ARCH COAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-13105

ARCH COAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 43-0921172
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

ONE CITYPLACE DRIVE, SUITE 300, ST. LOUIS, MO 63141
(Address of principal executive offices) (Zip Code)

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (314) 994-2700

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
5% PERPETUAL CUMULATIVE CONVERTIBLE PREFERRED STOCK NONE
Title of Each Class Name of Each Exchange On Which Registered

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant in an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

At December 31, 2002, based on the closing price of the registrant's common
stock on the New York Stock Exchange on that date, the aggregate market value of
the voting stock held by non-affiliates of the registrant was approximately
$813,860,138. In determining this amount, the registrant has assumed that all of
its executive officers and directors, and persons known to it to be the
beneficial owners of more than five percent of its common stock, are affiliates.
Such assumption shall not be deemed conclusive for any other purpose.

At March 1, 2003, there were 52,434,170 shares of the registrant's common
stock outstanding.

Documents incorporated by reference:

1. Portions of the registrant's definitive proxy statement, to be filed with the
Securities and Exchange Commission no later than April 1, 2003, are
incorporated by reference into Part III of this Form 10-K.

2. Portions of the registrant's Annual Report to Stockholders for the year ended
December 31, 2002 are incorporated by reference into Parts I, II and IV of
this Form 10-K.

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TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

GENERAL

Arch Coal, Inc. ("Arch Coal" or the "Company") is one of the largest coal
producers in the United States. The Company mines, processes and markets
compliance and low-sulfur coal from mines located in both the eastern and
western United States, enabling it to ship coal cost-effectively to most of the
major domestic coal-fired electric generation facilities. As of December 31,
2002, the Company had 25 operating mines and controlled approximately 2.9
billion tons of proven and probable coal reserves. Arch Coal sold 106.7 million
tons of coal in 2002. The Company sells substantially all of its coal to
producers of electric power.

The Company owns a 99% membership interest in Arch Western Resources, LLC
("Arch Western"), a joint venture that was formed in connection with the
Company's acquisition of the United States coal operations of Atlantic Richfield
Company on June 1, 1998. The principal operating units of Arch Western are
Thunder Basin Coal Company, L.L.C., which operates the Black Thunder mine in the
Southern Powder River Basin in Wyoming; Mountain Coal Company, L.L.C., which
operates the West Elk mine in Colorado; Canyon Fuel Company, LLC ("Canyon
Fuel"), which operates three mines in Utah; and Arch of Wyoming, LLC, which
operates two mines in the Hanna Basin of Wyoming. Arch Western owns 100% of the
membership interests of Thunder Basin Coal Company, L.L.C., Mountain Coal
Company, L.L.C. and Arch of Wyoming, LLC. Arch Western owns a 65% membership
interest in Canyon Fuel, with the remaining 35% membership interest owned by
ITOCHU Coal International Inc., a subsidiary of ITOCHU Corporation of Japan.

BUSINESS ENVIRONMENT

United States Coal Markets. Production of coal in the United States has
increased from 434 million tons in 1960 to about 1.1 billion tons in 2002. The
following table sets forth demand trends for United States coal by consuming
sector through 2025 as compiled, preliminary(p) or forecasted(f) by the United
States Department of Energy/Energy Information Agency.

Electricity Generation. Coal has consistently maintained a 49% to 53%
market share over competing energy sources to generate electricity during the
past ten years because of its relatively low cost and its availability
throughout the United States. Coal is the lowest cost fossil-fuel used for
base-load electric power generation -- considerably less expensive than natural
gas or oil. Coal-fired generation is also competitive with nuclear power
generation, especially on an all-in cost per megawatt-hour basis. Hydroelectric
power is inexpensive but is limited by both geography and susceptibility to
seasonal and climatic conditions. Non hydropower renewable power generation
accounts for less than 6% of all the electricity generated in the U.S. and is
limited by resources and/or technology. Consequently, approximately 88% of the
coal produced in the United States in 2002 was sold in the domestic market as a
fuel to the electric generation segment. The remainder of the tons were sold in
2002 as steam coal for industrial and residential purposes, into the export
market, and as metallurgical coal. In addition to the relative competitiveness
of coal-fired generation plants, coal consumption patterns are also influenced
by the demand for electricity, governmental regulation

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impacting coal production and power generation, technological developments and
the location, availability and quality of competing sources of coal, as well as
other fuels such as natural gas, oil and nuclear and alternative energy sources
such as hydroelectric power.

Long-term demand for electric power will depend upon a variety of economic,
regulatory, technological and climatic factors beyond our control. Historically,
domestic demand for electric power has increased as the United States economy
has grown. Two important regulatory initiatives, one designed to increase
competition among utilities and lower the cost of electricity for consumers, and
another to improve air quality by reducing the level of sulfur emitted from
coal-burning power generation plants, have had and are expected to continue to
have significant effects on the electric utility industry and its coal
suppliers.

According to the Energy Information Agency, coal is expected to remain the
primary fuel for electricity generation through 2025. The following table sets
forth the source fuel for electricity generation from 1990 through 2025 as
compiled, preliminary(p), annualized(a) or forecasted(f) by the Energy
Information Agency.

Coal's primary advantage is its relatively low cost compared to other fuels
used to generate electricity. The following table sets forth the Energy
Information Agency's forecast of delivered fuel prices to electric utilities
through 2025 as compiled, preliminary(p) or forecasted(f) by the Energy
Information Agency. The data-set is derived from the Energy Information Agency's
Long-Term forecast published in December 2002 and is presented in 2001 dollars.

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Coal Production. United States coal production was 1.1 billion tons in
2002. The following table, derived from data prepared by the Energy Information
Agency, sets forth principal United States production statistics for the periods
indicated.

SALES AND MARKETING

The Company sells coal both under long-term contracts, the terms of which
are greater than 12 months, and on a current market or spot basis. When the
Company's coal sales contracts expire or are terminated, it is exposed to the
risk of having to sell coal into the spot market, where demand is variable and
prices are subject to greater volatility. Historically, the price of coal sold
under long-term contracts has exceeded prevailing spot prices for coal. However,
in the past several years new contracts have been priced at or near existing
spot rates.

The terms of the Company's coal sales contracts result from bidding and
extensive negotiations with customers. Consequently, the terms of these
contracts typically vary significantly in many respects, including price
adjustment features, provisions permitting renegotiation or modification of coal
sale prices, coal quality requirements, quantity parameters, flexibility and
adjustment mechanisms, permitted sources of supply, treatment of environmental
constraints, options to extend, and force majeure, suspension, termination and
assignment provisions.

Provisions permitting renegotiation or modification of coal sale prices are
present in many of the Company's more recently negotiated long-term contracts
and usually occur midway through a contract or every two to three years,
depending upon the length of the contract. In some circumstances, customers have
the option to terminate the contract if prices have increased by a specified
percentage from the price at the commencement of the contract or if the parties
cannot agree on a new price. The term of sales contracts has decreased
significantly over the last two decades as competition in the coal industry has
increased and, more recently, as electricity generators have prepared themselves
for federal Clean Air Act requirements and the impending deregulation of their
industry.

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There are some contract terms that differ between a standard "eastern
United States" contract and a standard "western United States" contract. In the
eastern United States, many customers require that the coal be sampled and
weighed at the destination. In the western United States, virtually all samples
are taken at the source. More eastern United States coal is purchased on the
spot market. The eastern United States market has more recently been a
shorter-term market because of the larger number of smaller mining operations in
that region. Western United States contracts sometimes stipulate that some
production taxes and coal royalties be reimbursed in full by the buyer rather
than as a pricing component within the contract. These items comprise a
significant portion of western United States coal pricing.

A factor that may impact the Company's sale of coal in the future is the
development of coal commodity trading. The New York Mercantile Exchange has
initiated both electricity commodity trading and coal contract trading. The coal
contract trading is based on a Huntington, West Virginia barge loading hub. In
addition, some brokerage and marketing firms have entered the coal markets and
devised transactions that mimic commodity activity. Today, limited
over-the-counter trading is being conducted on both firm-forward transactions as
well as put, call and other options. A trend to more commodity-type transactions
could mark a significant change in how coal is sold. The Company is unable to
predict whether this trend will have a material effect on its sales and whether
any such effect would be positive or negative on its operating results.

COMPETITION

The coal industry is intensely competitive, primarily as a result of the
existence of numerous producers in the coal producing regions in which the
Company operates. The Company competes with several major coal producers in the
Central Appalachian and Powder River Basin areas. It also competes with a number
of smaller producers in those and its other market regions.

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OPERATIONS

As of December 31, 2002, the Company operated a total of 25 mines, all
located in the United States. Coal is transported from the Company's mining
complexes to customers by means of railroad cars, river barges or trucks, or a
combination of these means of transportation. As is customary in the industry,
virtually all the Company's coal sales are made F.O.B. mine or loadout, meaning
that customers are responsible for the cost of transporting purchased coal to
their facilities. The following table provides the location and a summary of
information regarding the Company's principal mining complexes and the coal
reserves associated with these operations as of December 31, 2002:

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S = Surface Mine D = Dragline UP = Union Pacific Railroad
U = Underground Mine L = Loader/Truck CSX = CSX Transportation
S = Shovel/Truck BN = Burlington Northern Railroad
LW = Longwall NS = Norfolk Southern Railroad
C = Continuous Miner
HW = Highwall Miner

(1) Amounts in parenthesis indicate the number of captive and contract mines at
the mining complex or location. Captive mines are mines which the Company
owns and operates on land owned or leased by it. Contract mines are mines
which other operators mine for the Company under contracts on land owned or
leased by the Company.

(2) Reported for captive operations only.

(3) The Company idled its mining operations at the Dal-Tex complex on July 23,
1999 due to a delay in obtaining mining permits resulting from legal action
in the U.S. District Court for the Southern District of West Virginia.

(4) Utilizes an 83-cubic-yard dragline and a 51-cubic-yard shovel. A dragline
is a large machine used in the surface mining process to remove layers of
earth and rock covering coal.

(5) Utilizes a 53-cubic-yard dragline, a 43-cubic-yard shovel, a 22-cubic-yard
shovel and a 28-cubic-yard loader at the Ruffner mine.

(6) Utilizes a 117-cubic-yard dragline, two 53-cubic-yard shovels and three
28-cubic-yard loaders.

(7) Utilizes 164-cubic-yard, 130-cubic-yard, 78-cubic-yard and 45-cubic-yard
draglines and 53-cubic-yard, 60-cubic-yard and 82-cubic-yard shovels.

(8) The Company idled its mining operations at Coal Creek during the third
quarter of 2000 because its cost structure was not competitive in the
market environment that existed at that time.

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(9) Mines are operated by Canyon Fuel. Canyon Fuel is an equity investment and
its financial statements and tons produced are not consolidated into the
Company's financial statements and tons produced. Amounts represent 100% of
Canyon Fuel's production and assigned reserves of which the Company has a
65% interest.

(10) Utilizes 76-cubic-yard dragline at Medicine Bow and a 32-cubic-yard
dragline at Seminoe II.

(11) Reflects the cost of plant, equipment and development at the mine as of
December 31, 2002.

TRANSPORTATION

Coal from the mines of the Company's subsidiaries is transported by rail,
truck and barge to domestic customers and to Atlantic or Pacific coast terminals
for shipment to domestic and international customers.

The Company's Arch Coal Terminal is located on a 60-acre site on the Big
Sandy River approximately seven miles upstream from its confluence with the Ohio
River. Arch Coal Terminal provides coal storage and transloading services.

Company subsidiaries together own a 17.5% interest in Dominion Terminal
Associates ("DTA"), which leases and operates a ground storage-to-vessel coal
transloading facility (the "DTA Facility") in Newport News, Virginia. The DTA
Facility has a rated throughput capacity of 20 million tons of coal per year and
ground storage capacity of approximately 1.7 million tons. The DTA Facility
serves international customers, as well as domestic coal users located on the
eastern seaboard of the United States.

REGULATIONS AFFECTING COAL MINING

The information contained in the "Contingencies -- Reclamation" and
"Certain Trends and Uncertainties -- Environmental and Regulatory Factors"
sections of "Management's Discussion and Analysis" of the Company's 2002 Annual
Report to Stockholders is incorporated herein by reference.

GLOSSARY OF SELECTED MINING TERMS

Assigned Reserves. Recoverable coal reserves that have been designated for
mining by a specific operation.

Auger Mining. Auger mining employs a large auger, which functions much
like a carpenter's drill. The auger bores into a coal seam and discharges coal
out of the spiral onto waiting conveyor belts. After augering is completed, the
openings are reclaimed. This method of mining is usually employed to recover any
additional coal left in deep overburden areas that cannot be reached
economically by other types of surface mining.

Btu -- British Thermal Unit. A measure of the energy required to raise the
temperature of one pound of water one degree Fahrenheit.

Coal Seam. A bed or stratum of coal.

Coal Washing. The process of removing impurities, such as ash and sulfur
based compounds, from coal.

Compliance Coal. Coal which, when burned, emits 1.2 pounds or less of
sulfur dioxide per million Btus. Compliance coal requires no mixing with other
coals or use of sulfur dioxide reduction technologies by generators of
electricity to comply with the requirements of the federal Clean Air Act.

Continuous Mining. One of two major underground mining methods now used in
the United States (also see "Longwall Mining"). This process utilizes a
machine -- a "continuous miner" -- that mechanizes the entire coal extraction
process. The continuous miner removes or "cuts" the coal from the seam. The
loosened coal then falls on a conveyor for removal to a shuttle car or larger
conveyor belt system.

Dragline. A large machine used in the surface mining process to remove the
overburden, or layers of earth and rock, covering a coal seam. The dragline has
a large bucket suspended from the end of a long boom. The bucket, which is
suspended by cables, is able to scoop up great amounts of overburden as it is
dragged across the excavation area.

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Longwall Mining. One of two major underground coal mining methods now used
in the United States (see also "Continuous Mining"). This method employs a
rotating drum, which is pulled mechanically back and forth across a face of coal
that is usually several hundred feet long. The loosened coal falls onto a
conveyor for removal from the mine. Longwall operations include a hydraulic roof
support system that advances as mining proceeds, allowing the roof to fall in a
controlled manner in areas already mined.

Low-Sulfur Coal. Coal which, when burned, emits 1.6 pounds or less of
sulfur dioxide per million Btus.

Metallurgical Coal. The various grades of coal suitable for distillation
into carbon in connection with the manufacture of steel. Also known as "met"
coal.

Preparation Plant. A preparation plant is a facility for crushing, sizing
and washing coal to prepare it for use by a particular customer. The washing
process has the added benefit of removing some of the coal's sulfur content.

Probable Reserves. Reserves for which quantity and grade and/or quality
are computed from information similar to that used for proven reserves, but the
sites for inspection, sampling and measurement are farther apart; therefore, the
degree of assurance, although lower than that for proven (measured) reserves, is
high enough to assume continuity between points of observation.

Proven Reserves. Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or
quality are computed from the results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well established.

Reclamation. The restoration of land and environmental values to a mining
site after the coal is extracted. Reclamation operations are usually underway
where the coal has already been taken from a mine, even as mining operations are
taking place elsewhere at the site. The process commonly includes "recontouring"
or shaping the land to its approximate original appearance, restoring topsoil
and planting native grass and ground covers.

Recoverable Reserves. The amount of proven and probable reserves that can
actually be recovered from the reserve base taking into account all mining and
preparation losses involved in producing a saleable product using existing
methods and under current law.

Spot Market. Sales of coal under an agreement for shipments over a period
of one year or less.

Steam Coal. Coal used in steam boilers to produce electricity.

Surface Mine. A mine in which the coal lies near the surface and can be
extracted by removing overburden.

Tons. References to a "ton" mean a "short" or net tonne, which is equal to
2,000 pounds.

Unassigned Reserves. Recoverable coal reserves that have not yet been
designated for mining by a specific Company operation.

Underground Mine. Also known as a "deep" mine. Usually located several
hundred feet below the earth's surface, an underground mine's coal is removed
mechanically and transferred by shuttle car or conveyor to the surface.

EMPLOYEES

As of March 1, 2003, the Company employed a total of approximately 3750
persons, approximately 600 of whom were represented by the UMWA under a
collective bargaining agreement that expires in 2006 and approximately 160 of
whom are represented by the Scotia Employees Association under a collective
bargaining agreement that expires in 2003.

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EXECUTIVE OFFICERS

The following is a list of the Company's executive officers, their ages and
their positions and offices held with the Company during the last five years.

Bradley M. Allbritten, 45, is Vice President -- Marketing of the Company
and has served in such capacity since August 2002. From March 2000 to February
2003, Mr. Allbritten was the Company's Vice President -- Human Resources. Mr.
Allbritten served as the Company's Director of Human Resources from February
1999 through February 2000.

C. Henry Besten, Jr., 54, is Senior Vice President -- Strategic Development
of the Company and has served in such capacity since December 2002. Mr. Besten
is also President of the Company's Arch Energy Resources, Inc. subsidiary and
has served in that capacity since July 1997. From July 1997 to December 2002,
Mr. Besten served as Vice President -- Strategic Marketing of the Company. Mr.
Besten also served as Acting Chief Financial Officer of the Company from January
2000 to December 2000.

John W. Eaves, 45, is Executive Vice President and Chief Operating Officer
of the Company and has served in such capacity since December 2002. From
February 2000 to December 2002, Mr. Eaves served as Senior Vice
President -- Marketing of the Company and from September 1995 to December 2002
as President of the Company's Arch Coal Sales Company, Inc. subsidiary. Mr.
Eaves also served as Vice President -- Marketing of the Company from July 1997
through February 2000.

Sheila B. Feldman, 48, is Vice President -- Human Resources of the Company
and has served in such capacity since February 2003.

Robert G. Jones, 46, is Vice President -- Law, General Counsel and
Secretary of the Company and has served in such capacity since March 2000. Mr.
Jones served the Company as Assistant General Counsel from July 1997 through
February 2000 and as Senior Counsel from August 1993 to July 1997.

Steven F. Leer, 50, is President and Chief Executive Officer and a Director
of the Company and has served in such capacity since 1992.

Robert J. Messey, 57, is Senior Vice President and Chief Financial Officer
of the Company and has served in such capacity since December 2000.

David B. Peugh, 48, is Vice President -- Business Development of the
Company and has served in such capacity since 1993.

Robert W. Shanks, 49, is Vice President -- Operations of the Company and
has served in such capacity since July 1997. Since June 1998 he has also served
as President of Arch Western Resources. During the past five years, Mr. Shanks
has also served as President of the Company's Apogee Coal Company subsidiary.

Kenneth G. Woodring, 53, is Executive Vice President -- Mining Operations
of the Company and has served in such capacity since July 1997.

ITEM 2. PROPERTIES

The Company estimates that it owned or controlled, as of December 31, 2002,
approximately 2.9 billion tons of proven and probable recoverable reserves.
Recoverable reserves include only saleable coal and do not include coal which
would remain unextracted, such as for support pillars, and processing losses,
such as washery losses. Reserve estimates are prepared by the Company's
engineers and geologists and reviewed and updated periodically. Total
recoverable reserve estimates and reserves dedicated to mines and complexes
change from time to time to reflect mining activities, analysis of new
engineering and geological data, changes

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in reserve holdings and other factors. The following table presents the
Company's estimated recoverable coal reserves at December 31, 2002 (tonnage in
millions):

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* Represents 100% of the reserves held by Canyon Fuel, in which the Company has
a 65% interest.

Over 98% of the Company's recoverable reserves consists of steam coal,
which is coal used in steam boilers to make electricity. Less than 2% of the
Company's recoverable reserves consists of metallurgical coal, which is a grade
of coal used in the production of steel. Metallurgical coal represents an
immaterial amount of the Company's operations.

As of December 31, 2002, approximately 86,659 acres (which includes 100% of
the acreage held by Canyon Fuel) out of the Company's total of approximately
608,000 acres of coal land was leased from the federal government. These leases
have terms expiring between 2002 and 2019, subject to readjustment or extension
and to earlier termination for failure to meet diligent development
requirements. The Company has entered into leases covering substantially all of
its leased reserves which are not scheduled to expire prior to expiration of
projected mining activities. Royalties are paid to lessors either as a
fixed-price per-ton or as a percentage of the gross sales price of the mined
coal. The Company pays percentage-based royalties under the majority of its
significant leases. The terms of most of these leases extend until the
exhaustion of mineable and merchantable coal. The remaining leases have initial
terms ranging from one to 40 years from the date of their execution, with most
containing options to renew. In some cases, a lease bonus, or prepaid royalty,
is required, payable either at the time of execution of the lease or in annual
installments. In most cases, the prepaid royalty amount is applied to reduce
future production royalties.

The Pine Creek, Black Bear, Campbells Creek, Samples, Ruffner and Holden
25/Ragland preparation plants and related loadout facilities are located on
properties held under leases which expire at varying dates over the next thirty
years with either optional 20-year extensions or with unlimited extensions, and
the balance of the Company's preparation plants and loadout facilities are
located on property owned by the Company.

All of the identified coal reserves held by the Company's subsidiaries have
been subject to preliminary coal seam analysis to test sulfur content. Of these
reserves, approximately 68% consist of compliance coal while an additional 21%
could be sold as low-sulfur coal. The balance is classified as high-sulfur coal.
Some of the Company's low-sulfur coal can be marketed as compliance coal when
blended with other compliance coal. Accordingly, most of the Company's reserves
are primarily suitable for the domestic steam coal markets. However, a
substantial portion of the low-sulfur and compliance coal reserves at the Mingo
Logan operations may also be used as a high-volatile, low-sulfur, metallurgical
coal.

Title to coal properties held by lessors or grantors to the Company and its
subsidiaries and the boundaries of properties are normally verified at the time
of leasing or acquisition. However, in cases involving less significant
properties and consistent with industry practices, title and boundaries are not
completely verified until such time as the Company's independent operating
subsidiaries prepare to mine such reserves. If defects in title or boundaries of
undeveloped reserves are discovered in the future, control of and the right to
mine such reserves could be adversely affected.

From time to time, lessors or sublessors of land leased by the Company's
subsidiaries have sought to terminate such leases on the basis that such
subsidiaries have failed to comply with the financial terms of the

9

leases or that the mining and related operations conducted by such subsidiaries
are not authorized by the leases. Some of these allegations relate to leases
upon which the Company conducts operations material to the Company's
consolidated financial position, results of operations and liquidity, but the
Company does not believe any pending claims by such lessors or sublessors have
merit or will result in the termination of any material lease or sublease.

The Company must obtain permits from applicable state regulatory
authorities before it begins to mine particular reserves. Applications for
permits require extensive engineering and data analysis and presentation, and
must address a variety of environmental, health and safety matters associated
with a proposed mining operation. These matters include the manner and
sequencing of coal extraction, the storage, use and disposal of waste and other
substances and other impacts on the environment, the construction of overburden
fills and water containment areas, and reclamation of the area after coal
extraction. The Company is required to post bonds to secure performance under
its permits. As is typical in the coal industry, the Company strives to obtain
mining permits within a time frame that allows it to mine reserves as planned on
an uninterrupted basis. The Company generally begins preparing applications for
permits for areas that it intends to mine up to three years in advance of their
expected issuance date. Regulatory authorities have considerable discretion in
the timing of permit issuance and the public has rights to comment on and
otherwise engage in the permitting process, including through intervention in
the courts.

The Company's reported coal reserves are those that could be economically
and legally extracted or produced at the time of their determination. In
determining whether the Company's reserves meet this standard, it takes into
account, among other things, the Company's potential inability to obtain a
mining permit, the possible necessity of revising a mining plan, changes in
estimated future costs, changes in future cash flows caused by changes in costs
required to be incurred to meet regulatory requirements and obtaining mining
permits, variations in quantity and quality of coal, and varying levels of
demand and their effects on selling prices. Except as described elsewhere in
this document with respect to permits to conduct mining operations involving
valley fills, which has been taken into account in determining the Company's
reserves, the Company is not currently aware of matters which would
significantly hinder its ability to obtain future mining permits with respect to
its reserves.

The carrying cost of the Company's coal reserves at December 31, 2002
(which does not include the Company's 65% share of Canyon Fuel) was $816.9
million, consisting of $56.0 million of prepaid royalties and the $760.9 million
net book value of coal lands and mineral rights.

The Company's executive headquarters occupy approximately 78,000 square
feet of leased space at One CityPlace Drive, in St. Louis, Missouri. See "Item
1. Business" for a further description of the Company's subsidiaries' mining
complexes, mines, transportation facilities and other operations. The Company's
subsidiaries currently own or lease the equipment utilized in their mining
operations.

ITEM 3. LEGAL PROCEEDINGS

The information required by this Item is contained in the
"Contingencies -- Legal Contingencies" section of "Management's Discussion and
Analysis" contained in the Company's 2002 Annual Report to Stockholders and is
incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders of the
Company through the solicitation of proxies or otherwise during the fourth
quarter of 2002.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information required by this Item is contained in the Company's 2002
Annual Report to Stockholders under the caption "Stockholder Information" and is
incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this Item is contained in the Company's 2002
Annual Report to Stockholders under the caption "Selected Financial
Information", and is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information required by this Item is contained in the Company's 2002
Annual Report to Stockholders under the caption "Management's Discussion and
Analysis", and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is contained in the Company's 2002
Annual Report to Stockholders under the caption "Management's Discussion and
Analysis", and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to Part IV, Item 14 of this Annual Report on Form 10-K
for the information required by Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the subcaptions "Nominees For a Three-Year
Term That Will Expire in 2006", "Directors Whose Terms Will Expire in 2005", and
"Directors Whose Terms Will Expire in 2004" which appear under the caption
"Election of Directors" in the Company's Proxy Statement to be distributed to
Company stockholders in connection with the Company's 2003 Annual Meeting (the
"2003 Proxy Statement"). See also the list of the Company's executive officers
and related information under "Executive Officers" in Part I, Item 1 herein.

ITEM 11. EXECUTIVE COMPENSATION

There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing in the "Summary Compensation Table", the sections
entitled "Stock Option Grants", "Stock Option Exercises and Year-End Values",
and the Pension Plan section (including the table therein), the Employment
Agreements section, and the Compensation of Directors section in the 2003 Proxy
Statement. No portion of the Personnel and Compensation Committee Report on
Executive Compensation for 2002 or the Arch Coal Performance Graph is
incorporated herein in reliance on Regulation S-K, Item 402(a)(8).

11

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the caption "Ownership of Arch Coal Common
Stock" in the 2003 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the caption "Related Party Transactions" in
the 2003 Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

There is hereby incorporated by reference into this Annual Report on Form
10-K the information appearing under the caption "Disclosure Controls and
Procedures" in the Company's 2002 Annual Report to Stockholders.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following consolidated financial statements of Arch
Coal, Inc. and subsidiaries included in the Company's 2002
Annual Report to Stockholders are incorporated by reference:
Consolidated Statements of Operations -- Years Ended
December 31, 2002, 2001 and 2000
Consolidated Balance Sheets -- December 31, 2002 and
2001
Consolidated Statements of Stockholders'
Equity -- Years Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows -- Years Ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
The following financial statements of Canyon Fuel Company,
LLC are incorporated by reference to Exhibit 99 to this
Annual Report on Form 10-K:
Statements of Operations -- Years Ended December 31,
2002, 2001 and 2000
Balance Sheets -- December 31, 2002 and 2001
Statements of Members' Equity -- Years Ended December
31, 2002, 2001 and 2000
Statements of Cash Flows -- Years Ended December 31,
2002, 2001 and 2000
Notes to Financial Statements
(a)(2) The following consolidated financial statement schedule of
Arch Coal, Inc. and subsidiaries is included in Item 14 at
the page indicated:
II--Valuation and Qualifying Accounts at page 20.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted
(a)(3) Exhibits filed as part of this Report are as follows:
3.1 Restated Certificate of Incorporation of Arch Coal, Inc.
(incorporated herein by reference to Exhibit 3.1 of the
Company's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 2000)
3.2 Restated and Amended Bylaws of Arch Coal, Inc. (incorporated
herein by reference to the Company's Annual Report on Form
10-K for the Year Ended December 31, 2000)

12

4.1 Form of Rights Agreement, dated March 3, 2000 (incorporated
herein by reference to Exhibit 1 to a current report on Form
8-A filed on March 9, 2000)
4.2 Description of Indenture pursuant to Shelf Registration
Statement (incorporated herein by reference to the Company's
Registration Statement on Form S-3 (Registration No.
333-58738) filed on April 11, 2001)
4.3 Amended and Restated Credit Agreement, dated as of April 18,
2002, by and among the Company, the Lenders party thereto,
PNC Bank, National Association, as administrative agent,
JPMorgan Chase Bank, as syndication agent, and Citibank,
N.A., Credit Lyonnais New York Branch, and U.S. Bank
National Association, as documentation agents (incorporated
herein by reference to Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended March
31, 2002)
4.4 Amended and Restated Credit Agreement, dated as of April 18,
2002, by and among the Arch Western Resources, LLC, the
Lenders party thereto, PNC Bank, National Association, as
administrative agent, JPMorgan Chase Bank, as syndication
agent, and Citibank, N.A., Credit Lyonnais New York Branch,
and U.S. Bank National Association, as documentation agents
(incorporated herein by reference to Exhibit 4.8 to the
Company's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 2002)
4.5 Certificate of Designations Establishing the Designations,
Powers, Preferences, Rights, Qualifications, Limitations and
Restrictions of the Company's 5% Perpetual Cumulative
Convertible Preferred Stock (incorporated herein by
reference to Exhibit 3 to current report on Form 8-A filed
on March 5, 2003)
10.1 Retention Agreement between Arch Coal, Inc. and Steven F.
Leer, dated June 5, 2000 (incorporated herein by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 2000)
10.2 Form of Retention Agreement between Arch Coal, Inc. and each
of its Executive Officers (other than its Chief Executive
Officer) (incorporated herein by reference to Exhibit 10.2
of the Company's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000)
10.3 Deed of Lease and Agreement between Dingess-Rum Coal Company
and Amherst Coal Company (predecessor to Ark Land Company),
dated June 1, 1962, as supplemented January 1, 1968, June 1,
1973, July 1, 1974 and November 12, 1987; Lease Exchange
Agreement dated July 2, 1979 amended as of January 1, 1984,
January 7, 1993 and February 24, 1993; Partial Release dated
as of May 6, 1988; Assignments dated March 15, 1990 and
October 5, 1990 (incorporated herein by reference to Exhibit
10.8 of the Company's Registration Statement on Form S-4
(Registration No. 333-28149) filed on May 30, 1997)
10.4 Agreement of Lease by and between Shonk Land Company,
Limited Partnership and Lawson Hamilton (predecessor to Ark
Land Company), dated February 8, 1983, as amended October 7,
1987, March 9, 1989, April 1, 1992, October 31, 1992,
December 5, 1992, February 16, 1993, August 4, 1994, October
1, 1995, July 31, 1996 and November 27, 1996 (incorporated
herein by reference to Exhibit 10.9 of the Company's
Registration Statement on Form S-4 (Registration No.
333-28149) filed on May 30, 1997)
10.5 Lease between Little Coal Land Company and Ashland Land &
Development Co., a wholly-owned subsidiary of Ashland Coal,
Inc. which was merged into Allegheny Land Company, a second
tier subsidiary of the Company (incorporated herein by
reference to Exhibit 10.11 of a Post-Effective Amendment No.
1 to a Registration Statement on Form S-1 (Registration No.
33-22425), as amended, filed by Ashland Coal, Inc., a
subsidiary of the Company, on August 11, 1988)

13

10.6 Agreement of Lease dated January 1, 1988, between Courtney
Company and Allegheny Land Company (legal successor by
merger with Allegheny Land Co. No. 2, the assignee of
Primeacre Land Corporation under October 5, 1992,
assignments), a second-tier subsidiary of the Company
(incorporated herein by reference to Exhibit 10.3 to the
Annual Report on Form 10-K for the Year Ended December 31,
1995, filed by Ashland Coal, Inc., a subsidiary of the
Company)
10.7 Lease between Dickinson Properties, Inc., the Southern Land
Company, and F. B. Nutter, Jr. and F. B. Nutter, Sr.,
predecessors in interest to Hobet Mining & Construction Co.,
Inc., an independent operating subsidiary of the Company
that subsequently changed its name to Hobet Mining, Inc.
(incorporated herein by reference to Exhibit 10.14 of a
Post-Effective Amendment No. 1 to a Registration Statement
on Form S-1 (Registration No. 33-22425), as Amended, filed
by Ashland Coal, Inc., a subsidiary of the Company, on
August 11, 1988)
10.8 Lease Agreement between Fielden B. Nutter, Dorothy Nutter
and Hobet Mining & Construction Co., Inc., an independent
operating subsidiary of the Company that Subsequently
changed its name to Hobet Mining, Inc. (incorporated herein
by reference to Exhibit 10.22 of a Post-Effective Amendment
No. 1 to a Registration Statement on Form S-1 (Registration
No. 33-22425), as amended, filed by Ashland Coal, Inc., a
subsidiary of the Company, on August 11, 1988)
10.9 Lease and Modification Agreement between Horse Creek Coal
Land Company, Ashland and Hobet Mining & Construction Co.,
Inc., an independent operating subsidiary of the Company
that subsequently changed its name to Hobet Mining, Inc.
(incorporated herein by reference to Exhibit 10.24 of a
Post-Effective Amendment No. 1 to a Registration Statement
on Form S-1 (Registration No. 33-22425), as amended, filed
by Ashland Coal, Inc., a subsidiary of the Company, on
August 11, 1988)
10.10 Lease Agreement between C. C. Lewis Heirs Limited
Partnership and Allegheny Land Company, a second-tier
subsidiary of the Company (incorporated herein by reference
to Exhibit 10.25 of a Post-Effective Amendment No 1 to a
Registration Statement on Form S-1 (Registration No.
33-22425), as amended, filed by Ashland Coal, Inc., a
subsidiary of the Company, on August 11, 1988)
10.11 Sublease between F. B. Nutter, Sr., et al., and Hobet Mining
& Construction Co., Inc., an independent operating
subsidiary of the Company that subsequently changed its name
to Hobet Mining, Inc. (incorporated herein by reference to
Exhibit 10.27 of a Post-Effective Amendment No. 1 to a
Registration Statement on Form S-1 (Registration No.
33-22425), as amended, filed by Ashland Coal, Inc., a
subsidiary of the Company, on August 11, 1988)
10.12 Coal Lease Agreement dated as of March 31, 1992, among Hobet
Mining, Inc. (successor by merger with Dal-Tex Coal
Corporation) as lessee and UAC and Phoenix Coal Corporation,
as lessors, and related Company Guarantee (incorporated
herein by reference to a Current Report on Form 8-K dated
April 6, 1992 filed by Ashland Coal, Inc., a subsidiary of
the Company)
10.13 Lease dated as of October 1, 1987, between Pocahontas Land
Corporation and Mingo Logan Collieries Company whose name is
now Mingo Logan Coal Company (incorporated herein by
reference to Exhibit 10.3 to Amendment No. 1 to a Current
Report on Form 8-K filed on February 14, 1990 by Ashland
Coal, Inc., a subsidiary of the Company)
10.14 Consent, Assignment of Lease and Guaranty dated January 24,
1990, among Pocahontas Land Corporation, Mingo Logan Coal
Company, Mountain Gem Land, Inc. and Ashland Coal, Inc.
(incorporated herein by reference to Exhibit 10.4 to
Amendment No. 1 to a Current Report on Form 8-K filed on
February 14, 1990 by Ashland Coal, Inc., a subsidiary of the
Company)

14

10.15 Federal Coal Lease dated as of June 24, 1993 between the
United States Department of the Interior and Southern Utah
Fuel Company (incorporated herein by reference to Exhibit
10.17 of the Company's Annual Report on Form 10-K for the
Year Ended December 31, 1998)
10.16 Federal Coal Lease between the United States Department of
the Interior and Utah Fuel Company (incorporated herein by
reference to Exhibit 10.18 of the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1998)
10.17 Federal Coal Lease dated as of July 19, 1997 between the
United States Department of the Interior and Canyon Fuel
Company, LLC (incorporated herein by reference to Exhibit
10.19 of the Company's Annual Report on Form 10-K for the
Year Ended December 31, 1998)
10.18 Federal Coal Lease dated as of January 24, 1996 between the
United States Department of the Interior and the Thunder
Basin Coal Company (incorporated herein by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1998)
10.19 Federal Coal Lease Readjustment dated as of November 1, 1967
between the United States Department of the Interior and the
Thunder Basin Coal Company (incorporated herein by reference
to Exhibit 10.21 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1998)
10.20 Federal Coal Lease effective as of May 1, 1995 between the
United States Department of the Interior and Mountain Coal
Company (incorporated herein by reference to Exhibit 10.22
of the Company's Annual Report on Form 10-K for the Year
Ended December 31, 1998)
10.21 Federal Coal Lease dated as of January 1, 1999 between the
Department of the Interior and Ark Land Company
(incorporated herein by reference to Exhibit 10.23 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1998)
10.22 Federal Coal Lease dated as of October 1, 1999 between the
United States Department of the Interior and Canyon Fuel
Company, LLC (incorporated herein by reference to Exhibit 10
of the Company's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1999)
10.23 Form of Indemnity Agreement between Arch Coal, Inc. and
Indemnitee (as defined therein) (incorporated herein by
reference to Exhibit 10.15 of the Company's Registration
Statement on Form S-4 (Registration No. 333-28149) filed on
May 30, 1997)
10.24 Arch Coal, Inc. 1998 Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.22 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1997)
10.25 Arch Coal, Inc. (formerly Arch Mineral Corporation) Deferred
Compensation Plan (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on Form
S-8 (Registration No. 333-68131) filed on December 1, 1998)
10.26 Arch Coal, Inc. 1997 Stock Incentive Plan (as Amended and
Restated on February 28, 2002) (incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the Quarter Ended March 31, 2002)
10.27 Arch Mineral Corporation 1996 ERISA Forfeiture Plan
(incorporated herein by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-4 (Registration
No. 333-28149) filed on May 30, 1997)
10.28 Arch Coal, Inc. Outside Directors' Deferred Compensation
Plan effective January 1, 1999 (incorporated herein by
reference to Exhibit 10.30 of the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1998)

15

10.29 Second Amendment to the Arch Mineral Corporation
Supplemental Retirement Plan effective January 1, 1998
(incorporated herein by reference to Exhibit 10.31 of the
Company's Annual Report on Form 10-K for the Year Ended
December 31, 1998)
13 Portions of the Company's Annual Report to Stockholders for
the year ended December 31, 2002 (filed herewith)
21 Subsidiaries of the Company (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
24 Power of Attorney (filed herewith)
99 Financial Statements of Canyon Fuel Company, LLC (filed
herewith)
99.1 Certification of Steven F. Leer pursuant to 18 U.S.C.
Section 1350 (filed herewith)
99.2 Certification of Robert J. Messey pursuant to 18 U.S.C.
Section 1350 (filed herewith)

- -------------------------

* Exhibits 10.24, 10.25, 10.26, 10.27 and 10.29 are executive compensation
plans.

** Upon written or oral request to the Company's Secretary, a copy of any of the
above exhibits will be furnished at cost.

(b) Reports on Form 8-K
A report on Form 8-K announcing the promotion of John W.
Eaves to Executive Vice President and Chief Operating
Officer was filed by the Company on December 18, 2002.
(d) Financial Statements of Canyon Fuel Company, LLC
(incorporated by reference to Exhibit 99 of this Annual
Report on Form 10-K for the Year Ended December 31, 2002).

16

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Arch Coal, Inc.
(Registrant)

By: /s/ STEVEN F. LEER
------------------------------------
Steven F. Leer
President and Chief Executive
Officer

Date: March 13, 2003

ORIGINAL POWERS OF ATTORNEY AUTHORIZING STEVEN F. LEER AND ROBERT G. JONES, AND
EACH OF THEM, TO SIGN THIS ANNUAL REPORT ON FORM 10-K AND AMENDMENTS THERETO ON
BEHALF OF THE ABOVE-NAMED PERSONS HAVE BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AS EXHIBIT 24 TO THIS REPORT.

17

CERTIFICATIONS

I, Steven F. Leer, certify that:

1. I have reviewed this annual report on Form 10-K of Arch Coal, Inc;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report are our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors:

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ STEVEN F. LEER
--------------------------------------
Steven F. Leer
President and Chief Executive Officer

Date: March 13, 2003

18

I, Robert J. Messey, certify that:

1. I have reviewed this annual report on Form 10-K of Arch Coal, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c. presented in this annual report are our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors:

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and b.
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ ROBERT J. MESSEY
------------------------------------
Robert J. Messey
Senior Vice President and Chief
Financial Officer

Date: March 13, 2003

19

SCHEDULE II

ARCH COAL, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

- -------------------------

(1) Reserves utilized, unless otherwise indicated.

20