SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


Form 10-Q

(MARK ONE)

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

         For the Quarterly Period Ended March 31, 2003

                                       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 OF           (I.R.S. EMPLOYER IDENTIFICATION NO.)
  INCORPORATION OR ORGANIZATION)


            One CityPlace Drive, Suite 300, St. Louis, Missouri 63141
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

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

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 [ ]

AT MAY 1, 2003, THERE WERE 52,436,832 SHARES OF REGISTRANT'S COMMON STOCK
OUTSTANDING.



                                      INDEX




PART I.  FINANCIAL INFORMATION                                                        PAGE
                                                                                   
       Item 1.    Financial Statements

         Condensed Consolidated Balance Sheets as of March 31, 2003 and
              December 31, 2002.......................................................  1

         Condensed Consolidated Statements of Operations for the Three Months
              Ended March 31, 2003 and 2002...........................................  2

         Condensed Consolidated Statements of Cash Flows for the
              Three Months Ended March 31, 2003 and 2002..............................  3

         Notes to Condensed Consolidated Financial Statements.........................  4

       Item 2.    Management's Discussion and Analysis of
                       Financial Condition and Results of Operations.................. 10

       Item 3.    Quantitative and Qualitative Disclosures About Market Risk.......... 26


PART II.  OTHER INFORMATION

       Item 1.    Legal Proceedings................................................... 27

       Item 4.    Submission of Matters to a Vote of Securities Holders............... 27

       Item 6.    Exhibits and Reports on Form 8-K.................................... 27




                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        ARCH COAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)



                                                                 MARCH 31,     DECEMBER 31,
                                                                   2003            2002
                                                               ------------    ------------
                                                                (Unaudited)
                                                                         
ASSETS
   CURRENT ASSETS
     Cash and cash equivalents                                 $     65,787    $      9,557
     Trade receivables                                              127,549         135,903
     Other receivables                                               23,124          30,927
     Inventories                                                     75,741          66,799
     Prepaid royalties                                                6,250           4,971
     Deferred income taxes                                           27,775          27,775
     Other                                                           13,285          15,781
                                                               ------------    ------------
                  Total current assets                              339,511         291,713
                                                               ------------    ------------

   PROPERTY, PLANT AND EQUIPMENT, NET                             1,335,614       1,284,968
                                                               ------------    ------------

   OTHER ASSETS
     Prepaid royalties                                               67,078          51,078
     Coal supply agreements                                          53,447          59,240
     Deferred income taxes                                          228,513         221,116
     Equity investments                                             231,862         231,551
     Other                                                           44,617          43,142
                                                               ------------    ------------
                                                                    625,517         606,127
                                                               ------------    ------------
                  Total assets                                 $  2,300,642    $  2,182,808
                                                               ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
   CURRENT LIABILITIES
     Accounts payable                                          $     99,438    $    113,527
     Accrued expenses                                               153,090         133,287
     Current portion of debt                                          4,650           7,100
                                                               ------------    ------------
                  Total current liabilities                         257,178         253,914
   Long-term debt                                                   700,195         740,242
   Accrued postretirement benefits other than pension               331,169         324,539
   Asset retirement obligations                                     145,554         117,804
   Accrued workers' compensation                                     81,771          80,985
   Other noncurrent liabilities                                     132,792         130,461
                                                               ------------    ------------
                  Total liabilities                               1,648,659       1,647,945
                                                               ------------    ------------
STOCKHOLDERS' EQUITY
   Preferred stock                                                       29              --
   Common stock                                                         528             527
   Paid-in capital                                                  974,877         835,763
   Retained deficit                                                (274,992)       (253,943)
   Treasury stock, at cost                                           (5,047)         (5,047)
   Accumulated other comprehensive loss                             (43,412)        (42,437)
                                                               ------------    ------------
                  Total stockholders' equity                        651,983         534,863
                                                               ------------    ------------
                  Total liabilities and stockholders' equity   $  2,300,642    $  2,182,808
                                                               ============    ============


            See notes to condensed consolidated financial statements.



                                       1


                        ARCH COAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)




                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                            ------------------------
                                                               2003          2002
                                                            ----------    ----------
                                                                    
REVENUES
   Coal sales                                               $  327,390    $  358,595
   Income from equity investments                               11,110         1,268
   Other revenues                                               11,089         8,604
                                                            ----------    ----------
                                                               349,589       368,467
                                                            ----------    ----------
COSTS AND EXPENSES
   Cost of coal sales                                          333,639       347,211
   Selling, general and administrative expenses                 11,873         9,870
   Amortization of coal supply agreements                        5,793         5,114
   Other expenses                                                4,549         7,592
                                                            ----------    ----------
                                                               355,854       369,787
                                                            ----------    ----------
     Loss from operations                                       (6,265)       (1,320)

   Interest expense, net:
     Interest expense                                          (11,552)      (12,002)
     Interest income                                               332           268
                                                            ----------    ----------
                                                               (11,220)      (11,734)
                                                            ----------    ----------

       Loss before income taxes                                (17,485)      (13,054)
   Income tax benefit                                           (4,300)       (5,700)
                                                            ----------    ----------
       Loss before cumulative effect of accounting change      (13,185)       (7,354)
   Cumulative effect of accounting change, net of taxes         (3,654)           --
                                                            ----------    ----------
       NET LOSS                                                (16,839)       (7,354)
   Preferred stock dividends                                    (1,198)           --
                                                            ----------    ----------
       NET LOSS AVAILABLE TO COMMON SHAREHOLDERS            $  (18,037)   $   (7,354)
                                                            ==========    ==========

   EARNINGS PER COMMON SHARE
   Loss before cumulative effect of accounting change       $    (0.27)   $    (0.14)
   Cumulative effect of accounting change                        (0.07)           --
                                                            ----------    ----------
   Basic and diluted loss per common share                  $    (0.34)   $    (0.14)
                                                            ==========    ==========

   Weighted average shares outstanding                          52,384        52,356
                                                            ==========    ==========

   Common dividends declared per share                      $   0.0575    $   0.0575
                                                            ==========    ==========


            See notes to condensed consolidated financial statements.


                                       2


                        ARCH COAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


                                                                  THREE MONTHS ENDED
                                                                      MARCH 31,
                                                               ------------------------
                                                                  2003          2002
                                                               ----------    ----------
                                                                       
OPERATING ACTIVITIES
Net loss                                                       $  (16,839)   $   (7,354)
Adjustments to reconcile to cash provided by
  operating activities:
     Depreciation, depletion and amortization                      39,511        42,741
     Prepaid royalties expensed                                     3,105         1,874
     Accretion on asset retirement obligations                      3,442            --
     Net gain on disposition of assets                               (148)         (187)
     Income from equity investments                               (11,110)       (1,268)
     Net distributions from equity investments                      9,660        15,346
     Cumulative effect of accounting change                         3,654            --
     Changes in:
       Receivables                                                 16,157        11,016
       Inventories                                                 (8,942)       (9,994)
       Accounts payable and accrued expenses                       (8,662)       11,218
       Income taxes                                                (4,438)       (5,700)
       Accrued postretirement benefits other than pension           6,630          (480)
       Asset retirement obligations                                (3,266)        2,313
       Accrued workers' compensation benefits                         786           293
       Other                                                        2,457         3,440
                                                               ----------    ----------

     Cash provided by operating activities                         31,997        63,258
                                                               ----------    ----------

INVESTING ACTIVITIES
Additions to property, plant and equipment                        (48,085)      (73,068)
Proceeds from dispositions of property, plant and equipment           168         1,706
Additions to prepaid royalties                                    (20,384)      (18,812)
                                                               ----------    ----------

     Cash used in investing activities                            (68,301)      (90,174)
                                                               ----------    ----------

FINANCING ACTIVITIES
Net proceeds from (payments on) revolver and lines of credit      (42,497)       24,999
Deferred financing costs                                           (1,101)           --
Reduction of obligations under capital lease                           --          (519)
Dividends paid                                                     (3,012)       (3,010)
Proceeds from sale of preferred stock                             139,078            --
Proceeds from sale of common stock                                     66           158
                                                               ----------    ----------

     Cash provided by financing activities                         92,534        21,628
                                                               ----------    ----------

Increase (decrease) in cash and cash equivalents                   56,230        (5,288)
Cash and cash equivalents, beginning of period                      9,557         6,890
                                                               ----------    ----------

Cash and cash equivalents, end of period                       $   65,787    $    1,602
                                                               ==========    ==========


            See notes to condensed consolidated financial statements.


                                       3


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2003
                                   (UNAUDITED)

NOTE A - GENERAL

The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations, but are
subject to any year-end adjustments that may be necessary. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Results of operations for
the period ended March 31, 2003 are not necessarily indicative of results to be
expected for the year ending December 31, 2003. These financial statements
should be read in conjunction with the audited financial statements and related
notes thereto as of and for the year ended December 31, 2002 included in Arch
Coal, Inc.'s Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.

Arch Coal, Inc. (the "Company") operates one reportable segment: the production
of steam and metallurgical coal from surface and deep mines throughout the
United States, for sale to utility, industrial and export markets. The Company's
mines are primarily located in the central Appalachian and western regions of
the United States. All subsidiaries (except as noted below) are wholly owned.
Significant intercompany transactions and accounts have been eliminated in
consolidation.

The Company's Wyoming, Colorado and Utah coal operations are included in a joint
venture named Arch Western Resources, LLC ("Arch Western"). Arch Western is 99%
owned by the Company and 1% owned by BP Amoco. The Company also acts as the
managing member of Arch Western.

The membership interests in the Utah coal operations, Canyon Fuel Company, LLC
("Canyon Fuel"), are owned 65% by Arch Western and 35% by a subsidiary of ITOCHU
Corporation. The Company's 65% ownership of Canyon Fuel is accounted for on the
equity method in the Condensed Consolidated Financial Statements as a result of
certain super-majority voting rights in the joint venture agreement. Income from
Canyon Fuel is reflected in the Condensed Consolidated Statements of Operations
as income from equity investments (see additional discussion in Note E - "Equity
Investments").

The Company owns 34% of the limited partnership units of Natural Resource
Partners, LP ("NRP") and 42.25% of the general partner interest. The Company's
investment in NRP is accounted for on the equity method in the consolidated
financial statements. (See additional discussion in Note E - "Equity
Investments").

NOTE B - PREFERRED STOCK OFFERING

On January 31, 2003, the Company utilized its Universal Shelf Registration
Statement and completed a public offering of 2,875,000 shares of 5% Perpetual
Cumulative Convertible Preferred Stock. The Company realized net proceeds of
$139.1 million from the offering. Dividends on the preferred stock are
cumulative and are payable quarterly at the annual rate of 5% of the liquidation
preference. Each share of the preferred stock is initially convertible, under
certain conditions, into 2.3985 shares of the Company's common stock. The
preferred stock is redeemable, at the Company's option, on or after January 31,
2008 if certain conditions are met. The holders of the preferred stock are not
entitled to voting rights on matters submitted to the Company's common
shareholders. However, if the Company fails to pay the equivalent of six
quarterly dividends, the holders of the preferred stock will be entitled to
elect two directors to the Company's board of directors.

NOTE C - ADOPTION OF FAS 143

On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations ("FAS 143"). FAS
143 requires legal obligations associated with the retirement of long-lived
assets to be recognized at fair value at the time the obligations are incurred.
Upon initial recognition of a liability, that cost should be capitalized as part
of the carrying amount of the related long-lived asset and allocated to


                                       4


expense over the useful life of the asset. Previously, the Company accrued for
the expected costs of these obligations over the estimated useful mining life of
the property.

The cumulative effect of the change on prior years resulted in a charge to
income of $3.7 million (net of income taxes of $2.3 million), or $0.07 per
share, which is included in the Company's results of operations for the quarter
ended March 31, 2003. In addition, the net loss of the Company, excluding the
cumulative effect of accounting change, for the quarter ended March 31, 2003 is
$0.6 million more, or $0.01 per share more, than it would have been if the
Company had continued to account for these obligations under its old method. The
unaudited pro forma amounts below reflect the retroactive application of FAS 143
as if the Company had adopted the standard on January 1, 2002 and the
corresponding elimination of the cumulative effect of accounting change:



                                                            Three Months Ended
                                                                March 31,
                                                         ------------------------
                                                            2003          2002
                                                         ----------    ----------
                                                           (in thousands, except
                                                               per share data)
                                                                 
As reported
   Net loss available to common shareholders             $  (18,037)   $   (7,354)
   Basic and diluted loss per share                           (0.34)        (0.14)
Pro forma
   Net loss available to common shareholders             $  (14,383)   $   (8,046)
   Basic and diluted loss per share                           (0.27)        (0.15)


If the Company had accounted for its asset retirement obligations in accordance
with FAS 143 for all periods presented, the asset retirement obligation
liability (including amounts classified as current) would have been $152.3
million, $155.5 million, and $165.2 million at January 1, 2002, March 31, 2002,
and December 31, 2002, respectively.

NOTE D - STOCK-BASED COMPENSATION

These interim financial statements include the disclosure requirements of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS 123"), as amended by Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure ("FAS 148"). With respect to accounting for its stock options, as
permitted under FAS 123, the Company has retained the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"), and related Interpretations. Had compensation
expense for stock option grants been determined based on the fair value at the
grant dates consistent with the method required by FAS 123, the Company's net
loss available to common shareholders and loss per common share would have been
changed to the pro forma amounts as indicated in the following table:



                                                             Three Months Ended
                                                                  March 31,
                                                         ------------------------
                                                            2003          2002
                                                         ----------    ----------
                                                           (in thousands, except
                                                              per share data)
                                                                 
As reported
   Net loss available to common shareholders             $  (18,037)   $   (7,354)
   Basic and diluted loss per share                           (0.34)        (0.14)
Pro forma
   Net loss available to common shareholders             $  (20,391)   $   (8,957)
   Basic and diluted loss per share                           (0.39)        (0.17)





                                       5


NOTE E - EQUITY INVESTMENTS

The Company's equity investments are comprised of its ownership interests in
Canyon Fuel and NRP. Amounts recorded in the Condensed Consolidated Financial
Statements are as follows:



                                                       March 31,    December 31,
                                                         2003           2002
                                                     ------------   ------------
                                                           (in thousands)
                                                              
Equity investments:
    Investment in Canyon Fuel                        $    161,476   $    160,788
    Investment in NRP                                      70,386         70,763
                                                     ------------   ------------
Equity investments as reported in the Condensed
    Consolidated Balance Sheets                      $    231,862   $    231,551
                                                     ============   ============





                                                        Three Months Ended
                                                             March 31,
                                                     ---------------------------
                                                         2003           2002
                                                     ------------   ------------
                                                            (in thousands)
                                                              
Income from equity investments:
   Income from investment in Canyon Fuel             $      8,151   $      1,268
   Income from NRP                                          2,959             --
                                                     ------------   ------------
Income from equity investments as reported in the
   Condensed Consolidated Statements of Operations   $     11,110   $      1,268
                                                     ============   ============




INVESTMENT IN CANYON FUEL

The following table presents unaudited summarized financial information for
Canyon Fuel:



                                                             Three Months Ended
                                                                 March 31,
                                                            -------------------
Condensed Income Statement Information                        2003       2002
--------------------------------------------                --------   --------
                                                              (in thousands)
                                                                 
Revenues                                                    $ 59,015   $ 77,648
Total costs and expenses                                      49,896     77,155
                                                            --------   --------
Net income before cumulative effect of accounting change    $  9,119   $    493
                                                            ========   ========

65% of Canyon Fuel net income before cumulative effect of
   accounting change                                        $  5,927   $    320
Effect of purchase adjustments                                 2,224        948
                                                            --------   --------
Arch Coal's income from its equity
   investment in Canyon Fuel                                $  8,151   $  1,268
                                                            ========   ========


The Company's income from its equity investment in Canyon Fuel represents 65% of
Canyon Fuel's net income after adjusting for the effect of purchase adjustments
related to its investment in Canyon Fuel. The Company's investment in Canyon
Fuel reflects purchase adjustments primarily related to the reduction in amounts
assigned to sales contracts, mineral reserves and other property, plant and
equipment. The purchase adjustments are amortized consistent with the underlying
assets of the joint venture.

Effective January 1, 2003, Canyon Fuel adopted FAS 143 and recorded a cumulative
effect loss of $2.4 million. The Company's 65% share of this amount was offset
by purchase adjustments of $0.5 million. These amounts are included in the
cumulative effect of accounting change reported in the Company's Condensed
Consolidated Statements of Operations.




                                       6

INVESTMENT IN NRP

Summarized financial information for NRP as of and for the three months ended
March 31, 2003 follows (in thousands):



                                                                     
Results of Operations
  Revenues                                                              $ 18,070
  Income from operations                                                   8,392
  Net Income                                                               7,973
                                                                        --------

Financial Position

  Total assets                                                          $401,717
  Total liabilities                                                       84,921
  Partners' equity                                                       316,796
                                                                        --------
Amounts recorded by the Company
  Equity investment in NRP                                              $ 70,386
  Income from equity investment in NRP                                     2,959


Income from the Company's equity investment in NRP represents the Company's
share of NRP's earnings for the period from December 1, 2002 through February
28, 2003. As disclosed in the Company's annual report, the Company accounts for
income from its investment in NRP on a one-month lag.

NOTE F - OTHER COMPREHENSIVE INCOME

Other comprehensive income items under FAS 130, Reporting Comprehensive Income,
are transactions recorded in stockholders' equity during the year, excluding net
income and transactions with stockholders. Following are the items included in
accumulated other comprehensive income (loss) and the related tax effects:



                                                    Minimum       Accumulated
                                                    Pension          Other
                                   Financial       Liability     Comprehensive
                                  Derivatives     Adjustments        Loss
                                 ------------    ------------    ------------
                                                (in thousands)
                                                        
Balance, January 1, 2002         $    (17,978)   $     (2,851)   $    (20,829)

Three months ended
March 31, 2002
   Pre-tax amount                      10,005              --          10,005
   Tax benefit                         (3,902)             --          (3,902)
                                 ------------    ------------    ------------
   Net amount                           6,103              --           6,103
                                 ------------    ------------    ------------
Balance, March 31, 2002          $    (11,875)   $     (2,851)   $    (14,726)
                                 ============    ============    ============




                                                    Minimum       Accumulated
                                                    Pension          Other
                                   Financial       Liability     Comprehensive
                                  Derivatives     Adjustments        Loss
                                 ------------    ------------    ------------
                                                (in thousands)
                                                        
Balance, January 1, 2003         $    (23,170)   $    (19,267)   $    (42,437)
Three months ended
March 31, 2003
   Pre-tax amount                      (1,599)             --          (1,599)
   Tax benefit                            624              --             624
                                 ------------    ------------    ------------
   Net amount                            (975)             --            (975)
                                 ------------    ------------    ------------
Balance, March 31, 2003          $    (24,145)   $    (19,267)   $    (43,412)
                                 ============    ============    ============





                                       7


The following table presents comprehensive income:



                                                                 Three Months Ended
                                                                      March 31,
                                                              ------------------------
                                                                 2003          2002
                                                              ----------    ----------
                                                                   (in thousands)
                                                                      
Net loss                                                      $  (16,839)   $   (7,354)
Other comprehensive income (loss) net of income tax benefit         (975)        6,103
                                                              ----------    ----------
Total comprehensive loss                                      $  (17,814)   $   (1,251)
                                                              ==========    ==========



NOTE G - INVENTORIES

Inventories consist of the following:



                                                       March 31,    December 31,
                                                         2003           2002
                                                     ------------   ------------
                                                            (in thousands)
                                                              
Coal                                                 $     44,602   $     35,039
Repair parts and supplies                                  31,139         31,760
                                                     ------------   ------------
                                                     $     75,741   $     66,799
                                                     ============   ============


NOTE H - DEBT

Debt consists of the following:



                                                       March 31,    December 31,
                                                         2003           2002
                                                     ------------   ------------
                                                            (in thousands)
                                                              
Indebtedness to banks under lines of credit          $         --   $         --
Indebtedness to banks under revolving credit
   agreement, expiring April 18, 2007                      25,000         65,000
Indebtedness to banks under variable rate,
  non-amortizing term loan due April 18, 2007             150,000        150,000
Indebtedness to banks under variable rate,
  non-amortizing term loan due April 18, 2008             525,000        525,000
Other                                                       4,845          7,342
                                                     ------------   ------------
                                                          704,845        747,342
Less current portion                                        4,650          7,100
                                                     ------------   ------------
Long-term debt                                       $    700,195   $    740,242
                                                     ============   ============


On April 18, 2002, the Company and Arch Western completed a refinancing of their
existing credit facilities. The new credit facilities include five- and six-year
non-amortizing term loans totaling $675.0 million at Arch Western and a
five-year revolving credit facility totaling $350.0 million for the Company. The
five-year non-amortizing term loan at Arch Western is for $150.0 million and the
six-year non-amortizing term loan is for $525.0 million. The rate of interest on
borrowings under both of the credit facilities is a floating rate based on
LIBOR. The Company's credit facility is secured by ownership interests in
substantially all of its subsidiaries, except its ownership interests in Arch




                                       8

Western and its subsidiaries. The Arch Western credit facility is secured by its
ownership interests in substantially all of its subsidiaries, but is not
guaranteed by the Company.

NOTE I - CONTINGENCIES

The Company is a party to numerous claims and lawsuits with respect to various
matters. The Company provides for costs related to contingencies when a loss is
probable and the amount is reasonably determinable. After conferring with
counsel, it is the opinion of management that the ultimate resolution of these
claims, to the extent not previously provided for, will not have a material
adverse effect on the consolidated financial position, results of operations or
liquidity of the Company.

NOTE J - TRANSACTIONS OR EVENTS AFFECTING COMPARABILITY OF REPORTED RESULTS

In the quarter ended March 31, 2003, the Company received $1.4 million from a
customer that did not meet its contractual purchase requirements. This amount
has been recorded as other revenue in the accompanying condensed consolidated
statements of operations.

NOTE K - EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings
(loss) per common share from continuing operations.



                                                          Three Months Ended
                                                               March 31,
                                                       ------------------------
                                                          2003          2002
                                                       ----------    ----------
                                                         (in thousands, except
                                                             per share data)
                                                               
Numerator:
   Net loss                                            $  (16,839)   $   (7,354)
   Preferred stock dividends                               (1,198)           --
                                                       ----------    ----------
   Net loss available to common shareholders           $  (18,037)   $   (7,354)
                                                       ==========    ==========
Denominator:
   Weighted average shares - denominator for basic         52,384        52,356
   Dilutive effect of employee stock options                   --            --
                                                       ----------    ----------
   Adjusted weighted average shares - denominator
      For diluted                                          52,384        52,356
                                                       ==========    ==========

Basic and diluted loss per common share                $    (0.34)   $    (0.14)
                                                       ==========    ==========


For the three month periods ending March 31, 2003 and 2002, employee stock
options did not have a dilutive impact because the Company incurred losses in
those periods. The Company's Perpetual Cumulative Convertible Preferred Stock
has not been considered in the calculation of the number of diluted shares
outstanding because the conditions necessary for the shares to become
convertible have not been met as of March 31, 2003.

NOTE L - GUARANTEES

The Company holds a 17.5% general partnership interest in Dominion Terminal
Associates ("DTA"), which operates a ground storage-to-vessel coal transloading
facility in Newport News, Virginia. DTA leases the facility from Peninsula Ports
Authority of Virginia ("PPAV") for amounts sufficient to meet debt-service
requirements. Financing is provided through $132.8 million of tax-exempt bonds
issued by PPAV (of which the Company is responsible for 17.5%, or $23.2 million)
which mature July 1, 2016. Under the terms of a throughput and handling
agreement with DTA, each partner is charged its share of cash operating and
debt-service costs in exchange for the right to use its share of the facility's
loading capacity and is required to make periodic cash advances to DTA to fund
such costs. On a cumulative basis, costs exceeded cash advances by $12.6 million
at March 31, 2003 (such amount is included in other noncurrent liabilities).
Future payments for fixed operating costs and debt service are estimated to
approximate $2.3 million annually through 2015 and $26.0 million in 2016.

In connection with the Company's acquisition of the coal operations of Atlantic
Richfield Company ("ARCO") and the simultaneous combination of the acquired ARCO
operations and the Company's Wyoming operations into the Arch Western joint
venture, the Company agreed to indemnify another member of Arch Western against
certain tax liabilities in the event that such liabilities arise as a result of
certain actions taken prior to June 1, 2013, including the sale or other
disposition of certain properties of Arch Western, the repurchase of certain
equity interests in Arch Western by Arch Western or the reduction under certain
circumstances of indebtedness incurred by Arch Western in connection with the
acquisition. Depending on the time at which any such indemnification obligation
was to arise, it could have a material adverse effect on the business, results
of operations and financial condition of the Company.

NOTE M - RECLASSIFICATIONS

Certain amounts in the 2002 financial statements have been reclassified to
conform with the classifications in the 2003 financial statements with no effect
on previously reported net income or stockholders' equity.

                                       9


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Statements in this quarterly report which are not statements of historical fact
are forward-looking statements within the "safe harbor" provision of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on the information available to, and the expectations and assumptions
deemed reasonable by, the Company at the time the statements are made. Because
these forward-looking statements are subject to various risks and uncertainties,
actual results may differ materially from those projected in the statements.
These expectations, assumptions and uncertainties include: the Company's
expectation of growth in the demand for electricity; belief that legislation and
regulations relating to the Clean Air Act and the relatively higher costs of
competing fuels will increase demand for its compliance and low-sulfur coal;
expectation of improved market conditions for the price of coal; expectation
that the Company will continue to have adequate liquidity from its cash flow
from operations, together with available borrowings under its credit facilities,
to finance the Company's working capital needs; a variety of operational,
geologic, permitting, labor and weather related factors; and the other risks and
uncertainties which are described below under "Contingencies" and "Certain
Trends and Uncertainties."


RESULTS OF OPERATIONS

Quarter Ended March 31, 2003, Compared
   to Quarter Ended March 31, 2002

The Company's results of operations for the quarter ended March 31, 2003 were
negatively impacted by continued weak demand in coal markets. In response to the
weak demand, the Company further curtailed production at its mining operations.
Total tons produced at Company operations declined to 21.5 million in the
quarter ended March 31, 2003 from 24.2 million in the quarter ended March 31,
2002.

Results for the quarter ended March 31, 2002 were negatively impacted by a state
of oversupply in the coal market that resulted from an extremely mild winter in
late 2001 and early 2002 and a period of industrial economic weakness that
dampened electricity demand. The Company's production levels in the first
quarter of 2002 were 10% lower than those in the first quarter of 2001.

Key operating results for the first quarter of 2003 versus the first quarter of
2002 and additional discussion of the results for the first quarter of 2003 are
summarized below.

REVENUES



(Dollar amounts in thousands)        THREE MONTHS ENDED
                                          MARCH 31,         INCREASE (DECREASE)
                                      2003       2002          $           %
                                    --------   --------    --------     ------
                                                            
Coal sales                          $327,390   $358,595    $(31,205)      (8.7%)
Income from equity investments        11,110      1,268       9,842      776.2%
Other revenues                        11,089      8,604       2,485       28.9%
                                    --------   --------    --------     ------
                                    $349,589   $368,467    $(18,878)      (5.1%)
                                    ========   ========    ========     ======


Coal sales. The decline in coal sales in the quarter ended March 31, 2003 was
primarily due to reduced coal shipments. The Company sold 22.7 million tons
during the quarter ended March 31, 2003 as compared to 24.7 million tons in the
quarter ended March 31, 2002, a decline of 8.1 percent. On average, the
Company's realized sales price also declined, from $14.53 per ton in the quarter
ended March 31, 2002 to $14.44 per ton during the quarter ended March 31, 2003.
The decline in per ton coal sales realization was due to a change in the mix of
the Company's sales between its eastern and western operations. During the
quarter ended March 31, 2003, the Company shipped a higher percentage of coal
from its western operations. Prices for coal shipped from these operations is
generally lower than prices for coal shipped from the Company's eastern
operations.



                                       10


Income from equity investments. In the first quarter of 2003, income from equity
investments was comprised of $8.1 million from the Company's investment in
Canyon Fuel and $3.0 million from the Company's investment in NRP. Income from
equity investment in the first quarter of 2002 was comprised solely of income
from the Company's investment in Canyon Fuel. The increase in income from the
Company's investment in Canyon Fuel was due to improved operating performance at
certain of Canyon Fuel's mines as compared to the first quarter of 2002.

Other revenues. The increase in other revenues in the first quarter of 2003
compared to the first quarter of 2002 was primarily attributable to a $1.4
million payment received from a customer that did not meet its contractual
purchase requirements.

COSTS AND EXPENSES



(Dollar amounts in thousands)    THREE MONTHS ENDED
                                       MARCH 31,        INCREASE (DECREASE)
                                   2003       2002         $            %
                                 --------   --------    --------     ------
                                                         
Cost of coal sales               $333,639   $347,211    $(13,572)      (3.9%)
Selling, general and
  administrative expenses          11,873      9,870       2,003       20.3%
Amortization of coal supply
  agreements                        5,793      5,114         679       13.3%
Other expenses                      4,549      7,592      (3,043)     (40.1%)
                                 --------   --------    --------     ------
                                 $355,854   $369,787    $(13,933)      (3.8%)
                                 ========   ========    ========     ======


Cost of coal sales. Cost of coal sales decreased in the quarter ended March 31,
2003 as compared to the same period in 2002 primarily as a result of lower sales
and production volumes. Cost of coal sales as a percent of coal sales was 101.9
percent for the quarter ended March 31, 2003, as compared to 96.8 percent in the
quarter ended March 31, 2002. The increase in this percentage is due to
increased costs related to the Company's pension and postretirement medical
plans of approximately $9.1 million, disruptions in production due to severe
weather in February and March at certain of the Company's operations, reduced
production at the Company's Mingo Logan mine in the quarter due to difficult
mining conditions, and increased diesel fuel costs. Cost of coal sales in the
quarter ended March 31, 2002 was adversely impacted by operating difficulties at
the Company's Samples operation, where a sandstone intrusion caused the
principal coal seam to thin, resulting in lower production and higher associated
costs. During the quarter ended March 31, 2002, the Samples surface operation
incurred an operating loss of $4.5 million.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased during the quarter due to higher personnel
costs, increased legal and professional fees and insurance costs, and additional
information systems costs.

Other expenses. The decrease in other expenses in the quarter ended March 31,
2003 is primarily a result of lower costs incurred to terminate certain
contractual obligations for the purchase or sale of coal.

INCOME TAXES



(Dollar amounts in thousands)         THREE MONTHS ENDED
                                            MARCH 31,       INCREASE (DECREASE)
                                        2003       2002        $           %
                                      --------   --------   --------    ------
                                                            
Benefit from income taxes             $  4,300   $  5,700   $ (1,400)    (24.6%)


The Company's effective tax rate is sensitive to changes in estimates of annual
profitability and percentage depletion. The income tax benefit recorded in the
first quarter of 2003 is primarily the result of the impact of percentage
depletion.



                                       11


NET LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE



(Dollar amounts in thousands)         THREE MONTHS ENDED
                                            MARCH 31,       INCREASE (DECREASE)
                                        2003       2002        $           %
                                      --------   --------   --------    ------
                                                            
Net loss before cumulative effect of
accounting change                     $(13,185)  $ (7,354)  $ (5,831)    (79.3)%


The increase in net loss before cumulative effect of accounting change is
primarily due to the combination of lower sales levels and higher production
costs as discussed above.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

Effective January 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations ("FAS 143"). FAS
143 requires legal obligations associated with the retirement of long-lived
assets to be recognized at fair value at the time obligations are incurred. Upon
initial recognition of a liability, that cost should be capitalized as part of
the related long-lived asset and allocated to expense over the useful life of
the asset. Application of FAS 143 resulted in a cumulative effect loss as of
January 1, 2003 of $3.7 million.

OTHER FINANCIAL MEASURES - ADJUSTED EBITDA



(Dollar amounts in thousands)         THREE MONTHS ENDED
                                            MARCH 31,       INCREASE (DECREASE)
                                        2003       2002        $           %
                                      --------   --------   --------    ------
                                                            
Adjusted EBITDA                       $ 38,739   $ 49,138   $(10,399)    (21.2%)


The decrease in Adjusted EBITDA was primarily attributable to increased
operating losses resulting from the reduced production levels discussed above.
Adjusted EBITDA is defined as income from operations before the effect of net
interest expense; income taxes; the Company's depreciation, depletion and
amortization; and the Company's equity interest in the depreciation, depletion
and amortization of Canyon Fuel. Adjusted EBITDA is not a measure of financial
performance in accordance with generally accepted accounting principles, and
items excluded to calculate Adjusted EBITDA are significant in understanding and
assessing the Company's financial condition. Therefore, Adjusted EBITDA should
not be considered in isolation nor as an alternative to net income, income from
operations, or cash flows from operations or as a measure of the Company's
profitability, liquidity or performance under generally accepted accounting
principles. The Company believes that Adjusted EBITDA presents a useful measure
to evaluate operating performance as well as the ability to service and incur
debt based on ongoing operations. Furthermore, analogous measures are used by
industry analysts to evaluate operating performance. Investors should be aware
that the Company's presentation of Adjusted EBITDA may not be comparable to
similarly titled measures used by other companies. The table below shows how the
Company calculates Adjusted EBITDA.



                                                                Three Months Ended
                                                                      March 31,
                                                              ------------------------
                                                                  2003          2002
                                                              ----------    ----------
                                                                   (in thousands)
                                                                      
Loss from operations                                          $   (6,265)   $   (1,320)
Depreciation, depletion and amortization of Arch Coal, Inc.       39,511        42,741
Arch Coal's equity interest in depreciation, depletion and
   amortization of Canyon Fuel Company, LLC                        5,493         7,717
                                                              ----------    ----------
Adjusted EBITDA                                               $   38,739    $   49,138
                                                              ==========    ==========




                                       12


DISCLOSURE CONTROLS

An evaluation was performed under the supervision and with the participation of
the Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
March 31, 2003. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that the Company's disclosure controls and procedures
were effective as of such date. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to March 31, 2003.


RECENT DEVELOPMENTS

Contract Buy Out. In April 2003, the Company agreed to terms with a large
customer seeking to buy out of the remaining term of an above-market contract.
The buyout resulted in the receipt of approximately $52 million in cash early in
the second quarter. The Company will record a deferred gain of approximately $16
million, which will be recognized as tons are sold through 2012. The Company has
entered into a new contract for an equivalent number of eastern tons with the
same customer at prices that approximate current market prices.

OUTLOOK

Production Levels. The Company reduced its overall rate of coal production by
approximately 11% during the first quarter of 2003. This was in addition to a
reduction in overall production of approximately 5% during 2002. These actions
were taken in response to unfavorable spot coal markets following an extremely
mild winter in 2001-2002, a period of industrial economic weakness that dampened
electricity demand and an effort by electric utilities to reduce coal stockpile
levels. Although the timing of any recovery in coal markets remains uncertain,
there have been indications that prices may return to more favorable levels in
the future. These indications include more normal weather patterns, some
indication of economic recovery and an overall decrease in coal production and
utility stockpiles.

Previously, the Company had disclosed that longwall mineable reserves at Mingo
Logan were likely to be exhausted during 2002. As a result of improvements to
the mine plan, the mine is expected to exhaust its longwall mineable reserves in
2006, subject to permit modifications. However, due to more difficult mining
conditions, production levels in the future are expected to be lower than those
experienced historically.

Postretirement Obligations. The Company expects to incur significantly higher
expenses related to its postretirement health care obligations in 2003. These
obligations, coupled with a much smaller increase in pension-related expenses,
increased costs by $9.1 million during the first quarter of 2003 and are
expected to increase non-cash costs by approximately $8.0 million per quarter
from prior year levels for the remainder of the year.

Permitting Issues. The Company idled its Dal-Tex operation on July 23, 1999 as a
result of an adverse ruling in litigation on the issue of valley fills. This
ruling was later reversed on appeal; however, the Company has not yet completed
the process necessary to obtain the Section 404 permits for the mine. Once the
Company obtains the necessary permits, it intends to reopen the mine subject to
then-existing market conditions.

Low-Sulfur Coal Producer. The Company continues to believe that it is
well-positioned to capitalize on the continuing growth in demand for low-sulfur
coal to produce electricity. Substantially all of the Company's current coal
production and approximately 90% of its reserves are low in sulfur. In fact,
approximately 68% of the Company's coal reserves are compliance quality, which
means that the reserves meet Phase II standards of the Clean Air Act without
application of expensive scrubbing technology. With Phase II now in effect,
compliance coal has captured a growing share of United States coal demand and
commands a higher price in the marketplace than high-sulfur coal.

Chief Objectives. The Company continues to focus on taking steps to increase
shareholder returns by improving earnings, strengthening cash generation,
improving productivity at its large-scale mines, while building on its leading
position in its target coal-producing basins, the Powder River Basin and the
Central Appalachian Basin. In addition, the Company is aggressively pursuing
savings in both overhead and operating costs. The Company instituted personnel
cutbacks at its corporate headquarters in the first quarter of 2003 and recently
initiated a cost reduction effort targeting key cost drivers at each of its
captive mines.


                                       13


LIQUIDITY AND CAPITAL RESOURCES

The following is a summary of cash provided by or used in each of the indicated
types of activities during the three months ended March 31, 2003 and 2002:



                                                         2003           2002
                                                      ----------     ----------
                                                           (in thousands)
                                                               
Cash provided by (used in):
   Operating activities                               $   31,997     $   63,258
   Investing activities                                  (68,301)       (90,174)
   Financing activities                                   92,534         21,628


Cash provided by operating activities declined in the quarter ended March 31,
2003 as compared to the same period in 2002 as a result of lower income levels
and reduced distributions from the Company's equity investments.

Cash used in investing activities during the three months ended March 31, 2003
decreased over the same period in 2002 due to lower capital expenditures during
the first quarter of 2003. The Company has limited its capital expenditures in
light of the ongoing weakness in coal markets. During the first quarters of 2002
and 2003, the Company made the fourth and fifth, respectively, of five annual
payments under the Thundercloud federal lease, which is part of the Black
Thunder mine in Wyoming. The payment made in 2003 was the final payment due
under the lease.

Cash provided by financing activities during the first quarter of 2003 reflects
the Company's proceeds from the sale of preferred stock, offset by the pay-down
of amounts outstanding under the Company's revolver. On January 31, 2003, the
Company utilized its Universal Shelf and completed the sale of 2,875,000 shares
of its 5% Perpetual Cumulative Convertible Preferred Stock. The net proceeds
from the offering of approximately $139.1 million were used to reduce
indebtedness under the Company's revolving credit facility and for working
capital and general corporate purposes. The cash provided by financing
activities during the first quarter of 2002 reflects borrowings on the Company's
revolver and line of credit caused in part by higher capital expenditures during
the first quarter of 2002.

The Company generally satisfies its working capital requirements and funds its
capital expenditures and debt-service obligations with cash generated from
operations. The Company believes that cash generated from operations and its
borrowing capacity will be sufficient to meet its working capital requirements,
anticipated capital expenditures and scheduled debt payments for at least the
next several years. The Company's ability to satisfy debt service obligations,
to fund planned capital expenditures, to make acquisitions and to pay dividends
will depend upon its future operating performance, which will be affected by
prevailing economic conditions in the coal industry and financial, business and
other factors, some of which are beyond the Company's control.

Expenditures for property, plant and equipment were $48.1 million for the three
months ended March 31, 2003, compared to $73.1 million for the three months
ended March 31, 2002. Capital expenditures are made to improve and replace
existing mining equipment, expand existing mines, develop new mines and improve
the overall efficiency of mining operations. The Company estimates that its
capital expenditures will be approximately $160.0 million in total for 2003. It
is anticipated that these capital expenditures will be funded by available cash
and existing credit facilities.

At March 31, 2003, the Company had $43.8 million in letters of credit
outstanding, which resulted in $281.2 million of unused capacity under the
Company's revolving credit facility. Sufficient unused facility is currently
available to fund all operating needs. Financial covenant requirements may
restrict the amount of unused capacity available to the Company for borrowing
and letters of credit.



                                       14


The Company's credit facilities include five- and six-year non-amortizing term
loans totaling $675.0 million at Arch Western and a five-year revolving credit
facility totaling $350.0 million for the Company. The five-year non-amortizing
term loan at Arch Western is for $150.0 million while the six-year
non-amortizing term loan is for $525.0 million. The rate of interest on
borrowings under both of the credit facilities is a variable rate based on
LIBOR. The Company's credit facility is secured by ownership interests in
substantially all of its subsidiaries, except its ownership interests in Arch
Western and its subsidiaries. The Arch Western credit facility is secured by
substantially all of its subsidiaries, but is not guaranteed by the Company.

Financial covenants contained in the Company's credit facilities consist of a
maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum net
worth test. The leverage ratio requires that the Company not permit the ratio of
total indebtedness at the end of any calendar quarter to adjusted EBITDA for the
four quarters then ended exceed a specified amount. The fixed charge coverage
ratio requires that the Company not permit the ratio of the Company's adjusted
EBITDA plus lease expense to interest expense plus lease expense for the four
quarters then ended to be less than a specified amount. The net worth test
requires that the Company not permit its net worth to be less than a specified
amount plus 50% of cumulative net income.

The Company periodically establishes uncommitted lines of credit with banks.
These agreements generally provide for short-term borrowings at market rates. At
March 31, 2003, there were $20.0 million of such agreements in effect, of which
none were outstanding.

The Company is exposed to market risk associated with interest rates. At March
31, 2003, debt included $700.0 million of floating-rate debt, for which the rate
of interest is a rate based on LIBOR and current market rates for bank lines of
credit. To manage this exposure, the Company enters into interest-rate swap
agreements to modify the interest-rate characteristics of outstanding Company
debt. At March 31, 2003, the Company had interest-rate swap agreements having a
total notional value of $525.0 million, including $250 million for which the
fixed rate becomes effective as of October 2003. These swap agreements are used
to convert variable-rate debt to fixed-rate debt. Under these swap agreements,
the Company pays a weighted average fixed rate of 5.74% (before the credit
spread over LIBOR) and receives a weighted average variable rate based upon
30-day and 90-day LIBOR. The Company accrues amounts to be paid or received
under interest-rate swap agreements over the lives of the agreements as
adjustments to interest expense, thereby adjusting the effective interest rate
on the Company's debt. After taking into consideration interest-rate swap
agreements, debt exposed to variable rates was $425.0 million. Gains and losses
on terminations of interest-rate swap agreements are deferred on the Company's
balance sheet (in other long-term liabilities) and amortized as an adjustment to
interest expense over the original term of the terminated swap agreement as if
it were still in place. The remaining terms of the swap agreements at March 31,
2003 ranged from 29 to 54 months. All instruments are entered into for other
than trading purposes.

The Company is also exposed to commodity price risk related to its purchase of
diesel fuel. The Company enters into heating oil swaps and forward purchase
contracts to reduce volatility in the price of diesel fuel purchased for its
operations. The swap agreements essentially fix the price paid for diesel fuel
by requiring the Company to pay a fixed heating oil price and receive a floating
heating oil price. The changes in the floating heating oil price highly
correlate to changes in diesel fuel prices. Gains and losses on terminations of
heating oil swap agreements are deferred on the balance sheet (in other
long-term liabilities) and amortized as an adjustment to diesel fuel cost over
the original term of the terminated heating oil swap agreement as if it were
still in place.

The discussion below presents the sensitivity of the market value of the
Company's financial instruments to selected changes in market rates and prices.
The range of changes reflects the Company's view of changes that are reasonably
possible over a one-year period. Market values are the present value of
projected future cash flows based on the market rates and prices chosen. The
major accounting policies for these instruments are described in Note 1 to the
consolidated financial statements of the Company as of and for the year ended
December 31, 2002 as filed on its Annual Report on Form 10-K with the Securities
and Exchange Commission.

Changes in interest rates have different impacts on the fixed-rate and
variable-rate portions of the Company's debt portfolio. A change in interest
rates on the fixed portion of the debt portfolio impacts the net financial
instrument position but has no impact on interest incurred or cash flows. A
change in interest rates on the variable portion of the


                                       15

debt portfolio impacts the interest incurred and cash flows but does not impact
the net financial instrument position. The sensitivity analysis related to the
fixed portion of the Company's debt portfolio assumes an instantaneous
100-basis-point move in interest rates from their levels at March 31, 2003, with
all other variables held constant. A 100-basis-point decrease in market interest
rates would result in an $17.7 million increase in the fair value of the fixed
portion of the debt at March 31, 2003. Based on the variable-rate debt included
in the Company's debt portfolio as of March 31, 2003, after considering the
effect of the swap agreements, a 100-basis-point increase in interest rates
would result in an annualized additional $3.0 million of interest expense
incurred based on March 31, 2003 debt levels. Similarly, relative to the
Company's diesel fuel hedge position, at March 31, 2003, a $.05 per gallon
decrease in the price of heating oil would result in a $0.2 million decrease in
the fair value of the financial position of the heating oil swap.

CONTINGENCIES

RECLAMATION

The federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA") and
similar state statutes require that mine property be restored in accordance with
specified standards and an approved reclamation plan. The Company accrues for
the costs of final mine closure reclamation in accordance with the provisions of
FAS 143, which was adopted as of January 1, 2003. These costs relate to
reclaiming the pit and support acreage at surface mines and sealing portals at
deep mines. Other costs of final mine closure common to surface and underground
mining are related to reclaiming refuse and slurry ponds, eliminating
sedimentation and drainage control structures, and dismantling or demolishing
equipment or buildings used in mining operations. The establishment of the final
mine closure reclamation liability is based upon permit requirements and
requires various estimates and assumptions, principally associated with costs
and productivities.

The Company reviews its entire environmental liability periodically and makes
necessary adjustments, including permit changes and revisions to costs and
productivities to reflect current experience. The Company's management believes
it is making adequate provisions for all expected reclamation and other
associated costs.

LEGAL CONTINGENCIES

West Virginia Flooding Litigation. The Company and three of its subsidiaries
have been named, among others, in 17 separate complaints filed in Wyoming,
McDowell, Fayette, Upshur, Kanawha, Raleigh, Boone and Mercer Counties, West
Virginia. These cases collectively include approximately 1,780 plaintiffs who
are seeking damages for property damage and personal injuries arising out of
flooding that occurred in southern West Virginia in July of 2001. The plaintiffs
have sued coal, timber, railroad and land companies under the theory that
mining, construction of haul roads and removal of timber caused natural surface
waters to be diverted in an unnatural way, thereby causing damage to the
plaintiffs. The West Virginia Supreme Court has ruled that these cases, along
with several additional flood damages cases not involving the Company's
subsidiaries, be handled pursuant to the Court's Mass Litigation rules. As a
result of this ruling, the cases have been transferred to the Circuit Court of
Raleigh County in West Virginia to be handled by a panel consisting of three
circuit court judges. The panel will, among other things, determine whether the
individual cases should be consolidated or returned to their original circuit
courts.

While the outcome of this litigation is subject to uncertainties, based on the
Company's preliminary evaluation of the issues and the potential impact on it,
the Company believes this matter will be resolved without a material adverse
effect on its financial condition or results of operations.

Daugherty v. Arch Coal, Inc., et. al. The Company and three of its subsidiaries
have been named in a complaint filed in Mingo County, West Virginia. Plaintiffs
are seeking damages for trespass, nuisance and property damage arising out of
the use by the Company's subsidiaries of certain properties in Mingo County,
West Virginia. The plaintiffs have alleged that the Company's subsidiaries have
insufficient rights to haul certain foreign coals across the surface overlying
coal reserves controlled by the Company's subsidiaries without payment of
certain wheelage or other fees to plaintiffs. In addition, the plaintiffs have
alleged that the Company and its subsidiaries have violated the West Virginia
Groundwater Protection Act, the West Virginia Hazardous Waste Management Act,
the West Virginia Water Pollution Control Act and West Virginia's Standards for
Management of Waste Oil by allowing contamination of soil, groundwater and
streams through run-off of hydrocarbon wastes.


                                       16

While the outcome of this litigation is subject to uncertainties, based on the
Company's preliminary evaluation of the issues and the potential impact on it,
the Company believes this matter will be resolved without a material adverse
effect on its financial condition or results of operations.

The Company is a party to numerous other claims and lawsuits with respect to
various matters. The Company provides for costs related to contingencies,
including environmental matters, when a loss is probable and the amount is
reasonably determinable. After conferring with counsel, it is the opinion of
management that the ultimate resolution of these claims, to the extent not
previously provided for, will not have a material adverse effect on the
consolidated financial condition, results of operations or liquidity of the
Company.

CERTAIN TRENDS AND UNCERTAINTIES

SUBSTANTIAL LEVERAGE -- VARIABLE INTEREST RATE -- COVENANTS

As of March 31, 2003, the Company had outstanding consolidated indebtedness of
$704.8 million, representing approximately 52% of the Company's capital
employed. Despite making substantial progress in reducing debt, the Company
continues to have significant debt service obligations, and the terms of its
credit agreements limit its flexibility and result in a number of limitations on
the Company. The Company also has significant lease and royalty obligations. The
Company's ability to satisfy debt service, lease and royalty obligations and to
effect any refinancing of its indebtedness will depend upon future operating
performance, which will be affected by prevailing economic conditions in the
markets that the Company serves as well as financial, business and other
factors, many of which are beyond the Company's control. The Company may be
unable to generate sufficient cash flow from operations and future borrowings,
or other financings may be unavailable in an amount sufficient to enable it to
fund its debt service, lease and royalty payment obligations or its other
liquidity needs.

The Company's relative amount of debt and the terms of its credit agreements
could have material consequences to its business, including, but not limited to:
(i) making it more difficult to satisfy debt covenants and debt service, lease
payment and other obligations; (ii) making it more difficult to pay quarterly
dividends as the Company has in the past; (iii) increasing the Company's
vulnerability to general adverse economic and industry conditions; (iv) limiting
the Company's ability to obtain additional financing to fund future
acquisitions, working capital, capital expenditures or other general corporate
requirements; (v) reducing the availability of cash flows from operations to
fund acquisitions, working capital, capital expenditures or other general
corporate purposes; (vi) limiting the Company's flexibility in planning for, or
reacting to, changes in the Company's business and the industry in which the
Company competes; or (vii) placing the Company at a competitive disadvantage
when compared to competitors with less relative amounts of debt.

After taking into consideration the Company's interest rate swaps which convert
the Company's variable rate debt to fixed, approximately 60% of the Company's
indebtedness at March 31, 2003 bears interest at variable rates that are linked
to short-term interest rates. If interest rates rise, the Company's costs
relative to those obligations would also rise.

Terms of the Company's credit facilities and leases contain financial and other
covenants that create limitations on the Company's ability to, among other
things, effect acquisitions or dispositions and borrow additional funds, and
require the Company to, among other things, maintain various financial ratios
and comply with various other financial covenants. Failure by the Company to
comply with such covenants could result in an event of default under these
agreements which, if not cured or waived, would enable the Company's lenders to
declare amounts borrowed due and payable, or otherwise result in unanticipated
costs.

LOSSES

The Company reported a net loss available to common shareholders of $2.6 million
for the year ended December 31, 2002 and $18.0 in the first quarter of 2003.
These losses are primarily attributable to the Company's decision to scale


                                       17


back production during the period in response to a weak market environment and
increased costs at certain Company operations. The decision to scale back
production came after the Company had prepared most of the operations to
maximize production in order to capitalize on higher market prices for coal the
Company had previously projected. Therefore, certain costs incurred to maximize
production did not result in higher revenues but did increase the cost of coal
sales.

Because the coal mining industry is subject to significant regulatory oversight
and affected by the possibility of adverse pricing trends or other industry
trends beyond the Company's control, the Company may suffer losses in the future
if legal and regulatory rulings, mine idlings and closures, adverse pricing
trends or other factors affect the Company's ability to mine and sell coal
profitably.

ENVIRONMENTAL AND REGULATORY FACTORS

         The coal mining industry is subject to regulation by federal, state and
local authorities on matters such as:

         o        the discharge of materials into the environment;

         o        employee health and safety;

         o        mine permits and other licensing requirements;

         o        reclamation and restoration of mining properties after mining
                  is completed;

         o        management of materials generated by mining operations;

         o        surface subsidence from underground mining;

         o        water pollution;

         o        legislatively mandated benefits for current and retired coal
                  miners;

         o        air quality standards;

         o        protection of wetlands;

         o        endangered plant and wildlife protection;

         o        limitations on land use;

         o        storage of petroleum products and substances that are regarded
                  as hazardous under applicable laws; and

         o        management of electrical equipment containing polychlorinated
                  biphenyls, or PCBs.

In addition, the electric generating industry, which is the most significant
end-user of coal, is subject to extensive regulation regarding the environmental
impact of its power generation activities, which could affect demand for the
Company's coal. The possibility exists that new legislation or regulations may
be adopted or that the enforcement of existing laws could become more stringent,
either of which may have a significant impact on the Company's mining operations
or its customers' ability to use coal and may require the Company or its
customers to change operations significantly or incur substantial costs.

While it is not possible to quantify the expenditures incurred by the Company to
maintain compliance with all applicable federal and state laws, those costs have
been and are expected to continue to be significant. The Company posts
performance bonds pursuant to federal and state mining laws and regulations for
the estimated costs of reclamation and mine closing, including the cost of
treating mine water discharge when necessary. Compliance with these laws has
substantially increased the cost of coal mining for all domestic coal producers.



                                       18


Clean Air Act. The federal Clean Air Act and similar state and local laws, which
regulate emissions into the air, affect coal mining and processing operations
primarily through permitting and emissions control requirements. The Clean Air
Act also indirectly affects coal mining operations by extensively regulating the
emissions from coal-fired industrial boilers and power plants, which are the
largest end-users of the Company's coal. These regulations can take a variety of
forms, as explained below.

The Clean Air Act imposes obligations on the Environmental Protection Agency, or
EPA, and the states to implement regulatory programs that will lead to the
attainment and maintenance of EPA-promulgated ambient air quality standards,
including standards for sulfur dioxide, particulate matter, nitrogen oxides and
ozone. Owners of coal-fired power plants and industrial boilers have been
required to expend considerable resources in an effort to comply with these
ambient air standards. Significant additional emissions control expenditures
will be needed in order to meet the current national ambient air standard for
ozone. In particular, coal-fired power plants will be affected by state
regulations designed to achieve attainment of the ambient air quality standard
for ozone. Ozone is produced by the combination of two precursor pollutants:
volatile organic compounds and nitrogen oxides. Nitrogen oxides are a by-product
of coal combustion. Accordingly, emissions control requirements for new and
expanded coal-fired power plants and industrial boilers will continue to become
more demanding in the years ahead.

In July 1997, the EPA adopted more stringent ambient air quality standards for
particulate matter and ozone. In a February 2001 decision, the U.S. Supreme
Court largely upheld the EPA's position, although it remanded the EPA's ozone
implementation policy for further consideration. On remand, the Court of Appeals
for the D.C. Circuit affirmed the EPA's adoption of these more stringent ambient
air quality standards. As a result of the finalization of these standards,
states that are not in attainment for these standards will have to revise their
State Implementation Plans to include provisions for the control of ozone
precursors and/or particulate matter. Revised State Implementation Plans could
require electric power generators to further reduce nitrogen oxide and
particulate matter emissions. The potential need to achieve such emissions
reductions could result in reduced coal consumption by electric power
generators. Thus, future regulations regarding ozone, particulate matter and
other pollutants could restrict the market for coal and the development of new
mines by the Company. This in turn may result in decreased production by the
Company and a corresponding decrease in the Company's revenues. Although the
future scope of these ozone and particulate matter regulations cannot be
predicted, future regulations regarding these and other ambient air standards
could restrict the market for coal and the development of new mines.

Furthermore, in October 1998, the EPA finalized a rule that will require 19
states in the Eastern United States that have ambient air quality problems to
make substantial reductions in nitrogen oxide emissions by the year 2004. To
achieve these reductions, many power plants would be required to install
additional control measures. The installation of these measures would make it
more costly to operate coal-fired power plants and, depending on the
requirements of individual state implementation plans, could make coal a less
attractive fuel.

Along with these regulations addressing ambient air quality, the EPA has
initiated a regional haze program designed to protect and to improve visibility
at and around National Parks, National Wilderness Areas and International Parks.
This program restricts the construction of new coal-fired power plants whose
operation may impair visibility at and around federally protected areas.
Moreover, this program may require certain existing coal-fired power plants to
install additional control measures designed to limit haze-causing emissions,
such as sulfur dioxide, nitrogen oxides and particulate matter. By imposing
limitations upon the placement and construction of new coal-fired power plants,
the EPA's regional haze program could affect the future market for coal.

Additionally, the U.S. Department of Justice, on behalf of the EPA, has filed
lawsuits against several investor-owned electric utilities and brought an
administrative action against one government-owned electric utility for alleged
violations of the Clean Air Act. The EPA claims that these utilities have failed
to obtain permits required under the Clean Air Act for alleged major
modifications to their power plants. The Company supplies coal to some of the
currently affected utilities, and it is possible that other of the Company's
customers will be sued. These lawsuits could require the utilities to pay
penalties and install pollution control equipment or undertake other emission
reduction measures, which could adversely impact their demand for coal.



                                       19


Other Clean Air Act programs are also applicable to power plants that use the
Company's coal. For example, the acid rain control provisions of Title IV of the
Clean Air Act require a reduction of sulfur dioxide emissions from power plants.
Because sulfur is a natural component of coal, required sulfur dioxide
reductions can affect coal mining operations. Title IV imposes a two phase
approach to the implementation of required sulfur dioxide emissions reductions.
Phase I, which became effective in 1995, regulated the sulfur dioxide emissions
levels from 261 generating units at 110 power plants and targeted the highest
sulfur dioxide emitters. Phase II, implemented January 1, 2000, made the
regulations more stringent and extended them to additional power plants,
including all power plants of greater than 25 megawatt capacity. Affected
electric utilities can comply with these requirements by:

         o        burning lower sulfur coal, either exclusively or mixed with
                  higher sulfur coal;

         o        installing pollution control devices such as scrubbers, which
                  reduce the emissions from high sulfur coal;

         o        reducing electricity generating levels; or

         o        purchasing or trading emissions credits.

Specific emissions sources receive these credits, which electric utilities and
industrial concerns can trade or sell to allow other units to emit higher levels
of sulfur dioxide. Each credit allows its holder to emit one ton of sulfur
dioxide.

In addition to emissions control requirements designed to control acid rain and
to attain the national ambient air quality standards, the Clean Air Act also
imposes standards on sources of hazardous air pollutants. Although these
standards have not yet been extended to coal mining operations, the EPA recently
announced that it will regulate hazardous air pollutants from coal-fired power
plants. Under the Clean Air Act, coal-fired power plants will be required to
control hazardous air pollution emissions by no later than 2009. These controls
are likely to require significant new improvements in controls by power plant
owners. The most prominently targeted pollutant is mercury, although other
by-products of coal combustion may be covered by future hazardous air pollutant
standards for coal combustion sources.

Other proposed initiatives may have an effect upon coal operations. One such
proposal is the Bush Administration's recently announced Clear Skies Initiative.
As proposed, this initiative is designed to reduce emissions of sulfur dioxide,
nitrogen oxides, and mercury from power plants. Other so-called multi-pollutant
bills, which could regulate additional air pollutants, have been proposed by
various members of Congress. While the details of all of these proposed
initiatives vary, there appears to be a movement towards increased regulation of
a number of air pollutants. Were such initiatives enacted into law, power plants
could choose to shift away from coal as a fuel source to meet these
requirements.

Mine Health and Safety Laws. Stringent safety and health standards have been
imposed by federal legislation since the adoption of the Mine Safety and Health
Act of 1969. The Mine Safety and Health Act of 1977, which significantly
expanded the enforcement of health and safety standards of the Mine Safety and
Health Act of 1969, imposes comprehensive safety and health standards on all
mining operations. In addition, as part of the Mine Safety and Health Acts of
1969 and 1977, the Black Lung Act requires payments of benefits by all
businesses conducting current mining operations to coal miners with black lung
and to some survivors of a miner who dies from this disease.

Surface Mining Control and Reclamation Act. SMCRA establishes operational,
reclamation and closure standards for all aspects of surface mining as well as
many aspects of deep mining. SMCRA requires that comprehensive environmental
protection and reclamation standards be met during the course of and upon
completion of mining activities. In conjunction with mining the property, the
Company is contractually obligated under the terms of its leases to comply with
all laws, including SMCRA and equivalent state and local laws. These obligations
include reclaiming and restoring the mined areas by grading, shaping, preparing
the soil for seeding and by seeding with grasses or planting trees for use as
pasture or timberland, as specified in the approved reclamation plan.



                                       20


SMCRA also requires the Company to submit a bond or otherwise financially secure
the performance of its reclamation obligations. The earliest a reclamation bond
can be completely released is five years after reclamation has been achieved.
Federal law and some states impose on mine operators the responsibility for
repairing the property or compensating the property owners for damage occurring
on the surface of the property as a result of mine subsidence, a consequence of
longwall mining and possibly other mining operations. In addition, the Abandoned
Mine Lands Act, which is part of SMCRA, imposes a tax on all current mining
operations, the proceeds of which are used to restore mines closed before 1977.
The maximum tax is $0.35 per ton of coal produced from surface mines and $0.15
per ton of coal produced from underground mines.

The Company also leases some of its coal reserves to third party operators.
Under SMCRA, responsibility for unabated violations, unpaid civil penalties and
unpaid reclamation fees of independent mine lessees and other third parties
could potentially be imputed to other companies that are deemed, according to
the regulations, to have "owned" or "controlled" the mine operator. Sanctions
against the "owner" or "controller" are quite severe and can include civil
penalties, reclamation fees and reclamation costs. The Company is not aware of
any currently pending or asserted claims against it asserting that it "owns" or
"controls" any of its lessees' operations.

On March 29, 2002, the U.S. District Court for the District of Columbia issued a
ruling that could restrict underground mining activities conducted in the
vicinity of public roads, within a variety of federally protected lands, within
national forests and within a certain proximity of occupied dwellings. The
lawsuit, Citizens Coal Council v. Norton, was filed in February 2000 to
challenge regulations issued by the Department of Interior providing, among
other things, that subsidence and underground activities that may lead to
subsidence are not surface mining activities within the meaning of SMCRA. SMCRA
generally contains restrictions and certain prohibitions on the locations where
surface mining activities can be conducted. The District Court entered summary
judgment upon the plaintiff's claims that the Secretary of the Interior's
determination violated SMCRA. By order dated April 9, 2002, the court remanded
the regulations to the Secretary of the Interior for reconsideration.

The significance of this decision for the coal mining industry remains unclear
because this ruling is subject to appellate review. The Department of Interior
and the National Mining Association, a trade group that intervened in this
action, sought a stay of the order pending appeal to the U.S. Court of Appeals
for the District of Columbia Circuit and the stay was granted. If the District
Court's decision is not overturned, or if some legislative solution is not
enacted, this ruling could have a material adverse effect on all coal mine
operations that utilize underground mining techniques, including those of the
Company. While it still may be possible to obtain permits for underground mining
operations in these areas, the time and expense of that permitting process are
likely to increase significantly.

Framework Convention on Global Climate Change. The United States and more than
160 other nations are signatories to the 1992 Framework Convention on Global
Climate Change, commonly known as the Kyoto Protocol, that is intended to limit
or capture emissions of greenhouse gases such as carbon dioxide and methane. The
U.S. Senate has neither ratified the treaty commitments, which would mandate a
reduction in U.S. greenhouse gas emissions, nor enacted any law specifically
controlling greenhouse gas emissions and the Bush Administration has withdrawn
support for this treaty. Nonetheless, future regulation of greenhouse gases
could occur either pursuant to future U.S. treaty obligations or pursuant to
statutory or regulatory changes under the Clean Air Act. Efforts to control
greenhouse gas emissions could result in reduced demand for coal if electric
power generators switch to lower carbon sources of fuel.

West Virginia Antidegradation Policy. In January 2002, a number of environmental
groups and individuals filed suit in the U.S. District Court for the Southern
District of West Virginia to challenge the EPA's approval of West Virginia's
antidegradation implementation policy. Under the federal Clean Water Act, state
regulatory authorities must conduct an antidegradation review before approving
permits for the discharge of pollutants to waters that have been designated as
high quality by the state. Antidegradation review involves public and
intergovernmental scrutiny of permits and requires permittees to demonstrate
that the proposed activities are justified in order to accommodate significant
economic or social development in the area where the waters are located. The
plaintiffs in this lawsuit, Ohio Valley Environmental Coalition v. Whitman,
challenge provisions in West Virginia's antidegradation implementation policy
that exempt current holders of National Pollutant Discharge Elimination System
(NPDES) permits and Section 404 permits, among other parties, from the
antidegradation review process. The Company is exempt from antidegradation
review under these provisions. Revoking this exemption and subjecting the
Company to


                                       21


the antidegradation review process could delay the issuance or reissuance of
Clean Water Act permits to the Company or cause these permits to be denied. If
the plaintiffs are successful and if the Company discharges into waters that
have been designated as high-quality by the state, the costs, time and
difficulty associated with obtaining and complying with Clean Water Act permits
for surface mining of its operations could increase.

Comprehensive Environmental Response, Compensation and Liability Act. CERCLA and
similar state laws affect coal mining operations by, among other things,
imposing cleanup requirements for threatened or actual releases of hazardous
substances that may endanger public health or welfare or the environment. Under
CERCLA and similar state laws, joint and several liability may be imposed on
waste generators, site owners and lessees and others regardless of fault or the
legality of the original disposal activity. Although the EPA excludes most
wastes generated by coal mining and processing operations from the hazardous
waste laws, such wastes can, in certain circumstances, constitute hazardous
substances for the purposes of CERCLA. In addition, the disposal, release or
spilling of some products used by coal companies in operations, such as
chemicals, could implicate the liability provisions of the statute. Thus, coal
mines that the Company currently owns or has previously owned or operated, and
sites to which the Company sent waste materials, may be subject to liability
under CERCLA and similar state laws. In particular, the Company may be liable
under CERCLA or similar state laws for the cleanup of hazardous substance
contamination at sites where it owns surface rights.

Mining Permits and Approvals. Numerous governmental permits or approvals are
required for mining operations. In connection with obtaining these permits and
approvals, the Company may be required to prepare and present to federal, state
or local authorities data pertaining to the effect or impact that any proposed
production of coal may have upon the environment. The requirements imposed by
any of these authorities may be costly and time consuming and may delay
commencement or continuation of mining operations. Regulations also provide that
a mining permit can be refused or revoked if an officer, director or a
shareholder with a 10% or greater interest in the entity is affiliated with
another entity that has outstanding permit violations. Thus, past or ongoing
violations of federal and state mining laws could provide a basis to revoke
existing permits and to deny the issuance of additional permits.

In order to obtain mining permits and approvals from state regulatory
authorities, mine operators, including the Company, must submit a reclamation
plan for restoring, upon the completion of mining operations, the mined property
to its prior condition, productive use or other permitted condition. Typically
the Company submits the necessary permit applications several months before it
plans to begin mining a new area. In the Company's experience, permits generally
are approved several months after a completed application is submitted. In the
past, the Company has generally obtained its mining permits without significant
delay. However, the Company cannot be sure that it will not experience
difficulty in obtaining mining permits in the future.

Future legislation and administrative regulations may emphasize the protection
of the environment and, as a consequence, the activities of mine operators,
including the Company, may be more closely regulated. Legislation and
regulations, as well as future interpretations of existing laws, may also
require substantial increases in equipment expenditures and operating costs, as
well as delays, interruptions or the termination of operations. The Company
cannot predict the possible effect of such regulatory changes.

Under some circumstances, substantial fines and penalties, including revocation
or suspension of mining permits, may be imposed under the laws described above.
Monetary sanctions and, in severe circumstances, criminal sanctions may be
imposed for failure to comply with these laws.

Surety Bonds. Federal and state laws require the Company to obtain surety bonds
to secure payment of certain long-term obligations including mine closure or
reclamation costs, federal and state workers' compensation costs, coal leases
and other miscellaneous obligations. Many of these bonds are renewable on a
yearly basis. It has become increasingly difficult for the Company to secure new
surety bonds or renew such bonds without the posting of collateral. In addition,
surety bond costs have increased while the market terms of such bonds have
generally become more unfavorable.

West Virginia Cumulative Hydrologic Impact Analysis Litigation. Two
environmental groups sued the West Virginia Department of Environmental
Protection in January 2000 in federal court, alleging various violations of the
Clean Water Act and SMCRA. The lawsuit was amended in September 2001 to name
Gale Norton, Secretary of the


                                       22


Interior, as a defendant. The U.S. Office of Surface Mining is a division within
the Department of Interior. The lawsuit, Ohio River Valley Environmental
Coalition, Inc. v. Castle, specifically alleges that the West Virginia
Department of Environmental Protection has violated its non-discretionary duty
to require all surface and underground mining permit applications to include
certain stream flow and water quality data and an analysis of the probable
hydrologic consequences of the proposed mine, and that the West Virginia
Department of Environmental Protection failed to conduct SMCRA-required
cumulative hydrologic impacts analysis prior to issuing mining permits. The
lawsuit also alleges that the Office of Surface Mining has a non-discretionary
duty to apply the federal SMCRA law in West Virginia due to the deficiencies in
the state program. In March 2001, the district court denied the plaintiff's
motion for a preliminary injunction on its claims against the West Virginia
Department of Environmental Protection. In September 2001, the district court
denied a motion to dismiss for lack of jurisdiction filed by the defendant, the
Secretary of the West Virginia Department of Environmental Protection. The
defendant filed an interlocutory appeal of this decision which was heard by the
Fourth Circuit Court of Appeals in February 2002. If the plaintiffs are
eventually successful in this lawsuit, the West Virginia Department of
Environmental Protection may have to modify its procedures and requirements for
the content and review of mining permit applications, which is likely to
increase the cost of preparing applications and the time required for their
review, and may entail additional operating expenditures and, possibly,
restrictions on operating.

Endangered Species. The federal Endangered Species Act and counterpart state
legislation protects species threatened with possible extinction. Protection of
endangered species may have the effect of prohibiting or delaying the Company
from obtaining mining permits and may include restrictions on timber harvesting,
road building and other mining or agricultural activities in areas containing
the affected species. Certain endangered species are indigenous to the regions
in which the Company operates, but surveys conducted as part of the permitting
process have not verified the existence of these species on Company property
such that mining would be prohibited.

Other Environmental Laws Affecting the Company. The Company is required to
comply with numerous other federal, state and local environmental laws in
addition to those previously discussed. These additional laws include, for
example, the Resource Conservation and Recovery Act, the Safe Drinking Water
Act, the Toxic Substance Control Act and the Emergency Planning and Community
Right-to-Know Act. The Company believes that it is in substantial compliance
with all applicable environmental laws.

COMPETITION -- EXCESS INDUSTRY CAPACITY

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, and some of the Company's competitors may have greater
financial resources. The Company competes with several major coal producers in
the Central Appalachian and Powder River Basin areas. The Company also competes
with a number of smaller producers in those and other market regions. The
Company is also subject to the risk of reduced profitability as a result of
excess industry capacity, which results in reduced coal prices.

ELECTRIC INDUSTRY FACTORS; CUSTOMER CREDITWORTHINESS

Demand for coal and the prices that the Company will be able to obtain for its
coal are closely linked to coal consumption patterns of the domestic electric
generation industry, which has accounted for approximately 90% of domestic coal
consumption in recent years. These coal consumption patterns are influenced by
factors beyond the Company's control, including the demand for electricity
(which is dependent to a significant extent on summer and winter temperatures);
government regulation; technological developments and the location,
availability, quality and price of competing sources of coal; other fuels such
as natural gas, oil and nuclear; and alternative energy sources such as
hydroelectric power. Demand for the Company's low-sulfur coal and the prices
that the Company will be able to obtain for it will also be affected by the
price and availability of high-sulfur coal, which can be marketed in tandem with
emissions allowances in order to meet federal Clean Air Act requirements. Any
reduction in the demand for the Company's coal by the domestic electric
generation industry may cause a decline in profitability.

Electric utility deregulation is expected to provide incentives to generators of
electricity to minimize their fuel costs and is believed to have caused electric
generators to be more aggressive in negotiating prices with coal suppliers.


                                       23


Deregulation may have a negative effect on the Company's profitability to the
extent it causes the Company's customers to be more cost-sensitive.

In addition, the Company's ability to receive payment for coal sold and
delivered depends on the creditworthiness of its customers. In general, the
creditworthiness of the Company's customers has deteriorated. If such trends
continue, the Company's acceptable customer base may be limited.

RELIANCE ON AND TERMS OF LONG-TERM COAL SUPPLY CONTRACTS

During 2002, sales of coal under long-term contracts, which are contracts with a
term greater than 12 months, accounted for 84% of the Company's total revenues.
The prices for coal shipped under these contracts may be below the current
market price for similar type coal at any given time. As a consequence of the
substantial volume of its sales which are subject to these long-term agreements,
the Company has less coal available with which to capitalize on stronger coal
prices if and when they arise. In addition, because long-term contracts
typically allow the customer to elect volume flexibility, the Company's ability
to realize the higher prices that may be available in the spot market may be
restricted when customers elect to purchase higher volumes under such contracts,
or the Company's exposure to market-based pricing may be increased should
customers elect to purchase fewer tons. The increasingly short terms of sales
contracts and the consequent absence of price adjustment provisions in such
contracts also make it more likely that inflation related increases in mining
costs during the contract term will not be recovered by the Company.

RESERVE DEGRADATION AND DEPLETION

The Company's profitability depends substantially on its ability to mine coal
reserves that have the geological characteristics that enable them to be mined
at competitive costs. Replacement reserves may not be available when required
or, if available, may not be capable of being mined at costs comparable to those
characteristic of the depleting mines. The Company has in the past acquired and
will in the future acquire, coal reserves for its mine portfolio from third
parties. The Company may not be able to accurately assess the geological
characteristics of any reserves that it acquires, which may adversely affect the
profitability and financial condition of the Company. Exhaustion of reserves at
particular mines can also have an adverse effect on operating results that is
disproportionate to the percentage of overall production represented by such
mines. Mingo Logan's Mountaineer Mine is estimated to exhaust its longwall
mineable reserves in 2006. The Mountaineer Mine generated $33.7 million and
$36.7 million of the Company's total operating income in the year ended 2002 and
2001, respectively.

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS -- FACTORS ROUTINELY AFFECTING
RESULTS OF OPERATIONS

The Company's mining operations are inherently subject to changing conditions
that can affect levels of production and production costs at particular mines
for varying lengths of time and can result in decreases in profitability.
Weather conditions, equipment replacement or repair, fuel and other supply
prices, fires, insurance costs, variations in coal seam thickness, amounts of
overburden rock and other natural materials, and other geological conditions
have had, and can be expected in the future to have, a significant impact on
operating results. A prolonged disruption of production at any of the Company's
principal mines, particularly its Mingo Logan operation in West Virginia or
Black Thunder mine in Wyoming, would result in a decrease, which could be
material, in the Company's revenues and profitability. Other factors affecting
the production and sale of the Company's coal that could result in decreases in
its profitability include: (i) expiration or termination of, or sales price
redeterminations or suspension of deliveries under, coal supply agreements; (ii)
disruption or increases in the cost of transportation services; (iii) changes in
laws or regulations, including permitting requirements; (iv) litigation; (v)
work stoppages or other labor difficulties; (vi) mine worker vacation schedules
and related maintenance activities; and (vii) changes in coal market and general
economic conditions.

TRANSPORTATION

The coal industry depends on rail, trucking and barge transportation to deliver
shipments of coal to customers, and transportation costs are a significant
component of the total cost of supplying coal. Disruption of these
transportation services could temporarily impair the Company's ability to supply
coal to its customers. Increases in transportation


                                       24


costs, or changes in such costs relative to transportation costs for coal
produced by its competitors or for other fuels, could have an adverse effect on
the Company's business and results of operations.

RESERVES -- TITLE

The Company bases its reserve information on geological data assembled and
analyzed by its staff which includes various engineers and geologists, and
outside firms. The reserve estimates are annually updated to reflect production
of coal from the reserves and new drilling or other data received. There are
numerous uncertainties inherent in estimating quantities of recoverable
reserves, including many factors beyond the control of the Company. Estimates of
economically recoverable coal reserves and net cash flows necessarily depend
upon a number of variable factors and assumptions, such as geological and mining
conditions which may not be fully identified by available exploration data or
may differ from experience in current operations, historical production from the
area compared with production from other producing areas, the assumed effects of
regulation by governmental agencies, and assumptions concerning coal prices,
operating costs, severance and excise taxes, development costs, and reclamation
costs, all of which may cause estimates to vary considerably from actual
results.

For these reasons, estimates of the economically recoverable quantities
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of net cash flows expected
therefrom, prepared by different engineers or by the same engineers at different
times, may vary substantially. Actual coal tonnage recovered from identified
reserve areas or properties, and revenues and expenditures with respect to the
Company's reserves, may vary from estimates, and such variances may be material.
These estimates thus may not accurately reflect the Company's actual reserves.

The Company continually seeks to expand its operations and coal reserves in the
regions in which it operates through acquisitions of businesses and assets.
Acquisition transactions involve various inherent risks, such as assessing the
value, strengths, weaknesses, contingent and other liabilities, and potential
profitability of acquisition or other transaction candidates; the potential loss
of key personnel of an acquired business; the ability to achieve identified
operating and financial synergies anticipated to result from an acquisition or
other transaction; and unanticipated changes in business, industry or general
economic conditions that affect the assumptions underlying the acquisition or
other transaction. Any one or more of these factors could impair the Company's
ability to realize the benefits anticipated to result from the acquisition of
businesses or assets.

A significant part of the Company's mining operations are conducted on
properties leased by the Company. The loss of any lease could adversely affect
the Company's ability to develop the associated reserves. Because title to most
of the Company's leased properties and mineral rights is not usually verified
until a commitment is made by the Company to develop a property, which may not
occur until after the Company has obtained necessary permits and completed
exploration of the property, the Company's right to mine certain of its reserves
may be adversely affected if defects in title or boundaries exist. In order to
obtain leases or mining contracts to conduct mining operations on property where
these defects exist, the Company has had to, and may in the future have to,
incur unanticipated costs. In addition, the Company may not be able to
successfully negotiate new leases or mining contracts for properties containing
additional reserves or maintain its leasehold interests in properties on which
mining operations are not commenced during the term of the lease.

CERTAIN CONTRACTUAL ARRANGEMENTS

The Company's affiliate, Arch Western Resources, LLC, is the owner of Company
reserves and mining facilities in the western United States. The agreement under
which Arch Western was formed provides that a subsidiary of the Company, as the
managing member of Arch Western, generally has exclusive power and authority to
conduct, manage and control the business of Arch Western. However, consent of BP
Amoco, the other member of Arch Western, would generally be required in the
event that Arch Western proposes to make a distribution, incur indebtedness,
sell properties or merge or consolidate with any other entity if, at such time,
Arch Western has a debt rating less favorable than specified ratings with
Moody's Investors Service or Standard & Poor's or fails to meet specified
indebtedness and interest ratios.



                                       25


In connection with the Company's June 1, 1998 acquisition of Atlantic Richfield
Company's ("ARCO") coal operations, the Company entered into an agreement under
which it agreed to indemnify ARCO against specified tax liabilities in the event
that these liabilities arise as a result of certain actions taken prior to June
1, 2013, including the sale or other disposition of certain properties of Arch
Western, the repurchase of certain equity interests in Arch Western by Arch
Western, or the reduction under certain circumstances of indebtedness incurred
by Arch Western in connection with the acquisition. ARCO was acquired by BP
Amoco in 2000. Depending on the time at which any such indemnification
obligation were to arise, it could impact the Company's profitability for the
period in which it arises.

The membership interests in Canyon Fuel, which operates three coal mines in
Utah, are owned 65% by Arch Western and 35% by a subsidiary of ITOCHU
Corporation of Japan. The agreement that governs the management and operations
of Canyon Fuel provides for a management board to manage its business and
affairs. Some major business decisions concerning Canyon Fuel require the vote
of 70% of the membership interests and therefore limit the Company's ability to
make these decisions. These decisions include admission of additional members;
approval of annual business plans; the making of significant capital
expenditures; sales of coal below specified prices; agreements between Canyon
Fuel and any member; the institution or settlement of litigation; a material
change in the nature of Canyon Fuel's business or a material acquisition; the
sale or other disposition, including by merger, of assets other than in the
ordinary course of business; incurrence of indebtedness; the entering into of
leases; and the selection and removal of officers. The Canyon Fuel agreement
also contains various restrictions on the transfer of membership interests in
Canyon Fuel.

The Company's Amended and Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least two-thirds of outstanding common
stock voting thereon to approve a merger or consolidation and certain other
fundamental actions involving or affecting control of the Company. The Company's
Bylaws require the affirmative vote of at least two-thirds of the members of the
Board of Directors of the Company in order to declare dividends and to authorize
certain other actions.

CRITICAL ACCOUNTING POLICIES

The Company's Annual Report on Form 10-K for the year ended December 31, 2002
contains a description of the critical accounting policies impacting the
Company's financial statements. Since that report, the Company has changed its
method of accounting for its final mine closure reclamation liabilities to
comply with FAS 143. Asset retirement obligations recorded in accordance with
FAS 143 depend on the estimates and assumptions described in the Company's
Annual Report on Form 10-K, as well as the following:

         o        Discount rate - FAS 143 requires the asset retirement
                  obligation to be recorded at its fair value. In accordance
                  with the provisions of FAS 143, the Company utilized
                  discounted cash flow techniques to estimate the fair value of
                  its obligations. The rates used by the Company are based on
                  rates for treasury bonds with maturities similar to expected
                  mine lives, adjusted for the Company's credit standing.

         o        Third-party margin - FAS 143 requires the measurement of an
                  obligation to be based upon the amount a third party would
                  demand to assume the obligation. Because the Company plans to
                  perform a significant amount of its final mine closure
                  reclamation activities with internal resources, a third-party
                  margin was added to the estimated costs of these activities.
                  This margin was estimated based on the Company's historical
                  experience with contractors performing certain types of
                  reclamation activities. The inclusion of this margin will
                  result in a recorded obligation that is greater than the
                  Company's estimates of its cost to perform the reclamation
                  activities. If the Company's cost estimates are accurate, the
                  excess of the recorded obligation over the cost incurred to
                  perform the work will be recorded as a gain at the time that
                  reclamation work is completed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report and is incorporated herein by reference.




                                       26


                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this Item is contained in the "Contingencies - Legal
Contingencies" section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this report and is incorporated herein
by reference.

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

(a) The Company's Annual Meeting of Stockholders was held on April 24, 2003, at
the Company's headquarters at One CityPlace Drive, Suite 300, St. Louis,
Missouri.

(b) At such Annual Meeting, the holders of the Company's common stock elected
the following nominees for director:




Nominee                                      Total Votes For   Total Votes Withheld
-------                                      ---------------   --------------------
                                                               
Frank M. Burke                                  47,455,813           815,581

Thomas A. Lockhart                              47,533,988           737,405

James L. Parker                                 47,451,834           819,561



At such Annual Meeting, the Company's stockholders, by a vote of 47,125,836 for,
1,102,908 against and 42,645 abstained, also ratified the appointment of Ernst &
Young LLP as the Company's independent auditors for 2003.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)


      
3.1      Amended and Restated Certificate of Incorporation of Arch Coal, Inc.
         (incorporated herein by reference to Exhibit 3.1 to the Company's
         Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2000)

3.2      Amended and Restated Bylaws of Arch Coal, Inc. (incorporated herein by
         reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K
         for the Year Ended December 31, 2000)

3.3      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)

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




(b)      Reports on Form 8-K: The following reports on Form 8-K were filed by
         the Company in the quarter ended March 31, 2003:



                                       27


         (1)      A report dated January 23, 2003 announcing the Company's
                  fourth quarter 2002 earnings;

         (2)      A report dated February 24, 2003 announcing the election of
                  Thomas A. Lockhart as a Director of the Company; and

         (3)      A report dated March 12, 2003 attaching slides shown during a
                  presentation made by Steven F. Leer, CEO and President of the
                  Company, to certain members of the business and investment
                  community.



                                       28


                                   SIGNATURES

         Pursuant to the requirements 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)


Date: May 14, 2003                      /s/ John W. Lorson
                                        ----------------------------------------
                                        John W. Lorson
                                        Controller
                                        (Chief Accounting Officer)




                                       29


                                 CERTIFICATIONS

I, Steven F. Leer, certify that:

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

     2.   Based on my knowledge, this quarterly 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 quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this quarterly 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 quarterly 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
               quarterly 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 quarterly report (the "Evaluation Date"); and

          c)   presented in this quarterly report 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.


Date: May 14, 2003


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


                                       30



I, Robert J. Messey, certify that:

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

     2.   Based on my knowledge, this quarterly 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 quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this quarterly 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 quarterly 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
               quarterly 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 quarterly report (the "Evaluation Date"); and

          c.   presented in this quarterly report 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.


Date: May 14, 2003


                                        /s/ Robert J. Messey
                                        ----------------------------------------
                                        Robert J. Messey
                                        Senior Vice President and Chief
                                            Financial Officer

                                       31