Arch Coal, Inc. Reports First Quarter 2007 Results
Arch Coal Records Solid Performance Despite Weak Market Conditions

ST. LOUIS, April 23 /PRNewswire-FirstCall/ -- Arch Coal, Inc. (NYSE:ACI) today reported first quarter 2007 net income available to common shareholders of $28.7 million, or $0.20 per fully diluted share, compared with $60.6 million, or $0.42 per fully diluted share, in the prior-year period. The company earned income from operations of $50.9 million on revenues of $571.3 million in the first quarter of 2007. In the first quarter of 2006, Arch recorded income from operations of $94.1 million on revenues of $634.6 million.

"Arch Coal achieved solid operating results during the first quarter of 2007 despite current soft conditions in U.S. coal markets," said Steven F. Leer, Arch's chairman and chief executive officer. "We benefited from good performances by our mines and higher average price realizations in our Western operating regions compared with the fourth quarter of 2006, and we expect to build on these results as the year progresses, particularly during the year's second half."

"Market conditions were considerably less favorable in the first quarter of 2007 than in the year-ago period, prompting Arch to reduce production volume targets at the end of last year," added Leer. "Despite these conditions, we are pleased with our operating results. Moreover, we believe Arch is particularly well-positioned to capitalize on improving market fundamentals."

    Arch Achieves a Solid Performance in all Operating Regions



                                                      Arch Coal, Inc.
                                                 1Q06        4Q06        1Q07

    Tons sold (in millions)                      29.6        33.9        31.4
    Average sales price per ton                $17.53      $15.76      $16.85
    Cash cost per ton                          $12.35      $11.62      $12.93
    Cash margin per ton                         $5.18       $4.14       $3.92
    Total operating cost per ton               $13.88      $13.30      $14.74
    Operating margin per ton                    $3.65       $2.46       $2.11

    Consolidated results may not correspond to regional breakout due to
    rounding. Above figures exclude transportation costs billed to customers.
    Operating cost per ton includes depreciation, depletion and amortization
    per ton. Arch acts as an intermediary on certain pass-through transactions
    that have no effect on company results. These transactions are not
    reflected in this table. A supplemental regional schedule for all quarters
    beginning with FY05 can be found in the investor section of
    www.archcoal.com.


Consolidated average price realization per ton improved $1.09 in the first quarter of 2007 compared with the fourth quarter of 2006, while operating cost per ton increased $1.44 over the same time period. Higher operating cost per ton resulted from Arch's strategic decision to reduce production volume targets, weather-related shipment challenges during the quarter just ended, and higher depreciation, depletion and amortization expense. In the first quarter of 2007, Arch earned operating margin per ton of $2.11 compared with $2.46 in the prior-quarter period.

When compared with the first quarter of 2006, average price realization per ton declined $0.68 reflecting weaker conditions in U.S. coal markets from the year-ago period. Operating cost per ton increased $0.86, resulting in margin contraction from the year-ago period.

"During the quarter, we were able to overcome weak market conditions and weather-related challenges, while still continuing to create value for our shareholders," said John W. Eaves, Arch's president and chief operating officer. "Going forward, we will remain focused on controlling costs and improving profitability under any market condition."



                                                      Powder River Basin
                                                 1Q06        4Q06        1Q07

    Tons sold (in millions)                      22.2        25.3        23.2
    Average sales price per ton                $11.34      $10.10      $10.47
    Cash cost per ton                           $7.46       $7.54       $8.02
    Cash margin per ton                         $3.88       $2.56       $2.45
    Total operating cost per ton                $8.64       $8.69       $9.19
    Operating margin per ton                    $2.70       $1.41       $1.28

    Above figures exclude transportation costs billed to customers.
    Operating cost per ton includes depreciation, depletion and amortization
    per ton.


In the Powder River Basin, average price realization per ton increased $0.37 in the first quarter of 2007 compared with the fourth quarter of 2006, benefiting from stronger contract pricing. This per-ton price realization increase includes the effect of a larger mix of lower-priced Coal Creek tonnage compared with the prior-quarter period. Operating cost per ton increased $0.50 over this same time period due to planned lower volume targets, higher sales-sensitive costs, weather-related shipment challenges and an unplanned belt outage at Arch's Black Thunder operations in January 2007. As a result, this region's operating margin per ton declined to $1.28 in the first quarter of 2007 compared with $1.41 in the prior-quarter period.



                                                     Western Bituminous
                                                 1Q06        4Q06        1Q07

    Tons sold (in millions)                       4.1         5.4         4.8
    Average sales price per ton                $23.31      $20.62      $24.77
    Cash cost per ton                          $14.82      $11.85      $16.07
    Cash margin per ton                         $8.49       $8.77       $8.70
    Total operating cost per ton               $17.03      $14.48      $19.56
    Operating margin per ton                    $6.28       $6.14       $5.21

    Above figures exclude transportation costs billed to customers.
    Operating cost per ton includes depreciation, depletion and amortization
    per ton.


In the Western Bituminous region, average realized price per ton increased 20 percent in the first quarter of 2007 compared with the fourth quarter of 2006, benefiting from the roll-off of lower-priced legacy sales contracts. Operating costs per ton increased over the same time period, principally due to planned lower volume targets, higher sales-sensitive costs as well as startup costs and higher depreciation expense associated with the installation of a new, state-of-the-art replacement longwall at Arch's Sufco mine in Utah. Additionally, in the fourth quarter of 2006, operating costs benefited from a $2.20 per ton insurance recovery related to the West Elk combustion event that occurred during the fourth quarter of 2005.



                                                     Central Appalachia
                                                 1Q06        4Q06        1Q07

    Tons sold (in millions)                       3.4         3.2         3.4
    Average sales price per ton                $51.34      $52.28      $48.87
    Cash cost per ton                          $41.56      $43.33      $41.64
    Cash margin per ton                         $9.78       $8.95       $7.23
    Total operating cost per ton               $44.59      $47.62      $45.44
    Operating margin per ton                    $6.75       $4.66       $3.43

    Above figures exclude transportation costs billed to customers. Operating
    cost per ton includes depreciation, depletion and amortization per ton.
    Arch acts as an intermediary on certain pass-through transactions that
    have no effect on company results. These transactions are not reflected in
    this table. In addition, Arch services several legacy Magnum contracts by
    purchasing and supplying third-party coal and records offsetting revenue
    and expenses against a reserve established to account for these
    transactions.

In the Central Appalachian region, average realized price per ton declined $3.41 in the first quarter of 2007 compared with the fourth quarter of 2006, principally due to lower market-based pricing on uncommitted and indexed tons as well as lower volumes of metallurgical coal sales compared with the fourth quarter of 2006. Operating costs per ton declined $2.18 over the same time period, benefiting from strong operating performances by Arch's mines as well as optimization strategies on brokered tons in the current weak market environment.

Arch Believes U.S. Coal Market Fundamentals Are Improving

Arch believes market fundamentals are improving in 2007 as the peak summer demand period approaches.

     -- Electric generation demand was up 4.6 percent year-to-date through the
        second week in April, according to the Edison Electric Institute.
        Additionally, electric output has been more robust in geographic
        regions that traditionally rely more heavily on coal-fueled
        generation.

     -- Coal production has declined 1.8 percent year-to-date through April
        14, according to government estimates.  Eastern coal production --
        specifically Central Appalachia - has declined 10.8 percent, while
        Western coal production has increased 2.2 percent.  On a true energy-
        equivalent basis -- specifically, production based on Btus rather than
        tons -- total U.S. coal production would be down 2.4 percent.

     -- A recent court decision in Central Appalachia threatens to further
        slow the issuance of mining permits, which could accelerate production
        rationalization in the region.  Even before the recent court decision,
        production in the region was down an estimated 10.8 percent year-to-
        date, according to the Energy Information Administration, due to
        reserve depletion, increasing cost pressures and the pull-back in coal
        prices.

     -- Global coal prices continue to strengthen due to robust growth in
        worldwide coal demand, particularly in China, which could become a net
        importer of coal for the first time ever this year.  International
        coal supply also is expected to tighten in response to infrastructure
        and transportation challenges at some international ports.  As a
        result, Arch estimates that growth in imported coal into the U.S. may
        slow meaningfully in 2007, further tightening U.S. coal supply.

Over the longer-term, Arch maintains a bullish outlook on coal markets. The company estimates that nearly 11 gigawatts of new coal-fueled electric generating capacity are currently under construction in the U.S., representing more than 40 million tons of incremental annual coal demand to be phased in over the next five years. Another 10 gigawatts are believed to be in advanced stages of development, translating into approximately 34 million tons of incremental annual coal demand over the same time frame. Between 1997 and 2006, power generators constructed only 4 gigawatts of new coal-fueled capacity.

"The construction of a new generation of coal-fueled power plants represents a transformation of our marketplace," said Leer. "We expect generators to continue to enter into contract discussions for their current and future fuel needs, with such activity increasing steadily as these new plants progress towards their start-up dates."

Additionally, prevailing prices of alternative fuels such as crude oil and natural gas establish a compelling reference price for coal-based energy. Moreover, Congressional support for enhancing domestic energy security is growing, spurring interest in coal-to-liquids and coal-to-gas technologies. The advancement of coal-conversion technologies represents a meaningful positive long-term development for the coal industry.

Arch's Sales Contract Portfolio Remains Relatively Unchanged

Arch continues to take a selective and patient approach to sales contracting in the current market environment. "We expect growth in coal demand and continuing supply pressures in the Appalachian coalfields to exert upward pressure on coal prices in the foreseeable future," Eaves said. "While we continue to evaluate new contract opportunities, we believe our unpriced position is highly advantageous."

Since the last update, Arch has signed selective coal commitments of approximately 5 million tons for 2008 delivery at average prices that significantly exceeded the company's average realized pricing for the first quarter of 2007 in the respective basins in which the coal was committed. At present, Arch has approximately 10 million to 15 million tons of 2007 expected production that has yet to be priced. Additionally, Arch has unpriced volumes of between 70 million and 80 million tons in 2008 and between 110 million and 120 million tons in 2009.

Capital Spending Remains at Reduced Levels

Arch typically invests a relatively high percentage of its total capital budget during the first quarter, and that was again the case in 2007. During the first quarter of 2007, Arch recorded spending on equipment, infrastructure and development of approximately $80 million. Of the $80 million, approximately $32 million relates to the continued development of the Mountain Laurel complex in Central Appalachia and approximately $20 million represents payments for the new longwall at Arch's Sufco mine in Utah. In addition, Arch recorded spending on reserve additions of approximately $175 million in the quarter just ended.

For full year 2007, Arch continues to target total capital spending within the previous guidance range of $240 million to $280 million, which is exclusive of reserve additions. "Despite a robust long-term outlook for U.S. coal markets, Arch continues to target lower capital spending levels that match our reduced planned production levels in this current soft market environment," said Eaves.

Arch Anticipates Continued Progress in 2007

Arch affirms its guidance for 2007, with fully diluted earnings per share projected to be within the range of $1.25 to $2.00, while adjusted EBITDA is expected to be in the $530 million to $650 million range. Total sales volume is expected to be between 130 million to 135 million tons, excluding 2 million pass-through tons that Arch currently services from the 2005 sale of select Central Appalachian operations. Arch's actual results will be significantly influenced by market developments over the course of the year, the company's final production levels in 2007, and the pricing Arch achieves on its remaining unpriced tons. As previously indicated, Arch expects the second half of the year to be substantially stronger than the first half.

"We believe that an inflection point may have been reached recently in U.S. coal markets," said Leer. "The return of more normal weather spurred increased coal consumption during the first three months of the year. Additionally, coal production declines in the East, especially Central Appalachia, along with greater permitting uncertainty in that region should lead to further reductions in power generator stockpiles and a more balanced supply and demand position for 2007 and thereafter."

"As such, Arch is sharply focused on managing the business to create long- term value for shareholders," said Leer. "We are committed to making the right decisions in 2007 in order to retain upside potential in the years ahead. Arch's strategy is driven by our strong belief in the long-term fundamentals of U.S. coal markets. The significant level of investment in new coal-fueled generator capacity represents a key avenue for demand growth going forward. Additionally, policies that favor the adoption of coal-conversion technologies to promote America's energy security are gaining traction."

"Going forward, we expect Arch's size, diversified asset portfolio, talented workforce and low-cost operations to enable us to capitalize in a meaningful way on these future growth opportunities," added Leer.

"In fact, coal has been the fastest growing fuel in the world over the past four years, having increased by an estimated 23 percent," continued Leer. "Coal is the most affordable and abundant resource available to meet increased global energy needs. Moreover, we are seeing continuing advances in technologies that promise to make coal a near-zero-emission fuel source in the years ahead. While such technologies won't emerge overnight, we believe these new technologies can help America meet its goal of a secure and clean energy future."

A conference call regarding Arch Coal's first quarter 2007 financial results will be webcast live today at 11 a.m. E.D.T. The conference call can be accessed via the "investor" section of the Arch Coal Web site (www.archcoal.com).

St. Louis-based Arch Coal is one of the nation's largest coal producers. The company's core business is providing U.S. power generators with clean- burning, low-sulfur coal for electric generation. Through its national network of mines, Arch supplies the fuel for approximately 6 percent of the electricity generated in the United States.

Forward-Looking Statements: This press release contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," or "will." Forward- looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the Securities and Exchange Commission.



                       Arch Coal, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Income
                    (In thousands, except per share data)

                                                      Three Months Ended
                                                          March 31,
                                                    2007              2006
                                                         (Unaudited)
    Revenues
      Coal sales                               $   571,349       $   634,553

    Costs, expenses and other
      Cost of coal sales                           449,330           482,950
      Depreciation, depletion and
       amortization                                 57,620            45,821
      Selling, general and administrative
       expenses                                     18,987            17,881
      Other operating income, net                   (5,451)           (6,236)
                                                   520,486           540,416


          Income from operations                    50,863            94,137

    Interest expense, net:
      Interest expense                             (17,258)          (16,072)
      Interest income                                  671             1,915
                                                   (16,587)          (14,157)

    Other non-operating expense
      Expenses resulting from early debt
       extinguishment and termination
       of hedge accounting for
       interest rate swaps                            (774)           (1,658)
      Other non-operating income
       (expense), net                                 (128)              265
                                                      (902)           (1,393)

       Income before income taxes                   33,374            78,587
    Provision for income taxes                       4,650            17,900
       Net income                                   28,724            60,687
    Preferred stock dividends                          (44)              (63)
       Net income available to common
        shareholders                           $    28,680       $    60,624

    Earnings per common share (A)
    Basic earnings per common share                  $0.20             $0.43
    Diluted earnings per common share                $0.20             $0.42

    Weighted average shares outstanding
      Basic                                        142,176           142,658
      Diluted                                      143,786           144,876

    Dividends declared per common share              $0.06             $0.04

    Adjusted EBITDA (B)                        $   108,483       $   139,958

    (A) All share and per share information for the three months ended
        March 31, 2006 reflects the Company's two for one stock split on
        May 15, 2006.

    (B) Adjusted EBITDA is defined and reconciled under "Reconciliation of
        Non-GAAP Measures" later in this release.



                       Arch Coal, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets
                                (In thousands)

                                                 March 31,        December 31,
                                                    2007              2006
    Assets                                      (unaudited)
      Current assets
        Cash and cash equivalents              $     8,762       $     2,523
        Trade accounts receivable                  202,292           212,185
        Other receivables                           28,779            48,588
        Inventories                                140,000           129,826
        Prepaid royalties                           11,831             6,743
        Deferred income taxes                       31,831            51,802
        Other                                       32,754            35,610
                    Total current
                     assets                        456,249           487,277

      Property, plant and equipment, net         2,452,226         2,243,068

      Other assets
        Prepaid royalties                          122,564           112,667
        Goodwill                                    40,032            40,032
        Deferred income taxes                      252,390           263,759
        Equity investments                          83,804            80,213
        Other                                       90,475            93,798
                                                   589,265           590,469
                    Total assets               $ 3,497,740       $ 3,320,814

    Liabilities and stockholders' equity
      Current liabilities
        Accounts payable                       $   173,825       $   198,875
        Accrued expenses                           156,718           190,746
        Current portion of debt                    259,708            51,185
                    Total current
                     liabilities                   590,251           440,806
      Long-term debt                             1,109,099         1,122,595
      Asset retirement obligations                 210,078           205,530
      Accrued postretirement benefits
       other than pension                           50,432            49,817
      Accrued workers' compensation                 44,991            43,655
      Other noncurrent liabilities                 103,916            92,817
                    Total liabilities            2,108,767         1,955,220

      Stockholders' equity
        Preferred stock                                  1                 2
        Common stock                                 1,430             1,426
        Paid-in capital                          1,346,481         1,345,188
        Retained earnings                           57,307            38,147
        Accumulated other comprehensive loss       (16,246)          (19,169)

                    Total stockholders'
                     equity                      1,388,973         1,365,594
                    Total liabilities and
                     stockholders' equity      $ 3,497,740       $ 3,320,814



                       Arch Coal, Inc. and Subsidiaries
               Condensed Consolidated Statements of Cash Flows
                                (In thousands)

                                                      Three Months Ended
                                                           March 31,
                                                    2007              2006
                                                         (Unaudited)
    Operating activities
    Net income                                 $    28,724       $    60,687
    Adjustments to reconcile to cash
     provided by operating activities:

      Depreciation, depletion and
       amortization                                 57,620            45,821
      Prepaid royalties expensed                     4,025             1,776
      Net gain on disposition of assets               (151)             (255)
      Employee stock-based compensation
       expense                                       1,171             3,064
      Other non-operating expense                      902             1,393
      Changes in:
        Receivables                                 29,701           (47,804)
        Inventories                                (10,174)           (6,098)
        Accounts payable and accrued
         expenses                                  (57,363)          (71,405)
        Income taxes                                 4,249            17,868
        Other                                       24,481               421

      Cash provided by operating
       activities                                   83,185             5,468

    Investing activities
    Capital expenditures                          (254,812)         (263,100)
    Proceeds from dispositions of
     property, plant and equipment                     405               255
    Additions to prepaid royalties                 (19,010)          (18,930)
    Purchases of investments/advances to
     affiliates                                     (3,881)           (2,955)
    Reimbursement of deposits on
     equipment                                      13,492                --

      Cash used in investing activities           (263,806)         (284,730)

    Financing activities
    Net borrowings on revolver and lines
     of credit                                     199,400            65,000
    Payments on long-term debt                      (4,031)           (2,992)
    Debt financing costs                                --              (476)
    Dividends paid                                  (8,634)           (5,805)
    Issuance of common stock under
     incentive plans                                   125             3,316

      Cash provided by financing
       activities                                  186,860            59,043

    Increase (decrease) in cash and cash
     equivalents                                     6,239          (220,219)
    Cash and cash equivalents, beginning
     of period                                       2,523           260,501

    Cash and cash equivalents, end of
     period                                    $     8,762       $    40,282



                       Arch Coal, Inc. and Subsidiaries
                     Reconciliation of Non-GAAP Measures
                    (In thousands, except per share data)

    Included in the accompanying release, we have disclosed certain non-GAAP
    measures as defined by Regulation G. The following reconciles these items
    to net income as reported under GAAP.

    Adjusted EBITDA:

        Adjusted EBITDA is defined as net income before the effect of net
        interest expense; income taxes; depreciation, depletion and
        amortization; expenses resulting from early extinguishment of debt;
        and other non-operating expenses.

        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 our financial condition. Therefore, Adjusted EBITDA
        should not be considered in isolation nor as an alternative to net
        income, income from operations, cash flows from operations or as a
        measure of our profitability, liquidity or performance under generally
        accepted accounting principles. We believe that Adjusted EBITDA
        presents a useful measure of our 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 our presentation of Adjusted EBITDA may not be
        comparable to similarly titled measures used by other companies. The
        tables below show how we calculate Adjusted EBITDA.

                                                       Three Months Ended
                                                            March 31,
                                                     2007               2006
                                                            (Unaudited)
    Net income                                 $    28,724       $     60,687
       Income tax expense                            4,650             17,900
       Interest expense, net                        16,587             14,157
       Depreciation, depletion and
        amortization                                57,620             45,821
       Expenses from early debt
        extinguishment and other
        non-operating                                  902              1,393

         Adjusted EBITDA                       $   108,483       $    139,958



    Reconciliation of Adjusted EBITDA to
     Net Income -- 2007 Targets
                                                       Targeted Results
                                                          Year Ended
                                                      December 31, 2007
                                                     Low                High
                                                          (Unaudited)
    Net income                                 $   180,000       $    288,000
       Income tax expense                           28,000             32,000
       Interest expense, net                        70,000             68,000
       Depreciation, depletion and
        amortization                               250,000            260,000
       Expenses from early debt
        extinguishment and other
        non-operating                                2,000              2,000

       Adjusted EBITDA                         $   530,000       $    650,000

Source: Arch Coal, Inc.

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