SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13105
Title of the Plan -
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
Name and Address of the issuer of the Securities
Held Pursuant to the Plan -
Arch Coal, Inc.
One City Place Drive, Suite 300
St. Louis, Missouri 63141
FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements and Schedule
Independent Auditors' Report
Statement of Net Assets Available for Plan Benefits
Statement of Changes in Net Assets Available for Plan Benefits
Notes to Financial Statements
Schedule of Assets Held
Exhibits:
23 Consent of Rubin, Brown, Gornstein & Co. LLP, Independent Auditors
99.1 Statement Under Oath of Principal Executive Officer Regarding Facts and
Circumstances Relating to Exchange Act Filings executed by Steven F.
Leer
99.2 Statement Under Oath of Principal Financial Officer Regarding Facts and
Circumstances Relating to Exchange Act Filings executed by Robert J.
Messey
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ARCH COAL, INC.
EMPLOYEE THRIFT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 2002
================================================================================
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT....................................................................1
FINANCIAL STATEMENTS
Statement Of Net Assets Available For Plan
Benefits................................................................................2
Statement Of Changes In Net Assets Available
For Plan Benefits.......................................................................3
Notes To Financial Statements...........................................................4 - 9
SUPPLEMENTARY INFORMATION
Independent Auditors' Report On Supplementary
Information............................................................................10
Schedule Of Assets Held...............................................................11 - 12
INDEPENDENT AUDITORS' REPORT
To the Audit Committee
Arch Coal, Inc. Employee Thrift Plan
St. Louis, Missouri
We have audited the accompanying statement of net assets available for plan
benefits of the Arch Coal, Inc. Employee Thrift Plan as of December 31, 2002 and
2001 and the related statement of changes in net assets available for plan
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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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 plan benefits at December
31, 2002 and 2001, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
June 17, 2003
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31,
----------------------------------------
2002 2001
----------------------------------------
ASSETS
INVESTMENTS, AT FAIR VALUE (NOTE 3)
Money market $ 1,564,190 $ 1,543,086
Mutual funds and common/collective fund 106,587,507 119,599,522
Guaranteed investment account 55,380,598 50,853,111
Company stock 15,495,457 16,289,419
Participant loans (Note 4) 9,618,429 9,924,227
Brokerage securities 7,787,352 8,809,499
-------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 196,433,533 207,018,864
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 196,433,533 $ 207,018,864
=========================================================================================================================
See the accompanying report letter and notes to financial statements.
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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
FOR THE YEARS
ENDED DECEMBER 31,
------------------------------------------
2002 2001
------------------------------------------
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
INVESTMENT INCOME (LOSS) (NOTE 3)
Dividends and interest $ 5,314,719 $ 5,501,477
Net depreciation in fair value of investments (26,599,478) (21,381,000)
----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (21,284,759) (15,879,523)
----------------------------------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Salary deferral contributions 13,252,073 12,433,338
Employer contribution 10,224,095 9,677,607
Employee after-tax contribution 1,301,353 1,413,284
Rollover contribution 417,482 710,788
----------------------------------------------------------------------------------------------------------------------------
TOTAL CONTRIBUTIONS 25,195,003 24,235,017
----------------------------------------------------------------------------------------------------------------------------
TOTAL ADDITIONS 3,910,244 8,355,494
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid directly to participants 14,495,575 17,362,250
----------------------------------------------------------------------------------------------------------------------------
NET DECREASE (10,585,331) (9,006,756)
NET ASSETS AVAILABLE FOR PLAN BENEFITS -
BEGINNING OF YEAR 207,018,864 216,025,620
----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS -
END OF YEAR $ 196,433,533 $ 207,018,864
============================================================================================================================
See the accompanying report letter and notes to financial statements.
Page 3
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
1. DESCRIPTION OF THE PLAN
The Arch Coal, Inc. Employee Thrift Plan was established by Arch Coal,
Inc. (Company) for the benefit of the eligible employees of the
Company, its subsidiaries and controlled affiliates.
The following description of the Plan provides only general
information. Participants should refer to the Summary Plan Description
for a more complete description of the Plan's provisions.
Certain provisions of the Plan as described below do not apply to or
have been modified for certain subsidiaries and affiliates of the
Company.
GENERAL
The Plan, which has been adopted by Arch Coal, Inc. is a defined
contribution profit sharing plan which includes a 401(k) provision. The
Plan covers all full-time salaried employees, all full-time nonunion
hourly employees, and certain union employees where specified by
applicable collective bargaining agreements of the Company, its
subsidiaries, and any controlled affiliates that elect to participate
in the Plan. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
CONTRIBUTIONS
Participants may elect to defer between 1 percent and 50 percent of
compensation, depending upon the location of the employee. Highly
compensated employees may contribute up to 16%, with the exception of
those employed at Mingo Logan who may contribute 17%. The percentage of
employer match or nondiscretionary contribution also depends upon the
location.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contributions, the employer's matching contribution, if applicable, or
employer non-discretionary contribution, if applicable, and an
allocation of Plan earnings. The allocation of earnings is determined
by the earnings of the participant's investment selection based on each
participant's account balance, as defined in the Plan agreement. The
benefit to which a participant is entitled is the benefit that can be
provided from the participant's account.
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ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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Notes To Financial Statements (Continued)
VESTING
Participants are fully vested in their contributions plus actual
earnings. All eligible employees of the Company at December 31, 1997
became fully vested in the Plan. Eligible employees hired subsequent to
December 31, 1997 vest in Company contributions and earnings upon the
completion of three full and consecutive years of service.
All participants become fully vested upon death while employed, total
disability, or normal retirement age, regardless of the number of
months of participation.
PARTICIPANT LOANS
Active participants, with some exceptions, may borrow from their fund
accounts a minimum of $500 or up to a maximum equal to the lesser of
$50,000 or 50 percent of their vested account balances. Loan terms
range from one to five years or longer for the purchase of a primary
residence. The loans are secured by the balance in the participant's
account and bear interest at the prime rate listed in the Wall Street
Journal on the day the loan is processed. Principal and interest is
paid ratably through payroll deductions.
PAYMENT OF BENEFITS
Upon death, termination of service, or attainment of age 70-1/2, 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, a
single annuity, a joint and survivorship annuity with various survivor
options or a series of installment payments.
FORFEITED ACCOUNTS
Forfeited amounts of employer contributions are used to offset future
Company matching contributions of the Plan. At December 31, 2002 and
2001, forfeited amounts available to reduce future Company
contributions were $273,997 and $185,074, respectively.
Page 5
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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Notes To Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the accrual
method of accounting.
INVESTMENT VALUATION AND INCOME RECOGNITION
Investments in mutual funds are valued at reported net asset value at
December 31 as determined by the fund manager.
Investment income is recorded as earned on the accrual basis.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
Page 6
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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Notes To Financial Statements (Continued)
3. INVESTMENTS
The Company has established a Pension Committee to oversee the
activities of the Plan and has appointed the Vice President - Human
Resources as the Plan Administrator. Fleet Bank is the trustee for the
Plan and Putnam Fiduciary Trust Company is the Plan recordkeeper.
Investments at fair value as of December 31, 2002 and 2001 consist of
the following:
DECEMBER 31,
-------------------------------------
2002 2001
-------------------------------------
PUTNAM MONEY MARKET FUND $ 1,564,190 $ 1,543,086
-----------------------------------------------------------------------------------------------------------
MUTUAL FUNDS AND COMMON COLLECTIVE FUND
American Century Income and Growth Fund 23,606,930* 28,146,653*
Barclay's Lifepath 2010 599,395 160,372
Barclay's Lifepath 2020 554,161 488,589
Barclay's Lifepath 2030 223,176 130,407
Barclay's Lifepath 2040 238,111 201,744
Dodge & Cox Balanced Fund 12,219,588* --
Franklin Templeton Balance Sheet Fund 10,406,097 9,063,457
Investment Company of America 67,188 --
PIMCO Total Return Fund 13,867,234* 10,070,589
Putnam Balanced Fund 63,475 14,858,769*
Putnam Growth Opportunities Fund 14,182,019* 19,755,092*
Putnam International Growth Fund 7,833,417 9,152,343
Putnam OTC Emerging Growth Fund 1,304,682 1,589,311
Putnam S&P 500 Index 16,023,021* 18,990,294*
Putnam Vista Fund 5,399,013 6,991,902
-----------------------------------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS AND
COMMON/COLLECTIVE FUND 106,587,507 119,599,522
-----------------------------------------------------------------------------------------------------------
ARCH COAL, INC. COMMON STOCK 15,495,457* 16,289,419
-----------------------------------------------------------------------------------------------------------
PUTNAM DIRECT PERSONAL CHOICE RETIREMENT
ACCOUNT 7,787,352 8,809,499
-----------------------------------------------------------------------------------------------------------
PRIMCO STABLE VALUE FUND 55,380,598* 50,853,111*
-----------------------------------------------------------------------------------------------------------
PARTICIPANT LOANS 9,618,429 9,924,227
-----------------------------------------------------------------------------------------------------------
$ 196,433,533 $ 207,018,864
===========================================================================================================
*Investment represents 5 percent or more of net assets at the beginning of the
respective Plan year.
Page 7
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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Notes To Financial Statements (Continued)
CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS:
FOR THE YEAR
ENDED DECEMBER 31,
---------------------------------------
2002 2001
---------------------------------------
Investment Income (Loss):
Dividends and interest $ 5,314,719 $ 5,501,477
Net depreciation in fair value of investments (26,599,478) (21,381,000)
------------------------------------------------------------------------------------------------
Net Investment Income (Loss) $ (21,284,759) $ (15,879,523)
================================================================================================
Interest income on the Primco Stable Value Fund is calculated and
credited daily based on the aggregate contract yield of the underlying
investments. The investment contracts included in this fund had an
average yield of 4.51% and 5.52% for the years ended December 31, 2002
and 2001, respectively. The average crediting interest rate was 5.52%
and 5.87% at December 31, 2002 and 2001, respectively. The fair value
of the investment contract was $55,380,598 and $50,853,111 at December
31, 2002 and 2001, respectively.
4. PARTICIPANTS LOANS
Notes receivable are secured by participants' vested balances. The
notes are due in bi-weekly payments including principal and interest at
varying rates reflective of the prime rate as of the time of issue. The
final installments are due at various dates.
5. PLAN TERMINATION
Although it has not expressed intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and
to terminate the Plan, subject to the provisions of ERISA. In the event
of Plan termination, participants will become 100% vested in their
accounts.
Page 8
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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Notes To Financial Statements (Continued)
6. TAX STATUS
The Plan obtained its latest determination letter on September 26, 2002
in which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended during 2002 to
incorporate language required by the passing of certain laws, commonly
referred to as "EGTRRA." The Plan Administrator and the Plan's tax
counsel believe the Plan is correctly designed and operated with the
applicable requirements of the Internal Revenue Code. Therefore, the
Plan Administrator believes the Plan was qualified and the related
trust tax exempt.
Page 9
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of assets held is presented for
purposes of additional analysis and is not a required part of the basic
financial statements, but is supplementary data required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Income Security Act of 1974. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Rubin, Brown, Gornstein & Co. LLP
June 17, 2003
Page 10
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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E.I.N. 43-0921172 PLAN 006
SCHEDULE OF ASSETS HELD
DECEMBER 31, 2002
CURRENT
IDENTITY OF ISSUER DESCRIPTION OF INVESTMENT VALUE
------------------------------------------------------------------------------------------------------------------
MONEY MARKET
Putnam Investments Putnam Money Market Fund $ 1,564,190
-----------------
MUTUAL FUNDS AND COMMON/COLLECTIVE FUND
American Fund Corporation American Century Income and Growth Fund 23,606,930
American Fund Corporation Investment Company of America 67,188
Barclay Global Investors Barclay's Lifepath 2010 599,395
Barclay Global Investors Barclay's Lifepath 2020 554,161
Barclay Global Investors Barclay's Lifepath 2030 223,176
Barclay Global Investors Barclay's Lifepath 2040 238,111
Dodge & Cox Funds Dodge & Cox Balanced Fund 12,219,588
Franklin Investments Franklin Templeton Balance Sheet Fund 10,406,097
PIMCO Investments PIMCO Total Return Fund 13,867,234
Putnam Investments Putnam Balanced Fund 63,475
Putnam Investments Putnam Growth Opportunities Fund 14,182,019
Putnam Investments Putnam OTC Emerging Growth Fund 1,304,682
Putnam Investments Putnam International Growth Fund 7,833,417
Putnam Investments Putnam S&P 500 Index 16,023,021
Putnam Investments Putnam Vista Fund 5,399,013
-----------------
TOTAL MUTUAL FUNDS AND COMMON/COLLECTIVE FUND 106,587,507
-----------------
COMMON STOCK
Arch Coal, Inc. Common stock 15,495,457
-----------------
PARTICIPANT DIRECTED BROKERAGE ACCOUNTS
Putnam Putnam Direct Personal Choice
Retirement Account (Participants
Directed Brokerage Accounts) 7,787,352
-----------------
BALANCE CARRIED FORWARD 131,434,506
-----------------
The above information is a required disclosure for IRS Form 5500, Schedule H,
Part IV, line 4i.
Page 11
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
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E.I.N. 43-0921172 PLAN 006
SCHEDULE OF ASSETS HELD
DECEMBER 31, 2002
DESCRIPTION OF CURRENT
IDENTITY OF ISSUER INVESTMENT VALUE
------------------------------------------------------------------------------------------------------------------------
BALANCE BROUGHT FORWARD $ 131,434,506
-----------------------
GUARANTEED INVESTMENT ACCOUNT -
PRIMCO STABLE VALUE FUND
Allstate Life Insurance Company Synthetic GIC 4,618,294
Allstate Life Insurance Company Wrapper Synthetic GIC (2,651,401)
Bank of America NT & SA 103-121E 11,196,578
Bank of America NT & SA Wrapper 103-121E (173,944)
ING Life Insurance & Annuity Company 103-121E 4,534,176
ING Life Insurance & Annuity Company Wrapper 103-121E (27,051)
John Hancock Life Insurance PSA 3,477,562
John Hancock Life Insurance Wrapper PSA (282,581)
JP Morgan Chase Bank 103-121E 8,332,045
JP Morgan Chase Bank Wrapper 103-121E (440,505)
Monumental Life Insurance Company Synthetic GIC 2,521,723
Monumental Life Insurance Company Wrapper Synthetic GIC (168,153)
Monumental Life Insurance Company 103-121E 8,491,357
Monumental Life Insurance Company Wrapper 103-121E (302,628)
State Street Bank & Trust Synthetic GIC 2,433,659
State Street Bank & Trust Wrapper Synthetic GIC (265,277)
State Street Bank & Trust 103-121E 1,710,384
State Street Bank & Trust Wrapper 103-121E (108,816)
UBS AG Synthetic GIC 7,034,163
UBS AG Wrapper Synthetic GIC (1,646,789)
Boston Company Common/Collective Trust 4,279,494
Bus Men's Assur-MBIA Insd GIC 1,512,771
Security Life of Denver GIC 1,305,537
-----------------------
TOTAL GUARANTEED INVESTMENT ACCOUNT 55,380,598
-----------------------
PARTICIPANT LOANS Notes Receivable 9,618,429
-----------------------
$ 196,433,533
=======================
Page 12
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the duly
authorized Plan Administrator has executed this annual report.
ARCH COAL, INC. EMPLOYEE THRIFT PLAN
Date: June 20, 2003 By: /s/ Sheila Feldman
----------------------------------
Sheila Feldman
Plan Administrator
INDEX TO EXHIBITS
Exhibit 23 Consent of Rubin, Brown, Gornstein & Co. LLP, Independent
Auditors
Exhibit 99.1 Statement Under Oath of Principal Executive Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings
executed by Steven F. Leer
Exhibit 99.2 Statement Under Oath of Principal Financial Officer Regarding
Facts and Circumstances Relating to Exchange Act Filings
executed by Robert J. Messey
Page 14