy
  3. 3. Summary | Economic | Employee | Environmental | Public | Appendix Key Stakeholder Communications and Focus Areas Environmental Employee Public Corporate & • Letter from the Chairman and CEO 4 Responsibility Responsibility Responsibility Economic Responsibility • Sustainability Awards 6 Annual ✓ Report • Economic and Corporate Responsibility 8 Environmental ✓ ✓ Regulatory • Employee Responsibility 16 Filings and Public Notices • Environmental Responsibility 27 SEC ✓ Filings • Public Responsibility 32 ✓ ✓ ✓ ✓ Website • Appendix 40 ✓ ✓ ✓ ✓ Employee Publications Corporate & ✓ ✓ ✓ ✓ Social Responsibility Report Management believes that a suite of external communications vehicles including the annual report, Securities and Exchange Commission (SEC) filings, website, employee publications and Corporate & Social Responsibility Report represent a full portrayal of the company’s commitments and progress to stakeholders. This report is intended to provide information regarding responsibilities that, by design, are not as thoroughly discussed in other communication vehicles. In compiling this report, Peabody reviewed Global Reporting Initiative guidelines for sustainability and incorporated appropriate reporting data. The use of the words “Peabody,” “the company,” and “our” relate to Peabody, our subsidiaries and our majority-owned affiliates. Celebrating 125 Years 3
  4. 4. Summary | Economic | Employee | Environmental | Public | Appendix Dear Stakeholder: Peabody celebrates our 125th anniversary this year, an extraordinary milestone Peabody is the Largest Private-Sector Coal Company and a tribute to our 7,000 employees worldwide who transform our vision for corporate and social responsibility into actions and results. 250 Peabody is the world’s largest Shenhua Energy private-sector coal company. 200 We are a Fortune 500 company Sales (Tons in Millions) Rio Tinto and a member of the S&P 500 150 Index. We rank first in our sector Arch BHP among Fortune’s “Most Admired Companies” listing, with the Anglo-American 100 China Coal Energy number-one position in all Xstrata Foundation Consol categories, including social Alpha Natural 50 Massey Resources responsibility. Yanzhou Patriot International Coal I am pleased that the past 0 three years have been our 1 2 3 4 5 6 7 8 9 10 safest, that we continue to earn Reserves (Tons in Billions) the industry’s highest honors for Source: Most recent company reports and websites, SEC filings and Peabody analysis. Values are on a short-ton basis. Peabody sales and reserves based on 2007 data. environmental excellence and good neighbor practices, and that we are strengthening Peabody is the world’s largest private-sector coal company, with world record sales of 238 million tons and a 9.3 billion-ton reserve base. The energy value of communities around the world, our reserves exceeds the oil or gas reserves in the Continental United States. injecting $3.2 billion in direct Peabody Energy Chairman and Chief benefits into economies in 2007. Executive Officer Gregory H. Boyce Our 125th anniversary comes Peabody was founded in 1883. Coal is the rock that built America and the at a time when the world energy landscape is dramatically changing, global modern world, and coal will continue to build fast-growing population centers markets are strong, and we face enormous energy needs. As we settle into the and improve quality of life for billions of people around the world. 21st century, coal’s contribution to society is even more valuable than when 4 Peab od y Ener gy
  5. 5. Summary | Economic | Employee | Environmental | Public | Appendix We have an enormous opportunity to create sustainable energy solutions to solve our energy and environmental challenges, ease supply issues and improve health and longevity for people around the world. In the next quarter century, global energy use is expected to increase by nearly Peabody’s vision is to achieve near-zero emissions from coal, and we are the 50 percent, and world electricity generation will nearly double. At a time when global leader advancing signature clean coal projects in the United States, competing fuels are increasingly strained and coming from unstable regions, China and Australia. Greater use of clean coal is important for solving the greater use of coal can advance the goals of clean energy solutions that world’s energy needs and advancing climate solutions. build energy security, strengthen economies and solve our environmental As a nation, we must commit to significant funding increases to commercialize challenges. I believe it is our responsibility to advance all of these three “Es” carbon capture and storage technologies for clean electricity and Btu Conversion at all times. projects. The magnitude of this challenge is enormous, but within reach as our We need all forms of energy to meet these most powerful solution for an energy-short world. heavy demands, though coal is the only You will read more about Peabody’s positions, priorities and successes in this sustainable fuel that can keep pace. Oil and 2007 report, which builds on five years of benchmarking by our management natural gas supplies are increasingly strained. and board of directors. The U.S. petroleum industry predicts that Once again, I want to recognize our global team of employees for their hard the global supply of oil and natural gas from work delivering best-in-class performance. I also thank our board for its wisdom conventional sources will not meet the and guidance. I am privileged to lead such a dedicated team that continues significant projected growth demand over creating sustainable energy solutions for health, wealth and prosperity through the next 25 years. Coal has been the fastest- robust use of clean coal. growing fuel for each of the past five years, and coal use is expected to grow nearly 75 percent over the next quarter century. In 2008, Peabody was named first among Mining and Crude Oil industries in Gregory H. Boyce Fortune Magazine’s “Most Admired Companies” ranking of U.S. companies. Chairman and Chief Executive Officer Peabody ranked first in the sector and held the number-one score in every category, including social responsibility. Celebrating 125 Years 5
  6. 6. Summary | Economic | Employee | Environmental | Public | Appendix peabody leads the industry in Reclamation excellence, Year after year, Peabody scientists, engineers and reclamation specialists develop innovative programs that apply the principles of sustainable development to mining and reclamation. These industry-leading programs brought home five of 10 prestigious awards for community and environmental stewardship from the U.S. Department of the Interior in 2007. SuStainability Somerville Central Mine in Indiana partners with area land- Caballo Mine in Wyoming collaborates with local Employees at the former Gibraltar Mine in owners to revitalize productive farming and pastureland and ranchers to double the productivity of area range for Kentucky reclaim mined land to highly support local recreational, civic and educational institutions. grazing and assists with conservation projects. productive forest, pastureland and wildlife habitat. Gibraltar Mine Caballo Mine Excellence in Reclamation Award Bronze Good Neighbor Award U.S. Department of the Interior U.S. Department of the Interior Miller Creek Mine Caballo Mine Excellence in Reclamation Award Wyoming Department of Indiana Department of Natural Resources Environmental Quality “Good Neighbor” Award Ken Rogers Reclamation Innovation Award Caballo Mine Indiana Society of Mining and Reclamation Wyoming Engineering Society Project of the Year Award 6 Peab od y Ener gy
  7. 7. Summary | Economic | Employee | Environmental | Public | Appendix earning top Honors for environmental Stewardship Twentymile Mine in Colorado is home to The former Seneca Mine in Colorado has developed reclamation Miller Creek Mine in Indiana reclaims highly large populations of Columbian sharp- practices that restore native vegetation that is hardy enough to endure productive farmland and wildlife habitat for the tailed grouse, who use the land for mating northwest Colorado’s harsh winters. community. and breeding. Vern Pfannenstiel Seneca Coal Company Somerville Central Mine Reclamationist of the Year Excellence in Reclamation Award Excellence in Reclamation Award American Society of Mining and Colorado Division of Reclamation, Mining U.S. Department of the Interior Reclamation and Safety; Colorado Mining Association Somerville Central Mine Somerville Central Mine Twentymile Mine and Seneca Mine Excellence in Reclamation Award Silver Good Neighbor Award Excellence in Reclamation Award Indiana Department of Natural Resources U.S. Department of the Interior U.S. Department of the Interior awaRdS 2007
  8. 8. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility concepts of corporate and social responsibility were defined, Peabody Peabody’s Global Operations Contribute Billions established its own tenets for best practice. Peabody’s 7,000 worldwide in Economic Benefits employees seek to operate under a mission statement to provide clean energy solutions that contribute to economic prosperity and a better quality of life Southwestern U.S. $260 million for families and communities around the world. Colorado $157 million Peabody believes that greater use of clean coal is the answer to improving energy security, fueling the world’s strongest economies and ensuring continuous emissions improvement: what we call the “3Es.” The company also believes that greater use of coal must be guided by the ultimate vision of near- Midwestern U.S. zero emissions. Technology is the key to satisfying growing energy demand $733 million while addressing climate concerns. More on this topic is included in the Public Responsibility section of this report. Peabody is the world’s largest coal company in reserves and sales, fueling Powder River Basin approximately 10 percent of all U.S. electricity and 2 percent of the world’s $1.0 billion Australia power. $1.0 billion More coal is being used around the world, and Peabody is uniquely positioned to fuel this long-term global growth. Peabody is reshaping its global operations and business portfolio to serve the fastest-growing markets. This includes increasing operations in Australia, tripling our trading activities and focusing on growing Pacific Rim markets from China and Mongolia to Mozambique. One of Peabody’s primary corporate responsibilities is to provide strong share- holder returns. The company delivered an 840 percent total shareholder return Peabody’s global operations injected nearly $3.2 billion in direct economic over the past five years. In 2007, Peabody achieved record financial results in benefits in communities where we do business in 2007, with each dollar typically contributing a four-fold benefit. sales volume, revenues and EBITDA. The company continues organic growth, with three major mines completed Peabody is the world’s largest coal company in in Australia this past year and a new greenfield mine in New Mexico under reserves and sales, fueling approximately 10 percent development that will begin operation in the second half of 2008. And Peabody is pursuing clean generation and Btu Conversion opportunities that convert of all U.S. electricity and 2 percent of the world’s power. coal’s energy into other fuels. In 2007, Peabody completed the spin-off of certain operations in West Virginia Peabody has 125 years of leadership in corporate and social responsibility. and Kentucky, focusing its efforts on expanding globally and building on Some would call that a great run. We believe it’s a great start for our next leading U.S. positions in the Powder River Basin, Colorado and the Midwest. 125 years of world-class practices in sustainability. Decades before the 8 Peab od y Ener gy
  9. 9. Summary | Economic | Employee | Environmental | Public | Appendix Economic and Corporate Responsibility All told, Peabody operations infused nearly $3.2 billion in direct economic Peabody Serves the Highest-Growth Markets benefits into communities through wages, taxes, royalty payments, capital investments, vendor contracts and charitable contributions in 2007. In 2007, Peabody received recognition for performance in safety, stewardship and investor activities. Peabody earned eight major awards for safety, operated the safest large surface mine and the most productive mine in the United States. Nearly two dozen awards were earned for sustainable practices in the past two years. Peabody has ranked among Fortune’s Most Admired Companies for six successive years. And BTU was named to the Forbes Platinum List of America’s Best Big Companies and ranked among the top 10 companies in CFO Magazine’s “value creators” S&P 500 ranking. This section highlights: • he “3E’s”: Energy Security, Economic T Growth and Environmental Solutions Peabody Headquarters • Corporate Governance and Ethics Peabody Offices COALTRADE Offices • Code of Business Conduct and Ethics Position Sales Reserves • inancial Disclosure and Sarbanes-Oxley F Wyoming PRB #1 140 3,341 2007 sales volumes and reserves in millions Compliance of short tons. Reserves are 2007 proven and Midwest #1 31 3,691 probable. Sales and reserves adjusted for Colorado #1 8 207 October 2007 spin-off of Patriot Coal and 2007 • Corporate Compliance and Training Southwest #2 14 990 Peabody reserve acquisitions. Venezuela sales volume for Paso Diablo Mine, of which Peabody Programs Australia #5 21 1,073 owns a 25.5% interest. Venezuela #1 7 182 Short tons in millions Peabody is the world’s largest coal company based on our world record sales of 238 million tons and 9.3 billion-ton reserve base. We have a growing global presence and 31 operations in the United States and Australia. Celebrating 125 Years 9
  10. 10. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Energy, Economic and Environmental Solutions Against this backdrop, Peabody is creating sustainable energy solutions for the world’s most pressing energy and environmental challenges, while improving health and wealth around the world. Energy Solutions According to the U.S. Energy Information Administration’s 2008 Energy Outlook, Global energy needs are soaring as emerging nations around the world drive coal will remain the primary fuel for U.S. electricity, growing to 55 percent by enormous economic development and improvements in quality of life. China, 2030 as other energy forms face supply and cost constraints. Global competi- India and the United States are leading this growth, representing nearly tion for natural gas supplies is pushing global liquefied natural prices above 90 percent of long-term coal demand over the next two decades. $10 per million Btu. The delivered cost for natural gas in the United States was Coal represents 40 percent of world electricity – nearly double the share of its nearest competitors – at a fraction of the cost of other fuels. Coal has been Low-Cost Electricity Correlates with States that Use Coal the fastest-growing fuel for each of the past five years, and global coal use is expected to increase nearly 75 percent over the next 25 years, according to the Retail Cost per kWh & Percent of Coal Generation International Energy Agency. 6.4¢ In the next quarter century, the world’s population is expected to grow 8% 13.3¢ 7.5¢ 6.4¢ 25 percent to more than 8 billion people. World Gross Domestic Product (GDP), 2% 64% 94% 7.0¢ 7.4¢ the primary driver of energy demand, will more than double. Global energy 8% 60% 5.1¢ 15.3¢ 6.8¢ 8.4¢ 1% consumption will increase by more than half, and world electricity generation 15% 47% 5.3¢ 63% 8.6¢ 95% 59% will nearly double, based on forecasts by the International Energy Agency’s 9.1¢ 6.8¢ 6.2¢ 55% 10.0¢ 77% 7.9¢ 60% World Energy Outlook. China and India are experiencing industrialization, 22% 8.6¢ 6.5¢ 86% 6.4¢ 5.3¢ 48% 94% 85% 7.7¢ 12.8¢ urbanization and the digital revolution all at once, setting the pace for global 98% 7.1¢ 6.9¢ 68% 6.5¢ 5.8¢ 1% 45% 73% 82% 93% energy markets with sustained annual double-digit economic growth. 7.8¢ 7.1¢ 61% 8.5¢ 7.3¢ 64% 7.4¢ 7.2¢ 6.9¢ 37% 47% In the past 20 years, more than 1 billion people have gained access to electricity 77% 40% 47% 7.5¢ 7.8¢ 8.8¢ 54% 62% in developing nations. Clean energy is one of life’s necessities, fundamental to 35% 10.3¢ human activities, economic and social development and longevity. Reducing 8.4¢ 36% 25% 13.1¢ 9% energy poverty remains one of our most pervasive global issues. 10.3¢ 30% MA 15.2¢ 25% “Energy leads people out of poverty, increases life 21.3¢ CT 16.2¢ 11% 13% expectancy, reduces infant mortality and facilitates NH 14.0¢ 17% RI 13.2¢ 0% <9.0¢ education… It provides a window to the wider world,” ¢ = average retail price per kilowatt hour for CY 2007 NJ 13.4¢ 16% >9.0¢ % = percent of total generation from coal for CY 2007 VT 12.0¢ 0% Hydro says the World Coal Institute. MD 11.4¢ 59% Source: Energy Information Administration, March 2007. DE 11.3¢ 66% Today nearly one-third of the world’s population – more than 1.6 billion people around the world – lack access to affordable electricity. About 2.4 billion people The 10 states that use the highest percentage of natural gas for electricity rely on primitive biomass for electricity and 1 billion people live on less than generation have electricity prices that are 120 percent greater than the states that $1 per day, according to the World Energy Institute. use the most coal. Coal creates an advantage for citizens who are increasingly concerned about high energy costs. 10 Peab od y Ener gy
  11. 11. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility four times the price for coal in 2007. Higher natural gas prices have cost trade deficit. The SSEB study also calls for production of ultra-clean liquid America nearly $500 billion more than expected since the beginning of the transportation fuels, including 5.6 million barrels a day of coal-to-liquids fueled decade. Nuclear is valuable, though hampered by safety and disposal concerns. by about 1 billion tons of U.S. coal per year. The net result: • A renewed U.S. industrial boom, with direct new energy sector investments Economic Growth of up to $200 billion by 2030; Access to affordable energy is vital to economic prosperity. It frees up a • More than 1.4 million new jobs created over two decades; family’s disposable income and allows them to make positive lifestyle choices. • A projected reduction of the U.S. trade deficit by $600 billion by 2030; and Consider that the 10 states that use the highest percentage of coal-fueled • A conservation and efficiency savings equivalent to 19 million barrels per electricity enjoy electricity costs that average 40 percent lower than states day of current oil usage. relying on other fuels. Affordable energy also drives business growth. Over the past 10 years, the states with the lowest business energy costs grew 25 percent faster and U.N. Human Development Index Improves with Greater created 60 percent more new jobs than the states with higher energy costs. Electricity Use The United States has more coal than any nation, with 27 percent of the world’s reserves. Numerous studies support the thesis for greater use of coal 1.0 Sweden to improve energy security, drive down costs and build the economy. In the United Finland Italy Canada 0.9 States Argentina next decade, coal use is expected to add more than $1 trillion to U.S. economic Qatar UAE output, along with up to 9 million jobs, according to a study by Pennsylvania 0.8 Malaysia Brazil State University researchers. China 0.7 Indonesia South Africa Several major studies call for greater use of coal for industrial growth and Morocco 0.6 India economic development. The National Coal Council’s “Coal: America’s Energy Bangladesh Future” calls for more than doubling U.S. coal production annually for clean 0.5 Zimbabwe electricity, natural gas, transportation fuels, hydrogen and ethanol. 0.4 Zambia Mozambique The study, conducted at the request of U.S. Energy Secretary Samuel Bodman, Ethiopia 0.3 calls for investing a present value of $350 billion to create a new energy infra- structure that would drive down energy costs 33 percent, create 1.4 million 0.2 0 5,000 10,000 15,000 20,000 jobs and create $3 trillion in net-present-value economic benefits by 2025. Electricity Use The Southern States Energy Board (SSEB), a consortium of governors and state legislators from 16 southern states and two territories, conducted the Source: International Energy Agency, World Energy Outlook 2005 “American Energy Security” study, which concludes that greater use of coal will create a renewed industrial boom, create millions of jobs and reduce the There is a strong correlation between global electrification and improvement in the United Nations Human Development Index. Economies of nations that have access to low-cost electricity also enjoy improved health and longevity. Celebrating 125 Years 11
  12. 12. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility The Electric Power Research Institute reports that the cumulative benefit for improving coal technology and reducing exposure to high-priced natural gas- fired generation within the electricity sector from 2007 to 2050 could reach $1.3 trillion in 2000 dollars. Notably, the scenarios used natural gas price assumptions well below those represented by recent prices and the futures market through 2010. Coal also helps drive improved lifestyles, which is demonstrated by the strong correlation between global electrification with improvement in the United Nations Human Development Index. A 2007 study by a respected Johns Hopkins University epidemiologist, “The Health Benefits of Low-Cost Energy,” finds that improving human life expec- tancy is driven by access to affordable energy. It states that removing coal from the energy equation could cause 150,000 deaths each year. A report prepared by a Duke professor draws similar conclusions, showing the benefits of low- cost electricity, leveraged by coal’s continually improving environmental profile. Environmental Solutions Peabody believes that a world that enjoys improved quality of life and growing economies can do more to achieve the parallel and important goal of a cleaner Peabody continues expanding globally, completing three major new mines in environment. Coal has a strong and improving environmental track record Australia and expanding global coal trading offices in the United States, the thanks to tens of billions of dollars of investments in technologies that have United Kingdom, Australia and China. The Millennium Mine in Queensland is ramping up to produce 3 million tons of metallurgical coal annually. enabled significant emissions reductions. Peabody’s vision is to achieve near-zero emissions from coal, and the company Corporate Governance and Ethics is advancing voluntary initiatives to commercialize clean coal technologies and address concerns about climate. Good corporate governance is the foundation for Peabody Energy’s actions Chief initiatives include Peabody’s participation in GreenGen in China, the at every level, and the board of directors has adopted a robust corporate COAL21 Fund in Australia and FutureGen and Vision 21 in the United States, governance program it believes is in the best interests of the company and projects that seek to demonstrate near-zero emissions from coal while its shareholders. capturing and storing carbon. More about these projects and Peabody’s position on climate is included in the Public Responsibility section of this report. 12 Peab od y Ener gy
  13. 13. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Corporate Governance Principles The company’s Mission Statement reflects Peabody’s global leadership in providing energy solutions and is a reflection of managers’ commitment to use The board of directors operates under a set of governance principles covering the principles for decision-making. such issues as the roles and responsibilities of the board and management, Peabody’s board of directors regularly reviews corporate governance policies board composition and director qualifications, director election procedures, and procedures to ensure continued compliance with best practices, applicable meeting procedures, committee functions, director orientation and continuing laws and Securities and Exchange Commission (SEC) requirements. education, and management evaluation and succession. The board has carefully considered the company’s director election process Some of the key corporate governance practices adopted by the company and, in July 2007, amended the company’s bylaws to provide for majority include the following: voting in uncontested director elections. • At least a majority of the company’s directors must meet the criteria In addition, the board has recommended to the shareholders that they approve for independence established by the New York Stock Exchange. The an amendment to the company’s articles of incorporation to eliminate the independence of each director is reviewed at least annually and at other company’s classified board structure in favor of the annual election of times when a change in circumstances could potentially impact the directors. This amendment was approved at Peabody’s 2008 Annual independence of one or more of the directors. Meeting of Shareholders. • The company’s bylaws provide for majority voting in uncontested director Peabody will continue its strong focus on best practices to ensure effective elections. corporate governance for the benefit of the company’s shareholders. • The Audit, Compensation and Nominating and Corporate Governance Committees of the board are comprised entirely of independent directors. Board of Directors • Non-management directors meet at least quarterly in executive session Peabody is governed by a board of directors consisting of 12 members elected without management. by shareholders. Eleven members of the board are independent under New • The board and its committees conduct annual performance reviews to York Stock Exchange rules. The board of directors appoints and oversees the evaluate whether they are functioning effectively and to determine what Chief Executive Officer and other officers who are charged with the conduct actions, if any, could improve their performance. of the company’s business. Directors have full and free access to officers and • Each director participates in a director orientation program shortly after employees of the company and its affiliates. his or her election, and is encouraged to periodically attend, at company expense, appropriate continuing education programs. Board Committees • The board and each committee have the authority to hire independent legal, The board has appointed four standing committees from among its members financial and other advisors without consulting or obtaining the advance to assist it in carrying out its obligations. These committees include an Audit approval of any officer. Committee, Compensation Committee, Executive Committee and Nominating • Each member of the Audit Committee has been deemed an “audit and Corporate Governance Committee. Each standing committee has adopted committee financial expert” for purposes of the SEC’s rules relating to a formal charter that describes in detail its purpose, organizational structure audit committees. and responsibilities. Celebrating 125 Years 13
  14. 14. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Communications • The Audit Committee must pre-approve all audit and non-audit services performed by the company’s independent registered public accounting firm Our shareholders, customers, employees and the public can communicate to ensure that such services do not impair that firm’s independence. directly with the board by submitting their written comments to the Chairman, • Directors may not serve on more than four other public company boards. Peabody Energy, 701 Market Street, St. Louis, MO 63101. These written • Directors are required to submit their resignation to the board for consider- communications are forwarded to each board member and reviewed by the ation following a job change. full board, as appropriate. • Directors may not stand for election or be appointed to fill vacant or newly If a concern arises about ethical conduct, it should be sent directly to Peabody’s created board positions after reaching age 75. Chief Legal Officer, who will promptly forward a copy of the communication • The company has adopted and disclosed stock ownership guidelines for to the Chairman of the Audit Committee, and if appropriate, the Chairman and officers and directors. Chief Executive Officer, for immediate action to address the matter. The company also has established compliance procedures for the Code of Code of Business Conduct and Ethics Business Conduct and Ethics. Employees who have concerns about busi- Employees and directors must adhere to a rigorous Code of Business Conduct ness practices are asked to raise their concerns to their supervisor or human and Ethics, which is designed to avoid conflicts of interest, achieve compliance resources representative or may use a third-party hotline called “Tell Peabody.” with laws and protect company assets. Tell Peabody allows for confidential and anonymous communication of The Code of Business Conduct and Ethics defines ethical standards to help all potential concerns, which are reported to the company’s corporate compli- employees establish and maintain our reputation as a world-class company. ance officer, who determines the appropriate action, including investigation. Report summaries are distributed to senior management weekly and routinely Employees are regularly reminded of their discussed with the Nominating and Corporate Governance Committee. obligation to act in a responsible, ethical and constructive manner through workplace Transparency communications and training sessions. All salaried employees are required to take online Peabody ensures that key corporate compliance and governance information training at least annually and to provide written and documents are accessible to shareholders and other stakeholders. The certification of compliance with the Code of company’s Corporate Governance Guidelines, board committee charters, Code Business Conduct and Ethics. of Business Conduct and Ethics and other information about our governance practices are available online at Any exceptions or qualifications are investi- gated and reported to the board of directors. Our annual proxy statement also includes detailed governance information Any modification in or waiver of the Code regarding director candidates and board independence, board meetings and for executive officers or directors must be attendance, director compensation and the director nominating process. approved in advance by the board of direc- tors and promptly disclosed as required by law or stock exchange regulations. 14 Peab od y Ener gy
  15. 15. Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Corporate Governance Ratings and the company’s registered independent public accountants. The results of the sub-certification process and the ongoing assessments of disclosure The board reviews the company’s corporate governance practices at least controls are reviewed among senior management and discussed in detail with annually to ensure that they continue to reflect best practices and promote the Audit Committee. the best interests of shareholders. During this process, the board solicits input Further quality assurance related to the company’s public reporting of financial from leading governance advisors who are independent of management. The information is provided by the Disclosure Committee. The company maintains board also considers views expressed by third parties, including independent a multi-discipline Disclosure Committee, which reviews financial statements governance ratings agencies. and certain SEC filings, and advises the CEO and CFO regarding potential The company’s governance practices are rated by several independent disclosure items. All earnings releases, quarterly reports and annual reports organizations, including RiskMetrics (formerly Institutional Shareholder are reviewed with and approved by the Audit Committee prior to filing. Services), Moody’s, Glass Lewis and Governance Metrics International. While individual ratings can vary widely, Peabody’s practices are generally rated Corporate Compliance and Training Programs better than average when compared to other companies in its industry group To ensure legal and ethical compliance, the company conducts regular and in line with the average of S&P 500 companies. training sessions at appropriate levels on a variety of topics, including safety, Financial Disclosure and Sarbanes-Oxley Compliance environmental laws, antitrust laws, securities and insider trading laws, equal employment opportunity matters, discrimination and sexual harassment. Peabody is committed to providing clear, complete, timely and accurate Peabody also maintains robust corporate compliance policies and approval financial information for external reporting purposes. The primary goal of the processes that are updated regularly and communicated throughout the financial reporting process is to provide stakeholders with financial information organization. that is useful in making informed business and economic decisions. These objectives are consistent with the Sarbanes-Oxley Act of 2002, which also requires the company to maintain all necessary systems, policies and proce- dures and documentation of financial controls to ensure its periodic financial reports are complete and accurate. Peabody believes the company’s written charters and governance guidelines, Code of Business Conduct and Ethics, robust internal policies and procedures and documentation of controls over financial reporting establish the proper “tone at the top” that facilitates compliance with Sarbanes-Oxley requirements. Under Sarbanes-Oxley, the company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are required to certify the completeness and accuracy of financial statements included in public filings, and to periodically assess the effectiveness of the company’s financial controls over financial reporting. To support the CEO and CFO certification responsibility, the company maintains a Hundreds of safety observations are conducted daily across Peabody operations thorough sub-certification process and robust system of internal and disclosure to recognize best practices and correct unsafe acts. These safety contacts are controls that are regularly tested and monitored by management, Internal Audit entered into a hand-held PDA and tracked through a mine management safety system. Celebrating 125 Years 15
  16. 16. Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility The past three years have been the safest in Peabody’s North Antelope Rochelle Mine – the world’s largest coal mine – was also the most productive in 2007, based on the most recent industry data. North Peabody’s 125-year history, and once again we Antelope Rochelle earned dual honors from the governor and state as the safest operated the nation’s safest large surface mine. mine in Wyoming this past year. Creating an accident-free workplace through best practices in safety is central Throughout the organization, we seek to elevate performance excellence, to Peabody Energy’s mission and a major component of our position on embracing four key pillars of leadership: inspiration, innovation, collaboration employee responsibility. Our vision for safety is to achieve zero incidents and execution. We believe effective leadership must inspire employees to of any kind. This means operating free of injuries, occupational illnesses, perform at their highest level… innovate through new technologies, new property damage and near misses. We continue to accelerate our emphasis markets and new approaches… and collaborate to build and develop teams on communications, training and prevention, and the past three years have that enable Peabody to seize opportunities. These elements drive execution been the safest in our 125-year history. and ensure strong results. We believe that our responsibility to employees also includes providing an By building on these leadership qualities, Peabody believes we can help empowered, collaborative work environment. We reward performance in employees achieve their highest potential, build employee satisfaction and safety, continuous improvement, innovation and creativity, and provide create a high-performing organization. Employees also are encouraged to seek opportunities for personal growth and career advancement. broader assignments to advance career goals and participate in continued development, education and training. 16 Peab od y Ener gy
  17. 17. Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility This section highlights: All Peabody meetings start with a safety contact, and hundreds of safety observations are conducted daily across the company to monitor behavioral • Peabody’s Safety Results work practices and immediately correct unsafe acts. These observations • Emergency Preparedness are tracked and shared through a computer-based safety management system. • Best-In-Class Training Centers Peabody also has expanded its recruiting to attract graduates • Employee Demographics from the nation’s top universities offering occupational • Next Generation Workforce health and safety degrees to provide a fresh perspective on • Diversity Initiatives best practices and create a path for succession planning. • Employee Relations and Benefits Peabody’s Safety Results “Peabody’s safety vision is to operate safe workplaces that are incident free.” Management continues accelerating efforts to improve safety, focusing on strengthened communications, reinforcing safe behavior and eliminating The following governing principles for safety and health hazards. Specialized training in incident investigation and root cause analysis apply to everyone at a Peabody workplace: is being conducted for all U.S. mine managers and supervisors this year, with a heightened focus placed on assessing and alleviating risk. • The safety and health of our most important asset, The prestigious our employees, is a core value that is integrated For instance, a new awareness program empowers employees to “SLAM” U.S. Department of Labor’s into all areas of our business; hazards using a simple premise: “Stop, Look, Assess, Manage.” SLAM means Sentinels of Safety Award considering all the safety controls available and mitigating potential risk before has been presented to • All workplace incidents can be eliminated, Peabody operations three performing a job. Every U.S. employee will receive SLAM procedure training including injuries, occupational illnesses, property of the past four years. this year. damage and near misses; • Management has the overall accountability for Actions that build on our successes and continually improve performance are employee safety and health; guided by the Executive Safety Committee, Central Safety and Health Team and Mine Safety and Health Teams. These teams collaborate with employees at • Each employee is responsible for their own safety and health, as well as each operation to refine best practices, create standard processes and provide promoting the safety of their co-workers; technical transfer for best-in-class performance at every level. • Each employee must be empowered with the skills and authority to perform their job in a safe manner; Excellence in safety also is driven through individual accountability. Every Peabody employee commits to our safety vision and governing principles, and • All employees must comply with established safety rules and regulations; managers, front-line supervisors and employees are held responsible for their • Open, honest and effective safety communication is essential; own safety and the safety of each other. • All safety and health efforts must be sustainable and will be continuously reviewed and improved; and • The workplace is anywhere a Peabody employee is on the job. Celebrating 125 Years 17
  18. 18. Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility Safety Improvements largest in the world – was also honored as the safest mine in Wyoming, recognized by both the governor and the state mine inspector. Peabody’s U.S. employees achieved a 2.59 safety rate per 200,000 hours All told, employees earned nearly 20 awards for emergency preparedness and worked in 2007, reflecting a 29 percent improvement in the past three years. best practices in safety in 2007, including four U.S. Labor Sentinels of Safety The Farmersburg Mine in Indiana set the pace, earning Sentinels of Safety certificates for low incident rates. honors by the U.S. Department of Labor as the safest large surface mine in Peabody’s Australia operations improved their lost-time accident rate by more America. Peabody operations have earned this honor three of the past four than half, which includes the contribution of new mines that became part of years. Peabody through the Excel acquisition. Employees at the Viking Mine completed the year with zero reportable Peabody is standardizing its Australian safety tracking system this year to incidents, and employees at the Lee Ranch Mine achieved dual state honors create a consistent reporting mechanism for its U.S. and Australian operations as the safest mine in New Mexico. The North Antelope Rochelle Mine – the based on the Mine Safety and Health Administration (MSHA) standard. Emergency Preparedness U.S. Safety Performance Peabody Versus Other Industries In June 2006, President Bush signed into law the Mine Improvement and U.S. Accidents Per 200,000 Worker Hours New Emergency Response Act (MINER Act) creating 13 major provisions for emergency preparedness and technology research. The legislation called for additional compliance-related training, new reporting standards and more 4.64 stringent PSI standards for mine seals. It also called for developing two-way underground communication systems, safe chambers and caches of self- Agriculture/Forestry/Fishing/Hunting contained self-rescuers. Transportation & Warehousing Even before the MINER Act was created, Peabody operations already were Education & Health Services complying with several of the new mandates as a matter of practice. For 2.59 instance, the act calls for developing mine emergency response plans, which Leisure & Hospitality are completed annually at Peabody operations. Manufacturing Peabody 2007 Construction Coal Mining Each of our underground U.S. mines have approved emergency plans that Wholesale include the location of safety chambers. To comply with the act, safety Utilities Retail chambers designed to provide oxygen, food and water for up to 32 workers for 96 hours have been ordered, and deliveries are expected to begin as early as this spring. Thousands of self-contained self-rescue units also are being Source: 2007 data from Peabody and the U.S. Department of Labor; 2006 data from Occupational Safety & delivered to build underground caches. Health Administration Beyond providing safety tools, the MINER Act has a number of practical Peabody’s safety results are significantly better than the coal industry average and requirements, such as ensuring that operations are supported by local mine the average in other major industries, including transportation, manufacturing, rescue teams. Four hours of monthly drilling is mandatory, and mine rescue agricultural and construction. We maintain an intense focus to continually improve. 18 Peab od y Ener gy
  19. 19. Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility These teams continually hone their emergency response capabilities, through sophisticated annual mine emergency rescue drills (MERDs) involving multiple regulatory agencies and local emergency responders. Drilling is frequent throughout all regions. In 2007, employees earned eight awards for major national and regional mine emergency competitions. Peabody installed redundant communication systems at its underground mines this past year and evaluated several two-way communication systems, which included testing at the Twentymile Mine in Colorado. The system awaits approval from MSHA. Best-in-Class Training Centers Recognizing the need to attract and retain the industry’s best talent, Peabody has developed a premier training regime through high-tech training centers in the Midwest and West. These centers offer virtual technology, advanced curriculum and hands-on skills applications. The safety and management team at Farmersburg Mine in Indiana celebrates best-in-class performance as America’s safest large surface mine. Continuous improvement in safety toward a vision of zero incidents is a core value. response teams must be located within one hour of the mines they serve. Approximately 10 percent of Peabody’s sales come from underground operations. Peabody has encouraged mine rescue training and drilling for decades to main- tain the highest level of preparedness, with teams typically training at twice the required level. The company has emergency response and mine rescue teams at every U.S. location, with resources significantly enhanced this past year. Ten mine rescue and Surface Mine Emergency Teams (SMET) were established Peabody is training its Next Generation Workforce through facilities in Wyoming in the Midwest in 2007, which include new rescue teams at the Air Quality and and Indiana. More than 2,600 employees received training at the Western facility Gateway mines, and two teams at Vermilion Grove. Every U.S. Peabody mine located at the Rawhide Mine in 2007. The new miner program uses virtual technology for basic safety and skills training. has a mine rescue or SMET team. Celebrating 125 Years 19
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