ARCH COAL INC (Form: 10-K, Received: 03/11/2005 06:17:06)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


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

		For the fiscal year ended: December 31, 2004

or

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

For the transition period from to

Commission File Number: 1-13105

ARCH COAL, INC.

(Exact name of registrant as specified in its charter)


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


One City Place Drive, Suite 300, St. Louis, MO		63141
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code): (314) 994-2700

Securities registered pursuant to Section 12(b) of the Act:


Common Stock, $.01 par value Preferred Share Purchase Rights 5% Perpetual Cumulative Convertible Preferred Stock Title of Each Class		New York Stock Exchange New York Stock Exchange None Name of Each Exchange On Which Registered

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

At March 1, 2005, based on the closing price of the registrant’s common stock on the New York Stock Exchange on that date, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,376.8 million. In determining this amount, the registrant has assumed that all of its executive officers and directors, and persons known to it to be the beneficial owners of more than five percent of its common stock, are affiliates. Such assumption shall not be deemed conclusive for any other purpose.

At March 1, 2005, there were 62,721,235 shares of the registrant’s common stock outstanding.

Documents incorporated by reference:


1.	Portions of the registrant’s definitive proxy statement, to be filed with the Securities and Exchange Commission no later than April 1, 2005, are incorporated by reference into Part III of this Form 10-K.

2.	Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, 2004 are incorporated by reference into Parts I, II and IV of this Form 10-K.

TABLE OF CONTENTS


			Page

PART I
ITEM 1.		BUSINESS		1
	ITEM 2.	PROPERTIES		12
	ITEM 3.	LEGAL PROCEEDINGS		14
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		14
PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS		14
	ITEM 6.	SELECTED FINANCIAL DATA		14
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14
	ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		14
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		14
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		14
	ITEM 9A	CONTROLS AND PROCEDURES		14
	ITEM 9B	OTHER INFORMATION		14
PART III
	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		15
	ITEM 11.	EXECUTIVE COMPENSATION		15
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		15
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		15
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		15
PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS		16
Amended and Restated Retention Agreement
Form of Retention Agreement
Modified Coal Lease
Coal Lease
Portions of the Company's Annual Report to Stockholders
Subsidiaries
Consent
Power of Attorney
Certification
Certification
Certification
Certification

PART I


ITEM 1.	BUSINESS

General

Arch Coal, Inc. (“Arch Coal” or the “Company”) is one of the largest coal producers in the United States. The Company mines, processes and markets compliance and low-sulfur coal from mines located in both the eastern and western United States, enabling it to ship coal cost-effectively to most of the major domestic coal-fired electric generation facilities. As of December 31, 2004, the Company operated or controlled 27 mines and controlled approximately 3.7 billion tons of proven and probable coal reserves. Arch Coal sold 128.4 million tons of coal in 2004. The Company sells substantially all of its coal to producers of electric power, steel producers and industrial facilities.

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

Business Environment

United States Coal Markets. Production of coal in the United States has increased from 434 million tons in 1960 to about 1.1 billion tons in 2004. The following table sets forth demand trends for United States coal by consuming sector through 2025 as compiled, preliminary(p) or forecasted(f) by the United States Department of Energy/ Energy Information Agency.


																		Annual
																		Growth
																		2003-
Consumption by Sector		2002		2003		2004(p)		2005(f)		2010(f)		2015(f)		2020(f)		2025(f)		2025(f)

		(tons in millions)
Electric Generation			978		1,005		1,012		1,042		1,139		1,185		1,267		1,425		1.6	%
Industrial			61		61		61		66		66		65		66		66		0.3	%
Steel Production			24		24		24		24		20		18		15		13		(2.7	%)
Residential/ Commercial			0		4		3		5		5		5		5		5		0.4	%
Export			40		43		49		48		42		35		35		26		(2.3	%)

	Total		1,102		1,137		1,149		1,185		1,272		1,308		1,388		1,535		1.5	%

Electricity Generation. Coal has consistently maintained a 49% to 53% market share over competing energy sources to generate electricity during the past ten years because of its relatively low cost and its availability throughout the United States. Coal is the lowest cost fossil-fuel used for base-load electric power generation — considerably less expensive than natural gas or oil. Coal-based generation is also competitive with nuclear power generation, especially on an all-in cost per megawatt-hour basis. Hydroelectric power is inexpensive but is limited by both geography and susceptibility to seasonal and climatic conditions. Non hydropower renewable power generation accounts for only 1.9% of all the electricity generated in the U.S. and is limited by resources and/or technology. Consequently, approximately 91% of the coal produced in the United States in 2004 was sold in the domestic market as a fuel to the electric generation segment. The remainder of the tons were sold in 2004 as steam coal for industrial and residential purposes, into the export market, and as metallurgical coal. In addition to the relative competitiveness of coal-fired generation plants, coal consumption patterns are also influenced by the demand for electricity, governmental regulation impacting coal production and power generation, technological developments and the location, availability and quality of competing sources of coal, as well as other fuels such as natural gas, oil and nuclear and alternative energy sources such as hydroelectric power.

Long-term demand for electric power will depend upon a variety of economic, regulatory, technological and climatic factors beyond our control. Historically, domestic demand for electric power has increased as the United States economy

has grown. Two important regulatory initiatives, one designed to increase competition among utilities and lower the cost of electricity for consumers, and another to improve air quality by reducing the level of sulfur emitted from coal-burning power generation plants, have had and are expected to continue to have significant effects on the electric utility industry and its coal suppliers.

According to the Energy Information Administration, coal is expected to remain the primary fuel for electricity generation through 2025. The following table sets forth the source fuel for electricity generation from 2002 through 2025 as compiled, preliminary(p) or forecasted(f) by the Energy Information Administration.


																		Annual
																		Growth
																		2003-
		2002		2003		2004(p)		2005(f)		2010(f)		2015(f)		2020(f)		2025(f)		2025

		(billion kilowatt hours)
Coal			1,933		1,974		1,973		2,055		2,250		2,306		2,495		2,890		1.8%
Petroleum			95		119		122		121		127		135		143		148		0.9%
Natural Gas			691		650		721		698		922		1,171		1,375		1,403		4.4%
Nuclear			780		764		793		796		813		826		830		830		0.4%
Hydro/ Renewable/other			360		376		369		416		414		452		471		499		1.4%

	Total		3,858		3,883		3,977		4,086		4,526		4,890		5,314		5,770		1.9%

Coal’s primary advantage is its relatively low cost compared to other fuels used to generate electricity. The following table sets forth the Energy Information Agency’s forecast of delivered fuel prices to electric utilities through 2025 as compiled, preliminary(p) or forecasted(f) by the Energy Information Administration. The table below is derived from the Energy Information Administration’s long-term forecast published in December 2004 and is presented in 2003 dollars.


																	Annual
																	Growth
																	2003-
	2002		2003		2004(p)		2005(f)		2010(f)		2015(f)		2020(f)		2025(f)		2025(f)

	(dollars per million Btus)
Annual Energy Outlook
Petrol (Residual)	$	3.73	$	4.74	$	4.77	$	5.38	$	4.19	$	4.44	$	4.71	$	5.00		0.2%
Natural Gas		3.56		5.37		5.82		5.92		4.27		4.81		5.20		5.44		0.0%
Coal		1.25		1.28		1.34		1.29		1.25		1.23		1.25		1.31		0.1%

Coal Production. United States coal production was 1.1 billion tons in 2004. The following table, derived from data prepared by the Energy Information Administration, sets forth principal United States production statistics for the periods indicated as compiled or preliminary(p).


		1980			1985			1990			1995			2000			2003			2004(p)

Total Tons (in millions)			830			884			1,029			1,033			1,074			1,072			1,111
	East		566			554			627			544			508			469			486
	West		264			330			402			489			566			603			625
	Underground		329			349			424			396			374			353			367
	Surface		501			555			605			637			700			719			744
Percent of Total Tons
	East		68	%		63	%		61	%		53	%		47	%		44	%		44	%
	West		32			37			39			47			53			56			56
	Underground		40			39			41			38			35			33			33
	Surface		60			61			59			62			65			67			67
Number of Mines (from Platts)
	Underground		1,875			1,695			1,422			977			707			537			534
	Surface		1,997			1,660			1,285			1,127			746			737			761

	Total		3,872			3,355			2,707			2,104			1,453			1,274			1,295

Average Number of Mine Employees (from Platts)
	Underground		150,328			107,357			63,960			44,254			36,825			31,948			32,407
	Surface		74,610			61,924			43,402			31,777			24,640			26,218			26,774

	Total		224,938			169,281			107,362			76,031			61,465			58,166			59,181

Average Production per Mine (tons in thousands)
	Underground		177			203			297			402			531			613			687
	Surface		249			325			472			568			935			974			979

Sales and Marketing

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

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

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

Arch Coal also participates in the “over the counter market” for a small portion of its production.

Competition

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

Operations

As of December 31, 2004, the Company operated a total of 27 mines, all located in the United States. The Company uses several distinct extraction techniques: continuous mining, longwall mining, truck-and-shovel mining, truck-and-loader mining, highwall mining, excavator-and-loader mining and dragline mining. Coal is transported from the Company’s mining complexes to customers by means of railroad cars, river barges or trucks, or a combination of these means of transportation. As is customary in the industry, virtually all the Company’s coal sales are made F.O.B. mine or loadout, meaning that customers are responsible for the cost of transporting purchased coal to their facilities.

The Company manages its production sources to supply coal within three of the major low sulfur coal producing basins in the United States — the Central Appalachia Basin, Powder River Basin and the Western Bituminous Basin. These geographically distinct areas are characterized by similar geology, coal transportation routes to consumers, regulatory environments and coal quality. These regional similarities have caused market and contract pricing environments to develop by coal basin and form the basis for the Company’s segmentation of its operations.

Coal prices are influenced by a number of factors and vary dramatically by region. As a result of these regional characteristics, prices of coal within a given major coal producing basin tend to be relatively consistent. The two principal components of the price of coal within a region are the price of coal at the mine, which is influenced by market conditions (supply and demand) and by mine operating costs, coal quality, and transportation costs involved in moving coal from the mine to the point of use. In addition to supply and demand factors, the price of coal at the mine is influenced by geologic characteristics such as seam thickness, overburden ratios and depth of underground reserves. It is generally cheaper to mine coal seams that are thick and located close to the surface than to mine thin underground seams. Underground mining, which is the mining method the Company uses in the Western Bituminous and also a method the Company primarily uses at certain mines in Central Appalachia, is generally more expensive than surface mining, which is the mining method the Company uses in the Powder River Basin and also for certain of its Central Appalachian mines. This is the case because of the higher capital costs, including costs for modern mining equipment and construction of extensive ventilation systems and higher labor costs due to lower productivity that are associated with underground mining.

In addition to the cost of mine operations, the price of coal is also a function of quality characteristics such as heat value, sulfur, ash and moisture content. Higher carbon and lower ash content generally result in higher prices. Coal from the Central Appalachian Basin generally has a sulfur content of 0.7% to 1.5% and a high heat content of between 12,000 and 14,000 Btus per pound. The coal from the Western Bituminous region typically has a lower sulfur content of 0.50% to 1% and a lower heat content of between 10,500 and 12,500 Btus per pound. Powder River Basin coal generally has the lowest relative sulfur content among the Company’s regions, with a sulfur content of between 0.15% and 1.20%, and the lowest relative heat content, which typically is between 7,500 and 10,000 Btus per pound.

The Company’s management, including its Chief Executive Officer and Chief Operating Officer, reviews and makes resource allocations based on the goal of maximizing its profits within a coal basin in light of the comparative cost structures of its various operations. Because the Company’s customers purchase coal on a regional basis, contracts can generally be sourced from several different locations within a region. Once the Company has a contractual commitment to purchase an amount of coal at a certain price, the Company’s central marketing group assigns contract shipments to its various mines which can be used to source the coal in the appropriate region.

The focus of the Company’s operating structure is on the reduction of controllable costs. Although revenues are reported at the mine level, the Company’s mine management is asked only to manage volume and revenue adjustments due to quality variances for contract shipments assigned to their mines. In 2004, the Company’s mine management was evaluated and compensated in part on the basis of operating costs per ton at the mine level, as well as on the basis of other non-financial measures such as safety and environmental results.

Based on its management structure, the Company does not utilize mine-by-mine profit as a measure to make decisions. As a result of its management of revenues on a regional basis, the reported profit at any individual mine may not

be meaningful and is not indicative of the future economic prospects of the mine. This is the case because an individual mine’s profit is based on the contract shipments that are assigned to it by the central marketing group and the pricing of those contracts, with assignments typically being made on the basis of the availability of coal and the cost of transporting the coal to the customer. Therefore, a mine that is assigned a lower-price contract will have a lower profit margin than a similar mine with similar costs that ships a nearly identical product on a higher-price contract.

The following maps show the locations of the Company’s significant mining operations:

Central Appalachia Operations

Powder River Basin and Western Bituminous Operations

The following table provides the location and a summary of information regarding the Company’s principal mining complexes and the total sales associated with these operations for the prior three years:


							Tons Sold
	Captive	Contract
Mining Complex (Location)	Mine(s)(1)	Mine(1)		Mining Equipment(2)		Transportation	2002		2003		2004

Central Appalachia
Mingo Logan (WV)	U		U		LW, C	NS		5.8		5.5		5.1
Coal-Mac (WV)(3)	S(2)		U		L, E	Barge/NS/CSX		2.1		2.1		2.6
Hobet 21 (WV)(4)	S		U		D, L, S, C	CSX		5.3		5.2		4.6
Arch of West Virginia (WV)(5)	S		U		D, L, E	CSX		3.6		2.8		3.1
Samples (WV)(6)	S		U		D, L, S, HW	Barge/CSX		5.5		5.5		5.1
Campbells Creek (WV)	—		U(2)		—	Barge		1.1		1.0		1.2
Lone Mountain (KY)	U(3)		—		C	NS/CSX		2.6		2.7		2.9
Cumberland River (VA, KY)	S(2), U(2)		U, S		L, C	NS		1.6		1.5		1.6
Western United States
Black Thunder (WY)(7)	S		—		D, S	UP/BN		65.1		62.6		75.1
Coal Creek (WY)(8)	—		—		—	UP/BN		—		—		—
West Elk (CO)	U		—		LW, C	UP		6.7		6.5		6.2
Skyline (UT)(9)	U		—		LW, C	UP		3.4		3.1		0.6
SUFCO (UT)(9)	U		—		LW, C	UP		7.2		7.5		7.8
Dugout Canyon (UT)(9)	U		—		LW, C	UP		2.0		2.5		3.8
Arch of Wyoming (WY)(10)	—		—		—	UP		0.6		0.5		0.2

Totals								112.6		109.0		119.9

Surface Mine

Dragline

Union Pacific Railroad

Underground Mine

Loader/Truck

CSX

CSX Transportation

Shovel/Truck

Burlington Northern Railroad

Excavator/Truck

Norfolk Southern Railroad

Longwall

Continuous Miner

Highwall Miner


	(1)	Amounts in parenthesis indicate the number of captive and contract mines at the mining complex or location at December 31, 2004. Captive mines are mines which the Company owns and operates on land owned or leased by it. Contract mines are mines which other operators mine for the Company under contracts on land owned or leased by the Company.

	(2)	Reported for captive operations only.

	(3)	Utilized a 23-cubic-yard loader.

	(4)	Utilizes an 83-cubic-yard dragline and a 51-cubic-yard shovel.

	(5)	Utilizes two 37-cubic-yard hydraulic excavators and two 23-cubic-yard loaders.

	(6)	Utilizes a 105-cubic-yard dragline, one 53-cubic-yard shovels and three 28-cubic-yard loaders.

	(7)	Utilizes 164-cubic-yard, 130-cubic-yard, 106-cubic-yard, 78-cubic-yard and 45-cubic-yard draglines and 85-cubic-yard, 73-cubic-yard, 68-cubic-yard, 55-cubic-yard and 53-cubic-yard shovels.

	(8)	The Company idled its mining operations at Coal Creek during the third quarter of 2000 because of unfavorable conditions existing in the market environment.

	(9)	Prior to July 31, 2004 the Company owned a 65% interest in Canyon Fuel and accounted for it as an equity investment and its financial statements and tons sold were not consolidated into the Company’s financial statements. Subsequent to July 31, 2004, the Company acquired the remaining 35% of Canyon Fuel and its financial statements and tons sold are consolidated into the Company’s financial statements. Amounts shown represent 100% of Canyon Fuel’s sales volume for all periods presented. The Skyline mine was idled in 2004.


(10)	This complex was put into reclamation mode in 2004.

Mingo Logan. The Mingo Logan mine is an underground operation located in Mingo County and Logan County, West Virginia on approximately 12,000 acres. Six continuous miners support a longwall. The mined coal is processed through a preparation plant at the mine. The loadout facility at Mingo Logan is serviced by Norfolk Southern Railroad.

Coal-Mac. The Coal-Mac mine is located in Mingo County and Logan County, West Virginia on approximately 9,100 acres. The equipment at the mine consists of one hydraulic excavator, six wheel-loader spreads, 2 loadout facilities, and a preparation plant. Coal-Mac’s loadout facilities are serviced by Norfolk Southern Railroad and CSX Transportation.

Hobet 21. The Hobet 21 mine is located in Boone County and Lincoln County, West Virginia on approximately 19,700 acres. Equipment at Hobet 21 includes a dragline, electric shovel and wheel-loader spread. The coal at Hobet 21 is processed at an on-site preparation plant and transported from Hobet 21’s loadout facility, which is serviced by CSX Transportation.

Arch of West Virginia. The Arch of West Virginia mine is located primarily in Logan County, West Virginia on approximately 19,700 acres. Two hydraulic excavators and two loaders are present. The loadout facility at the mine is serviced by CSX Transportation.

Samples. The Samples mine is located primarily in Kanawha County, West Virginia on approximately 10,850 acres. Equipment at Samples includes a dragline, a shovel and four loaders. Coal from Samples is transported by rail to a loadout facility approximately 1.4 miles from the mine. CSX Transportation services this loadout. Coal also is transported by barge from this loadout.

Lone Mountain. The Lone Mountain mine is located in Harlan County, Kentucky and Lee County, Virginia on approximately 15,200 acres. Continuous miner units and bridge units are present at Lone Mountain. The loadout facility at Lone Mountain is serviced by Norfolk Southern Railroad and CSX Transportation.

Cumberland River. The Cumberland River mine is located in Wise County, Virginia and Letcher County, Kentucky on approximately 12,200 acres. Mining techniques include both surface and underground mining utilizing endloaders with trucks and continuous miners. Cumberland River’s coal is processed at an on-site preparation plant and its loadout is serviced by Norfolk Southern Railroad.

Black Thunder. The Black Thunder mine is located in Campbell County, Wyoming on approximately 24,150 acres. Mining the approximately 68-foot coal seam are five draglines and eleven shovels. There is no washing plant at Black Thunder. The coal is crushed through either the near pit crushing and conveying system or the primary system. Coal from these two crushing facilities is conveyed into one of two silos or a slot storage facility. Coal is shipped through three loadouts on trains operated by Burlington Northern and Union Pacific.

Coal Creek. The Coal Creek mine is located in Campbell County, Wyoming on approximately 7,030 acres. Coal Creek has been idle since July 2000. The Coal Creek mine is located on a joint rail line operated by Burlington Northern and Union Pacific.

West Elk. The West Elk mine is an underground operation located in Gunnison County, Colorado on approximately 11,900 acres. The coal is mined by three continuous miners in support of a longwall. The loadout facility at the mine is serviced by the Union Pacific Railroad.

Skyline. Canyon Fuel’s Skyline mine is an underground longwall mine located in Carbon County and Emery County, Utah on approximately 9,650 acres. The loadout facility at Skyline is serviced by the Union Pacific Railroad. The Skyline mine was idled during 2004.

SUFCO. Canyon Fuel’s SUFCO mine, an underground longwall mine, is located in Sevier County, Juab County and Emery County, Utah on approximately 26,700 acres. Two continuous miners support the longwall. All of the coal produced from the mine is crushed at a facility located at the mine and trucked either directly to customers or to a train loadout located approximately 80 miles from the mine. The Union Pacific Railroad serves this loadout.

Dugout Canyon. Canyon Fuel’s Dugout Canyon mine is an underground longwall mine located in Carbon, County, Utah on approximately 7,800 acres. Two continuous miners support the longwall operation. The coal produced is crushed at the mine and trucked to a third party loadout served by the Union Pacific Railroad.

Transportation

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

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

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

Regulations Affecting Coal Mining

The information contained in the “Contingencies — Reclamation” and “Certain Trends and Uncertainties — Environmental and Regulatory Factors” sections of “Management’s Discussion and Analysis” of the Company’s 2004 Annual Report to Stockholders is incorporated herein by reference.

Glossary of Selected Mining Terms

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

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

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

Coal Seam. A bed or stratum of coal.

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

Compliance Coal. Coal which, when burned, emits 1.2 pounds or less of sulfur dioxide per million Btus, which is equivalent to .72% sulfur per pound of 12,000 Btu coal. Compliance coal requires no mixing with other coals or use of sulfur dioxide reduction technologies by generators of electricity to comply with the requirements of the federal Clean Air Act.

Continuous Miner. A machine used in underground mining to cut coal from the seam and load it into conveyors or into shuttle cars in a continuous operation.

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

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

Dragline Mining. A method of mining where large capacity draglines remove overburden to expose the coal seams.

Excavator-and-Loader Mining. A form of surface mining in which large excavators remove overburden from above the coal seam. The overburden is loaded into trucks and hauled to a valley fill or back-stacked on previously mined areas.

Highwall Mining. Highwall mining employs a large machine with a continuous miner head. The head cuts into a coal seam and discharges coal out onto waiting conveyor belts. After highwall mining is completed, the openings are reclaimed. This method of mining is usually employed to recover any additional coal left in deep overburden areas that cannot be reached economically by other types of surface mining.

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

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

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

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

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

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

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

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

Reserves. That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.

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

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

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

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

Truck-and-Loader Mining. A form of surface mining in which endloaders remove overburden from above the coal seam. The overburden is loaded into trucks and hauled to a valley fill or back-stacked on previously mined areas.

Truck-and-Shovel Mining. An open-cast method of mining that uses large shovels to remove overburden, which is used to backfill pits after coal removal.

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

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

Employees

As of March 1, 2005, the Company employed a total of approximately 4,150 persons, approximately 530 of whom were represented by the UMWA under a collective bargaining agreement that expires in 2006 and approximately 190 of whom are represented by the Scotia Employees Association.

EXECUTIVE OFFICERS

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

Bradley M. Allbritten, 47, is Vice President — Marketing of the Company and has served in such capacity since August 2002. From March 2000 to February 2003, Mr. Allbritten was the Company’s Vice President — Human Resources. Mr. Allbritten served as the Company’s Director of Human Resources from February 1999 through February 2000. From January 1995 to February 1999, Mr. Allbritten served as Human Resources Manager for Atlantic Richfield Company.

C. Henry Besten, Jr., 56, is Senior Vice President — Strategic Development of the Company and has served in such capacity since December 2002. Mr. Besten is also President of the Company’s Arch Energy Resources, Inc. subsidiary and has served in that capacity since July 1997. From July 1997 to December 2002, Mr. Besten served as Vice President — Strategic Marketing of the Company. Mr. Besten also served as Acting Chief Financial Officer of the Company from December 1999 to November 2000.

John W. Eaves, 47, is Executive Vice President and Chief Operating Officer of the Company and has served in such capacity since December 2002. From February 2000 to December 2002, Mr. Eaves served as Senior Vice President Marketing of the Company and from September 1995 to December 2002 as President of the Company’s Arch Coal Sales Company, Inc. subsidiary. Mr. Eaves also served as Vice President — Marketing of the Company from July 1997 through February 2000. Mr. Eaves serves on the board of directors of ADA-ES, Inc.

Sheila B. Feldman, 50, is Vice President — Human Resources of the Company and has served in such capacity since February 2003. From 1997 to February 2003, Ms. Feldman was the Vice President — Human Resources and Public Affairs of Solutia Inc.

Robert G. Jones, 48, is Vice President — Law, General Counsel and Secretary of the Company and has served in such capacity since March 2000. Mr. Jones served the Company as Assistant General Counsel from July 1997 through February 2000 and as Senior Counsel from August 1993 to July 1997.

Steven F. Leer, 52, is President and Chief Executive Officer and a Director of the Company and has served in such capacity since 1992.

Robert J. Messey, 59, is Senior Vice President and Chief Financial Officer of the Company and has served in such capacity since December 2000. Prior to joining Arch Coal, Mr. Messey served as vice president of financial services of Jacobs Engineering Group Inc. from January 1999 and, prior to that, served as senior vice president and chief financial officer of Sverdrup Corporation from 1992. Mr. Messey serves on the board of directors of Baldor Electric Company.

David B. Peugh, 50, is Vice President — Business Development of the Company and has served in such capacity since 1993.

ITEM 2. PROPERTIES

The Company estimates that it owned or controlled, as of December 31, 2004, approximately 3.7 billion tons of proven and probable recoverable reserves. Recoverable reserves include only saleable coal and do not include coal which would remain unextracted, such as for support pillars, and processing losses, such as washery losses. Reserve estimates are prepared by the Company’s engineers and geologists and reviewed and updated periodically. Total recoverable reserve estimates and reserves dedicated to mines and complexes change from time to time to reflect mining activities, analysis of new engineering and geological data, changes in reserve holdings and other factors. The following tables present the Company’s estimated assigned and unassigned recoverable coal reserves at December 31, 2004:

Total Assigned Reserves

(tonnage in millions)


	Total						Sulfur Content																Past Reserve
	Assigned						(lbs. Per million Btus)								Reserve Control				Mining Method				Estimates
	Recoverable												As Received
	Reserves		Proven		Probable		<1.2		1.2-2.5		>2.5		Btu per lb.(1)		Leased		Owned		Surface		Underground		2002		2003

Wyoming(2)		1,840		1,791		49		1,782		58		—		8,804		1,840		—		1,840		—		1,089		1,025
Central App		409		322		87		116		274		19		12,832		386		23		157		252		388		441
Illinois		—		—		—		—		—		—				—		—		—		—		—		—
Utah		112		59		53		112		—		—		11,652		110		2		—		112		125		116
Colorado		80		59		21		79		1		—		11,879		77		3		—		80		112		85

Total		2,441		2,231		211		2,089		333		19		9,715		2,413		28		1,997		444		1,714		1,667

Total Unassigned Reserves

(tonnage in millions)


	Total						Sulfur Content
	Unassigned						(lbs. Per million Btus)								Reserve Control				Mining Method
	Recoverable												As Received
	Reserves		Proven		Probable		<1.2		1.2-2.5		>2.5		Btu per lb.(1)		Leased		Owned		Surface		Underground

Wyoming		487		313		174		438		49		—		9,483		392		95		313		174
Central App		418		271		147		120		243		55		12,778		321		97		87		331
Illinois		257		187		70		—		—		257		11,325		36		221		12		245
Utah		37		17		20		29		8		—		11,229		37		—		—		37
Colorado		58		46		12		57		1		—		11,529		58		—		—		58

Total		1,257		834		423		644		301		312		11,100		844		413		412		845


(1)	As received btu per lb. includes the weight of moisture in the coal on an as sold basis.

(2)	Includes approximately 700 million tons of coal reserves under the “Little Thunder” federal coal lease for which the Company was the successful bidder in September 2004. The coal lease for the Little Thunder reserves was issued effective March 1, 2005.

As of December 31, 2004, approximately 90,000 acres out of the Company’s total of approximately 658,000 acres of coal land was leased from the federal government. These leases have terms expiring between 2005 and 2024, subject to readjustment or extension and to earlier termination for failure to meet diligent development requirements. The Company has entered into leases covering substantially all of its leased reserves which are not scheduled to expire prior to expiration of projected mining activities. Royalties are paid to lessors either as a fixed-price per-ton or as a percentage of the gross sales price of the mined coal. Under current mining plans, all reported leased reserves will be mined out within the period of existing leases or within the time period of assured lease renewals.

The Company pays percentage-based royalties under the majority of its significant leases. The terms of most of these leases extend until the exhaustion of mineable and merchantable coal. The remaining leases have initial terms ranging from one to 40 years from the date of their execution, with most containing options to renew. In some cases, a lease bonus, or prepaid royalty, is required, payable either at the time of execution of the lease or in annual installments. In most cases, the prepaid royalty amount is applied to reduce future production royalties.

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

All of the identified coal reserves held by the Company’s subsidiaries have been subject to preliminary coal seam analysis to test sulfur content. Of these reserves, approximately 74% consist of compliance coal while an additional 11% could be sold as low-sulfur coal. The balance is classified as high-sulfur coal. Some of the Company’s low-sulfur coal can be marketed as compliance coal when blended with other compliance coal. Accordingly, most of the Company’s reserves are primarily suitable for the domestic steam coal markets. However, a portion of the low-sulfur and compliance coal reserves at the Mingo Logan operation, and coal reserves at the Cumberland River and Lone Mountain operations, when blended with coal from Mingo Logan, may also be used as metallurgical coal.

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

From time to time, lessors or sublessors of land leased by the Company’s subsidiaries have sought to terminate such leases on the basis that such subsidiaries have failed to comply with the financial terms of the leases or that the mining and related operations conducted by such subsidiaries are not authorized by the leases. Some of these allegations relate to leases upon which the Company conducts operations material to the Company’s consolidated financial position, results of operations and liquidity, but the Company does not believe any pending claims by such lessors or sublessors have merit or will result in the termination of any material lease or sublease.

The Company leased 20,500 acres of property to other coal operators in 2004. The Company received royalty income of $4.0 million, $1.7 million, and $9.4 million in 2004, 2003 and 2002, respectively, from the mining of 2.9 million, 1.3 million tons and 6.9 million tons, respectively, on those properties. Reserves at properties leased by the Company to other coal operators are not included in the reserve figures set forth in this Annual Report.

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

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

The Company periodically engages third parties to review its reserve estimates. The most recent third party review of the Company’s reserve estimates was conducted by Weir International Mining Consultants in April 2003.

The carrying cost of the Company’s coal reserves at December 31, 2004 was $1,322.2 million, consisting of $100.3 million of prepaid royalties and the $1,221.9 million net book value of coal lands and mineral rights.

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

ITEM 3. LEGAL PROCEEDINGS

The information required by this Item is contained in the “Contingencies — Legal Contingencies” section of “Management’s Discussion and Analysis” contained in the Company’s 2004 Annual Report to Stockholders and is incorporated herein by reference.

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

There were no matters submitted to a vote of security holders of the Company through the solicitation of proxies or otherwise during the fourth quarter of 2004.

PART II

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

The information required by this Item is contained in the Company’s 2004 Annual Report to Stockholders under the caption “Corporate Governance and Stockholder Information” and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this Item is contained in the Company’s 2004 Annual Report to Stockholders under the caption “Selected Financial Information”, and is incorporated herein by reference.

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

The information required by this Item is contained in the Company’s 2004 Annual Report to Stockholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation”, and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Reference is made to Part II, Item 8 of this Annual Report on Form 10-K for the information required by Item 9A.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is hereby incorporated by reference into this Annual Report on Form 10-K the information appearing under the subcaptions “Nominees For a Three-Year Term That Will Expire in 2008”, “Directors Whose Terms Will Expire in 2007”, and “Directors Whose Terms Will Expire in 2006” which appear under the caption “Election of Directors” in the Company’s Proxy Statement to be distributed to Company stockholders in connection with the Company’s 2005 Annual Meeting (the “2005 Proxy Statement”). See also the list of the Company’s executive officers and related information under “Executive Officers” in Part I, Item 1 herein.

ITEM 11. EXECUTIVE COMPENSATION

There is hereby incorporated by reference into this Annual Report on Form 10-K the information appearing in the “Summary Compensation Table”, the sections entitled “Stock Option Grants”, “Performance Unit Awards”, Performance — Contingent Phantom Stock Awards”, “Stock Option Exercises and Year-End Values”, and the Pension Plan section (including the table therein), the Employment Agreements section, and the Compensation of Directors section in the 2005 Proxy Statement. No portion of the Personnel and Compensation Committee Report on Executive Compensation for 2004 or the Arch Coal Performance Graph is incorporated herein in reliance on Regulation S-K, Item 402(a)(8).


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is hereby incorporated by reference into this Annual Report on Form 10-K the information appearing under the caption “Ownership of Arch Coal Common Stock” in the 2005 Proxy Statement.


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


ITEM 14.	PRINCIPAL ACCOUNTANTS FEES AND SERVICES

There is hereby incorporated by reference into this Annual Report on Form 10-K the information appearing under the caption “Audit Committee Report” in the 2005 Proxy Statement.

PART IV


ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


	(a)(1)	The following consolidated financial statements of Arch Coal, Inc. and subsidiaries included in the Company’s 2004 Annual Report to Stockholders are incorporated by reference:

			Consolidated Statements of Operations — Years Ended December 31, 2004, 2003 and 2002

			Consolidated Balance Sheets — December 31, 2004 and 2003

			Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2004, 2003 and 2002

			Consolidated Statements of Cash Flows — Years Ended December 31, 2004, 2003 and 2002

			Notes to Consolidated Financial Statements

	(a)(2)	The following consolidated financial statement schedule of Arch Coal, Inc. and subsidiaries is included in Item 14 at the page indicated:

			II — Valuation and Qualifying Accounts at page .

		All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted

	(a)(3)	Exhibits filed as part of this Report are as follows:

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

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

4.1		Form of Rights Agreement, dated March 3, 2000 (incorporated herein by reference to Exhibit 1 to a current report on Form 8-A filed on March 9, 2000)

4.2		Description of Indenture pursuant to Shelf Registration Statement (incorporated herein by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-58738) filed on April 11, 2001)

4.3		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)

4.4		Indenture, dated as of June 25, 2003, by and among Arch Western Finance, LLC, the Company, Arch Western Resources, LLC, Arch of Wyoming, LLC, Mountain Coal Company, L.L.C., Thunder Basin Coal Company, L.L.C. and The Bank of New York, as trustee (incorporated herein by reference to Exhibit 4.1 to the Form S-4 of Arch Western Finance, LLC (Reg. No. 333-107569))

4.5		Credit Agreement, dated as of December 22, 2004, by and among Arch Coal, Inc., the Banks party thereto, PNC Bank, National Association, as administrative agent, Citicorp USA, Inc., JPMorgan Chase Bank, N.A., and Wachovia Bank, National Association, as co-syndication agents, and Fleet National Bank, as documentation agent (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 28, 2004).

10.1		Amended and Restated Retention Agreement between Arch Coal, Inc. and Steven F. Leer, dated October 1, 2004 (filed herewith)

10.2		Form of Retention Agreement between Arch Coal, Inc. and each of its Executive Officers (other than its Chief Executive Officer) (filed herewith)



	10.3							Deed of Lease and Agreement between Dingess-Rum Coal Company and Amherst Coal Company (predecessor to Ark Land Company), dated June 1, 1962, as supplemented January 1, 1968, June 1, 1973, July 1, 1974 and November 12, 1987; Lease Exchange Agreement dated July 2, 1979 amended as of January 1, 1984, January 7, 1993 and February 24, 1993; Partial Release dated as of May 6, 1988; Assignments dated March 15, 1990 and October 5, 1990 (incorporated herein by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-4 (Registration No. 333-28149) filed on May 30, 1997)

	10.4							Agreement of Lease by and between Shonk Land Company, Limited Partnership and Lawson Hamilton (predecessor to Ark Land Company), dated February 8, 1983, as amended October 7, 1987, March 9, 1989, April 1, 1992, October 31, 1992, December 5, 1992, February 16, 1993, August 4, 1994, October 1, 1995, July 31, 1996 and November 27, 1996 (incorporated herein by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-4 (Registration No. 333-28149) filed on May 30, 1997)

	10.5							Lease between Little Coal Land Company and Ashland Land & Development Co., a wholly-owned subsidiary of Ashland Coal, Inc. which was merged into Allegheny Land Company, a second tier subsidiary of the Company (incorporated herein by reference to Exhibit 10.11 of a Post-Effective Amendment No. 1 to a Registration Statement on Form S-1 (Registration No.33-22425), as amended, filed by Ashland Coal, Inc., a subsidiary of the Company, on August 11, 1988)

	10.6							Agreement of Lease dated January 1, 1988, between Courtney Company and Allegheny Land Company (legal successor by merger with Allegheny Land Co. No. 2, the assignee of Primeacre Land Corporation under October 5, 1992, assignments), a second-tier subsidiary of the Company (incorporated herein by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the Year Ended December 31, 1995, filed by Ashland Coal, Inc., a subsidiary of the Company)

	10.7							Lease between Dickinson Properties, Inc., the Southern Land Company, and F. B. Nutter, Jr. and F. B. Nutter, Sr., predecessors in interest to Hobet Mining & Construction Co., Inc., an independent operating subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc. (incorporated herein by reference to Exhibit 10.14 of a Post-Effective Amendment No. 1 to a Registration Statement on Form S-1 (Registration No. 33-22425), as Amended, filed by Ashland Coal, Inc., a subsidiary of the Company, on August 11, 1988)

	10.8							Lease Agreement between Fielden B. Nutter, Dorothy Nutter and Hobet Mining & Construction Co., Inc., an independent operating subsidiary of the Company that Subsequently changed its name to Hobet Mining, Inc. (incorporated herein by reference to Exhibit 10.22 of a Post-Effective Amendment No. 1 to a Registration Statement on Form S-1 (Registration No. 33-22425), as amended, filed by Ashland Coal, Inc., a subsidiary of the Company, on August 11, 1988)

	10.9							Lease and Modification Agreement between Horse Creek Coal Land Company, Ashland and Hobet Mining & Construction Co., Inc., an independent operating subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc. (incorporated herein by reference to Exhibit 10.24 of a Post-Effective Amendment No. 1 to a Registration Statement on Form S-1 (Registration No. 33-22425), as amended, filed by Ashland Coal, Inc., a subsidiary of the Company, on August 11, 1988)

	10.10							Lease Agreement between C. C. Lewis Heirs Limited Partnership and Allegheny Land Company, a second-tier subsidiary of the Company (incorporated herein by reference to Exhibit 10.25 of a Post-Effective Amendment No 1 to a Registration Statement on Form S-1 (Registration No.33-22425), as amended, filed by Ashland Coal, Inc., a subsidiary of the Company, on August 11, 1988)

	10.11							Sublease between F. B. Nutter, Sr., et al., and Hobet Mining & Construction Co., Inc., an independent operating subsidiary of the Company that subsequently changed its name to Hobet Mining, Inc. (incorporated herein by reference to Exhibit 10.27 of a Post-Effective Amendment No. 1 to a Registration Statement on Form S-1 (Registration No. 33-22425), as amended, filed by Ashland Coal, Inc., a subsidiary of the Company, on August 11, 1988)



	10.12							Coal Lease Agreement dated as of March 31, 1992, among Hobet Mining, Inc. (successor by merger with Dal-Tex Coal Corporation) as lessee and UAC and Phoenix Coal Corporation, as lessors, and related Company Guarantee (incorporated herein by reference to a Current Report on Form 8-K dated April 6, 1992 filed by Ashland Coal, Inc., a subsidiary of the Company)

	10.13							Lease dated as of October 1, 1987, between Pocahontas Land Corporation and Mingo Logan Collieries Company whose name is now Mingo Logan Coal Company (incorporated herein by reference to Exhibit 10.3 to Amendment No. 1 to a Current Report on Form 8-K filed on February 14, 1990 by Ashland Coal, Inc., a subsidiary of the Company)

	10.14							Consent, Assignment of Lease and Guaranty dated January 24, 1990, among Pocahontas Land Corporation, Mingo Logan Coal Company, Mountain Gem Land, Inc. and Ashland Coal, Inc. (incorporated herein by reference to Exhibit 10.4 to Amendment No. 1 to a Current Report on Form 8-K filed on February 14, 1990 by Ashland Coal, Inc., a subsidiary of the Company)

	10.15							Federal Coal Lease dated as of June 24, 1993 between the United States Department of the Interior and Southern Utah Fuel Company (incorporated herein by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.16							Federal Coal Lease between the United States Department of the Interior and Utah Fuel Company (incorporated herein by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.17							Federal Coal Lease dated as of July 19, 1997 between the United States Department of the Interior and Canyon Fuel Company, LLC (incorporated herein by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.18							Federal Coal Lease dated as of January 24, 1996 between the United States Department of the Interior and the Thunder Basin Coal Company (incorporated herein by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.19							Federal Coal Lease Readjustment dated as of November 1, 1967 between the United States Department of the Interior and the Thunder Basin Coal Company (incorporated herein by reference to Exhibit 10.21 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.20							Federal Coal Lease effective as of May 1, 1995 between the United States Department of the Interior and Mountain Coal Company (incorporated herein by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.21							Federal Coal Lease dated as of January 1, 1999 between the Department of the Interior and Ark Land Company (incorporated herein by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.22							Federal Coal Lease dated as of October 1, 1999 between the United States Department of the Interior and Canyon Fuel Company, LLC (incorporated herein by reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999)

	10.23							Federal Coal Lease effective as of March 1, 2005 by and between the United States of America and Ark Land LT, Inc. covering the tract of land known as “Little Thunder” in Campbell County, Wyoming (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on February 10, 2005)

	10.24							Modified Coal Lease (WYW71692) executed January 1, 2003 by and between the United States of America, through the Bureau of Land Management, as lessor, and Triton Coal Company, LLC, as lessee covering a tract of land known as “North Rochelle” in Campbell County, Wyoming (filed herewith).

	10.25							Coal Lease (WYW71692) executed January 1, 1998 by and between the United States of America, through the Bureau of Land Management, as lessor, and Triton Coal Company, LLC, as lessee covering a tract of land known as “North Roundup” in Campbell County, Wyoming (filed herewith).

	10.26							Form of Indemnity Agreement between Arch Coal, Inc. and Indemnitee (as defined therein) (incorporated herein by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-4 (Registration No. 333-28149) filed on May 30, 1997)



	10.27							Arch Coal, Inc. Incentive Compensation Plan For Executive Officers (incorporated herein by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on February 28, 2005.

	10.28							Arch Coal, Inc. (formerly Arch Mineral Corporation) Deferred Compensation Plan (incorporated herein by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 (Registration No. 333-68131) filed on December 1, 1998)

	10.29							Arch Coal, Inc. 1997 Stock Incentive Plan (as Amended and Restated on February 28, 2002) (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2002)

	10.30							Arch Mineral Corporation 1996 ERISA Forfeiture Plan (incorporated herein by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-4 (Registration No. 333-28149) filed on May 30, 1997)

	10.31							Arch Coal, Inc. Outside Directors’ Deferred Compensation Plan effective January 1, 1999 (incorporated herein by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	10.32							Second Amendment to the Arch Mineral Corporation Supplemental Retirement Plan effective January 1, 1998(incorporated herein by reference to Exhibit 10.31 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 1998)

	13							Portions of the Company’s Annual Report to Stockholders for the year ended December 31, 2004 (filed herewith)

	21							Subsidiaries of the Company (filed herewith)

	23.1							Consent of Ernst & Young LLP (filed herewith)

	24							Power of Attorney (filed herewith)

	31.1							Rule 13a-14(a)/15d-14(a) Certification of Steven F. Leer (filed herewith)

	31.2							Rule 13a-14(a)/15d-14(a) Certification of Robert J. Messey (filed herewith)

	32.1							Section 1350 Certification of Steven F. Leer (filed herewith)

	32.2							Section 1350 Certification of Robert J. Messey (filed herewith)


*	Exhibits 10.27, 10.28, 10.29, 10.30 and 10.32 are executive compensation plans.

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

SIGNATURES

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


	Arch Coal, Inc.
	(Registrant)


	By:	/s/ Steven F. Leer



	Steven F. Leer
	President and Chief Executive Officer

	Date: March 10, 2005


Signatures		Capacity


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

/s/ Robert J. Messey Robert J. Messey		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

/s/ John W. Lorson John W. Lorson		Controller

* James R. Boyd		Director

* Frank M. Burke		Director

* Patricia Fry Godley		Director

* Douglas H. Hunt		Director

* Thomas A. Lockhart		Director

* A. Michael Perry		Director

* Robert G. Potter		Director

* Theodore D. Sands		Director

*By:	/s/ Robert G. Jones Robert G. Jones As Attorney-in-fact

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

SCHEDULE II

ARCH COAL, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)


						ADDITIONS
						CHARGED
				BALANCE AT		TO COSTS		CHARGED						BALANCE AT
				BEGINNING		AND		TO OTHER						END OF
				OF YEAR		EXPENSES		ACCOUNTS			DEDUCTIONS(1)			YEAR

Year Ended December 31, 2004
	Reserves deducted from Asset Accounts
		Other Assets — Other Notes and Accounts Receivable		$	1,469	$	570	$	962	(2)	$	—		$	3,001
			Current Assets — Supplies Inventory		18,763		1,746		3,010	(2)		543			22,976
		Deferred Income Taxes			161,113		—		2,157	(3)		265			163,005
Year Ended December 31, 2003
	Reserves deducted from Asset Accounts
		Other Assets — Other Notes and Accounts Receivable			3,894		1,315		—			3,740	(5)		1,469
			Current Assets — Supplies Inventory		17,515		1,583		—			335			18,763
		Deferred Income Taxes			145,603		3,543		11,967	(4)		—			161,113
Year Ended December 31, 2002
	Reserves deducted from Asset Accounts
		Other Assets — Other Notes and Accounts Receivable			544		3,409		—			59			3,894
			Current Assets — Supplies Inventory		16,598		1,831		—			914			17,515
		Deferred Income Taxes			119,723		25,880		—			—			145,603


(1)	Reserves utilized, unless otherwise indicated.

(2)	Balance at acquisition date of subsidiaries.

(3)	Amount represents the valuation allowance for tax benefits from the exercise of employee stock options. The benefit, net of valuation allowance, was recorded as paid-in capital.

(4)	Amount represents state net operating loss carryforwards identified in 2003 which were fully reserved.

(5)	Amount includes $1.6 million that was recognized as income upon collection of the related receivable.

EXHIBIT 10.1

October 1, 2004

Mr. Steven F. Leer
[address]

Dear Steve:

In order to encourage you to remain in the employ of the Company, this Agreement sets forth those benefits which the Company will provide to you in the event your employment with the Company (1) is Terminated without Cause during the term of this Agreement, or (2) you resign for Good Reason following a Change in Control of the Company under the circumstances described below.

SECTION A. DEFINITIONS

1. "Agreement" shall mean this letter agreement.

2. "Average Annual Bonus" shall be the highest of (i) the most recent annual bonus paid to you, (ii) if your date of termination occurs after the end of the calendar year but prior to the payment of annual bonuses with respect to the prior year, the amount calculated as payable as your annual bonus pursuant to the bonus targets approved by the Board of Directors of the Company for such year compared to the actual performance of the Company for such year; or (iii) the average annual bonus paid to you in the three full calendar years proceeding the Date of Termination. If you have not been employed by the Company, for three full calendar years prior to the Date of Termination, the average annual bonus for purposes of clause (iii) of this definition shall be a percentage of your highest annual salary in effect at any time during the term of this Agreement equal to the average percentage of annual base pay paid as an annual bonus by all executives of the Company at your Incentive Compensation level in the three calendar years proceeding the Date of Termination.

3. "Board" shall mean the Company's Board of Directors.

4. "Cause" shall occur hereunder only upon (A) the willful and continued failure by you substantially to perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in gross misconduct materially and demonstrably injurious to the Company including, without limitation, a violation of the Company's Code of Business Conduct in effect from time to time, or (C) your conviction of or the entering of a plea of nolo contendere to the commission of a

felony. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose, among others (after at least 20 days prior notice to you and an opportunity for you, together with your counsel, to be heard before the Board), of finding that (i) in the good faith opinion of the Board you failed to perform your duties or engaged in misconduct as set forth above in subparagraph (A) or (B) of this paragraph, and, if applicable, that you did not correct such failure or cease such misconduct after being requested to do so by the Board, or (ii) as set forth in subparagraph (C) of this paragraph, you have been convicted of or have entered a plea of nolo contendere to the commission of a felony.

5. "Change in Control" shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation, merger, or share exchange of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) at any time during a period of two (2) consecutive years, "Continuing Directors" shall cease for any reason to constitute at least a majority of the Board. For such purpose, "Continuing Directors" shall be directors who were in office at the beginning of such two year period and new directors whose election or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the Continuing Directors then in office.

6. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act, as amended.

7. "Common Stock" shall mean the common stock, par value $0.01 per share, of the Company.

8. "Company" shall mean Arch Coal, Inc. and any successor to its business and/or assets which executes and delivers the agreement provided for in
Section F, paragraph 1 hereof or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

9. "Competitive Activity" shall have the meaning as set forth in
Section D, paragraph 4.

10. "Competitive Operation" shall have the meaning as set forth in
Section D, paragraph 4.

11. "Confidential Information" shall mean information relating to the Company's, its divisions' and Subsidiaries' and their successors' business practices and business interests, including, but not limited to, customer and supplier lists, business forecasts, business and strategic plans, financial and sales information, information relating to products, process, equipment, operations, marketing programs, research, or product development, engineering records, computer systems and software, personnel records or legal records.

12. "Constructive Termination" shall mean your resignation of employment with the Company after the occurrence of any one of the following events: (i) a reduction in your base salary or Incentive Compensation level or participation in any of the benefit plans or compensation plans of the Company for which you are currently or become eligible during the term of this Agreement; (ii) a diminution of your position, duties, title, status or responsibilities during the term of this Agreement; (iii) a failure by the Company to, in good faith, review the appropriateness of your base salary and incentive compensation package on at least an annual basis; or (iv) any breach by the Company of any material provision of this Agreement.

13. "Date Of Termination" shall mean: (A) if this Agreement is terminated for Disability, thirty (30) days after the Notice of Termination is given by the Company to you (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (B) if your employment is terminated for Good Reason by you, the date specified in the Notice of Termination, and (C) if your employment is Terminated for any other reason, the date on which a Notice of Termination is received or delivered by you unless a later date is specified.

14. "Disability" shall occur when: if, as a result of your incapacity due to physical or mental illness, you shall have been absent from your duties with the Company for six (6) consecutive months and shall not have returned to full-time performance of your duties within thirty (30) days after written notice is given to you by the Company.

15. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

16. "Excise Tax" shall have the meaning as set forth in Section E.

17. "Good Reason" shall mean:

(a) without your express written consent, the assignment to you after a Change in Control of the Company, of any duties inconsistent with, or a significant diminution of, your position, duties, responsibilities or status with the

Company immediately prior to a Change in Control of the Company, or a diminution in your titles as in effect immediately prior to a Change in Control of the Company or any removal of you from, or any failure to reelect you to, any of such positions;

(b) a reduction by the Company in your base salary in effect immediately prior to a Change in Control of the Company or a failure by the Company to increase (within fifteen months of your last increase in base salary) your base salary after a Change in Control of the Company in an amount which is substantially similar, on a percentage basis, to the average percentage increase in base salary for all corporate officers of the Company during the preceding twelve (12) months;

(c) the failure by the Company to continue in effect any thrift, stock ownership, pension, life insurance, health, dental and accident or disability plan in which you are participating or are eligible to participate at the time of a Change in Control of the Company (or plans providing you with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any Change in Control of the Company, or the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits under any of such plans or deprive you of any material fringe benefits enjoyed by you at the time of the Change in Control of the Company or the failure by the Company to provide you with the number of paid vacation days to which you are entitled in accordance with the vacation policies of the Company in effect at the time of a Change in Control of the Company, unless a comparable plan is substituted therefor;

(d) the failure by the Company to continue in effect any incentive plan or arrangement (including without limitation, the Company's incentive compensation plan, annual bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar incentive compensation benefits) in which you are participating at the time of a Change in Control of the Company (or to substitute and continue other plans or arrangements providing you with substantially similar benefits), or a reduction in your Incentive Compensation level in effect at the time of a Change in Control of the Company except as otherwise required by the terms of such plans as in effect at the time of any Change in Control of the Company;

(e) the failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, any plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof or to acquire stock or other securities of the Company) in which you are participating at the time of a Change in Control of the Company (or to substitute and continue plans or arrangements providing you with substantially similar benefits), except as otherwise required by the terms of such plans as in effect at the time of any Change in Control of the Company, or

the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits under any such plan;

(f) the relocation of the Company's principal executive offices to a location outside the St. Louis metropolitan area, or the Company's requiring you to be based anywhere other than at your current location or at the location of the Company's principal executive or divisional offices, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations, or, in the event you consent to any such relocation of the Company's principal executive or divisional offices, the failure by the Company to pay (or reimburse you for) all reasonable moving expenses incurred by you relating to a change of your principal residence in connection with such relocation and to indemnify you against any loss (defined as the difference between the actual sale price of such residence and the greater of (a) your aggregate investment in such residence, or (b) the fair market value of such residence as determined by a real estate appraiser reasonably satisfactory to both you and the Company) realized in the sale of your principal residence in connection with any such change of residence;

(g) any breach by the Company of any material provision of this Agreement; or

(h) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company.

18. "Gross-up Payment" shall have the meaning as set forth in Section E.

19. "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated.

20. "Payment" shall have the meaning as set forth in Section E.

21. "Person" shall have the meaning as set forth in Sections 13(d) and 14(d)(2) of the Exchange Act.

22. "Qualifying Termination" shall mean the termination of your employment after a Change in Control of the Company while this Agreement is in effect, unless such termination is (a) by reason of your death or Disability,
(b) by the Company for Cause, or (c) by you other than for Good Reason.

23. "Salary Continuation Period" shall have the meaning set forth in
Section C, paragraph 1.

24. "Significant Stockholder" shall mean any shareholder of the Company who, immediately prior to the Effective Date, owned more than 5% of the common stock of the company.

25. "Subsidiary" shall mean any corporation of which more than 20% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by the Company, by the Company and one or more other Subsidiaries, or by one or more other Subsidiaries.

26. "Termination" shall mean the actual or Constructive Termination of your employment with the Company.

SECTION B. TERM AND BENEFITS

This Agreement shall be in effect for a period of one (1) year from the date you accept this Agreement and shall automatically renew for successive one
(1) year periods unless terminated by either party by at least one (1) year advance written notice prior to the commencement of the next succeeding one (1) year period at which time the Agreement shall terminate at the end of the next succeeding one (1) year period. During the term of employment hereunder, you agree to devote your full business time and attention to the business and affairs of the Company and to use your best efforts, skills and abilities to promote its interests.

In the event of your retirement, at your election or in accordance with the Company's generally applicable retirement policies, as in effect from time to time, this Agreement shall automatically terminate, without additional notice to you, as of the effective date of your retirement. Notwithstanding the first sentence of this paragraph and the first sentence of this Section B, if a Change in Control of the Company should occur while you are still an employee of the Company and while this Agreement is in effect, then this Agreement shall continue in effect from the date of such Change in Control of the Company for a period of two years. Prior to a Change in Control of the Company, your employment may be terminated by the Company for Cause at any time pursuant to a Notice of Termination. In such event, you shall not be entitled to the benefits provided hereunder. No benefits shall be payable hereunder unless your employment is terminated without Cause or there shall have been a Change in Control of the Company and your employment by the Company shall thereafter terminate in accordance with Section D hereof.

SECTION C. TERMINATION PRIOR TO CHANGE IN CONTROL

1. Compensation Prior to a Change in Control. If you are Terminated by the Company without Cause during the term of this Agreement and prior to a Change in Control of the Company, you shall be entitled to receive:

(a) payment of the higher of; (1) your salary immediately prior to your Date of Termination, or (2) your highest salary during the prior three fiscal years preceding the fiscal year in which your Date of Termination occurs, for a period of two (2) years after your Date of Termination ("Salary Continuation Period");

(b) continuation of your and your eligible dependents' existing participation at regular employee rates, in effect from time to time, in all of the Company's medical, dental and group life plans and other programs in which you were participating immediately prior to your Date of Termination during the Salary Continuation Period, after which time you and your eligible dependents will be eligible for coverage under COBRA. In the event that your continued participation in any such plan or program is for whatever reason impossible, the Company shall arrange upon comparable terms to provide you with benefits substantially equivalent on an after tax basis to those which you and your eligible dependents are, or become, entitled to receive under such plans and programs;

(c) if and when payments are made, payment in cash of any pro-rata portion (up through your Date Of Termination) of any amounts you would have received under the Company's performance unit/share plans, Annual Incentive Compensation Plan, and any other similar executive compensation plan in which you were a participant immediately prior to your Date of Termination;

(d) provide for payment in cash an amount equal to your Average Annual Bonus;

(e) continuation of your existing participation in the Company's thrift plan, cash balance pension plan, non-qualified supplemental pension plan, deferred compensation plan and financial counseling services plan during the Salary Continuation Period (payments made pursuant to paragraph 1(a) and 1(c) hereof shall be deemed includable compensation under these plans to the same extent as if you had remained an active employee of the company and the payments were made for base salary and annual bonus, respectively);

(f) outplacement services substantially similar to those historically offered by the Company to displaced senior executives; for a period not to exceed the Salary Continuation Period;

(g) pay to you an amount equal to the value of all unused, earned and accrued vacation as of your Date of Termination; and

(h) provide for the immediate vesting of all stock options held by you, as of your Date of Termination, under any Company stock option plan and all such options shall be exercisable during the Salary Continuation Period and for 120 days thereafter.

However, in the event that your employment with the Company is Terminated during the term of this Agreement and prior to a Change in Control of the Company and such Termination is not a Termination without Cause (including, without limitation, termination by reason of your voluntary termination (other than Constructive Termination), retirement, death, or Disability), or if your employment is terminated for Cause during the term of this Agreement, you shall not be entitled to receive any benefits under this Agreement.

2. Release. In exchange for the benefits herein, you completely release the Company to the fullest extent permitted by law from all claims you may have against the Company on your Date of Termination except claims related to (a) claims for benefits to which you are entitled under this Agreement and (b) any applicable worker's compensation or unemployment compensation.

3. Payment of Benefits. Unless otherwise provided in this Agreement, in the applicable compensation or stock option plan or program, or unless you otherwise elect, all payments shall be made to you in a single lump sum within thirty (30) days after your Date of Termination. Notwithstanding the payment of benefits hereunder in a lump sum, the benefits stated herein to continue through the Salary Continuation Period shall continue through the period. These benefits are in addition to all accrued and vested benefits to which you are entitled to under any of the Company's plans and arrangements, including but not limited to, the accrued vested benefits to which you are eligible for and entitled to receive under any of the Company's qualified and non-qualified benefit or retirement plans, or any successor plans in effect on your Date of Termination hereunder.

4. No Duty to Mitigate. You shall not be required to mitigate the amount of any payment provided for in this Section by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section be reduced by any compensation earned by you as the result of employment by another employer after your Date of Termination, or otherwise. Except as provided herein, the Company shall have no right to set off against any amount owing hereunder any claim which it may have against you.

SECTION D. TERMINATION FOLLOWING CHANGE IN CONTROL

1. Qualifying Termination. If your termination is a Qualifying Termination, you shall be entitled to receive the payments and benefits provided in this Section.

2. Notice of Termination. Except as provided in Section F, paragraph 1, any termination of your employment following a Change in Control of the Company shall be communicated by written Notice of Termination to the other party hereto. No termination shall be effective without such Notice of Termination.

3. Compensation Upon Termination After a Change in Control.

(a) If your termination is a Qualifying Termination, then the Company shall pay to you as severance pay (and without regard to the provisions of any benefit or incentive plan), in a lump sum cash payment on the fifth (5th) day following your Date of Termination, an amount equal to three (3) times the higher of; (1) your salary immediately prior to your Date of Termination, or (2) your highest salary during the prior three (3) fiscal years preceding the fiscal year in which your Date of Termination occurs or, if greater, the prior three (3) fiscal years preceding the fiscal year in which the Change in Control of the Company occurs.

(b) If your termination is a Qualifying Termination, the Company shall, in addition to the payments required by the preceding paragraph:

(i) provide for continuation of your and your eligible dependents' participation at regular employee rates, in effect from time to time, in all of the Company's medical, dental and group life plans and other programs in which you were participating immediately prior to your Date of Termination for a period of three years from your Date of Termination, after which time you and your eligible dependents will be eligible for coverage under COBRA. In the event that your continued participation in any such plan or program is for whatever reason impossible, the Company shall arrange upon comparable terms to provide you with benefits substantially equivalent on an after tax basis to those which you and your eligible dependents are, or become, entitled to receive under such plans and programs;

(ii) provide for full payment in cash of any performance unit/share awards in existence on your Date of Termination less any amounts paid to you under the applicable performance unit/share plan upon a Change in Control of the Company pursuant to the provisions of such plan; plus any pro rata portion (up through your date of termination) of any amounts you would have received under the Company's Incentive Compensation Plan and any other similar executive compensation plan in which you were a participant immediately prior to your Date of Termination;

(iii) provide for payment in cash of an amount equal to three times your Average Annual Bonus;

(iv) provide those benefits or compensation under any compensation plan, arrangement or agreement not in existence as of the date hereof but which may be established by the Company prior to your Date of Termination at such time as payments are made thereunder to the same extent as if you had been a full-time employee on the date such payments would otherwise have been made or benefits vested;

(v) for three (3) years after your Date of Termination, provide and pay for outplacement services, by a firm reasonably acceptable to you, that have historically been offered to displaced employees generally by the Company under substantially the same terms and fee structure as is consistent with an employee in your then current position (or, if higher, your position immediately prior to the Change in Control of the Company);

(vi) for three (3) years after your Date of Termination, provide and pay for financial planning services, by a firm reasonably acceptable to you, that have historically been offered to you under substantially the same terms and fee structure as is consistent with an employee in your then current position (or, if higher, your position immediately prior to the Change in Control of the Company);

(vii) pay to you an amount equal to the value of all unused, earned and accrued vacation as of your Date of Termination pursuant to the Company's policies in effect immediately prior to the Change in Control of the Company; and

(viii) provide for the immediate vesting of all stock options held by you, as of your Date of Termination, under any Company stock option plan and all such options shall be exercisable for the remaining terms of the options.

(ix) payments made pursuant to paragraphs 3.(a) and 3.(b)(iii) hereof shall be deemed includable compensation under the Company's thrift plan, cash balance pension plan, non-qualified supplemental pension plan and deferred compensation plan as if you had remained an active employee of the Company and payments were made for base salary and annual bonus, respectively.

4. Release. In exchange for the benefits herein, you completely release the Company to the fullest extent permitted by law from all claims you may have against the Company on your Date of Termination except claims related to (a) claims for benefits to which you are entitled under this Agreement and (b) any applicable worker's compensation or unemployment compensation.

5. Payment of Benefits. Unless otherwise provided in this Agreement or in the applicable compensation or stock option plan or program, or unless you otherwise elect, all payments shall be made to you within thirty (30) days after your Date of Termination. These benefits are in addition to all accrued and vested benefits to which you are entitled to under any of the Company's plans and arrangements, including but not limited to, the accrued vested benefits to which you are eligible for and entitled to receive under any of the Company's qualified and non-qualified benefit or retirement plans, or any successor plans in effect on your Date of Termination hereunder.

6. No duty to Mitigate. You shall not be required to mitigate the amount of any payment provided for in this Section by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section be reduced by any compensation earned by you as the result of employment by another employer after your Date of Termination, or otherwise. Except as provided herein, the Company shall have no right to set off against any amount owing hereunder any claim which it may have against you.

7. Competitive Activity. In consideration of the foregoing, you agree that if your employment is terminated during the term of this Agreement and after a Change in Control of the Company, then during a period ending six (6) months following your Date of Termination you shall not engage in any Competitive Activity; provided, you shall not be subject to the foregoing obligation if the Company breaches a material provision of this Agreement. If you choose to engage in any Competitive Activity during that period, the Company shall be entitled to recover any benefits paid to you under this Agreement. For purposes of this Agreement, "Competitive Activity" shall mean your participation, without the written consent of the General Counsel of the Company, in the management of any business operation of any enterprise if such operation (a "Competitive Operation") engages in substantial and direct competition with any business operation actively conducted by the Company or its divisions and Subsidiaries on your Date of Termination. For purposes of this paragraph, a business operation shall be considered a Competitive Operation if such business sells a competitive product or service which constitutes (i) 15% of that business's total sales or (ii) 15% of the total sales of any individual subsidiary or division of that business and, in either event, the Company's sales of a similar product or service constitutes (i) 15% of the total sales of the Company or (ii) 15% of the total sales of any individual Subsidiary or division of the Company. Competitive Activity shall not include (i) the mere ownership of securities in any enterprise, or (ii) participation in the management of any enterprise or any business operation thereof, other than in connection with a Competitive Operation of such enterprise.

SECTION E. ADDITIONAL PAYMENTS BY THE COMPANY

Notwithstanding anything to the contrary in this Agreement, in the event that any payment or distribution by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay to you an additional payment (a "Gross-up Payment") in an amount such that after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any income, employment and Excise Tax imposed on any Gross-up Payment, you retain an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payments. You and the Company shall make an initial determination as to whether a

Gross-up Payment is required and the amount of any such Gross-up Payment. If you and the Company can not agree on whether a Gross-up Payment is required or the amount thereof, then an independent nationally recognized accounting firm, appointed by you, shall determine the amount of the Gross-up Payment. The Company shall pay all expenses which you may incur in determining the Gross-up Payment. You shall notify the Company in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Company and you) within ten days of the receipt of such claim. The Company shall notify you in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, you shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Company's action. If, as a result of the Company's action with respect to a claim, you receive a refund of any amount paid by the Company with respect to such claim, you shall promptly pay such refund to the Company. If the Company fails to timely notify you whether it will contest such claim or the Company determines not to contest such claim, then the Company shall immediately pay to you the portion of such claim, if any, which it has not previously paid to you.

SECTION F. MISCELLANEOUS

1. Assumption of Agreement. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to you, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of a material provision of this Agreement and shall entitle you to compensation in the same amount and on the same terms as you would be entitled pursuant to Section D, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed your Date of Termination without a Notice of Termination being given.

2. Confidentiality. All Confidential Information which you acquire or have acquired in connection with or as a result of the performance of services for the Company, whether under this Agreement or prior to the effective date of this Agreement, shall be kept secret and confidential by you unless (a) the Company otherwise consents, (b) the Company breaches any material provision of this Agreement, or (c) you are legally required to disclose such Confidential Information by a court of competent jurisdiction. This covenant of confidentiality shall extend beyond the term of this Agreement and shall survive the termination of this Agreement for any

reason. If you breach this covenant of confidentiality, the Company shall be entitled to recover from any benefits paid to you under this Agreement its damages resulting from such breach.

3. Employment. You agree to be bound by the terms and conditions of this Agreement and to remain in the employ of the Company during any period following any public announcement by any Person of any proposed transaction or transactions which, if effected, would result in a Change in Control of the Company until a Change in Control of the Company has taken place. However, nothing contained in this Agreement shall impair or interfere in any way with the right of the Company to terminate your employment for Cause prior to a Change in Control of the Company.

4. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the Center for Public Resources' Model ADR Procedures and Practices, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company shall not be restricted from seeking equitable relief, including injunctive relief as set forth in paragraph 5 of this Section, in the appropriate forum. Any cost of arbitration will be paid by the Company. In the event of a dispute over the existence of Good Reason or Cause after a Change in Control of the Company, the Company shall continue to pay your salary, bonuses and plan benefits pending resolution of the dispute. If you prevail in the arbitration, the remaining amounts due to you under this Agreement are to be immediately paid to you.

5. Injunctive Relief. You acknowledge and agree that the remedy of the Company at law for any breach of the covenants and agreements contained in paragraph 2 of this Section and in Section D, paragraph 4 will be inadequate, and that the Company will be entitled to injunctive relief against any such breach or any threatened, imminent, probable or possible breach. You represent and agree that such injunctive relief shall not prohibit you from earning a livelihood acceptable to you.

6. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

of its directors, officers and employees (but only to the extent of the coverage afforded by the existing provisions of such policies) to protect against all costs, charges and expenses whatsoever incurred or sustained by you in connection with any action, suit or proceeding to which you may be made a party by reason of your being or having been a director, officer or employee of the Company or any of its divisions or Subsidiaries during your employment therewith.

8. Further Assurances. Each party hereto agrees to furnish and execute such additional forms and documents, and to take such further action, as shall be reasonably and customarily required in connection with the performance of this Agreement or the payment of benefits hereunder.

9. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and such officer(s) as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.

10. Termination of other Agreements. Upon execution by both parties, this Agreement shall terminate and shall replace all prior employment and severance agreements between you and the Company and its divisions or Subsidiaries and the terms hereof shall govern as if executed on the initial date of such prior employment and severance agreements.

11. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

13. Legal Fees And Expenses. Any other provision of this Agreement notwithstanding, the Company shall pay all legal fees and expenses which you may incur as a result of the Company's unsuccessful contesting of the validity, enforceability or your interpretation of, or determinations under, any part of this Agreement.

14. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Missouri.

15. Agreement Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and

assigns. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate.

16. Headings. All Headings are inserted for convenience only and shall not affect any construction or interpretation of this Agreement.

If this Agreement correctly sets forth our agreement on the subject matter hereof, please sign and return to the Company the enclosed copy of this Agreement which will then constitute our agreement on this matter.

Sincerely,

ARCH COAL, INC.

By:

ACCEPTED as of the day
first above written

Employee

EXHIBIT 10.2

October 1, 2004

[Employee name and Address]

Dear :

SECTION A. DEFINITIONS

1. "Agreement" shall mean this letter agreement.

3. "Board" shall mean the Company's Board of Directors.

considered "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose, among others (after at least 20 days prior notice to you and an opportunity for you, together with your counsel, to be heard before the Board), of finding that (i) in the good faith opinion of the Board you failed to perform your duties or engaged in misconduct as set forth above in subparagraph (A) or (B) of this paragraph, and, if applicable, that you did not correct such failure or cease such misconduct after being requested to do so by the Board, or (ii) as set forth in subparagraph (C) of this paragraph, you have been convicted of or have entered a plea of nolo contendere to the commission of a felony.

6. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act, as amended.

7. "Common Stock" shall mean the common stock, par value $0.01 per share, of the Company.

9. "Competitive Activity" shall have the meaning as set forth in
Section D, paragraph 4.

10. "Competitive Operation" shall have the meaning as set forth in
Section D, paragraph 4.

15. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

16. "Excise Tax" shall have the meaning as set forth in Section E.

17. "Good Reason" shall mean:

diminution in your title(s) as in effect immediately prior to a Change in Control of the Company or any removal of you from, or any failure to reelect you to, any of such positions;