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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

ACT OF 1934

For the fiscal year ended December 31, 2002

OR

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

EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File No. 1-7775

MASSEY ENERGY COMPANY

(Exact name of registrant as specified in its charter)

Delaware 95-0740960

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification Number)

4 North 4th Street, Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (804) 788-1800

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

Construction Leads

Commercial Construction

Project Leads for Projects In

Your Area.

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Title of each class

Common stock, $0.625 par value

Name of each exchange on which registered

New York Stock Exchange

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, and (2) has been subject to such filing

requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item

405 of Regulation S-K is not contained herein, and will not be contained, to the

best of registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as

defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the registrant's voting stock held by

non-affiliates was $698,064,369.80 on February 28, 2003 based upon the volume

weighted average sales price of the registrant's Common Stock.

Common Stock, $0.625 par value, outstanding as of February 28, 2003 -

75,322,095 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the

registrant's definitive proxy statement for the 2003 annual meeting of

shareholders, which proxy statement will be filed no later than 120 days after

the close of the registrant's fiscal year ended December 31, 2002.

================================================================================

From time to time, Massey Energy Company (except as the context otherwise

requires, the terms "Massey" or the "Company" as used herein shall include

Massey Energy Company, its wholly owned subsidiary, A. T. Massey Coal Company,

Inc. ("A.T. Massey"), and A. T. Massey's subsidiaries) makes certain comments

and disclosures in reports and statements, including this report, or statements

made by its officers which may be forward-looking in nature. Examples include

statements related to Company growth, the adequacy of funds to service debt and

the Company's opinions about trends and factors which may impact future

operating results. These forward-looking statements could also involve, among

other things, statements regarding the Company's intent, belief or expectation

with respect to (i) the Company's results of operations and financial condition,

(ii) the consummation of acquisition, disposition or financing transactions and

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the effect thereof on the Company's business, and (iii) the Company's plans and

objectives for future operations and expansion or consolidation.

Any forward-looking statements are subject to the risks and uncertainties

that could cause actual results of operations, financial condition, cost

reductions, acquisitions, dispositions, financing transactions, operations,

expansion, consolidation and other events to differ materially from those

expressed or implied in such forward-looking statements. Any forward-looking

statements are also subject to a number of assumptions regarding, among other

things, future economic, competitive and market conditions generally. These

assumptions would be based on facts and conditions as they exist at the time

such statements are made as well as predictions as to future facts and

conditions, the accurate prediction of which may be difficult and involve the

assessment of events beyond the Company's control.

The Company wishes to caution readers that forward-looking statements,

including disclosures which use words such as the Company "believes,"

"anticipates," "expects," "estimates" and similar statements, are subject to

certain risks and uncertainties which could cause actual results to differ

materially from expectations. Any forward-looking statements should be

considered in context with the various disclosures made by the Company about its

businesses, including without limitation the risk factors more specifically

described below in Item 1. Business, under the heading "Business Risks."

Massey makes available free of charge on or through its Internet website,

www.masseyenergyco.com, its annual report on Form 10-K, quarterly reports on

Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or

furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as

reasonably practicable after it is electronically filed with, or furnished to,

the Securities and Exchange Commission. You may also request copies of our

filings, at no cost, by telephone at (866) 814-6512 or by mail at: Massey Energy

Company, 4 North 4th Street, Richmond, Virginia 23219, attention: Investor

Relations.

Part I

Item 1. Business

Massey produces, processes and sells bituminous, low sulfur coal of steam

and metallurgical grades through its nineteen processing and shipping centers,

called "resource groups," many of which receive coal from multiple coal mines.

Massey currently operates 29 underground mines (four of which employ both room

and pillar and longwall mining) and 14 surface mines (with seven highwall miners

in operation) in West Virginia, Kentucky and Virginia. The number of mines that

Massey's operates may vary from time to time depending on a number of factors,

including the existing demand for and price of coal and exhaustion of

economically recoverable reserves. Massey's steam coal is primarily purchased by

utilities and industrial clients as fuel for power plants. Its metallurgical

coal is used primarily to make coke for use in the manufacture of steel. In the

Energy Ventures Analysis ranking of coal companies by 2002 revenue, Massey is

the fourth largest coal company in the United States, and the largest in the

Central Appalachian region.

A. T. Massey was originally incorporated in Richmond, Virginia in 1920 as a

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coal brokering business. In the late 1940s, A. T. Massey expanded its business

to include coal mining and processing. In 1974, St. Joe Minerals acquired a

majority interest in A. T. Massey. St. Joe Minerals was then acquired by Fluor

Corporation in 1981. A. T. Massey was wholly owned by Fluor Corporation from

1987 until November 30, 2000, when the Company completed a reverse spin-off (the

"Spin-Off"), which divided it into the spun-off corporation, "new" Fluor

Corporation ("New Fluor"), and Fluor Corporation, subsequently renamed Massey

Energy Company, which retained the Company's coal-related businesses.

The Company changed to a calendar-year basis of reporting financial

results effective January 1, 2002. For comparative purposes, the reported

audited consolidated results of operations and cash flows for 2001 and 2000

annual periods are for the twelve months ended October 31. As a requirement of

the change in fiscal year, the Company is reporting consolidated results of

operations and cash flows for a special transition period for the two months

ended December 31, 2001 (audited) compared with the two-months ended December

31, 2000 (unaudited). The comparative audited consolidated balance sheets are as

of December 31, 2002 and October 31, 2001.

2

Industry Overview

A major contributor to the world energy supply, coal represents

approximately 23% of the world's primary energy consumption according to the

World Coal Institute. The primary use for coal is to fuel electric power

generation. In calendar year 2002, it is estimated that coal generated 51% of

the electricity produced in the United States according to the Energy

Information Administration, a statistical agency of the U. S. Department of

Energy.

The United States is the second largest coal producer in the world,

exceeded only by China. Other leading coal producers include India, South

Africa, and Australia. The United States is the largest holder of coal reserves

in the world, with over 250 years supply at current production rates. U.S. coal

reserves are more plentiful than oil or natural gas, with coal representing

approximately 70% of the nation's fossil fuel reserves according to Energy

Ventures Analysis. Total coal reserves are estimated by comparing the total

probable heat value (British thermal units ("Btus") per pound) of the

demonstrated coal reserve tonnage reported by the Department of Energy to the

heat value of other fossil fuel energy resources reported by the Department of

Energy.

U.S. coal production has more than doubled during the last 30 years. In

2002, total coal production as estimated by the United States Department of

Energy ("DOE") was 1.1 billion tons. The primary producing regions were the

Powder River Basin (38%), Central Appalachia (23%), Midwest (14%), Northern

Appalachia (12%), West (other than the Powder River Basin) (12%) and other (1%).

All of the Company's coal production comes from the Central Appalachian region.

Approximately 66% of U.S. coal is produced by surface mining methods. The

remaining 34% is produced by underground mining methods that include room and

pillar mining and longwall mining (more fully described in "Mining Methods,"

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below).

Coal is used in the United States by utilities to generate electricity, by

steel companies to make products with blast furnaces, and by a variety of

industrial users to heat and power foundries, cement plants, paper mills,

chemical plants and other manufacturing and processing facilities. Significant

quantities of coal are also exported from both east and west coast terminals.

The breakdown of 2002 U.S. coal demand, as estimated by Resource Data

International, Inc. ("RDI"), is as follows:

End Use Tons (millions) % of Total

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

Electricity generation 982 86%

Industrial users 66 6%

Exports 64 6%

Steel making 27 2%

Residential & commercial 5 --%

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

Total 1,144 100%

=============== ==========

Coal has long been favored as an electricity generating fuel by regulated

utilities because of its basic economic advantage. The largest cost component in

electricity generation is fuel. This fuel cost is typically lower for coal than

competing fuels such as oil and natural gas on a Btu-comparable basis. RDI

estimated the average total production costs of electricity, using coal and

competing generation alternatives in 2002 as follows:

Electricity Generation Type Cost per million Kilowatt Hours

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

Oil $ 4.854

Natural Gas $ 4.422

Coal $ 1.819

Nuclear $ 1.785

Other (solar, wind, etc.) $ 0.979

Hydroelectric $ 0.527

According to RDI, 15 of the 25 lowest operating cost power plants in the

United States during 2001 were fueled by coal. Coal used as fuel to generate

electricity is commonly referred to as "steam coal."

3

There are factors other than fuel cost that influence each utility's choice

of electricity generation mode, including facility construction cost, access to

fuel transportation infrastructure, environmental restrictions, and other

factors. The breakdown of U.S. electricity generation by fuel source in 2002, as

estimated by the Energy Information Administration, is as follows:

Electricity Generation Source % of Total Electricity Generation

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

Coal 51%

Nuclear 21%

Natural Gas 17%

Hydro 6%

Oil 3%

Other 2%

----------

Total 100%

==========

RDI projects that generators of electricity will increase their demand for

coal as demand for electricity increases. Because coal-fired generation is used

in most cases to meet base load requirements, coal consumption has generally

grown at the pace of electricity demand growth. Demand for electricity has

historically grown in proportion to U.S. economic growth.

The United States ranks fifth among worldwide exporters of coal. Australia

is the largest exporter, with other major exporters including South Africa,

Indonesia, Canada, China, Russia and Colombia. U.S. exports have decreased by

over 46% since 1991 as a result of increased international competition and the

U.S. dollar's strength in comparison to foreign currencies. According to DOE,

the usage breakdown for 2000 U.S. exports of 59 million tons was 44% for

electricity generation and 56% for steel making. U.S. coal exports were shipped

to more than 40 countries. The largest purchaser of exported steam coal was

Canada, which took 15 million tons or 58% of total steam coal exports. The

largest purchaser of exported metallurgical coal was Europe, which represented

20 million tons or 61% of total metallurgical coal exports.

The type of coal used in steel making is referred to as metallurgical coal,

and is distinguished by special quality characteristics that include high carbon

content, low expansion pressure, low sulfur content, and various other chemical

attributes. Metallurgical coal is also high in heat content (as measured in

Btus), and therefore is desirable to utilities as fuel for electricity

generation. Consequently, metallurgical coal producers have the ongoing

opportunity to select the market that provides maximum revenue. The premium

price offered by steel makers for the metallurgical quality attributes is

typically higher than the price offered by utility coal buyers that value only

the heat content. The primary concentration of U.S. metallurgical coal reserves

is located in the Central Appalachian region. RDI estimates that the Central

Appalachian region supplied 88% of domestic metallurgical coal and 96% of U.S.

exported metallurgical coal during 2002.

Industrial users of coal typically purchase high Btu products with the same

type of quality focus as utility coal buyers. The primary goal is to maximize

heat content, with other specifications like ash content, sulfur content, and

size varying considerably among different customers. Because most industrial

coal consumers use considerably less tonnage than electric generating stations,

they typically prefer to purchase coal that is screened and sized to

specifications that streamline coal handling processes. Due to the more

stringent size and quality specifications, industrial customers often pay a 10%

to 15% premium above utility coal pricing (on comparable quality). The largest

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regional supplier to the industrial market sector has historically been Central

Appalachia, which supplied approximately 35% of all U.S. industrial coal demand

in 2002.

Coal shipped for North American consumption is typically sold at the mine

loading facility with transportation costs being borne by the purchaser.

Offshore export shipments are normally sold at the ship-loading terminal, with

the purchaser paying the ocean freight. According to the National Mining

Association, approximately two-thirds of U.S. coal production is shipped via

railroads. Final delivery to consumers often involves more than one

transportation mode. A significant portion of U.S. production is delivered to

customers via barges on the inland waterway system and ships loaded at Great

Lakes ports.

Neither Massey nor any of its subsidiaries is affiliated with or has any

investment in the World Coal Institute, the Energy Information Administration,

RDI or Energy Ventures Analysis.

Mining Methods

Massey produces coal using four distinct mining methods: underground room

and pillar, underground longwall, surface and highwall mining, which are

explained as follows:

In the underground room and pillar method of mining, continuous mining

machines cut three to nine entries into the coal bed and connect them by driving

crosscuts, leaving a series of rectangular pillars, or columns of coal, to help

support the mine roof and control the flow of air. Generally, openings are

driven 20 feet wide and the pillars are 40 to 100 feet wide. As mining advances,

a grid-like pattern of entries and pillars is formed. When mining advances to

the end of a panel, retreat mining may begin. In retreat mining, as much coal as

4

is feasible is mined from the pillars that were created in advancing the panel,

allowing the roof to cave. When retreat mining is completed to the mouth of the

panel, the mined panel is abandoned.

In longwall mining, a shearer (cutting head) moves back and forth across a

panel of coal typically about 1000 feet in width, cutting a slice 3.5 feet deep.

The cut coal falls onto a flexible conveyor for removal. Longwall mining is

performed under hydraulic roof supports (shields) that are advanced as the seam

is cut. The roof in the mined out areas falls as the shields advance.

Surface mining is used when coal is found close to the surface. This method

involves the removal of overburden (earth and rock covering the coal) with heavy

earth moving equipment and explosives, loading out the coal, replacing the

overburden and topsoil after the coal has been excavated and reestablishing

vegetation and plant life and making other improvements that have local

community benefit.

Highwall mining is used in connection with surface mining. A highwall

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mining system consists of a remotely controlled continuous mining machine, which

extracts coal and conveys it via augers or belt conveyors to the surface. The

cut is typically a rectangular, horizontal opening in the highwall (the

unexcavated face of exposed overburden and coal in a surface mine) 11-feet wide

and reaching depths of up to 1000 feet. Multiple, parallel openings are driven

into the highwall, separated by narrow pillars that extend the full depth of the

hole.

Use of continuous mining machines in the room and pillar method of

underground mining represented approximately 39% of Massey's 2002 coal

production.

Production from underground longwall mining operations constituted about

16% of Massey's 2002 production. Massey now operates four longwall units.

Surface mining represented approximately 35% of Massey's 2002 coal

production. Massey has established large-scale surface mines in Boone and

Nicholas counties of West Virginia. Other Massey surface mines are smaller in

scale. Massey surface mines also use highwall mining systems to produce coal

from high overburden areas. Highwall mining represented approximately 10% of

Massey's 2002 coal production.

Mining Operations

Massey currently has nineteen distinct resource groups or mining complexes,

including fourteen in West Virginia, four in Kentucky and one in Virginia. These

complexes blend, process and ship coal that is produced from one or more mines,

with a single complex handling the coal production of as many as eight distinct

underground or surface mines. These mines have been developed at strategic

locations in close proximity to the Massey preparation plants and rail shipping

facilities. Coal is transported from Massey's mining complexes to customers by

means of railroad cars or trucks, with rail shipments representing approximately

91% of 2002 coal shipments.

5

The following table provides key operational information on all Massey

mining complexes (Resource Groups) that were active in 2002.

Massey Resource Groups

Year Established

Resource Group Name Location 2002 Production(1) 2002 Shipments or Acquired

(000's of Tons) (000's of Tons)

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

West Virginia Resource

Groups

Black Castle Boone County, WV 2,972 643 1987

Delbarton Mingo County, WV 2,807 2,595 1999

Eagle Energy Boone County, WV - 192 1996

Elk Run Boone County, WV 2,147 4,118 1978

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Green Valley Nicholas County, WV 829 803 1996

Independence Boone County, WV 3,728 3,082 1994

Logan County Logan County, WV 3,572 3,353 1998

Marfork Raleigh County, WV 2,792 5,428 1993

Nicholas Energy Nicholas County, WV 4,627 4,310 1997

Omar Boone County, WV - 1,020 1954

Performance Raleigh County, WV 3,355 1,188 1994

Progress Boone County, WV 4,330 2,464 1998

Rawl Mingo County, WV 1,988 1,511 1974

Stirrat Logan County, WV - 342 1993

Kentucky Resource Groups

Long Fork Pike County, KY - 1,342 1991

Martin County Martin County, KY 3,025 2,755 1969

New Ridge Pike County, KY - 1,288 1992

Sidney Pike County, KY 7,269 4,982 1984

Virginia Resource Group

Knox Creek Tazewell County, VA 492 509 1997

Other/Unassigned N/A N/A 196 N/A

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

TOTAL 43,933 42,121

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

(1) For purposes of this table, coal production has been allocated to the

Resource Group where the coal is mined, rather than the Resource Group

where the coal is processed and shipped. Several Massey Resource Groups

provide processing and rail shipping services for coal mined at other

nearby Massey operations.

The following descriptions of the Company's resource groups are current as of

February 28, 2003.

West Virginia Resource Groups

Black Castle. The Black Castle mining complex includes a large surface

mine, a highwall miner and an underground belt conveyor system that transports

direct-ship coal (i.e., coal that is shipped without processing) to the Omar

resource group for loading. The remaining surface mined coal and the highwall

miner production is trucked to the Independence preparation plant for cleaning

and loading. In years previous to 2002, production from Black Castle was shown

in the Elk Run resource group production.

Delbarton. The Delbarton complex includes an underground room and pillar

mine and a preparation plant. This mine was idled in February 2002 due to weak

demand for steam coal but was re-activated in January 2003. Production from this

mine is transported to the adjacent Delbarton preparation plant via overland

conveyor. The Delbarton preparation plant also processes coal from two surface

mines of the Logan County resource group. The Delbarton preparation plant can

process 600 tons per hour. The clean coal product is shipped to customers via

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the Norfolk Southern railway in unit trains of up to 110 railcars.

During the third quarter of 2002, the Company decided that a section of the

idled mine at Delbarton that crossed under a creek would not be utilized in

future mining plans. Unamortized development costs related to this section of

the mine of approximately $9.2 million were written off in the third quarter.

For further discussion, please see Note 2 to the Consolidated Financial

Statements, "Impairment of Long-Lived Assets."

Eagle Energy. The Eagle Energy complex is currently inactive but has

historically processed coal production from the adjacent underground longwall

mine. The economically accessible reserves in this mine were depleted in January

2000 and the operation was idled. The Eagle Energy preparation plant has a rated

feed capacity of 750 tons per hour. Customers are served via CSX railway in unit

trains of up to 90 railcars. Plans are under review to re-activate this complex

using production from new mines in Massey controlled properties adjacent to the

preparation plant.

6

Elk Run. Elk Run produces coal from three underground room and pillar

mines, which deliver coal to its preparation plant by belt and truck. The

surface mine that was previously a part of the Elk Run resource group is now

part of the Black Castle resource group. Additionally, Elk Run processes coal

for shipment that is produced by surface mines of the Progress resource group.

Coal from these mines is transported via underground conveyor system. The Elk

Run preparation plant has a processing capacity of 2200 tons per hour. Elk Run

also operates a 200 ton per hour stoker facility which produces screened, small

dimension coal for certain of Massey's industrial customers. Customer shipments

are loaded on the CSX rail system in unit trains of up to 150 railcars.

Green Valley. The Green Valley complex includes two underground room and

pillar mines and a preparation plant. The Green Valley preparation plant

receives coal from the two mines via truck and has a processing capacity of 600

tons per hour. The rail loading facility services customers on the CSX rail

system with unit train shipments of up to 75 railcars.

Independence. The Independence complex includes the Justice longwall mine,

three room and pillar mines and a preparation plant. Production from two of the

deep mines is transported via underground conveyor system directly to the

Independence preparation plant. Additionally, Independence processes coal for

shipment that is produced from the Black Castle resource group and the Progress

resource group. Both the Black Castle surface mine and highwall miner, and the

West Cazy surface mine and highwall miner of the Progress resource group

transport coal requiring processing to the Independence preparation plant via

truck. Two of the underground room and pillar mining operations of Independence

ship coal via belt conveyor to the preparation plant of the Performance resource

group for processing. The Independence plant has a processing capacity of 2200

tons per hour. Customers are served via rail shipments on the CSX rail system in

unit trains of up to 150 railcars.

Logan County. The Logan County complex includes five surface mines, three

highwall miners, one underground room and pillar mine and the Aracoma longwall

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mine, plus the Bandmill preparation plant and the Feats loadout. The surface

mines and highwall miners deliver coal to the Bandmill plant via truck, while

both underground mines belt coal directly to this plant. Two surface mines also

deliver direct-ship coal to the Feats loadout by truck. A portion of the coal

from two of the surface mines, North Surface and South, and the highwall miners

is also delivered to the Delbarton preparation plant by truck. Another surface

mine, Sheep Fork, transports its coal by truck to the Rawl plant for processing

and shipment. The Bandmill preparation plant has a processing capacity of 1600

tons per hour. The rail loading facility services customers via the CSX rail

system with unit train shipments of up to 150 cars.

Marfork. The Marfork complex includes four underground room and pillar

mines and a preparation plant. The largest production source for the Marfork

complex is the Upper Big Branch longwall mine of the Performance resource group.

Approximately half of the Marfork production is belted directly to the

preparation plant via conveyor while the remainder is trucked on private

haulroads. The Marfork preparation plant has a capacity of 2400 tons per hour.

Customers are served via the CSX rail system with unit trains of up to 150

railcars.

Nicholas Energy. The Nicholas Energy complex includes a large surface mine,

a highwall miner, an underground room and pillar mine and a preparation plant.

Coal from the underground mine, the highwall miner, and the portion of surface

mined coal requiring processing is transported to the preparation plant via

overland conveyor system. The plant has a processing capacity of 1200 tons per

hour. All coal shipments are loaded into rail cars for delivery via the Norfolk

Southern railway in unit trains of up to 140 railcars.

Omar. The Omar mining complex crushes and loads direct-ship coal at its

preparation plant from the adjacent surface mining operation of the Black Castle

resource group. Production is transported via underground conveyor system to the

Omar direct-ship facility. The direct-ship facility can crush 800 tons per hour.

The Omar preparation plant, which can process 800 tons per hour, is currently

inactive. Omar serves CSX rail system customers with unit train shipments of up

to 110 railcars.

Performance. The Performance mining complex includes the Upper Big Branch

longwall mine and the Goals preparation plant. Most of the production from Upper

Big Branch is shipped via overland conveyor to the preparation plant at the

Marfork resource group. The balance of the production from this mine is shipped

via truck to the Goals preparation plant. This plant also processes the

production, received by belt conveyor, of two adjacent underground mines of the

Independence resource group. The Goals preparation plant can process 800 tons

per hour. The rail loading facility serves CSX railway customers with unit

trains of up to 90 railcars.

Progress. The Progress mining complex includes four surface mines,

including the Upper Big Branch and Twilight MTR surface mines, a highwall miner

and a direct-ship railroad load out. All production from the highwall miner and

two of the surface mines is processed through a coal handling system and

transported via underground conveyor to the Elk Run resource group for

processing and rail shipment. Another surface mine trucks direct-ship coal to

the rail loadout, located on the CSX railroad and trucks the coal requiring

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processing to the Independence resource group.

Rawl. The Rawl complex includes two active underground room and pillar

mines, one surface mine and the Sprouse Creek processing plant. The mines

transport coal to the Sprouse Creek plant via truck. In addition, a contract

mine and two purchased-coal sources ship coal to the Sprouse Creek plant via

truck. The Sprouse Creek plant has a throughput capacity of 1450 tons per hour.

Customers are served via the Norfolk Southern railway with unit trains of up to

150 railcars.

7

Stirrat. The Stirrat underground room and pillar mine and preparation plant

were idled in January 2003. When in production, all coal from the underground

mine is transported via belt line to the preparation plant. The plant has a

rated capacity of 600 tons per hour. Customers are serviced via the CSX rail

system with unit trains of up to 100 railcars.

The Company decided to permanently abandon a previously idled mine at the

Stirrat resource group during the third quarter of 2002. Unamortized development

costs of approximately $2.3 million were written off in the third quarter as a

result of the mine closure. For further discussion, please see Note 2 to the

Consolidated Financial Statements, "Impairment of Long-Lived Assets."

Kentucky Resource Groups

Long Fork. The Long Fork preparation plant processes coal produced by the

adjacent Solid Energy underground room and pillar mine and Rockhouse longwall

mine of the Sidney resource group. All production is transported via conveyor

system to the Long Fork preparation plant. The Long Fork plant has a rated

capacity of 1500 tons per hour. The rail loading facility services customers on

the Norfolk Southern railway with unit trains of up to 150 railcars.

Martin County. Martin County includes one underground mine, a surface mine,

a highwall miner and a preparation plant. The direct-ship portion of the

production from the surface mine and highwall miner is shipped to river docks

via truck. The balance of the coal is transported by conveyor belt to the

preparation plant for processing. Martin County's preparation plant has a

throughput capacity of 1500 tons per hour. All coal from the preparation plant

is shipped via the Norfolk Southern railway in unit trains of up to 125

railcars.

New Ridge. The New Ridge complex loads clean coal that is transported via

truck from the Big Creek preparation plant of Massey's Sidney resource group.

The New Ridge preparation plant, idled in April, 2002, has a throughput capacity

of 800 tons per hour. All coal is loaded for shipment to customers via the CSX

rail system in unit trains of up to 100 railcars.

Sidney. The Sidney complex includes five underground room and pillar mines,

the Rockhouse longwall mine, a surface mine, a highwall miner, the Big Creek

preparation plant and the Sandlick direct-ship loadout facility. Two of the

underground mines transport coal via underground conveyor to the Long Fork

resource group for processing and shipment, and the remainder of the mines

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transport production via underground conveyor or truck to the Big Creek

preparation plant. A portion of the coal from the plant and the direct-ship coal

from the surface mine is trucked to the Sandlick loadout and to the New Ridge

resource group for loading into railroad cars. The Big Creek preparation plant

has a throughput capacity of 1500 tons per hour. The rail loading facility at

the preparation plant and the direct-ship facility both serve customers on the

Norfolk Southern rail system with unit trains of up to 140 railcars.

During the third quarter of 2002, Sidney closed a mine and decided to

forego mining the final section of reserves. Unamortized development costs of

approximately $1.7 million were written off as a result of the mine closure. For

further discussion, please see Note 2 to the Consolidated Financial Statements,

"Impairment of Long-Lived Assets."

Virginia Resource Group

Knox Creek. Knox Creek includes the Tiller No. 1 underground room and

pillar mine and a preparation plant. Production from the mine is belted directly

to the preparation plant. The plant has a feed capacity of 650 tons per hour.

The preparation plant serves customers on the Norfolk Southern rail system with

unit trains of up to 100 railcars.

The following chart lists the active mines, by type, at the Company's

resource groups.

Underground

Resource Group Surface Mine Mine Total

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

Black Castle 1 (1HW) 0 1

Delbarton 0 1 1

Elk Run 0 4 4

Green Valley 0 2 2

Independence 0 4 (1 LW) 4

Logan County 5 (3 HW) 2 (1 LW) 7

Marfork 0 4 4

Nicholas Energy 1 (1 HW) 1 2

Performance 0 1 (1 LW) 1

Progress 4 (1 HW) 0 4

Rawl 1 2 3

Martin County 1 (1 HW) 1 2

Sidney 1 6 (1 LW) 7

Knox Creek 0 1 1

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

Total 14 29 43

LW - longwall mine

HW - highwall miners operated in conjunction with surface mines

8

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Other Related Operations

Massey has other related operations and activities in addition to its

normal coal production and sales business. The following business activities are

included in this category:

Appalachian Synfuel Plant: Marfork Coal Company, Inc., a subsidiary of the

Company, manages the Appalachian Synfuel facility under an operating agreement.

Marfork receives fees for the operation of the facility. The Appalachian Synfuel

facility processes coal fines (waste coal or crushed coal comprised of

particles, the majority of which, by size, are no larger than 3/8 inch) into a

pelletized coal product. See Note 5 to the Consolidated Financial Statements for

further information regarding Appalachian Synfuel, LLC.

Westvaco Coal Handling Facility: Massey subsidiaries own and operate the

coal unloading, storage and conveying facilities at Westvaco Corporation's paper

manufacturing facility in Covington, Virginia ("Westvaco CHF"). The Westvaco CHF

was constructed by Massey in 1992 as a means of reducing coal transportation and

handling costs for Westvaco Corporation, a long term industrial coal customer.

The Westvaco CHF operating agreement extends through 2007, and provides for

Massey to be paid a per ton fee (annually adjusted) for coal handling services

and allows Massey to supply 100% of the coal required by Westvaco's facility.

Eastman Chemical Company Coal Handling System: Massey subsidiaries own and

operate coal unloading, storage and conveying facilities at Eastman Chemical

Company's facility in Kingsport, Tennessee (the "Eastman CHS"). The Eastman CHS

was constructed by Massey subsidiaries and went into service in September 2002.

The Eastman CHS operating agreement extends through 2017 and provides that

Massey will be paid certain fixed and/or per ton fees for leasing equipment,

coal handling services and for operating and maintaining the Eastman CHS.

Other: Massey also engages in the sale of certain non-strategic assets such

as timber, oil and gas rights, as well as the sale of non-strategic surface

properties and reserves.

Marketing and Sales

The Massey marketing and sales force, based in the corporate office in

Richmond, Virginia, includes sales managers, distribution/traffic managers and

administrative personnel.

During the year ended December 31, 2002, Massey sold 42.1 million tons of

produced coal for total produced coal revenue of $1.3 billion. The breakdown of

produced tons sold by market served was 65% utility, 26% metallurgical and 9%

industrial. Sales were concluded with over 125 customers. Export shipments

(including Canada) represented approximately 14% of 2002 tonnage sold. Massey's

2002 export shipments serviced customers in 7 countries across North America,

South America and Europe. Almost all sales are made in U.S. dollars, which

eliminates foreign currency risk.

The Company has established several contractual arrangements with customers

wherein services other than coal supply are provided on an ongoing basis. Such

other services include coal handling and coal consignment services. Examples of

such arrangements, none of which is considered to be material, include:

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o The Westvaco CHF and the Eastman CHS (described above). The Company

derives less than 1% of its total revenue through the coal handling

services it provides in connection with the Westvaco CHF arrangement.

The Company receives a $/mmBtu price for providing all of the coal and

the transportation and handling of the coal to the Westvaco CHF. The

Company derives less than 1% of its total revenue through the Eastman

CHS, which became operational in September 2002. The Company receives

coal handling, facility maintenance and facility lease fees at the

Eastman CHS.

o At three steel companies and numerous industrial plants, Massey

subsidiaries coordinate shipment of coal to the customers' stockpiles,

maintain ownership of the coal inventory on site and sell tonnage to

the customers as it is consumed, the point at which title to the coal

is transferred to the purchasers.

Other services of the type described herein are provided periodically in

response to the current needs of each individual customer.

Distribution

Massey employs transportation specialists who negotiate freight and

terminal agreements with various providers, including railroads, barge lines,

steamship lines, bulk motor carriers and terminal facilities. Transportation

specialists also coordinate with customers, mining facilities and transportation

providers to establish shipping schedules that meet the customer's needs.

Massey's 2002 shipments of 42.1 million tons were loaded from 19 mining

complexes. Rail shipments constituted 91% of total shipments, with 33% loaded on

Norfolk Southern trains and 58% loaded on CSX trains. The 9% balance was shipped

from Massey mining complexes via truck.

9

Approximately 14% of Massey's production is ultimately delivered via the

inland waterway system. Coal is transported by rail or truck to docks on the

Ohio, Big Sandy and Kanawha Rivers and then ultimately transported by barge to

electric utilities, integrated steel producers and industrial consumers served

by the inland waterway system. Massey also moves approximately 8% of its

production to Great Lakes Ports for transport beyond to various U.S. and

Canadian customers.

Customers and Coal Contracts

Massey has coal supply commitments with a wide range of electric utilities,

steel manufacturers, industrial customers and energy traders and brokers. The

majority of Massey's customers purchase coal for terms of one year or longer,

but Massey also supplies coal on a spot basis for some of its customers.

Massey's biggest customer, affiliates of DTE Energy Corporation, accounted for

12% of Massey's total fiscal year 2002 produced coal revenue. In addition, sales

to Duke Energy Corporation and its affiliate, Duke Energy Merchants, a Massey

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customer for over thirty years with agreements in place to supply coal through

June 2003, accounted for 11% of Massey's total fiscal year 2002 produced coal

revenue.

Massey has contracts to supply coal to energy trading and brokering

companies under which those companies sell such coal to the ultimate users.

During 2002, the creditworthiness of the energy trading and brokering companies

with which we do business declined, increasing the risk that we may not be able

to collect payment for all coal sold and delivered to or on behalf of these

energy trading and brokering companies. To mitigate credit-related risks in all

customer classifications, Massey maintains a credit policy, which requires

scheduled reviews of customer creditworthiness and continuous monitoring of

customer news events which might have an impact on their financial condition.

Negative credit performance or events may trigger the application of tighter

terms of sale, requirements for collateral or, ultimately, a suspension of

credit privileges.

As the largest supplier of metallurgical coal to the American steel

industry, Massey is subject to being adversely affected by any decline in the

financial condition or production volume of American steel producers. In recent

years, American steel producers experienced a substantial decline in the prices

received for their products, due at least in part to a heavy volume of foreign

steel imported into this country. The United States government determined that

some steel producers in some foreign countries were selling steel products in

the United States at below cost and has imposed certain tariffs on products from

various foreign countries. The imposition of the tariffs has led to a moderate

increase in the price of some steel products in the United States. However,

several large American producers filed for bankruptcy protection both before and

after the tariffs were imposed, including two substantial customers of Massey:

Wheeling-Pittsburgh Steel Corporation, which filed for bankruptcy protection in

late 2000, accounted for approximately 3% of the Company's produced coal revenue

in 2002, and Bethlehem Steel Corporation, which filed for bankruptcy protection

in mid-2001, accounted for approximately 2% of the Company's produced coal

revenue in 2002. In addition, Algoma Steel, Inc., a Canadian steel producer and

a customer of Massey, filed for bankruptcy protection under Canadian law. Sales

to Algoma accounted for approximately 2% of the Company's produced coal revenue

for 2002. We continue to sell to these financially stressed customers on very

restrictive terms. Further deterioration in conditions in the steel industry

could reduce the demand for Massey's metallurgical coal and impact the

collectibility of Massey's accounts receivable from steel industry customers.

Since Massey's metallurgical grade coal can also be marketed as a high-Btu steam

coal for use by utilities, a decline in the metallurgical market could result in

coal being switched from the metallurgical market to the utility market.

As is customary in the coal industry, Massey continually enters into

long-term contracts (exceeding one year in duration) with many of its customers.

These arrangements allow customers to secure a supply for their future needs and

provide Massey with greater predictability of sales volume and sales prices. For

the year ended December 31, 2002, approximately 94% of our coal sales volume was

pursuant to long-term contracts. The Company believes that in 2003, the

percentage of sales pursuant to long-term arrangements will be comparable with

the percentage of sales for 2002. Please see Item 7A., Quantitative and

Qualitative Discussions, about Market Risk for further discussion on managing

Massey's commodity price risk through the use of long-term coal supply

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agreements.

By offering coal of both metallurgical and steam grades, Massey is able to

serve a diverse customer base. This market diversity allows Massey to adjust to

changing market conditions and sustain high sales volumes.

The terms of Massey's long-term contracts are a result of extensive

negotiations with the customer. As a result, the terms of these contracts vary

with respect to price adjustment mechanisms, pricing terms, permitted sources of

supply, force majeure provisions, quality adjustments and other parameters. Most

of the contracts contain price adjustment mechanisms that allow for changes to

prices based on statistics from the U.S. Department of Labor. Contracts contain

specifications for coal quality, which may be especially stringent for steel

customers. Many of these contracts also specify the approved locations from

which the coal is to be mined.

For 2003, we expect to produce 40 to 45 million tons of coal. In addition,

the Company purchases coal from third-party coal producers from time to time to

supplement production and resells this coal to its customers. As of December 31,

2002, the Company had commitments to purchase 2.0 million tons during 2003 and

0.7 million tons in 2004 and 2005. The following table sets forth, as of

February 28, 2003, the total tons of coal the Company is committed to deliver at

prices that are determined under existing contracts during calendar years 2003

through 2007.

10

Tons of Coal to be Delivered

(in millions of tons)

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

2003 2004 2005 2006 2007

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

Volume under existing contracts.......... 38.0 16.3 11.5 5.9 4.4

Competition

The coal industry in the United States is highly competitive. Massey

competes with other large producers and many small coal producers. Massey

competes with other producers primarily on the basis of price, coal quality,

transportation cost and reliability of supply. Continued demand for coal is also

dependent on factors outside Massey's control, including demand for electricity,

environmental and governmental regulations, weather, technological developments

and the availability and cost of alternative fuel sources.

The price at which the Company's production can be sold is dependent upon a

variety of factors, many of which are beyond the Company's control. The Company

sells coal under long-term contracts and on the spot market. See the "Customers

and Coal Contracts" section above. Generally, the relative competitiveness of

coal vis-a-vis other fuels or other coals is evaluated on a delivered cost per

heating value unit basis. In addition to competition from other fuels, coal

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quality, the marginal cost of producing coal in various regions of the country

and transportation costs are major determinants of the price for which the

Company's production can be sold. Factors that directly influence production

cost include geological characteristics (including seam thickness), overburden

ratios, depth of underground reserves, transportation costs and labor

availability and cost. The Company's Central Appalachian coal is more expensive

to mine than western coal because there is a high percentage of underground coal

in the east and eastern surface coal tends to have thinner coal seams.

Additionally, underground mining has higher labor (including reserves for future

costs associated with labor benefits and health care) and capital (including

modern mining equipment and construction of extensive ventilation systems) costs

than those of surface mining. In recent years, increased development of large

surface mining operations, particularly in the western United States, and more

efficient mining equipment and techniques, have contributed to excess coal

production capacity in the United States. Competition resulting from excess

capacity has encouraged producers to reduce prices and to pass productivity

gains through to customers. The lower production cost in the western mines is

offset somewhat by the higher quality of many eastern coals and higher

transportation cost from these western mines to many coal-fired power plants in

the country. Demand for the Company's low sulfur coal and the prices that the

Company will be able to obtain for it will also be affected by the price and

availability of high sulfur coal, which can be marketed in tandem with emissions

allowances. Intraregional and interregional competition is keen as producers

seek to position themselves as the low-cost producer and supplier of high-demand

product to the electricity generating industry.

Transportation costs are another fundamental factor affecting coal industry

competition. Coordination of the many eastern loadouts, the large number of

small shipments, terrain and labor issues all combine to make shipments

originating in the eastern United States inherently more expensive on a per-mile

basis than shipments originating in the western United States. Historically,

coal transportation rates from the western coal producing areas into Central

Appalachian markets limited the use of western coal in those markets. More

recently, however, lower rail rates from the western coal producing areas to

markets served by eastern producers have created major competitive challenges

for eastern producers. Barge transportation is the lowest cost method of

transporting coal long distances in the eastern United States, and the large

numbers of eastern producers with river access keep coal prices competitive. The

Company believes that many utilities with plants located on the Ohio River

system are well positioned for deregulation as competition for river shipments

should remain high for Central Appalachian coal. The Company believes that with

close proximity to competitively-priced Central Appalachian coal and the ability

to receive western coals, utilities with plants located on the Ohio River system

will become price setters in a deregulated environment. The ability of these

utilities to blend western and eastern coal will also create a new, dynamic fuel

procurement environment that could place western and eastern coals in even

greater competition and limit rail price premiums. River transport is an

important transportation option not available to Powder River Basin producers

between Wyoming and midwestern river terminals.

Although undergoing significant consolidation, the coal industry in the

United States remains highly fragmented. There can be no assurance that the

Company's costs will permit it to compete effectively with other producers

seeking to provide coal to a customer; however, it is the Company's goal to

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reduce production costs, offer a variety of products and have access to multiple

transportation systems that will enable it to compete effectively with other

producers.

Employees and Labor Relations

As of December 31, 2002, Massey had 4,552 employees, including 171

employees affiliated with the United Mine Workers of America. Relations with

employees are generally good, and there have been no material work stoppages in

the past ten years.

Environmental, Safety and Health Matters

Massey is subject to federal, state and local laws and regulations relating

to environmental protection and plant and mine safety and health, including but

not limited to the federal Surface Mining Control and Reclamation Act of 1977;

Occupational Safety and Health Act; Mine Safety and Health Act of 1977; Water

Pollution Control Act, as amended by the Clean Water Act; the Clean Air Act;

Black Lung Benefits Revenue Act of 1977; and Black Lung Benefits Reform Act of

1977. Massey is rarely subject to permitting or enforcement under Resource

Conservation and Recovery Act ("RCRA") or the Comprehensive Environmental

11

Response, Compensation, and Liability Act ("CERCLA") and does not consider the

effects of those statutes on its operations to be material for purposes of

disclosure. Additional disclosure regarding the Clean Air Act and the Clean

Water Act is found under the "Business Risks" subsections entitled "The Clean

Air Act affects Massey's customers and could influence their purchasing

decisions" and "Massey is subject to the Clean Water Act which imposes

monitoring and reporting obligations". Additional disclosure concerning black

lung benefits is found under the "Business Risks" subsection entitled

"Governmental regulations increase Massey's costs and may discourage customers

from buying Massey's coal."

SMCRA. The Surface Mining Control and Reclamation Act ("SMCRA"), which is

administered by the Office of Surface Mining Reclamation and Enforcement,

establishes mining, environmental protection and reclamation standards for all

aspects of surface mining as well as many aspects of deep mining. SMCRA and

similar state statutes require, among other things, the restoration of mined

property in accordance with specified standards and an approved reclamation

plan. In addition, the Abandoned Mine Land Fund, which is part of the Surface

Mining Control and Reclamation Act, imposes a fee on all current mining

operations, the proceeds of which are used to restore mines closed before 1977.

The maximum tax is $0.35 per ton on surface-mined coal and $0.15 per ton on

deep-mined coal. A mine operator must submit a bond or otherwise secure the

performance of these reclamation obligations. Mine operators must receive

permits and permit renewals for surface mining operations from the Office of

Surface Mining Reclamation and Enforcement or, where state regulatory agencies

have adopted federally approved state programs under the act, the appropriate

state regulatory authority. The Company accrues for reclamation and mine-closing

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liabilities. It accrues for the costs of current mine disturbance and final mine

closure, including the cost of treating mine water discharge as coal is mined,

on a unit-of-production basis over the proven and probable reserves as defined

in Industry Guide 7.

On March 29, 2002, the U.S. District Court for the District of Columbia

issued a ruling that could restrict underground mining activities conducted in

the vicinity of public roads, within a variety of federally protected lands,

within national forests and within certain proximity to occupied dwellings. The

lawsuit, Citizens Coal Council v. Norton, was filed in February 2000 to

challenge regulations issued by the Department of Interior providing, among

other things, that subsidence and underground activities that may lead to

subsidence are not surface mining activities within the meaning of SMCRA. SMCRA

generally contains restrictions and certain prohibitions on the locations where

surface mining activities can be conducted. The District Court entered summary

judgment upon the plaintiff's claims that the Secretary of the Interior's

determination violated SMCRA. By order dated April 9, 2002, the court remanded

the regulations to the Secretary of the Interior for reconsideration. The

significance of this decision for the coal mining industry remains unclear

because this ruling is subject to appellate review. The Department of Interior

and the National Mining Association, a trade group that intervened in this

action, sought a stay of the order pending appeal to the U.S. Court of Appeals

for the District of Columbia Circuit and the stay was granted. If the District

Court's decision is not overturned, or if some legislative solution is not

enacted, this ruling could have a material adverse effect on all coal mine

operations that utilize underground mining techniques, including those of the

Company. While it still may be possible to obtain permits for underground mining

operations in these areas, the time and expense of that permitting process are

likely to increase significantly.

Black Lung. The U.S. Department of Labor has issued a final rule amending

the regulations implementing the federal black lung laws which, among other

things, establish a presumption in favor of a claimant's treating physician and

limit a coal operator's ability to introduce medical evidence regarding the

claimant's medical condition. The amendments could have an adverse impact on

Massey, the extent of which cannot be accurately predicted. Further discussion

is set forth below in Business Risks--Government regulations increase Massey's

costs and may discourage customers from buying Massey's coal.

Clean Water Act. Section 301 of the Clean Water Act prohibits the discharge

of a pollutant from a point source into navigable waters except in accordance

with a permit issued under either Section 402 or Section 404 of the Clean Water

Act. Navigable waters are broadly defined to include streams, even those that

are not navigable in fact, and may include wetlands. All mining operations in

Appalachia generate excess material, which must be placed in fills in adjacent

valleys and hollows. Likewise, coal refuse disposal areas and coal processing

slurry impoundments are located in valleys and hollows. Almost all of these

areas contain intermittent or perennial streams, which are considered navigable

waters. An operator must secure a Clean Water Act permit before filling such

streams. For approximately the past twenty-five years, operators have secured

Section 404 fill permits to authorize the filling of navigable waters with

material from various forms of coal mining. Operators have also obtained permits

under Section 404 for the construction of slurry impoundments although the use

of these impoundments, including discharges from them, requires permits under

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Section 402. Section 402 discharge permits are generally not suitable for

authorizing the construction of fills in navigable waters.

On May 8, 2002, the United States District Court for the Southern District

of West Virginia issued an order in Kentuckians for the Commonwealth v.

Rivenburgh enjoining the Huntington, West Virginia office of the U.S. Army Corps

of Engineers from issuing permits under Section 404 of the Clean Water Act for

the construction of valley fills for the disposal of overburden from mountaintop

mining operations solely for the purpose of waste disposal. The court held that

the filling of these waters solely for waste disposal is a violation of the

Clean Water Act. The court's injunction also prohibits the issuance of permits

authorizing fill activities associated with types of mining activities other

than mountaintop mining where the primary purpose or use of those fill

activities is the disposal of waste. Such activities might include those

associated with slurry impoundments and coal refuse disposal areas.

12

On January 29, 2003, the Fourth Circuit Federal Court of Appeals reversed

the district court's decision and lifted the injunction. The time for filing a

possible appeal has not yet expired. If the decision of the Court of Appeals

were reversed and the injunction reinstated, the effect would be to make

mountaintop mining uneconomical in those areas subject to the injunction and

call into question the ability of the Company to obtain permits with respect to

other mining activities that use valley fills.

In January 2002, a number of environmental groups and individuals filed

suit in the U.S. District Court for the Southern District of West Virginia to

challenge the U.S. Environmental Protection Agency's ("EPA's") approval of West

Virginia's antidegradation implementation policy. Under the federal Clean Water

Act, state regulatory authorities must conduct an antidegradation review before

approving permits for the discharge of pollutants to waters that have been

designated as high quality by the state. Antidegradation review involves public

and intergovernmental scrutiny of permits and requires permittees to demonstrate

that the proposed activities are justified in order to accommodate significant

economic or social development in the area where the waters are located. The

plaintiffs in this lawsuit, Ohio Valley Environmental Coalition v. Whitman,

challenge provisions in West Virginia's antidegradation implementation policy

that exempt current holders of National Pollutant Discharge Elimination System

(NPDES) permits and Section 404 permits, among other parties, from the

antidegradation-review process. The Company is exempt from antidegradation

review under these provisions. Revoking this exemption and subjecting the

Company to the antidegradation review process could delay the issuance or

reissuance of Clean Water Act permits to the Company or cause these permits to

be denied. If the plaintiffs are successful and if the Company discharges into

waters that have been designated as high-quality by the state, the costs, time

and difficulty associated with obtaining and complying with Clean Water Act

permits for surface mining could increase.

Clean Air Act. The Clean Air Act and corresponding state laws extensively

regulate emissions into the air of particulate matter and other substances,

including sulfur dioxide, nitrogen oxides and mercury. Although these

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regulations apply directly to impose certain requirements for the permitting and

operation of Massey's mining facilities, by far their greatest impact on Massey

and the coal industry generally is the effect of emission limitations on

utilities and other Massey customers. Owners of coal-fired power plants and

industrial boilers have been required to expend considerable resources in an

effort to comply with these ambient air standards. Significant additional

emissions control expenditures will be needed in order to meet the current

national ambient air standard for ozone. In particular, coal-fired power plants

will be affected by state regulations designed to achieve attainment of the

ambient air quality standard for ozone. Ozone is produced by the combination of

two precursor pollutants: volatile organic compounds and nitrogen oxides.

Nitrogen oxides are a by-product of coal combustion. Accordingly, emissions

control requirements for new and expanded coal-fired power plants and industrial

boilers will continue to become more demanding in the years ahead. The EPA has

imposed or attempted to impose tighter emission restrictions in a number of

areas, some of which are currently subject to litigation. The general effect of

such tighter restrictions could be to reduce demand for coal. In July 1997, the

EPA adopted new, more stringent National Ambient Air Quality Standards for very

fine particulate matter and ozone. The Court of Appeals for the District of

Columbia issued an opinion in May 1999 limiting the manner in which the EPA can

enforce these standards. After a request by the federal government for a

rehearing by the Court of Appeals was denied, the Supreme Court agreed in

January 2000 to review the case. On February 27, 2001, the Supreme Court found

in favor of the EPA in material part and remanded the case to the Court of

Appeals. On remand, the Court of Appeals for the D.C. Circuit affirmed the EPA's

adoption of these more stringent ambient air quality standards. As a result of

the finalization of these standards, states that are not in attainment for these

standards will have to revise their State Implementation Plans to include

provisions for the control of ozone precursors and/or particulate matter.

Revised State Implementation Plans could require electric power generators to

further reduce nitrogen oxide and particulate matter emissions. The potential

need to achieve such emissions reductions could result in reduced coal

consumption by electric power generators. Thus, future regulations regarding

ozone, particulate matter and other pollutants could restrict the market for

coal and the development of new mines by the Company. This in turn may result in

decreased production by the Company and a corresponding decrease in the

Company's revenue. Although the future scope of these ozone and particulate

matter regulations cannot be predicted, future regulations regarding these and

other ambient air standards could restrict the market for coal and the

development of new mines.

Furthermore, in October 1998, the EPA finalized a rule that will require 19

states in the Eastern United States that have ambient air quality problems to

make substantial reductions in nitrogen oxide emissions by the year 2004. The

final rule was largely upheld by the United States Court of Appeals for the

District of Columbia Circuit. To achieve reductions in nitrogen oxide emissions

by 2004, many power plants would be required to install additional control

measures such as capital-intensive selective catalytic reduction (SCR) devices.

The installation of these measures would make it more costly to operate

coal-fired power plants and, depending on the requirements of individual state

implementation plans, could make coal a less attractive fuel. In addition,

reductions in nitrogen oxide emissions can be achieved at a low capital cost

through a combination of low nitrogen oxide burners and coal produced in western

U.S. coal mines. As a result, changes in current emissions standards could also

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impact the economic incentives for eastern U.S. coal-fired power plants to

consider using more coal produced in western U.S. coal mines.

Along with these regulations addressing ambient air quality, the EPA has

initiated a regional haze program designed to protect and to improve visibility

at and around National Parks, National Wilderness Areas and International Parks.

This program restricts the construction of new coal-fired power plants whose

operation may impair visibility at and around federally protected areas.

Moreover, this program may require certain existing coal-fired power plants to

install additional control measures designed to limit haze-causing emissions,

such as sulfur dioxide, nitrogen oxides and particulate matter. EPA's final rule

concerning best available retrofit technology (BART) is currently on remand to

the Agency from the United States Court of Appeals for the District of Columbia

Circuit. By imposing limitations upon the placement and construction of new

coal-fired power plants, the EPA's regional haze program could affect the future

market for coal.

13

Additionally, the U.S. Department of Justice, on behalf of the EPA, has

filed lawsuits against several investor-owned electric utilities and brought an

administrative action against one government-owned electric utility for alleged

violations of the Clean Air Act. The EPA claims that these utilities have failed

to obtain permits required under the Clean Air Act for alleged major

modifications to their power plants. The Company supplies coal to some of the

currently affected utilities, and it is possible that other of the Company's

customers will be sued. These lawsuits could require the utilities to pay

penalties and install pollution control equipment or undertake other emission

reduction measures, which could adversely impact their demand for coal.

Other Clean Air Act programs are also applicable to power plants that use

the Company's coal. For example, the acid rain control provisions of Title IV of

the Clean Air Act require a reduction of sulfur dioxide emissions from power

plants. Because sulfur is a natural component of coal, required sulfur dioxide

reductions can affect coal mining operations. Title IV imposes a two-phase

approach to the implementation of required sulfur dioxide emissions reductions.

Phase I, which became effective in 1995, regulated the sulfur dioxide emissions

levels from 261 generating units at 110 power plants and targeted the highest

sulfur dioxide emitters. Phase II, implemented January 1, 2000, made the

regulations more stringent and extended them to additional power plants,

including all power plants of greater than 25 megawatt capacity. Affected

electric utilities can comply with these requirements by:

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

sulfur coal;

o installing pollution control devices such as scrubbers, which reduce

the emissions from high sulfur coal;

o reducing electricity generating levels; or

o purchasing or trading emission credits.

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Specific emissions sources receive these credits that electric utilities

and industrial concerns can trade or sell to allow other units to emit higher

levels of sulfur dioxide. Each credit allows its holder to emit one ton of

sulfur dioxide.

In addition to emissions control requirements designed to control acid rain

and to attain the national ambient air quality standards, the Clean Air Act also

imposes standards on sources of hazardous air pollutants. Although these

standards have not yet been extended to coal mining operations, the EPA recently

announced that it will regulate hazardous air pollutants from coal-fired power

plants. Under the Clean Air Act, coal-fired power plants will be required to

control hazardous air pollution emissions by no later than 2009. These controls

are likely to require significant new improvements in controls by power plant

owners. The most prominently targeted pollutant is mercury, although other

by-products of coal combustion may be covered by future hazardous air pollutant

standards for coal combustion sources. However, the introduction of mercury

emissions limits could place coal produced in western U.S. mines at a

competitive disadvantage to coal produced in eastern U.S. mines, as current

mercury-removal technology is more effective on eastern U.S. coal. EPA has

announced that it intends to issue a proposed rule concerning maximum achievable

control technology (MACT) for utilities by December 2003.

Other proposed initiatives may have an effect upon coal operations. Several

so-called multi-pollutant bills, which could regulate a variety of air

emissions, including carbon dioxide and mercury, have been proposed. One such

proposal is the Bush Administration's recently announced Clear Skies initiative.

As proposed, this initiative is designed to reduce emissions of sulfur dioxide,

nitrogen oxides and mercury from power plants. Senator James Jeffords has also

introduced a bill that would place tight caps on coal-fired emissions, including

mandatory limits on carbon dioxide emissions, and require shorter implementation

time frames. While the details of these proposed initiatives vary, there is

clearly a movement towards increased regulation of air emissions, including

carbon dioxide and mercury, which could cause power plants to shift away from

coal as a fuel source.

The Bush administration recently pledged $2 billion to the Clean Coal

Technology (CCT) Program. The CCT Program is a government and industry co-funded

effort to demonstrate a new generation of innovative coal-utilization processes

in a series of "showcase" facilities built across the country. These projects

are carried out in sufficiently large scale to prove commercial worthiness and

generate data for design, construction, operation, and technical/economic

evaluation of full -scale commercial applications. The goal of the CCT Program

is to furnish the U.S. energy marketplace with advanced, more efficient

coal-based technologies, technologies that are capable of mitigating some of the

economic and environmental impediments that inhibit the use of coal as an energy

source.

1992 Framework Convention on Global Climate Change. The United States has

not implemented the 1992 Framework Convention on Global Climate Change (the

"Kyoto Protocol"), which is intended to limit or reduce emissions of greenhouse

gases, such as carbon dioxide. Under the terms of the Kyoto Protocol, which

specific emission targets vary from country to country, the United States would

be required to reduce emissions to 93% of 1990 levels over a five-year period

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from 2008 through 2012. Although the United States has not ratified the emission

targets and no comprehensive regulations focusing on greenhouse gas emissions

are in place, these restrictions, whether through ratification of the emission

targets or other efforts to stabilize or reduce greenhouse gas emissions, could

adversely affect the price and demand for coal. In March 2001, President Bush

reiterated his opposition to the Kyoto Protocol and further stated that he did

not believe that the government should impose mandatory carbon dioxide emission

reductions on power plants. In February 2002, President Bush announced a new

approach to climate change, confirming the Administration's opposition to the

14

Kyoto Protocol and proposing voluntary actions to reduce the greenhouse gas

intensity of the United States. Greenhouse gas intensity measures the ratio of

greenhouse gas emissions, such as carbon dioxide, to economic output. The

President's climate change initiative calls for a reduction in greenhouse gas

intensity over the next 10 years which is approximately equivalent to the

reduction that has occurred over each of the past two decades.

Massey Operations - Permitting; Compliance. Massey's operations are

principally regulated under surface mining permits issued pursuant to the SMCRA

and state counterpart laws. Such permits are issued for terms of five years with

the right of successive renewal. Massey currently has over 400 surface mining

permits. In conjunction with the surface mining permits, most operations hold

National Pollutant Discharge Elimination System permits pursuant to the Clean

Water Act and state counterpart water pollution control laws for the discharge

of pollutants to waters. These permits are issued for terms of five years and

also are renewed in conjunction with the surface mining permit renewals.

Additionally, the federal Clean Water Act requires permits for operations that

fill waters of the United States. Valley fills and refuse impoundments are

typically authorized under Nationwide Permits that are revised and renewed

periodically by the U.S. Corps of Engineers. Additionally, certain surface mines

and preparation plants have permits issued pursuant to the Clean Air Act and

state counterpart clean air laws allowing and controlling the discharge of air

pollutants. These permits are primarily permits allowing initial construction

(not operation) and they do not have expiration dates.

Massey believes it has obtained all the permits required for its current

operations under the SMCRA, the Clean Water Act and the Clean Air Act and

corresponding state laws. Massey believes that it is in compliance in all

material respects with such permits, and routinely corrects in a timely fashion

violations of which it receives notice in the normal course of operations. See

Section 3, Legal Proceedings, for a discussion of orders issued to the Company's

subsidiaries to show cause why certain permits should not be revoked or

suspended for alleged violations of surface mining laws. The expiration dates of

the permits are largely immaterial as the law provides for a right of successive

renewal. The cost of obtaining surface mining, clean water and air permits can

vary widely depending on the scientific and technical demonstrations that must

be made to obtain the permits. However, the cost of obtaining a permit is rarely

more than $500,000 and of obtaining a renewal is rarely more than $5,000. It is

impossible to predict the full impact of future judicial, legislative or

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regulatory developments on Massey's operations because the standards to be met,

as well as the technology and length of time available to meet those standards,

continue to develop and change.

In 2002, Massey spent approximately $6.9 million to comply with

environmental, health and safety laws and regulations, none of which

expenditures were capitalized. Massey anticipates making $13.1 million and $12.3

in such non-capital expenditures in 2003 and 2004, respectively. Of these

expenditures, $6.6 million, $11.6 million and $10.7 million for 2002, 2003 and

2004, respectively, were or are anticipated to be for surface reclamation.

The Company believes, based upon present information available to it, that

its accruals with respect to future environmental costs are adequate. For

further discussion on costs, see Note 10 to Notes to Consolidated Financial

Statements. However, the imposition of more stringent requirements under

environmental laws or regulations, new developments or changes regarding site

cleanup costs or the allocation of such costs among potentially responsible

parties, or a determination that the Company is potentially responsible for the

release of hazardous substances at sites other than those currently identified,

could result in additional expenditures or the provision of additional accruals

in expectation of such expenditures.

Business Risks

Coal markets are highly competitive and affected by factors beyond Massey's

control

Massey competes with coal producers in various regions of the United States

for domestic sales and with both domestic and overseas producers for sales to

international markets. Continued demand for Massey's coal and the prices that it

will be able to obtain primarily will depend upon coal consumption patterns of

the domestic electric utility industry and the domestic steel industry.

Consumption by the domestic utility industry is affected by the demand for

electricity, environmental and other governmental regulations, technological

developments and the price of competing coal and alternative fuel supplies

including nuclear, natural gas, oil and renewable energy sources, including

hydroelectric power. Consumption by the domestic steel industry is primarily

affected by the demand for U.S. steel. Massey's sales of metallurgical coal are

dependent on the continued financial viability of domestic steel companies and

their ability to compete with steel producers abroad.

Coal prices are affected by a number of factors and may vary dramatically by

region

Coal prices are influenced by a number of factors and may vary dramatically

by region. The two principal components of the price of coal are the price of

coal at the mine, which is influenced by mine operating costs and coal quality,

and the cost of transporting coal from the mine to the point of use. The cost of

mining the coal is influenced by geologic characteristics such as seam

thickness, overburden ratios and depth of underground reserves. Underground

mining is generally more expensive than surface mining as a result of high

capital costs, including costs for modern mining equipment and construction of

extensive ventilation systems and higher labor costs due to lower productivity.

Massey currently engages in four principal coal mining techniques: underground

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"room and pillar" mining, underground longwall mining, surface mining and

highwall mining. Because underground longwall mining, surface mining and

highwall mining are high-productivity, low-cost mining methods, Massey seeks to

increase production from its use of these methods to the extent permissible and

cost effective. The Company presently operates 29 active underground mines,

including four longwall mines, and 14 active surface mines.

15

Massey depends on continued demand from its customers

Reduced demand from Massey's largest customers could have an adverse impact

on Massey's ability to achieve its projected revenue. When Massey's contracts

with its customers reach expiration, there can be no assurance that the

customers either will extend or enter into new long-term contracts or, in the

absence of long-term contracts, that they will continue to purchase the same

amount of coal as they have in the past or on terms, including pricing terms, as

favorable as under existing agreements.

Union represented labor creates an increased risk of work stoppages and

higher labor costs

At December 31, 2002, less than 5% of Massey's total workforce was

represented by the United Mine Workers of America. Seven of Massey's coal

processing plants and one of its smaller surface mines have a workforce that is

represented by a union. In fiscal 2002, these seven processing plants handled

approximately 35% of Massey's coal production. There may be an increased risk of

strikes and other related work actions, in addition to higher labor costs,

associated with these operations. Massey has experienced some union organizing

campaigns at some of its open shop facilities within the past five years. If

some or all of Massey's current open shop operations were to become union

represented, Massey could incur additional risk of work stoppages and higher

labor costs.

Transportation disruptions could impair Massey's ability to sell coal

Massey's transportation providers are important in order to provide access

to markets. Disruption of transportation services because of weather-related

problems, strikes, lockouts or other events could temporarily impair Massey's

ability to supply coal to customers.

The State of West Virginia has recently increased enforcement of weight

limits on coal trucks on its public roads. Also, recently enacted legislation,

which raised coal truck weight limits in West Virginia, includes provisions

supporting enhanced enforcement. Although Massey has historically avoided public

road trucking of coal, when possible, by transporting coal by rail, barge and

conveyor systems, such stepped up enforcement actions could result in shipment

delays and increased costs.

Recently, certain of Massey's subsidiaries, among others, have been named

as defendants in a lawsuit alleging that the defendants illegally transport coal

in overloaded trucks causing damage to state roads and interfering with the

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plaintiffs' use and enjoyment of their properties and their right to use the

public roads, and seeking injunctive relief and damages. See Item 3, Legal

Proceedings for further discussion of this litigation.

Fluctuations in transportation costs could affect the demand for Massey's

coal

Transportation costs represent a significant portion of the delivered cost

of coal and, as a result, the cost of delivery is a critical factor in a

customer's purchasing decision. Increases in transportation costs could make

coal a less competitive source of energy. Such increases could have a material

adverse effect on Massey's ability to compete with other energy sources and on

its business, financial condition and results of operations. On the other hand,

significant decreases in transportation costs could result in increased

competition from coal producers in other parts of the country. For instance,

coal mines in the western United States could become an attractive source of

coal to consumers in the eastern part of the country if the costs of

transporting coal from the west were significantly reduced.

Foreign currency fluctuations could adversely affect the competitiveness of

Massey's coal abroad

Massey relies on customers in other countries for a portion of its sales,

with shipments to countries in Europe, North America, South America and Asia.

Massey competes in these international markets against coal produced in other

countries. Coal is sold internationally in U.S. dollars. As a result, mining

costs in competing producing countries may be reduced in U.S. dollar terms based

on currency exchange rates, providing an advantage to foreign coal producers.

Currency fluctuations in producing countries could adversely affect the

competitiveness of U.S. coal in international markets.

Coal mining is subject to inherent risks

Massey's operations are subject to certain events and conditions which

could disrupt operations, including fires and explosions from methane,

accidental minewater discharges, natural disasters, equipment failures and

maintenance problems, flooding, changes in geologic conditions, failure of

reserve estimates to prove correct and inability to acquire mining rights or

permits. Massey maintains business interruption insurance and property and

general liability insurance policies that provide limited coverage for some, but

not all, of these risks. Even where insurance coverage applies, there can be no

assurance that these risks would be fully covered by Massey's insurance

policies.

Government regulations increase Massey's costs and may discourage customers

from buying Massey's coal

Numerous governmental permits and approvals are required for coal mining

operations. Massey may be required to prepare and present to federal, state and

local authorities more extensive data describing the effect or impact that any

proposed mining operations may have upon the environment. For example, the West

Virginia Division of Environmental Protection is involved in litigation

regarding its alleged failure to consider the hydrologic effects of mining

operations in issuing mining permits. This suit could lead to additional

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requirements that Massey and other mining companies assess potential hydrologic

risks. These and any other increased requirements may be costly and

time-consuming and may delay commencement or continuation of mining operations.

16

New legislation and new regulations may be adopted which could materially

adversely affect Massey's mining operations, cost structure or its customers'

ability to use coal. New legislation and new regulations may also require Massey

or its customers to change operations significantly or incur increased costs.

The EPA has undertaken broad initiatives aimed at increasing compliance with

emissions standards and to provide incentives to customers for decreasing

emissions, often by switching to an alternative fuel source.

Under federal black lung benefits legislation, each coal mine operator is

required to make payments of black lung benefits or contributions to: (i)

current and former coal miners totally disabled from black lung disease; (ii)

certain survivors of a miner who dies from black lung disease; and (iii) a trust

fund for the payment of medical expenses to claimants whose last mine employment

was before January 1, 1970, where no responsible coal mine operator has been

identified for claims (where a miner's last coal employment was after December

31, 1969), or where the responsible coal mine operator has defaulted on the

payment of such benefits. In recent years, legislation on black lung reform has

been introduced but not enacted in Congress. It is possible that this

legislation will be reintroduced for consideration by Congress. If any of the

proposals included in this or similar legislation is passed, the number of

claimants who are awarded benefits could significantly increase. Any such

changes in black lung legislation, if approved, could adversely affect Massey's

business, financial condition and results of operations.

In addition, the United States Department of Labor issued a final rule,

effective January 19, 2001, amending the regulations implementing federal black

lung laws. The amendments give greater weight to the opinion of the claimant's

treating physician, expand the definition of black lung disease and limit the

amount of medical evidence that can be submitted by claimants and respondents.

The amendments also alter administrative procedures for the adjudication of

claims, which, according to the Department of Labor, result in streamlined

procedures that are less formal, less adversarial and easier for participants to

understand. These and other changes to the black lung regulations could

potentially increase Massey's exposure to black lung benefits liabilities. The

Company, with the help of its consulting actuaries, intends to monitor claims

activity very closely and will modify the assumptions underlying the projection

of its black lung liability should the results of such monitoring indicate it

appropriate to do so. The National Mining Association challenged the amendments

in the United States District Court for the District of Columbia. On August 9,

2001, the Court lifted a temporary injunction blocking the Labor Department's

processing of black lung benefit claims after dismissing the National Mining

Association's challenge to the amendments and upheld the new regulations. The

National Mining Association ("NMA") appealed this decision to the United States

Court of Appeals for the District of Columbia Circuit. By opinion dated June 14,

2002, the Court found that the Department of Labor exceeded its authority by

allowing judges to shift costs for expert witnesses from the claimant to the

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employer, even if the claimant was unsuccessful. The Court further found that

certain provisions of the rule which applied to pending claims were

impermissibly retroactive. However, the Court denied NMA's appeal in all other

material respects. NMA did not seek review of this decision by the United States

Supreme Court.

The West Virginia legislature failed to pass a workers' compensation bill

that was sponsored by the employer community to address growing issues

surrounding the solvency of the state's workers' compensation program in the

legislative session that ended on March 8, 2003. Employer premiums are the

primary source of revenue to cover program costs. Therefore, both subscribing

employers to the state workers compensation fund as well as self-insured

employers who pay premiums to cover the cost of second injury claims could face

significant premium increases effective July 1, 2003 to help the state system

meet its workers' compensation program obligations unless reform legislation is

passed in a special session or unless new sources of revenue are identified. As

Massey's West Virginia operations are either subscribers to the state fund or

self-insured employers, the outcome of this issue may increase Massey's workers'

compensation costs in West Virginia.

The Clean Air Act affects Massey's customers and could influence their

purchasing decisions

The Clean Air Act and corresponding state laws extensively regulate

emissions into the air of particulate matter and other substances, including

sulfur dioxide, nitrogen oxides and mercury. See Item 1, Environmental, Safety

and Health Matters, for further discussion on the Clean Air Act. In order to

comply with limitations on emissions, Massey's customers may switch to other

fuels or coal from other regions.

The passage of legislation responsive to the Framework Convention on Global

Climate Change could have an adverse effect on Massey's business

The United States has not implemented the 1992 Framework Convention on

Global Climate Change ("Kyoto Protocol") which is intended to limit emissions of

greenhouse gases, such as carbon dioxide. See Item 1, Environmental, Safety and

Health Matters, for further discussion on the Kyoto Protocol. However,

continuing international and federal efforts to control greenhouse gas emissions

could result in reduced use of coal if electric power generators switch to lower

carbon sources of fuel.

Massey is subject to the Clean Water Act which imposes monitoring and

reporting obligations

The federal Clean Water Act affects coal mining operations by imposing

restrictions on discharge of pollutants into waters and dredging and filling of

wetlands. See Item 1, Environmental, Safety and Health Matters, for further

discussion on the Clean Water Act. Regular monitoring, as well as compliance

with reporting requirements and performance standards, are preconditions for the

issuance and renewal of permits governing the discharge of pollutants into

water.

Deregulation of the electric utility industry could lead to efforts to reduce

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coal prices

Deregulation of the electric utility industry, when implemented, will

enable industrial, commercial and residential customers to shop for the lowest

cost supply of electricity. This fundamental change in the power industry may

result in efforts to reduce coal prices.

17

Massey is subject to being adversely affected by the potential inability to

renew or obtain surety bonds

Federal and state laws require bonds to secure the Company's obligations to

reclaim lands used for mining, to pay federal and state workers' compensation,

and to satisfy other miscellaneous obligations. These bonds are typically

renewable annually. Surety bond issuers and holders may not continue to renew

the bonds or may demand additional collateral upon those renewals. The Company's

failure to maintain, or inability to acquire, surety bonds that are required by

state and federal law would have a material adverse effect on us. That failure

could result from a variety of factors including the following:

o Lack of availability, higher expense or unfavorable market terms of

new bonds;

o Restrictions on availability of collateral for current and future

third-party surety bond issuers under the terms of our senior notes or

revolving credit facilities; and

o The exercise by third-party surety bond issuers of their right to

refuse to renew the surety.

Severe weather may affect Massey's ability to mine and deliver coal

Severe weather, including flooding and excessive ice or snowfall, when it

occurs, can adversely affect Massey's ability to produce, load and transport

coal.

Shortages of skilled labor in the Central Appalachian coal industry may pose

a risk to achieving high labor productivity and competitive costs

Coal mining continues to be a labor intensive industry. In 2001, a shortage

of trained coal miners developed in the Central Appalachian region. The lack of

skilled miners could have an adverse impact on Massey's labor productivity and

cost and its ability to expand production.

Massey is subject to being adversely affected by a decline in the financial

condition and creditworthiness of the companies with which it does business

Massey has contracts to supply coal to energy trading and brokering

companies under which those companies sell such coal to the ultimate users.

Massey is subject to being adversely affected by any decline in the financial

condition and credit worthiness of these energy trading and brokering companies.

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As the largest supplier of metallurgical coal to the American steel industry,

Massey is subject to being adversely affected by any decline in the financial

condition or production volume of American steel producers. See the "Customers

and Coal Contracts" section of Item 1, Business, for further discussion.

Item 2. Properties

Operations of Massey and its subsidiaries are conducted in both owned and

leased properties totaling approximately 900,000 acres in West Virginia,

Kentucky, Virginia and Tennessee. In addition, certain owned or leased

properties of Massey and its subsidiaries are leased or subleased to third party

tenants. Massey's current practice is to obtain a title review from a licensed

attorney prior to purchasing or leasing property. It generally has not obtained

title insurance in connection with acquisitions of coal reserves. In many cases,

property title is warranted by the seller or lessor. Separate title confirmation

sometimes is not required when leasing reserves where mining has occurred

previously. Massey and its subsidiaries currently own or lease the equipment

that is utilized in their mining operations. The following table describes the

location and general character of the major existing facilities, exclusive of

mines, coal preparation plants and their adjoining offices.

Administrative Offices:

Richmond, Virginia Owned Massey Corporate Headquarters

Charleston, West Virginia Leased Massey Coal Services Headquarters

Coal Reserves

Massey estimates that, as of December 31, 2002, it had total recoverable

reserves of approximately 2.2 billion tons consisting of both proven and

probable reserves. "Reserves" are defined by Securities and Exchange Commission

Industry Guide 7 as that part of a mineral deposit which could be economically

and legally extracted or produced at the time of the reserve determination.

"Recoverable" reserves means coal that is economically recoverable using

existing equipment and methods under federal and state laws currently in effect.

Approximately 1.5 billion tons of Massey's reserves are classified as proven

reserves. "Proven (Measured) Reserves" are defined by Securities and Exchange

Commission Industry Guide 7 as 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. The remaining 0.7 billion tons of Massey's

reserves are classified as probable reserves. "Probable reserves" are defined by

Securities and Exchange Commission Industry Guide 7 as reserves for which

quantity and grade and/or quality are computed from information similar to that

used for proven (measured) reserves, but the sites for inspection, sampling, and

measurement are farther apart or are otherwise less adequately spaced. The

degree of assurance, although lower than that for proven (measured) reserves, is

high enough to assume continuity between points of observation.

18

Information about Massey's reserves consists of estimates based on

engineering, economic and geological data assembled and analyzed by its internal

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engineers, geologists and finance associates. Reserve estimates are updated

annually using geologic data taken from drill holes, adjacent mine workings,

outcrop prospect openings and other sources. Coal tonnages are categorized

according to coal quality, seam thickness, mineability and location relative to

existing mines and infrastructure. In accordance with applicable industry

standards, proven reserves are those for which reliable data points are spaced

no more than 2,700 feet apart. Probable reserves are those for which reliable

data points are spaced 2,700 feet to 7,900 feet apart. Further scrutiny is

applied using geological criteria and other factors related to profitable

extraction of the coal. These criteria include seam height, roof and floor

conditions, yield and marketability.

As with most coal-producing companies in Central Appalachia, the majority

of Massey's coal reserves are controlled pursuant to leases from third party

landowners. These leases convey mining rights to the coal producer in exchange

for a per ton or percentage of gross sales price royalty payment to the lessor.

However, a significant portion of Massey's reserve holdings are owned and

require no royalty or per ton payment to other parties. The average royalties

for coal reserves from our producing properties (owned and leased) was

approximately 4.2% of produced coal revenue for the year ended December 31,

2002.

The following table provides proven and probable reserve data by "status"

(i.e., location, owned or leased, assigned or unassigned, etc.) as of December

31, 2002:

Recoverable reserves (in thousands of tons)(1)

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

Location Total Proven Probable Assigned(2) Unassigned Owned Leased

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

Resource Groups:

West Virginia

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

Delbarton Mingo County 310,332 139,036 171,297 155,343 154,989 10,394 299,938

Black Castle Boone County 53,214 37,817 15,397 35,899 17,315 - 53,214

Eagle Energy Boone County - - - - - - -

Elk Run Boone County 78,148 39,083 39,064 64,975 13,173 6,233 71,914

Green Valley Nicholas County 9,117 9,117 - 8,197 920 - 9,117

Independence Boone County 58,994 57,662 1,331 54,084 4,910 6,344 52,649

Logan County Logan County 89,457 89,457 - 45,871 43,586 - 89,457

Marfork Raleigh County 73,221 72,713 508 40,214 33,006 551 72,670

Nicholas Energy Nicholas County 108,107 98,197 9,910 66,116 41,991 67,487 40,620

Omar Boone County 35,946 16,400 19,546 - 35,946 2,229 33,717

Performance Raleigh County 38,192 38,192 - 37,446 746 38,192 -

Progress Boone County 92,748 83,862 8,885 92,748 - 30,914 61,834

Rawl Mingo County 113,460 82,742 30,718 64,994 48,466 1,420 112,040

Stirrat Logan County 5,482 3,595 1,886 422 5,060 - 5,482

Kentucky

- --------

Long Fork Pike County 5,616 3,273 2,343 610 5,006 - 5,616

Martin County Martin County 46,752 22,854 23,899 9,146 37,606 1,589 45,163

New Ridge Pike County - - - - - - -

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Sidney Pike County 162,703 105,679 57,024 135,390 27,313 8,771 153,932

Virginia

- --------

Knox Creek Tazewell Co. 54,333 39,913 14,420 34,509 19,824 - 54,333

Other N/A 91,683 45,149 46,534 25,187 66,495 25,904 65,779

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

Subtotal 1,427,505 984,741 442,762 871,151 556,352 200,028 1,227,475

Land Management Companies:(3)

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

Boone Co., WV

Black King Raleigh, WV 60,764 60,764 395 60,368 23,037 37,727

Boone Co., WV

Boone East Kanawha, WV 212,483 173,639 38,845 89,682 122,802 93,755 118,728

Boone Co., WV

Boone West Logan Co., WV 258,397 100,924 157,473 10,595 247,802 67,128 191,269

Ceres Land Raleigh, WV 12,397 10,142 2,255 - 12,397 - 12,397

Lauren Land Mingo Co., WV 142,640 94,383 48,257 11,447 131,194 20,360 122,281

Logan Co., WV

New Market Wyoming, WV 60,202 23,708 36,494 - 60,202 6,030 54,172

Raleigh, WV

Raven Resources Boone Co., WV 31,890 21,893 9,997 - 31,890 - 31,890

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

Subtotal 778,773 485,453 293,321 112,119 666,655 210,310 568,464

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

Total 2,206,278 1,470,194 736,083 983,270 1,223,007 410,338 1,795,939

================================================================================================

19

Notes:

(1) Recoverable reserves represent 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 under current law. Reserve information reflects a moisture

factor of 6.5%. This moisture factor represents the average moisture present on

the Company's delivered coal.

(2) Assigned Reserves represent recoverable reserves that are dedicated to a

specific permitted mine. Otherwise, the reserves are considered Unassigned.

(3) Land management companies are Massey subsidiaries whose primary purposes are

to acquire and hold Massey's reserves.

The categorization of the "quality" (i.e., sulfur content, Btu, coal type,

etc.) of Massey's coal reserves is as follows:

Recoverable Reserves (in thousands of tons except Average Btu as received)(1)

Sulfur content

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

Recoverable Average BTU as

Reserves +1% -1% Compliance(2) received Coal Type(3)

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

Resource Groups:

West Virginia

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

Delbarton 310,332 119,784 190,549 138,830 13,476 Low Sulfur Utility

Low Sulfur Industrial

Black Castle 53,214 8,454 44,760 37,819 12,552 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Eagle Energy - - - - - N/A

Elk Run 78,148 16,526 61,622 51,704 13,210 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Green Valley 9,117 - 9,117 9,117 12,903 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Independence 58,994 7,455 51,539 8,801 13,011 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Logan County 89,457 18,492 70,965 51,240 12,889 Low Sulfur Utility

Low Sulfur Industrial

Marfork 73,221 33,803 39,418 17,064 13,602 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Nicholas Energy 108,107 50,991 57,116 28,387 12,579 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Omar 35,946 16,045 19,901 444 12,937 Low Sulfur Utility

Low Sulfur Industrial

Performance 38,192 5,188 33,004 19,792 13,752 High Vol Met

Progress 92,748 11,460 81,287 60,309 11,880 Low Sulfur Utility

Low Sulfur Industrial

Rawl 113,460 36,870 76,589 53,876 12,784 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Stirrat 5,482 - 5,482 5,482 13,087 High Vol Met

Low Sulfur Utility

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Low Sulfur Industrial

Kentucky

--------

Long Fork 5,616 3,728 1,888 - 12,809 Low Sulfur Utility

Low Sulfur Industrial

Martin County 46,752 35,888 10,864 3,515 12,724 Low Sulfur Utility

Low Sulfur Industrial

New Ridge - - - - - N/A

Sidney 162,703 63,165 99,538 63,639 13,170 Low Sulfur Utility

Low Sulfur Industrial

High Vol Met

Virginia

--------

Knox Creek 54,333 - 54,333 54,333 13,351 High Vol Met

Low Sulfur Utility

Low Sulfur Industrial

Other 91,683 27,433 64,249 58,000 12,999 Various

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

Subtotal 1,427,504 455,282 972,221 662,352

20

Land Management Companies: (4)

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

Black King 60,764 37,821 22,942 19,730 12,365 High Vol Met

Low Sulfur Utility

Boone East 212,483 37,299 175,184 60,831 13,202 High Vol Met

Low Sulfur Utility

Low Vol Met

Boone West 258,397 137,300 121,097 81,277 13,047 High Vol Met

Low Sulfur Utility

Ceres Land 12,397 3,807 8,589 8,589 13,730 High Vol Met

Low Sulfur Utility

Lauren Land 142,640 45,123 97,517 79,772 13,137 High Vol Met

Low Sulfur Utility

New Market Land 60,202 5,046 55,156 55,156 14,423 Low Vol Met

High Vol Met

Raven Resources 31,890 18,483 13,407 4,069 13,683 High Vol Met

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

Subtotal 778,773 284,879 493,892 309,424

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

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Total 2,206,278 740,161 1,466,113 971,776

===========================================================

Notes:

(1) Reserve information reflects a moisture factor of 6.5%. This moisture factor

represents the average moisture present on the Company's delivered coal.

(2) Compliance coal is any coal that emits less than 1.2 pounds of sulfur

dioxide per million Btu when burned. Compliance coal meets sulfur emission

standards imposed by Title IV of the Clean Air Act.

(3) Reserve holdings include metallurgical coal reserves. Although these

metallurgical coal reserves receive the highest selling price in the current

coal market when marketed to steel-making customers, they can also be marketed

as an ultra high Btu, low sulfur steam coal for electricity generation.

(4) Land management companies are Massey subsidiaries whose primary purposes are

to acquire and hold Massey's reserves.

21

The following map shows the locations of Massey's properties:

[MAP]

See Item 1. Business, of this report for additional information regarding

the coal operations and properties of Massey.

Item 3. Legal Proceedings

Shareholder Derivative Suit

On August 5, 2002, a shareholder derivative complaint was filed in the

Boone County, West Virginia, Circuit Court naming as defendants the Company,

each of the Company's directors (including Don L. Blankenship, Chairman,

President and Chief Executive Officer), James L. Gardner, Executive Vice

President and Chief Administrative Officer, Jeffrey M. Jarosinski, Vice

President -Finance and Chief Financial Officer, Madeleine M. Curle, Vice

President - Human Resources, and Bennett K. Hatfield, former Executive Vice

President and Chief Operating Officer. The complaint alleges (i) breach of

fiduciary duties against all of the defendants for refusing to cause the Company

to comply with environmental, labor and securities laws, and (ii) improper

insider trading by Don L. Blankenship, Jeffrey M. Jarosinski, Madeleine M. Curle

and Bennett K. Hatfield. The Company and the other defendants removed the case

to Federal District Court in Charleston, West Virginia, but the case has now

been remanded to the Boone County Circuit Court. The case is still in very early

procedural stages. The Company intends to vigorously pursue defense of this

case.

Force Majeure Litigation

The impoundment failure at Martin County on October 11, 2000 (See Martin

County Impoundment Discharge below in this Item 3), caused the destruction of

the raw coal beltline feeding the preparation plant and led to the immediate

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closure of the slurry impoundment by order of regulatory authorities. As a

result, coal could not be processed through the Martin County preparation plant

and the Company was unable to fully meet its coal sales commitments. The

preparation plant was closed for six (6) months until April 2001 when it

partially resumed operation after limited alternate slurry disposal methods were

approved by the regulatory agencies. The preparation plant was expected to

process over one million shippable tons during the period it was shut down.

Martin County was able to send some of its coal to Massey's Rawl Sales &

Processing Co. subsidiary's Sprouse Creek preparation plant for processing.

22

In addition to the impoundment failure, Massey's operations experienced

various other force majeure events in 2000 and 2001, including:

o Adverse geological conditions in several of the Company's longwall

mines, including severe roof falls that forced the closure of the

Upper Cedar Grove mine of the Independence resource group, flooding

conditions in the Marfork resource group's Ellis Eagle mine, adverse

sandstone intrusions in both the Ellis Eagle and Performance resource

group's Upper Big Branch longwall mines, and a significant roof fall

on the mainline belt and other adverse conditions at the Nicholas

Energy resource group's Jerry Fork longwall;

o Various weather related problems in May, June and July, 2001 which

caused power outages and flooding at several Massey operations;

o Various underground disruptions such as a roof fall that curtailed

transportation of coal from the Independence resource group's Hernshaw

mine to the Elk Run resource group's Chess Processing preparation

plant for approximately six weeks, and subsidence at the Twilight

surface mine of the Progress resource group that covered a highwall

miner for more than three weeks; and

o Labor shortages, especially in trained and qualified underground

workers, particularly electricians.

As a result, Massey declared events of force majeure under a number of its

contracts and sent reduced shipments to its affected customers. The Company was

able to resolve most shortfalls with its customers without dispute. However, the

following disputes occurred:

On April 16, 2002, Appalachian Power Company, a subsidiary of American

Electric Power, filed suit against Massey's subsidiaries Central West

Virginia Energy Company, Massey Coal Sales Company, Inc. and A.T. Massey

Coal Company, Inc. in the Franklin County, Ohio Court of Common Pleas. The

suit alleges that we improperly claimed force majeure with respect to a

tonnage shortfall under our agreements with Appalachian Power in 2000 and

2001. The complaint further alleges that our claim of force majeure

constitutes fraud, and seeks to recover profits made by us on sales to

other customers of the coal Appalachian Power claims should have been

delivered to it. By order entered July 25, 2002, the court dismissed the

fraud claim, however, on December 20, 2002, the court granted Appalachian

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Power leave to file a second amended complaint to reassert the fraud claim.

The trial for this matter is currently scheduled for April 28, 2003.

Discovery is ongoing and Appalachian Power has indicated on a preliminary

basis that it intends to seek approximately $20.3 million in damages.

On December 14, 2001, Duke Energy made a demand for arbitration,

disputing our claim that an event of force majeure had occurred and

claiming $20.5 million in damages resulting from coal tonnage shortfalls.

On January 23, 2003, the arbitrators awarded Duke Energy $10.6 million on

its claim, which was recorded as a charge to cost of produced coal revenue

in the fourth quarter of 2002.

Clean Water Act Proceeding

On August 30, 2002, charges were filed in the United States District Court

for the Southern District of West Virginia alleging that Massey's Independence

and Omar subsidiary operations had negligently violated the Clean Water Act. On

December 16, 2002, Independence and Omar each pled guilty to the charges and

each agreed to pay a $200,000 fine and to a probation period of five years for

the violations. Sentencing was completed accordingly on March 12, 2003.

Harman Case

On July 31, 1997, the Company acquired United Coal Company and its

subsidiary, Wellmore Coal Corporation ("Wellmore"). Wellmore was party to a coal

supply agreement (the "CSA") with Harman Mining Corporation and certain of its

affiliates ("Harman"), pursuant to which Harman sold coal to Wellmore. In

December 1997, Wellmore declared force majeure under the CSA and reduced the

amount of coal to be purchased from Harman as a result thereof. Wellmore

declared force majeure because its major customer for the coal purchased under

the CSA was forced to close its Pittsburgh, Pennsylvania coke plant due to

regulatory action. The Company subsequently sold Wellmore, but retained

responsibility for any claims relating to this declaration of force majeure. In

June 1998, Harman filed a breach of contract action against Wellmore in Buchanan

County, Virginia, Circuit Court. Harman claimed that Wellmore breached the CSA

by declaring a force majeure event and reducing the amount of coal to be

purchased from Harman. On August 24, 2000, a jury found that Wellmore had

breached its contract and awarded Harman $6 million in damages. After

unsuccessfully pursuing an appeal, on November 12, 2002, Massey paid Harman $6.0

million plus post-judgment interest of approximately $1.2 million, in full

satisfaction of the judgment.

On October 29, 1998, Harman and its sole shareholder, Hugh Caperton, filed

a separate action against Massey and certain of its subsidiaries in Boone

County, West Virginia, Circuit Court, alleging that Massey and its subsidiaries

tortiously interfered with Harman's contract with Wellmore and, as a result,

caused Harman to go out of business. On August 1, 2002, the jury in the case

awarded the plaintiffs $50 million in compensatory and punitive damages. Massey

is vigorously pursuing post-judgment remedies, and various motions filed in the

trial court have been fully briefed and argued. Massey will appeal to the West

Virginia Supreme Court of Appeals, if necessary. The Company accrued a liability

with respect to these cases of $31.0 million, excluding interest, which the

Company believes is a fair estimate of the eventual total payout relating to

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both the Virginia and West Virginia actions. After the payment of the Virginia

verdict, the remaining accrual is $25.0 million as of December 31, 2002, which

is included in "Other current liabilities."

23

Water Claims Litigation

Two cases were filed in the Mingo County, West Virginia Circuit Court

alleging that Massey's Delbarton subsidiary's mining activities destroyed nearby

resident plaintiffs' water supplies. One case was filed on behalf of 54

plaintiffs on July 26, 2002, and the other was filed on behalf of 134 plaintiffs

on July 1, 2002. Delbarton has already provided many of the plaintiffs with a

replacement water source. These cases are in early procedural stages and the

trial is scheduled for October 2003.

Elk Run Dust Case

On February 2, 2001, approximately 160 residents of the Town of Sylvester,

West Virginia, filed suit in the Circuit Court of Boone County, West Virginia

against the Company and its subsidiary, Elk Run Coal Company, Inc., alleging

that Elk Run's operations create noise, light and dust constituting a nuisance

and causing damage to the community and seeking to recover compensatory and

punitive damages. On February 7, 2003, a jury awarded approximately $475,000 in

compensatory damages to the plaintiffs but rejected the plaintiffs' request for

punitive damages. The plaintiffs' claim for attorneys' fees is pending. Upon

entry of a final order, either party has four months to appeal the case to the

West Virginia Supreme Court of Appeals. At Decemeber 31, 2002, the Company had

recorded reserves for the verdict and the Company's best estimate of the

plantiffs' claim for attorneys' fees.

West Virginia Flooding Cases

Five of the Company's subsidiaries have been named, among others, in 17

separate complaints filed in Boone, Fayette, Kanawha, McDowell, Mercer, Raleigh

and Wyoming Counties, West Virginia. These cases collectively include numerous

plaintiffs who filed suit on behalf of themselves and others similarly situated,

seeking damages for property damage and personal injuries arising out of

flooding that occurred in southern West Virginia in July of 2001. The plaintiffs

have sued coal, timber, railroad and land companies under the theory that

mining, construction of haul roads and removal of timber caused natural surface

waters to be diverted and interrupted in an unnatural way, thereby causing

damage to the plaintiffs. The West Virginia Supreme Court has ruled that these

cases, including several additional flood damage cases not involving the

Company's subsidiaries, be handled pursuant to the Court's Mass Litigation

rules. As a result of this ruling, the cases have been transferred to the

Circuit Court of Raleigh County in West Virginia to be handled by a panel

consisting of three circuit court judges. The panel will, among other things,

determine whether the individual cases should be consolidated or returned to

their original circuit courts. While the outcome of this litigation is subject

to uncertainties, based on our preliminary evaluation of the issues and the

potential impact on us, we believe this matter will be resolved without a

material adverse effect on our cash flows, financial condition or results of

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operations.

Sidney Spill

On April 9, 2002, the rupture of a pipe at Massey's Sidney Coal Company,

Inc. subsidiary caused the discharge of approximately 135,000 gallons of coal

slurry into a tributary stream of the Big Sandy River in eastern Kentucky. On

April 23, 2002, the WVDEP filed a civil action against the Company and its

subsidiary, Massey Coal Services, Inc., in connection with the coal slurry

discharge. The lawsuit seeks unspecified damages to compensate for the alleged

destruction of natural resources and the state's costs in responding to the

spill, civil penalties and punitive damages. We are defending this action

vigorously.

Preparation Plant Employees Litigation

Several subsidiaries of the Company, along with several other coal

companies and several chemical companies, are defendants in an action styled

Denver Pettry, et al. v. Peabody Holding Company, et al., filed April 17, 2002

in the Circuit Court of Boone County, West Virginia, in which the plaintiffs

allege that they were excessively exposed to chemicals used in the coal

preparation plants of the defendant coal companies, which were manufactured by

the defendant chemical companies. The plaintiffs are attempting to attain class

action status. The Company believes it has significant defenses to the claims,

and is defending the case vigorously. The case is in early stages of discovery.

On July 25, 2002, one of the Company's insurer's filed a declaratory

judgment action in the U.S. District Court for the Eastern District of Virginia,

seeking a declaration that it has no duty to defend or indemnify the Massey

companies in the Pettry action. On October 2, 2002, the Massey companies filed

suit seeking a declaratory judgment in the Circuit Court of Boone County, West

Virginia against that insurer and others that provided policies to the Massey

companies that may cover the Pettry claims, and filed a motion to dismiss the

action filed in Virginia. On February 25, 2003, the U.S. District Court for the

Eastern District of Virginia entered an order dismissing the Virginia case. The

West Virginia insurance litigation is also in early stages of discovery.

Dotco Energy Company

On June 14, 1999, Dotco Energy Company, Inc. filed suit against Rawl Sales

& Processing Co., a subsidiary of the Company, in the Circuit Court of Pike

County, Kentucky, alleging that Rawl miscalculated the payment that should have

been made to Dotco for coal delivered to Rawl from years 1980 through 1996, when

Dotco was a contract miner for Rawl. The complaint alleges that the wrongful

calculations resulted in nonpayment for 263,117 tons of coal, for which

allegedly $4,736,109 is due. The complaint also alleged fraud and asserted a

claim for punitive damages. Subsequent rulings by the Court dismissed the fraud

claim and the claim for punitive damages. Rawl has asserted a counterclaim for

advances in the amount of $375,862. The Company believes Rawl has valid defenses

to the claim and is defending the case vigorously. Trial is scheduled to begin

July 22, 2003.

Environmental Show Cause Orders

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Regulatory authorities implementing SMCRA may order surface mining permit

holders to "show cause" why their permits should not be suspended or revoked

because of alleged patterns of violations. A pattern of violations can be found

when there are two or more violations of a same or similar type within a

12-month period. Under these "show cause orders," if a pattern of violations is

found and determined to have been caused by the willful or unwarranted conduct

of the Company under the surface mining laws, its surface mining permits may be

either suspended or revoked.

Some of the Company's subsidiaries have been issued show cause orders that

are currently unresolved. The Company denies that the violations cited in the

orders were willful or unwarranted and feels that the alleged violations were

promptly remedied or abated. The Company's affected subsidiaries are vigorously

defending these enforcement actions. The Company does not expect that these

actions, either individually or collectively, will have a material impact on its

results of operations, financial position or cash flows. These proceedings are

disclosed solely because they may result in monetary sanctions of more than

$100,000. The particular proceedings affecting Massey subsidiaries are listed

below:

On June 27, 2000, the WVDEP issued an administrative order to Massey's Elk

Run Coal Company subsidiary requiring Elk Run either to suspend operations for

three days beginning July 17, 2000 or expend $100,000 on local community

improvement projects. The order was based on alleged violations of the surface

mining laws relating to dust, and Elk Run appealed the order to the West

Virginia Surface Mining Board. On October 25, 2000 the West Virginia Surface

Mining Board upheld the order. Elk Run has appealed the Surface Mining Board's

order to the Kanawha Circuit Court, Charleston, West Virginia. Elk Run believes

that it has good defenses to the alleged violations.

On January 2, 2002, the West Virginia Division of Environmental Protection

("WVDEP") entered an order finding that two violations relating to water quality

constituted a pattern and suspended an idled Green Valley Coal Company refuse

area permit for three days. Green Valley obtained a stay of the order and

appealed to the West Virginia Surface Mine Board (the "Surface Mine Board"),

where the order was overturned on June 7, 2002.

24

On January 14, 2002, WVDEP entered an order finding that seven violations

relating to water quality constituted a pattern and suspended operations on

Marfork Coal Company, Inc.'s refuse impoundment permit for 14 days. Marfork

obtained a stay of enforcement of the order pending appeal to the Surface Mine

Board, which heard the appeal, and on June 27, 2002, reduced the suspension to

nine days. Marfork appealed the Surface Mine Board decision to the Circuit Court

of Raleigh County, which stayed the suspension pending appeal. Subsequently, on

December 23, 2002, the circuit court reversed the order on the grounds that

Marfork was not given an unbiased hearing by the WVDEP and remanded the matter

to WVDEP for a new hearing. WVDEP has not yet set a new hearing or appealed the

circuit court order.

On February 19, 2002, WVDEP issued an order to Omar Mining Company to show

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cause why its permit for a refuse area and preparation plant should not be

suspended or revoked due to an alleged pattern of four notices of violation and

two cessation orders relating to drainage control and effluent limits. Omar had

a hearing to show cause on January 13 and 14, 2003, but WVDEP has not yet issued

its decision.

On April 22, 2002, WVDEP entered an order to Independence Coal Company

finding that: three notices of violation and three cessation orders relating to

sediment control constituted a pattern at Independence's preparation plant

permit; two notices of violation and one cessation order relating to effluent

limits, refuse placement and sediment control constituted a pattern at

Independence's Jake Gore coal refuse impoundment; and three notices of violation

and one cessation order relating to drainage control on its Justice mine permit

constituted a pattern at Independence's Justice longwall mine. WVDEP ordered a

suspension at the preparation plant for 16 days, the Jake Gore coal refuse

impoundment for 12 days and the Justice longwall mine for seven days. The

suspensions were appealed to the Surface Mine Board. On September 13, 2002, the

Surface Mine Board reduced the preparation plant permit suspension to 12 days

and overturned the suspensions related to the Jake Gore coal refuse impoundment

and the Justice longwall permits. Independence appealed the suspension of the

preparation plant permit to the Circuit Court of Boone County, West Virginia,

and the suspension has been temporarily stayed pending the circuit court's

decision. In its appeal, Independence has raised the same due process arguments

that were successful in the Marfork appeal.

On August 7, 2002, WVDEP issued an order to Massey's Green Valley Coal

Company subsidiary to show cause why its permit for an active refuse disposal

area should not be suspended or revoked due to alleged pattern of three

violations relating to sediment control. Green Valley has requested a hearing to

show cause, but a hearing has not yet been scheduled.

On September 24, 2002, WVDEP issued an order to Massey's Bandmill Coal

Corporation subsidiary to show cause why its permit for an inactive surface mine

should not be suspended or revoked due to an alleged pattern of four violations

and one cessation order relating to sediment control, effluent limits, and

hydrologic impacts. Bandmill has requested a hearing to show cause, but a

hearing has not yet been scheduled.

On October 29, 2002 WVDEP issued an order to Massey's Bandmill Coal Company

subsidiary to show cause why its permit for its refuse area should not be

suspended or revoked due to an alleged pattern relating to one cessation order

and three violations issued with respect to impacts to hydrologic balance,

effluent limits, disturbances to hydrologic balance, slurry injection and refuse

placement. Bandmill has requested a hearing to show cause, but none has been

scheduled.

On October 29, 2002 WVDEP issued an order to Massey's Alex Energy, Inc.

subsidiary to show cause why its permit for a surface mine that has completed

mining and is undergoing reclamation should not be suspended or revoked due to

an alleged pattern of three violations and one cessation order for effluent

limits and hydrologic balance requirements. Alex Energy has requested a hearing

to show cause, but none has been scheduled.

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On October 29, 2002 WVDEP issued an order to Massey's Independence Coal

Company subsidiary to show cause why its permit for its Twilight Surface Mine

should not be suspended or revoked due to an alleged pattern of ten violations

relating to off-site impacts, drainage control, disturbed acreage limitations,

soil handling, groundwater protection plans and general permit conditions.

Independence has requested a hearing to show cause, but none has been scheduled.

On November 14, 2002, WVDEP issued an order to Alex Energy's active South

Surface Mine alleging a pattern with respect to four violations and one

cessation order relating to impacts from mud and downslope placement of

material. Alex Energy has requested a hearing, but none has been scheduled.

On November 14, 2002, WVDEP issued an order to Alex Energy's active South

Surface Mine alleging a pattern with respect to seven violations concerning

sediment control, an unpermitted borehole and a leaking oil tank. Alex Energy

has requested a hearing, but none has been scheduled.

25

On January 27, 2003, the Kentucky Natural Resources and Environmental

Protection Cabinet issued a show cause order to an inactive mine site currently

undergoing reclamation at Martin County Coal Corporation. The order alleged a

pattern of violations and lists 27 violations that "contributed to" the pattern,

including eight violations for sediment control, eight violations for off-permit

disturbances, three violations relating to steep slopes standards, two

violations of backfilling/grading standards, two violations for diversions and

one violation each for contemporaneous reclamation, signs/markers, excess spoil

disposal and water quality/effluent limitations standards. The Cabinet states in

its order that it considers the sediment control, diversion, excess spoil and

water quality effluent limitation to be "related" because of impacts or

potential impacts to state waters. The violations were issued from January 19,

1999 through July 24, 2002 and it is unclear what one year time period the

pattern encompasses. The order states that the Cabinet recommends revoking the

permit and forfeiting the bond; however, based on conversations with Cabinet

officials, it appears that the Cabinet does not necessarily intend that the show

cause order impact the ability of MCCC or affiliated companies to obtain permits

in the future.

On February 18, 2003, WVDEP issued an order to Alex Energy's active North

Surface Mine alleging a pattern with respect to two citations and one cessation

order concerning sediment control and impacts to the hydrologic balance. Alex

Energy has requested a hearing, but none has been scheduled.

The potential impact on operations from a permit suspension in the show

cause proceedings varies. For example, some of the operations are not currently

mining or processing coal; therefore, a suspension at those operations would not

impact earnings. At the active operations, suspensions could impact earnings to

the extent that downtime cannot be offset by increases in production and/or coal

sales at other times or at other operations. The impact of suspensions at these

operations could also vary depending on when the suspensions are served. For

example, suspensions served over weekends or during scheduled maintenance

periods would have lesser impacts. We do not believe the impact of the

suspensions is likely to be material. We have not accrued lost profits for any

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WVDEP show cause order detailed herein because the outcome of these matters

cannot be reasonably estimated. The cost of defending these matters is not

material.

If a company has its permit revoked and its bond forfeited, it may be

prohibited from obtaining permits for future operations. Additionally, pursuant

to the ownership and control provisions of the surface mining laws, operations

affiliated with that company may also be deemed ineligible to receive new

permits. An inability to receive permits necessary to mine would be material.

The Company does not expect that any of these proceedings will result in permit

revocation or bond forfeiture.

Efforts to improve the Company's environmental performance include creating

the Public and Environmental Policy Committee of the Company's Board of

Directors on July 17, 2001. Subsequently, at the Committee's direction, the

Company has initiated environmental audits which are regularly reviewed with the

Public and Environmental Policy Committee, hired an impoundment compliance

officer and implemented an improved environmental management system.

Martin County Impoundment Discharge

On October 11, 2000, a partial failure of Massey's Martin County Coal

Corporation subsidiary's coal refuse impoundment released approximately 230

million gallons of coal slurry into adjacent underground mine workings. The

slurry then discharged into two tributary streams of the Big Sandy River in

eastern Kentucky. No one was injured in the discharge. Clean up efforts began

immediately and are complete. As of December 31, 2002, Massey incurred a total

of approximately $58.3 million of cleanup costs in connection with the spill,

$52.2 million of which have been paid directly or reimbursed by insurance

companies. Massey continues to seek insurance reimbursement of any and all

covered costs, the majority of which are recorded as a receivable in the

Company's financial statements. Most of the claims, fines, penalties and

lawsuits from the impoundment failure have been satisfied or settled. The

remaining issues (none of which is considered material) are:

(1) there are two remaining suits with 8 plaintiffs (one seeking class

certification) seeking various unquantified damages allegedly

resulting from the October 11, 2000 incident.

(2) On June 26, 2001, the WVDEP filed a civil action against Martin County

Coal in the Wayne County, West Virginia, Circuit Court alleging

natural resources damages in West Virginia and alleged violations of

law resulting from the impoundment discharge. The court ruled that

WVDEP cannot collect statutory penalties, but has not yet ruled

whether WVDEP can continue to assert its claims for punitive damages.

Massey is continuing to defend this action vigorously and believes

that it has numerous valid defenses to the claims.

(3) The Federal Mine Safety and Health Administration ("MSHA") issued

various citations following the impoundment discharge, and assessed

penalties totaling approximately $110,000. The Company has contested

the violations and penalty amount.

(4) On October 11, 2002, the Town of Fort Gay, West Virginia filed suit

against the Company and Martin County Coal Corporation, alleging that

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it's water treatment and distribution plant was damaged when water,

allegedly damaged by the discharge from the Martin County impoundment,

was pumped into the facility. Massey denies the allegations and is

defending the action vigorously.

26

The Company believes it has insurance coverage applicable to these items,

at least with respect to costs other than governmental penalties, such as those

assessed by MSHA, and punitive damages, if any. One of our carriers has stated

that it believes its policy does not provide coverage for governmental penalties

or punitive damages.

MSHA Proceedings

In September 2002, MSHA petitioned the Federal Mine Safety and Health

Commission to assess Massey's Independence Coal Company subsidiary $275,000 for

alleged violations relating to a roof fall fatality at Independence's Cedar

Grove Mine. Independence has challenged the petition before the Commission.

In October 2002, the MSHA petitioned the Federal Mine Safety and Health

Commission to assess Massey's Independence Coal Company subsidiary $165,000 for

alleged violations relating to a roof fall fatality at Independence's Justice

No. 1 Mine. Independence has challenged the petition before the Commission.

Trucking Litigation

On January 7, 2003, Coal River Mountain Watch, an advocacy group

representing local residents in the Counties of Boone, Raleigh and Kanawha, West

Virginia, and other plaintiffs, filed suit in the Circuit Court of Kanawha

County, West Virginia against various coal and transportation companies

(including various Massey subsidiaries) alleging that the defendants illegally

transport coal in overloaded trucks causing damage to state roads and

interfering with the plaintiffs' use and enjoyment of their properties and their

right to use the public roads, and seeking injunctive relief and damages

(including punitive damages).

Other Legal Proceedings

In addition, Massey and its subsidiaries, incident to their normal business

activities, are parties to a number of other legal proceedings. While Massey

cannot predict the outcome of these proceedings, it does not believe that any

liability arising from these matters individually or in the aggregate should

have a material adverse effect upon the consolidated financial position, cash

flows or results of operations of Massey. The Company also is party to numerous

lawsuits and other legal proceedings related to the non-coal businesses

previously conducted by the Company but now conducted by New Fluor. Under the

terms of the Distribution Agreement entered into by the Company and New Fluor as

of November 30, 2000, in connection with the Spin-Off of New Fluor by the

Company, New Fluor has agreed to indemnify the Company with respect to all such

legal proceedings and has assumed their defense.

Item 4. Submission of Matters to a Vote of Security Holders.

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There were no matters submitted to a vote of security holders of the

Company through a solicitation of proxies or otherwise during the fourth quarter

of the Company's fiscal year ended December 31, 2002.

27

The current executive officers of Massey are:

Don L. Blankenship, Age 52

Mr. Blankenship has been a Director since 1996 and the Chairman, Chief

Executive Officer and President of Massey since November 30, 2000. He has been

Chairman, Chief Executive Officer and President of A.T. Massey Coal Company,

Inc.(1) since 1992. He was formerly the President and Chief Operating Officer of

A.T. Massey from 1990 and President of Massey Coal Services, Inc.(2) from 1989.

He joined Rawl Sales & Processing Co.(3) in 1982. He is also Director of the

National Mining Association and the Governor's Mission West Virginia and a

member of the Norfolk Southern Advisory Board.

James L. Gardner, Age 51

Mr. Gardner has been Executive Vice President and Chief Administrative

Officer of Massey and A.T. Massey since July 1, 2002. From February 26, 2000 to

June 30, 2002, he was engaged in the private practice of law as a sole

practitioner. Mr. Gardner first joined A.T. Massey in 1993 as General Counsel

and served in that position until February 25, 2000. Mr. Gardner also served as

a director of Massey from November 30, 2000 until August 1, 2002.

H. Drexel Short, Age 46

Mr. Short has been Senior Vice President, Group Operations of Massey since

November 30, 2000. He also has been Senior Vice President, Group Operations of

A.T. Massey since May 1995. Mr. Short was formerly Chairman of the Board and

Chief Coordinating Officer of Massey Coal Services from April 1991 to April

1995. Mr. Short joined A.T. Massey in 1981.

Kenneth J. Stockel, Age 56

Mr. Stockel has been Senior Vice President and Chief Financial Officer since

December 9, 2002. Prior to joining Massey, he served as Vice President - Finance

& Administration at Sequent Energy Management in Houston, Texas, the

non-regulated asset management affiliate of AGL Resources Inc. Prior to joining

AGL Resources in 2000, Mr. Stockel was Chief Financial Officer at British Borneo

USA, also in Houston, beginning in April 1998. Previously, he held positions of

increasing responsibility in accounting and finance at Basis Petroleum and

Philipp Brothers, affiliates of Salomon Inc. in New York. He began his career in

the natural resources attestation group at Arthur Andersen in New York City.

R. Eberley Davis, Age 46

Mr. Davis has been Vice President, Secretary and General Counsel since July

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15, 2002. Prior to joining Massey, Mr. Davis served as General Counsel for

Lodestar Energy in Lexington, Kentucky. Prior to joining Lodestar in 1993 as

Director of Legal Affairs, Mr. Davis was in private practice in Sturgis,

Kentucky. He began his legal career in 1982 with the Morganfield, Kentucky law

firm of Ruark, Hulette, Arnette & Davis.

Jeffrey M. Jarosinski, Age 43

Mr. Jarosinski has been Chief Compliance Officer of Massey since December

9, 2002, and Vice President, Finance of Massey since November 30, 2000. He also

has been Vice President, Finance of A.T. Massey since September 1998. From

November 30, 2000 through December 9, 2002, Mr. Jarosinski was Chief Financial

Officer of Massey and served in the same role for A.T. Massey from September

1998 through December 9, 2002. Mr. Jarosinski was formerly Vice President,

Taxation of A.T. Massey from 1997 to August 1998 and Assistant Vice President,

Taxation of A.T. Massey from 1993 to 1997. Mr. Jarosinski joined A.T. Massey in

1988. Prior to joining A.T. Massey, Mr. Jarosinski held various positions in

accounting, most recently as Manager at Womack, Burke & Associates, CPAs in

Richmond, Virginia.

Baxter F. Phillips, Jr., Age 56

Mr. Phillips has been Vice President and Treasurer of Massey since November

30, 2000. He also has been Vice President and Treasurer of A.T. Massey since

October 2000. He has served as Vice President of A.T. Massey from January 1992

and, as Vice President, his responsibilities have encompassed purchasing, risk

management, benefits and administration. Mr. Phillips joined A.T. Massey in 1981

and, prior to his election as Vice President in 1992, served in the roles of

Corporate Treasurer, Manager of Export Sales and Corporate Human Resources

Manager. Prior to joining A.T. Massey, Mr. Phillips' background included banking

and investments.

(1) A.T. Massey Coal Company, Inc., or A.T. Massey, is a wholly-owned

subsidiary of Massey Energy Company.

(2) Massey Coal Services, Inc. is a wholly-owned subsidiary of Massey Coal

Sales Company, Inc., a wholly-owned subsidiary of A.T. Massey.

28

(3) Rawl Sales & Processing Co. is a wholly-owned subsidiary of A.T. Massey.

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

The Company's stock is listed on the New York Stock Exchange. The Company's

Common Stock trading symbol is MEE.

At February 28, 2003, there were 75,322,095 shares outstanding and

approximately 9,783 shareholders of record of Massey's common stock.

The dividends paid and the stock prices of Massey stock for the past two

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fiscal years and the two-month transition period ended December 31, 2001, is set

forth below.

The following table sets forth the high and low sales prices per share of

Common Stock on the New York Stock Exchange, based upon published financial

sources, and the dividends declared on each share of Common Stock for the

quarter indicated.

High Low Dividends

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

Fiscal Year 2001

Quarter ended January 31, 2001 (1) $ 18.10 $ 9.94 $ 0.08

Quarter ended April 30, 2001 $ 28.23 $ 17.20 $ 0.04

Quarter ended July 31, 2001 $ 22.95 $ 15.66 $ 0.04

Quarter ended October 31, 2001 $ 20.56 $ 12.25 $ 0.04

High Low Dividends

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

Fiscal Year 2002 (2)

Transition Period ended December 31, 2001 $ 20.73 $ 15.53 $ 0.00

Quarter ended March 31, 2002 $ 22.41 $ 13.45 $ 0.04

Quarter ended June 30, 2002 $ 18.70 $ 12.26 $ 0.04

Quarter ended September 30, 2002 $ 12.78 $ 5.15 $ 0.04

Quarter ended December 31, 2002 $ 10.80 $ 4.55 $ 0.04

(1) Due to the timing of the Spin-Off transaction, in December 2000, the

Company declared a first quarter dividend of $0.04 per share, payable

in January 2001. Additionally, in January 2001, the Company declared a

second quarter dividend of $0.04 per share, payable in April 2001.

(2) On January 1, 2002, Massey changed its fiscal year end from October 31

to December 31. No dividend was declared during the transition period

from October 31, 2001 to December 31, 2001.

The Company's current dividend policy anticipates the payment of quarterly

dividends in the future. The Company is restricted by its credit facilities from

declaring and paying cash dividends in excess of $0.16 per share in any fiscal

year, which dividends shall not exceed $13,000,000 in such fiscal year. There

are no other restrictions, other than those set forth under Delaware law, the

Company's state of incorporation, on the Company's ability to declare and pay

dividends. The declaration and payment of dividends to holders of Common Stock

will be at the discretion of the Board of Directors and will be dependent upon

the future earnings, financial condition, and capital requirements of the

Company.

Transfer Agent and Registrar

Mellon Investor Services LLC acts as transfer agent and registrar for the

Massey Common Stock.

Equity Compensation Plan Information

(c)

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(a) (b) Number of securities remaining

Number of securities to be Weighted-average available for future issuance

issued upon exercise of exercise price of under equity compensation plans

outstanding options, outstanding options, (excluding securities reflected

Plan Category warrants and rights warrants and rights in column (a))

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

Equity compensation plans approved by 2,314,515 $12.86 4,878,326 (1)

security holders

Equity compensation plans not

approved by security holders - - -

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

Total 2,314,515 $12.86 4,878,326

29

(1) The following plans have securities available for future issuance (refer to

column (c)): 1997 Restricted Stock Plan for Non-Employee Directors (156,576

shares remain available for annual grants of restricted stock to

non-employee directors); 1995 Non-Employee Director Stock Program (63,636

shares remain available for initial grants of restricted stock to new

non-employee directors); 1996 Executive Stock Plan (2,728,945 shares remain

available for grants of either restricted stock or options to employees);

and 1999 Executive Performance Incentive Plan (1,929,169 shares remain

available for grants of either restricted stock or options to employees).

Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA (1)

Year Ended Year Ended October 31, Two Months Ended

December 31, December 31, (5)

2002 2001 2000 1999 1998 2001 2000

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

CONSOLIDATED STATEMENT OF EARNINGS DATA:

Produced coal revenue $ 1,318.9 $ 1,203.3 $ 1,081.0 $ 1,076.1 $ 1,121.1 $ 204.8 $ 168.8

Total revenue 1,630.1 1,431.9 1,312.7 1,263.0 1,292.4 246.4 200.8

(Loss) Earnings from operations (26.7) 9.5 96.5 137.9 170.1 (19.2) (9.4)

Net (Loss) Earnings (32.6) (5.4) 78.5 102.5 128.3 (14.8) (6.7)

(Loss) earnings per share (2)

Basic and diluted (0.44) (0.07) 1.07 1.40 1.75 (0.20) (0.09)

Dividends declared per share 0.16 0.20 N/A N/A N/A - -

CONSOLIDATED BALANCE SHEET DATA:

Working capital (deficit) $ (63.4) $ (84.7) $ 164.8 $ 72.5 $ 33.7 $ (93.3) (45.7)

Total assets 2,241.4 2,271.1 2,183.8 2,008.6 1,866.6 2,272.0 2,191.2

Long-term debt 286.0 300.0 N/A N/A N/A 300.0 300.0

Shareholders' equity 808.2 860.6 1,372.5 1,275.6 1,181.2 849.5 857.5

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OTHER DATA:

EBIT $ (26.7) $ 9.5 $ 96.5 $ 137.9 $ 170.1 (19.2) (9.4)

EBITDA (3) 181.0 190.8 267.8 305.5 320.6 12.0 19.4

Tons Sold 42.1 43.7 40.2 37.9 37.6 7.0 6.4

Tons Produced 43.9 45.1 41.5 38.4 38.0 7.0 6.3

Total costs and expenses per ton sold $ 39.33 $ 32.52 $ 30.22 $ 29.71 $ 29.85 $ 38.10 $ 32.86

Average cash cost per ton sold (4) 28.90 24.33 21.74 21.40 22.22 28.61 23.95

Produced coal revenue per ton sold 31.30 27.51 26.86 28.40 29.83 29.36 26.39

Capital expenditures $ 135.1 $ 247.5 $ 204.8 $ 230.0 $ 307.9 $ 37.7 $ 23.4

Number of employees 4,552 5,004 3,610 3,190 3,094 5,040 3,730

(1) On November 30, 2000, the Company completed a reverse spin-off (the

"Spin-Off"), which divided it into the spun-off corporation, "new" Fluor

Corporation ("New Fluor"), and Fluor, subsequently renamed Massey Energy

Company, which retained the Company's coal-related businesses. Further

discussion of the Spin-Off may be found in the Notes to the Consolidated

Financial Statements. As New Fluor is the accounting successor to Fluor

Corporation, Massey's equity structure was impacted as a result of the

Spin-Off. Massey retained $300 million of 6.95 percent Senior Notes, $278.5

million of Fluor commercial paper, other equity contributions from Fluor,

and assumed Fluor's common stock equity structure. Therefore, the Selected

Financial Data for years prior to 2001 are not necessarily indicative of

the results of operations, financial position and cash flows of Massey in

the future or had it operated as a separate independent company during the

periods prior to November 30, 2000.

(2) Shares used to calculate basic earnings per share for the periods ended

October 31, 2000 and prior is based on the number of shares outstanding

immediately following the Spin-Off (73,468,707). Shares used to calculate

diluted earnings per share for the periods ended October 31, 2000 and prior

is based on the number of shares outstanding immediately following the

Spin-Off and the dilutive effect of stock options and other stock-based

instruments of Fluor Corporation, held by Massey employees, that were

converted to equivalent instruments in Massey Energy Company in connection

with the Spin-Off. In accordance with accounting principles generally

accepted in the United States, the effect of dilutive securities was

excluded from the calculation of the diluted loss per common share for the

years ended December 31, 2002 and October 31, 2001, and for the two-month

periods ended December 31, 2001 and 2000, as such inclusion would result in

antidilution.

(3) EBITDA is defined as earnings before deducting net interest expense

(interest expense less interest income), income taxes and depreciation,

depletion and amortization. Although EBITDA is not a measure of performance

calculated in accordance with generally accepted accounting principles,

management believes that it is useful to an investor in evaluating Massey

because it is widely used in the coal industry as a measure to evaluate a

company's operating performance before debt expense and its cash flow.

EBITDA does not purport to represent cash generated by operating activities

and should not be considered in isolation or as a substitute for measures

of performance in accordance with generally accepted accounting principles.

30

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In addition, because EBITDA is not calculated identically by all companies,

the presentation here may not be comparable to other similarly titled

measures of other companies. Management's discretionary use of funds

depicted by EBITDA may be limited by working capital, debt service and

capital expenditure requirements and by restrictions related to legal

requirements, commitments and uncertainties.

(4) Average cash cost per ton is calculated as the sum of Cost of produced coal

revenue and Selling, general and administrative expense (excluding

Depreciation, depletion and amortization), divided by the number of tons

sold. Although Average cash cost per ton is not a measure of performance

calculated in accordance with generally acceptable accounting principles,

management believes that it is useful to investors in evaluating Massey

because it is widely used in the coal industry as a measure to evaluate a

company's control over its cash costs. Average cash cost per ton should not

be considered in isolation or as a substitute for measures of performance

in accordance with generally accepted accounting principles. In addition,

because Average cash cost per ton is not calculated identically by all

companies, the presentation here may not be comparable to other similarly

titled measures of other companies. The table below reconciles the

generally acceptable accounting principal measure of Total costs and

expenses per ton to Average cash cost per ton.

Year ended Year ended

December 31, October 31,

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

2002 2001 2000 1999 1998

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

$ per ton $ per ton $ per ton $ per ton $ per ton

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

Total Costs and $1,656.8 $39.33 $1,422.3 $32.52 $1,216.2 $30.22 $1,125.1 $29.71 $1,122.3 $29.85

Expenses

Less: Freight and

handling costs 112.0 2.66 129.9 2.97 131.3 3.26 106.2 2.80 130.7 3.48

Less: Cost of

purchased coal

revenue 119.6 2.84 47.0 1.08 38.9 0.97 41.2 1.09 5.5 0.15

Less: Depletion,

Depreciation and

Amortization 207.7 4.93 181.3 4.14 171.3 4.25 167.6 4.42 150.5 4.00

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

Average Cash Cost $1,217.5 $28.90 $1,064.1 $24.33 $874.7 $21.74 $ 810.1 $21.40 $835.6 $22.22

Two Months ended

December 31,

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

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2001 2000

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

$ per ton $ per ton

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

Total Costs and $265.7 $38.10 $210.2 $32.86

Expenses

Less: Freight and

handling costs 18.9 2.71 21.9 $ 3.41

Less: Cost of

purchased coal

revenue 16.1 2.31 6.3 0.99

Less: Depletion,

Depreciation and

Amortization 31.2 4.47 28.8 4.51

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

Average Cash Cost $199.5 $28.61 $153.2 $23.95

(5) The Company changed to a calendar-year basis of reporting financial results

effective January 1, 2002. For comparative purposes, the selected financial

data reported for 1998 through 2001 is for the twelve months and periods

then ended, October 31. As a requirement of the change in fiscal year, the

Company is reporting results of operations and cash flows for a special

transition period for the two months ended December 31, 2001 compared with

the two-months ended December 31, 2000. Additionally, other selected

financial data is presented as of and for the two months ended December 31,

2001 and December 31, 2000.

Item 7. Management's Discussion and Analysis of Financial Condition and

Results of Operations

Effective January 1, 2002, the Company changed to a calendar-year basis of

reporting financial results. For comparative purposes, the reported audited

consolidated results of operations and cash flows for the 2001 and 2000 annual

periods are for the twelve months ended October 31. As a requirement of the

change in fiscal year, the Company is reporting consolidated results of

operations and cash flows for a special transition period, the two months ended

December 31, 2001 (audited) compared with the two months ended December 31, 2000

(unaudited). The comparative audited balance sheets are as of December 31, 2002

and October 31, 2001.

Results of Operations

2002 Compared with 2001

Produced coal revenue for the year ended December 31, 2002, increased 10

percent to $1,318.9 million compared with $1,203.3 million for the year ended

October 31, 2001. Two factors that impacted produced coal revenue for 2002

compared to 2001 were:

o The volume of produced tons sold decreased 4 percent to 42.1 million

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tons in 2002 from 43.7 million tons in 2001, attributable to a

reduction in metallurgical and industrial tons sold of 18 and 13

percent, respectively; and

o The produced coal revenue per ton sold increased 14 percent to $31.30

per ton in 2002 from $27.51 per ton in 2001, consisting of 17, 14, and

13 percent increases to the prices for utility, metallurgical and

industrial coal, respectively.

Realized prices for our produced tonnage sold in 2002 reflected the

improvement seen in the market during 2001, as spot market prices of Central

Appalachian coal increased to 20-year highs, and we were able to obtain sales

commitments at relatively higher prices. However, during 2002 the soft economic

environment, weak steel demand and the higher stockpiles built by the utilities

due to the unusually mild weather that prevailed in the Eastern United States

during the winter of 2001 - 2002 significantly reduced demand for all grades of

coal.

31

Freight and handling revenue decreased 14 percent to $112 million in 2002

compared with $129.9 million in 2001.

Revenue from purchased coal sales increased $67.5 million, or 58 percent,

from $49.5 million in 2001 to $117 million in 2002. This increase was due to an

increase in purchased tons sold, which grew by 2 million tons to 3.3 million in

2002 from 1.3 million in 2001. Massey purchases varying amounts of coal each

year to supplement produced coal.

Other revenue, which consists of royalties, rentals, coal handling facility

fees, gas well revenue, synfuel earnings, gains on the sale of non-strategic

assets, contract buyout payments, and miscellaneous income, increased to $78.8

million for 2002 from $49.2 million for 2001. The increase was primarily due to

2002 contract buyout payments of $23.5 million from several customers, including

$5.1 million from one large customer, as well as increased earnings related to

the sale of an interest in, and the operation of, Appalachian Synfuel, LLC. The

contract buyout payments in 2002 were a result of several customers negotiating

settlement of above market price contracts for 2002 tonnage in lieu of accepting

delivery.

Cost of produced coal revenue increased approximately 14 percent to

$1,177.4 million for 2002 from $1,032.4 million for 2001. Cost of produced coal

revenue on a per ton of coal sold basis increased by 18 percent in 2002 compared

with 2001. This increase was partially due to a pre-tax charge taken in the

second quarter of 2002 in the amount of $25.6 million related to an adverse jury

verdict in the West Virginia Harman Mining Corporation lawsuit, as well as a

fourth quarter charge of $10.6 million related to an arbitration award in a

contract dispute. Additionally, the reduction in tons sold, poor productivity at

our longwalls, as well as at some room and pillar and surface mining operations,

and higher wage and benefit costs contributed to the increase. During 2001, in

response to the market improvement, we increased staffing and benefits costs in

order to increase production. However, due to the subsequent market weakness, we

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reduced total workforce during the first quarter of 2002 by approximately 7

percent and idled 15 continuous miner sections. Cost of produced coal revenue

for 2001 includes pre-tax charges of $7.6 million related to the write-off of

longwall panel development costs at the Jerry Fork longwall mine, $6.9 million

related to the settlement with the State of West Virginia regarding Worker's

Compensation liabilities incurred by independent contractors, and $2.5 million

related to an increase in reserves for a wrongful employee discharge suit. These

costs in 2001 were partially offset by a $9.5 million pre-tax refund related to

black lung excise taxes paid on coal export sales tonnage. Tons produced in 2002

were 43.9 million compared to 45.1 million in 2001.

Freight and handling costs decreased 14 percent to $112 million in 2002

compared with $129.9 million in 2001.

Costs of purchased coal revenue increased $72.5 million to $119.5 million in

2002 from $47 million in 2001. This was due to the 2 million ton increase in

purchased tons sold to 3.3 million in 2002 from 1.3 million in 2001, as well as

the higher cost per ton paid for the purchased coal.

Depreciation, depletion and amortization (DD&A) increased by approximately

15 percent to $207.7 million in 2002 compared to $181.3 million for 2001. The

increase of $26.4 million was primarily due to a $13.2 million (pre-tax)

write-off of mine development costs at certain idled mines in 2002, as well as

increased capital expenditures made in recent years in an effort to increase

production.

Selling, general and administrative expenses were $40.1 million for 2002

compared to $31.7 million for 2001. The increase was primarily attributable to

increases in accruals related to long-term executive compensation programs and

costs of legal services, offset by a reduction in bad debt reserves for a

receivable from a large bankrupt customer, Wheeling-Pittsburgh Steel

Corporation, which totaled $2.5 million (pre-tax) during the first quarter of

2002.

Interest income decreased to $4.5 million for 2002 compared with $8.7

million for 2001. This decrease was due to $3.2 million (pre-tax) of interest

income in 2001 for interest due on the black lung excise tax refund.

Interest expense increased to $35.3 million for 2002 compared with $34.2

million for 2001. The higher interest expense was due to interest of $1.2

million (pre-tax) paid in the fourth quarter of 2002 on the judgment in the

Virginia Harman Mining Corporation action after the dismissal of the appeal in

the third quarter of 2002.

Income tax benefit was $24.9 million for 2002 compared with income tax

benefit of $10.5 million for 2001. The 2002 benefit includes a refund for the

settlement of a state tax dispute in the amount of $2.4 million, net of federal

tax.

2001 Compared with 2000

Produced coal revenue increased 11% to $1,203.3 million in 2001 as compared

to $1,081.0 million for the previous year. Two factors that impacted produced

coal revenue for 2001 compared to 2002 were:

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o The volume of produced tons sold increased by 9 percent from 40.2

million tons in 2000 to 43.7 million tons in 2001. This increase

consisted of a 17 percent increase in utility tons sold and a 19

percent increase in industrial tons sold, offset in part by a decrease

of 8 percent in metallurgical tons sold.

32

o The produced coal revenue per ton sold increased by 2 percent from

$26.86 in 2000 to $27.51 in 2001.

The market for utility coal continued to improve during the fiscal year

2001 as spot market prices of Central Appalachian coal increased to 20-year

highs. Unfortunately, most of the Massey tonnage sold in 2001 was committed

prior to the upturn in the market.

Freight and handling revenue decreased $1.4 million to $129.9 million in

2001 compared with $131.3 million in 2000.

Revenue from purchased coal sales increased 25 percent to $49.5 million in

2001 from $39.6 million in 2000, due to an increase in spot prices for coal, as

purchased tons sold were 1.3 million in 2001 and 2000. Massey purchases varying

amounts of coal each year to supplement produced coal.

Other revenue, which consists of royalties, rentals, miscellaneous income

and gains on the sale of non-strategic assets, decreased 19 percent to $49.2

million for 2001 compared with $60.8 million for 2000. The decrease was

primarily due to a decrease in income from dispositions of non-strategic mineral

reserves, which generated $26.5 million in 2000 compared to $1.1 million in

2001. As part of its management of coal reserves, Massey regularly sells

non-strategic reserves or exchanges them for reserves located in more

synergistic locations. In 2000, Massey sold certain non-strategic coal reserves

("Scarlet/Duncan Fork reserves") with a net book value of $1.9 million. Massey

received $32 million in consideration in the form of cash. A gain of $26.5

million was recognized in 2000, as $3.6 million was deferred due to a leaseback

option of a portion of the reserves sold. In 1999, Massey sold certain

non-strategic coal reserves ("Dials Branch reserves") with a net book value of

$1.8 million. Massey received consideration in the amount of $10.7 million. The

consideration was comprised of a note receivable in the amount of $11.0 million

for guaranteed deferred royalty payments through 2008, less $0.3 million of

assumed liabilities. The Dials Branch reserves sale resulted in a gain of $8.9

million being recognized in 1999. Massey recognized an additional $1.3 million

of gains in 1999 from several smaller asset sales.

Cost of produced coal revenue increased 23 percent to $1,032.4 million for

2001 from $839.4 million in 2000. This was partially due to the increase in tons

sold. Cost of produced coal revenue on a per ton sold basis increased by 14

percent to $23.65 for the fiscal year 2001 compared to $20.82 in fiscal 2000.

This increase in cost was related to both the direct cost of labor and the

decreases in productivity resulting from a greater percentage of inexperienced

miners. This was due, in part, to the Company's efforts to increase production.

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In addition, heavy rains in southern West Virginia in July increased employee

absenteeism and disrupted loading operations and rail service, slowing coal

shipping. Other operational problems impacted production and costs throughout

the fiscal year. Operating difficulties and problematic geologic conditions were

encountered at several longwall mines and during the expansion of Massey's two

large surface mines, where we experienced higher than expected overburden ratios

in the first half of the year. The Ellis Eagle longwall mine experienced

flooding that caused significant disruption to coal production during April and

May. The flooding caused reduced shipments from both the Marfork and Goals

preparation plants. Increases in operating costs related to the Martin County

Coal slurry spill and the idling of the Martin County Coal preparation plant

from October 11, 2000, to April 2, 2001, also negatively impacted cost of sales.

Cost of produced coal revenue for 2001 and 2000 includes credits of $9.5

million and $15.0 million, respectively, related to refunds of black lung excise

taxes paid on coal export sales tonnage. Black lung excise taxes on exported

coal were determined to be unconstitutional by a 1998 federal district court

decision. During 2001, the Internal Revenue Service substantially completed its

audit of the Company's requested refund of black lung excise tax payments. Cost

of produced coal revenue for 2001 also includes pre-tax charges of $7.6 million

related to the write-off of longwall panel development costs at the Jerry Fork

longwall mine, $6.9 million related to the settlement with the State of West

Virginia regarding Worker's Compensation liabilities incurred by independent

contractors, and $2.5 million related to an increase in reserves for a wrongful

employee discharge suit. These costs in 2001 were partially offset by a $4.1

million benefit arising from the settlement of insurance claims from the August

2000 Upper Cedar Grove longwall failure.

Freight and handling costs decreased $1.4 million to $129.9 million in 2001

compared with $131.3 million in 2000.

Costs of purchased coal revenue increased 21 percent to $47.0 million in

2001 from $38.9 million in 2000. This was due to the increase in spot prices for

coal, as purchased tons sold were 1.3 million in 2001 and 2000. Massey purchases

varying amounts of coal each year to supplement produced coal.

Depreciation, depletion and amortization increased to $181.3 million for

2001 from $171.3 million in 2000. The increase of $10 million was primarily due

to the level of capital expenditures in recent years.

Selling, general and administrative expenses decreased 10 percent to $31.7

million for 2001 compared with $35.4 million for 2000. This was due in part to a

$7.1 million bad debt expense in 2000 associated with the bankruptcy of a major

steel industry customer as well as a reduction in accruals related to long-term

executive compensation plans, partially offset by additions to the

administrative workforce associated with running a stand-alone publicly traded

company.

33

Interest income decreased to $8.7 million for 2001 compared to $25.7

million for 2000. This decrease was primarily due to the elimination of the

Company's loans with Fluor Corporation in connection with the Spin-Off

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transaction on November 30, 2000. Additionally, in the second quarter of 2001,

$3.2 million was accrued for interest due on the black lung excise tax refund as

noted above, while in the third fiscal quarter of 2000, $5.3 million was accrued

for interest on the black lung excise tax refund.

Interest expense increased to $34.2 million for 2001. The increase was due

to the addition of the 6.95 percent Senior Notes and commercial paper borrowings

subsequent to the Spin-Off.

Income tax benefit was $10.5 million for 2001 compared to an income tax

expense of $43.2 million for 2000. This primarily reflects the loss before taxes

for 2001 compared to income before taxes for 2000, as well as a depletion

accounting income tax benefit of $4.5 million in 2001.

Liquidity and Capital Resources

At December 31, 2002, the Company's available liquidity was $134.5 million,

including cash and cash equivalents of $2.7 million and $131.8 million

availability under the Company's revolving credit facilities. At December 31,

2002, Massey had $264.0 million outstanding under its credit facilities, which

is included in short-term debt. In early May 2002, Moody's and S&P downgraded

our credit ratings. These ratings actions effectively prevented us from

accessing the commercial paper market due to the restrictive investment policy

credit guidelines of potential commercial paper investors and caused us to draw

on the credit facilities for short-term financing needs. No commercial paper

obligations were outstanding at December 31, 2002.

On November 26, 2002, Massey and its lenders concluded the extension and

amendment of the $150 million 364-day and $250 million multi-year revolving

credit facilities, which have been guaranteed by A. T. Massey, that serve as the

primary source of our short-term liquidity. The credit facilities now provide

the lenders with selected assets as collateral for borrowings under the

facilities. The selected assets that are collateral for the credit facilities

include all capital stock of the Company's subsidiaries and substantially all of

the Company's assets, now owned or at any time hereafter acquired by the

Company, excluding among other things, all coal, oil and gas reserves and mining

permits, certain properties (e.g., the Eastman Chemical Company Coal Handling

System and Westvaco Coal Handling Facility, and the value of properties that

might exceed the lien threshold established in the indenture related to the

Senior Notes (discussed below)) and certain other assets associated with the

Company's accounts receivable securitization program discussed below. Both

facilities have been renewed through November 25, 2003. The Company intends to

replace these credit facilities prior to their expiration on November 25, 2003.

Borrowings under these facilities bear interest based on (i) the London

Interbank Offer Rate (LIBOR) or (ii) the Base Rate (as defined in the facility

agreements) plus a margin, which is based on the Company's senior secured debt

credit rating as determined by Moody's and Standard & Poor's. At December 31,

2002, and currently, Massey's senior secured debt ratings are Ba1 and BB+,

respectively.

The revolving credit facilities contain financial covenants requiring the

Company to maintain various financial ratios. Failure by the Company to comply

with these covenants could result in an event of default, which if not cured or

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waived could have a material adverse effect on the Company. The financial

covenants consist of a maximum leverage ratio, a minimum interest coverage

ratio, and a minimum net worth test. The leverage ratio requires that the

Company not permit the ratio of total indebtedness at the end of any quarter to

adjusted EBITDA for the four quarters then ended to exceed a specific amount.

The interest coverage ratio requires that the Company not permit the ratio of

the Company's adjusted EBITDA to interest expense for the four quarters then

ended to be less than a specified amount. The net worth test requires that the

Company not permit its net worth to be less than a specified amount. The Company

was in compliance with all material covenants at December 31, 2002 and during

other periods reflected except for the covenant related to the maximum leverage

ratio, with which we were not in compliance at December 31, 2001. However, the

participant banks granted a waiver of this financial covenant for the period

ended December 31, 2001. In the event we violate any of the debt covenants and

do not affect a timely cure or receive a waiver from the lenders in our credit

facilities, the debt agreements provide that the Administrative Agent shall, if

requested by at least four lenders holding at least 50% of the aggregate amount

of the loans, declare the loans immediately due and payable.

In determining EBITDA as defined in the credit facility agreements for use

in computing the leverage ratio, the Company has excluded certain items,

including the $25.6 million reserve relative to the Harman litigation described

in Note 15. The Company believes that the exclusion of such items is appropriate

and has notified the lenders' Administrative Agent of this exclusion. If the

accrual for the Harman litigation were to be included in the EBITDA calculation

and no further adjustments were made, the Company would still be in compliance

with the covenant at December 31, 2002. For further detail on the financial

covenants, see Section 5.02 of the Amended and Restated Credit Agreement, which

is included as Exhibit 10.1 to this Form 10-K.

The Company had $286.0 million of long-term debt as of December 31, 2002,

which consisted entirely of 6.95 percent Senior Notes (the "Notes") due March 1,

2007. Initially, $300 million of the Notes were issued in March 1997 at a

discount, for aggregate proceeds of $296.7 million. During the fourth quarter of

2002, the Company made several open-market purchases, retiring a total principal

amount of $14.0 million Senior Notes at a cost of $10.7 million plus accrued

interest. Interest is payable semiannually on March 1 and September 1 of each

year, commencing September 1, 1997. The Notes are redeemable in whole or in

part, at the option of the Company at any time at a redemption price equal to

the greater of (i) 100 percent of the principal amount of the Notes or (ii) as

determined by a Quotation Agent as defined in the offering prospectus. On

November 27, 2002, Moody's and S&P reduced the credit ratings on the Senior

Notes to Ba3 and B+, respectively, citing the structural subordination caused by

the secured status of the amended bank credit facilities.

34

Additionally, the Company has available a $500 million debt shelf

registration filed with the Securities and Exchange Commission (the "SEC") in

March 1999, all of which remains unused. Prior to the spin-off, Fluor

Corporation filed this debt shelf registration. An updated filing with the SEC

would be required to issue debt under this shelf registration.

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In December 2002, the Company generated cash flow of $17 million from the

sale and leaseback of mining equipment. In January 2003, the Company implemented

an accounts receivable securitization program that will allow it to generate

cash of up to $80 million based on the amount of accounts receivable

outstanding. The cash generated from both the sale leaseback and securitization

programs will reduce capacity under the Company's main credit facility by 25% of

the proceeds.

The total debt-to-book capitalization ratio was 40.5 percent at December

31, 2002 compared to 38.8 percent at October 31, 2001. The cash flow provided by

operating activities was $122.5 million in 2002 and $172.8 million for the

fiscal year ended October 31, 2001. Cash provided by operating activities

reflects net earnings adjusted for non-cash charges and changes in working

capital requirements. Net cash utilized in investing activities was $122.0

million in 2002 and $212.6 million for the fiscal year ended October 31, 2001.

The cash used in investing activities reflects capital expenditures in the

amount of $135.1 million and $247.5 million in the years ended December 31, 2002

and October 31, 2001, respectively. These capital expenditures are for

replacement of mining equipment, the expansion of mining capacity and projects

to improve the efficiency of mining operations. Net cash utilized in financing

activities was $3.3 million in 2002 compared to net cash provided by financing

activities of $38.6 million in 2001. Financing activities in 2001 primarily

reflect changes in amounts due from Fluor Corporation and other capital accounts

associated with the Spin-Off transaction and being a publicly traded company. In

addition, the net cash utilized in financing activities in 2002 also includes

$17 million of proceeds from a sale-leaseback transaction, as well as $10.7

million utilized to repurchase a portion of our outstanding Senior Notes. In

addition to the cash spent on capital expenditures during the year of 2001, the

Company leased, through operating leases, $10.6 million and $109.0 million of

mining equipment in 2002 and the fiscal year ended October 31, 2001,

respectively.

The cash flow provided by operating activities was $172.8 million in 2001

and $153.7 million for the same period in 2000. Cash provided by operating

activities reflects net earnings adjusted for non-cash charges and changes in

working capital requirements. Net cash utilized in investing activities was

$212.6 million in 2001, and $172.8 million in 2000. The cash used in investing

activities reflects capital expenditures in the amount of $247.5 million and

$204.8 million for the years ended October 31, 2001 and 2000, respectively.

These capital expenditures are for replacement of mining equipment, the

expansion of mining capacity and projects to improve the efficiency of mining

operations. Financing activities primarily reflect changes in amounts due from

Fluor Corporation and other capital accounts associated with the Spin-Off

transaction and being a publicly traded company. In addition to the cash spent

on capital expenditures during the year of 2001, the Company leased, through

operating leases, $109.0 million and $69.0 million of mining equipment in 2001

and 2000, respectively.

Massey believes that cash generated from operations and its borrowing

capacity will be sufficient to meet its working capital requirements,

anticipated capital expenditures (other than major acquisitions), scheduled debt

payments and anticipated dividend payments for at least the next several years.

Nevertheless, the ability of Massey to satisfy its debt service obligations, to

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fund planned capital expenditures or pay dividends will depend upon its future

operating performance, which will be affected by prevailing economic conditions

in the coal industry and financial, business and other factors, some of which

are beyond Massey's control. Massey frequently evaluates potential acquisitions.

In the past, Massey has funded acquisitions primarily with cash generated from

operations, but Massey may consider a variety of other sources, depending on the

size of any transaction, including debt or equity financing. There can be no

assurance that such additional capital resources will be available to Massey on

terms which Massey finds acceptable, or at all.

The following is a summary of our significant obligations as of December 31,

2002:

Payments Due by Years

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

In thousands Total Within 1 2 - 3 4 - 5 After 5

Year Years Years Years

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

Long-term debt $ 286,000 $ - $ - $ 286,000 $ -

Short-term debt 264,045 264,045 - - -

Operating lease obligations 212,342 61,486 106,806 40,987 3,063

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

Total obligations $ 762,387 $ 325,531 $ 106,806 $ 326,987 $ 3,063

=============== ============== =============== =============== ===============

35

Additionally, we have liabilities relating to other post-employment

benefits, work related injuries and illnesses, and mine reclamation and closure.

As of December 31, 2002, payments related to these items are estimated to be:

Payments Due by Years (In thousands)

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

2 - 3 4 - 5

Within 1 Year Years Years

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

$ 32,903 $ 65,463 $ 59,031

Our determination of these noncurrent liabilities is calculated annually and

is based on several assumptions, including then prevailing conditions, which may

change from year to year. In any year, if our assumptions are inaccurate, we

could be required to expend greater amounts than anticipated. Moreover, in

particular for periods after 2002, our estimates may change from the amounts

included in the table, and may change significantly, if our assumptions change

to reflect changing conditions. These assumptions are discussed in the notes to

our consolidated financial statements and in the Critical Accounting Estimates

and Assumptions of the Management's Discussion and Analysis of Financial

Condition and Results of Operation section.

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Off-Balance sheet arrangements

In the normal course of business, the Company is a party to certain

off-balance sheet arrangements including guarantees, indemnifications, and

financial instruments with off-balance sheet risk, such as bank letters of

credit and performance or surety bonds. Liabilities related to these

arrangements are not reflected in our consolidated balance sheets, and we do not

expect any material adverse effects on our financial condition, results of

operations or cash flows to result from these off-balance sheet arrangements.

The Company uses surety bonds to secure reclamation, workers' compensation,

wage payments, and other miscellaneous obligations. As of December 31, 2002, the

Company had $261 million of outstanding surety bonds with third parties. These

bonds were in place to secure obligations as follows: post-mining reclamation

bonds of $217 million, workers' compensation bonds of $10 million, wage payment

and collection bonds of $9 million, and other miscellaneous obligation bonds of

$25 million. Recently, surety bond costs have increased, while the market terms

of surety bonds have generally become less favorable. To the extent that surety

bonds become unavailable, the Company would seek to secure obligations with

letters of credit, cash deposits, or other suitable forms of collateral.

From time to time the Company uses bank letters of credit to secure its

obligations for worker's compensation programs, various insurance contracts and

other obligations. Issuing banks currently require that such letters of credit

be secured by funds deposited into restricted accounts pledged to the banks

under reimbursement agreements. At December 31, 2002, the Company had $32.5

million of letters of credit outstanding, collateralized by $31.5 million of

cash deposited in restricted, interest bearing accounts, and no claims were

outstanding against those letters of credit.

Inflation

Inflation in the United States has been relatively low in recent years and

did not have a material impact on Massey's cash flows, financial position or

results of operations for the years presented.

Recent Accounting Pronouncements

On August 15, 2001, the Financial Accounting Standards Board ("FASB")

issued Statement of Financial Accounting Standards No. 143, "Accounting for

Asset Retirement Obligations" ("SFAS No. 143"). The standard requires the fair

value of a liability for an asset retirement obligation to be recognized in the

period in which it is incurred. When the liability is initially recorded, the

offset is capitalized by increasing the carrying amount of the related

long-lived asset. Over time, the liability is accreted to its present value each

period, and the capitalized cost is depreciated over the useful life of the

related asset. To settle the liability, the obligation is paid, and to the

extent there is a difference between the liability and the amount of cash paid,

a gain or loss upon settlement is incurred. This statement is effective for

fiscal years beginning after June 15, 2002 and transition is by cumulative

catch-up adjustment. The Company has adopted SFAS No. 143 on January 1, 2003 and

the adoption will change the Company's current accounting for reclamation. The

Company is continuing to calculate its transition adjustment.

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In April 2002, the FASB issued Statement of Financial Accounting Standards

No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB

Statement No. 13, and Technical Corrections" ("SFAS No. 145"), which is

effective for fiscal years beginning after May 2002. The standard requires that

gains or losses on debt extinguishment, previously reported as extraordinary

items, be presented as a component of results from continuing operations unless

the extinguishment meets the criteria for classification as an extraordinary

item in Accounting Principles Board Opinion No. 30. During the fourth quarter of

2002, the Company purchased in open market transactions, an aggregate of $14.0

million of its 6.95 percent Senior Notes at an aggregate purchase price of $10.7

million. The Company has chosen early adoption of SFAS No. 145, and accordingly,

recorded a gain on the transactions in Senior notes repurchase income, a

component of Total revenue.

36

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors'

Accounting and Disclosure Requirements for Guarantees, Including Indirect

Guarantees of Indebtedness of Others ("FIN45"). This Interpretation describes

the disclosure requirements of a guarantor's issuance of certain guarantees, and

clarifies that a guarantor is required to recognize a liability, at the date of

issuance, for the fair value of the obligation assumed in issuing the guarantee.

The disclosure requirements of FIN 45 are effective for the Company for the year

ended December 31, 2002, and the initial recognition and measurement provisions

are applicable on a prospective basis to guarantees issued or modified after

December 31, 2002. See Note 7 to the Consolidated Financial Statements.

Outlook

Cold winter weather, reductions in utility coal stockpiles and the rising

costs of alternative energy sources, are expected to accelerate demand for coal

in early 2003. Supply constraint and production declines by producers throughout

Central Appalachia should also support coal prices. Nevertheless, the Company

expects a loss in the first quarter of 2003 due to operational disruptions

caused by moving four longwalls to new panels and weather-related production and

shipping issues. The Company currently projects produced coal sales of 40 to 45

million tons in 2003.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

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

The preparation of financial statements in conformity with accounting

principles generally accepted in the United States requires management to make

estimates and assumptions that affect reported amounts. These estimates and

assumptions are based on information available as of the date of the financial

statements. The following critical accounting estimates and assumptions were

used in the preparation of the financial statements:

Defined Benefit Pension

The Company has noncontributory defined benefit pension plans, which cover

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substantially all administrative and non-union employees of the Company.

Benefits are generally based on the employee's years of service and

compensation, or under a cash balance formula with contribution credits based on

hours worked. Funding for the plan is generally at the minimum annual

contribution level required by applicable regulations. The Company accounts for

its defined benefit plans in accordance with FAS 87, Employer's Accounting for

Pensions, which requires amounts recognized in the financial statements to be

determined on an actuarial basis. The estimated cost and benefits of our

non-contributory defined benefit pension plans are determined by independent

actuaries, who, with our input, use various actuarial assumptions, including

discount rate, future rate of increase in compensation levels and expected

long-term rate of return on pension plan assets. The discount rate is determined

each year at the measurement date. In estimating the discount rate, we look to

rates of return on high-quality, fixed-income investments that receive one of

the two highest ratings given by a recognized ratings agency. At December 31,

2002, the discount rate was determined to be 6.75% compared to the discount rate

at October 31, 2001 of 7.25%. The rate of increase in compensation levels is

determined based upon the Company's long-term plans for such increases. The rate

of increase in compensation levels was determined to be 4% at December 31, 2002,

and October 31, 2001. Expected long-term rate of return on plan assets is based

on long-term historical return information for the mix of investments that

comprise plan assets and future estimates of long-term investment returns. The

expected long-term rate of return on plan assets used to determine expense in

each period was 9.0% and 9.5% for the years ended December 31, 2002 and October

31, 2001, respectively. The Company expects to adjust the expected long-term

rate of return on plan assets to 8.5% for determination of 2003 expense.

Significant changes to these rates introduce substantial volatility to our

costs. The fair value of the defined benefit pension plan assets is an important

factor in the determination of defined benefit pension expense. The fair value

of plan assets at December 31, 2002 was $174 million compared to $196 million at

October 31, 2001, a reduction of $22 million. As a result of the decrease in

discount rate, the reduction in expected long-term rate of return on plan

assets, and the decline in defined benefit pension plan assets during 2002,

costs for the defined benefit pension plans are expected to increase in 2003

compared to 2002 related expense.

Coal Workers' Pneumoconiosis

We are responsible under the Federal Coal Mine Health and Safety Act of

1969, as amended, and various states' statutes, for the payment of medical and

disability benefits to eligible recipients resulting from occurrences of coal

workers' pneumoconiosis disease (black lung). After review and consultation with

us, an annual evaluation is prepared by our independent actuaries based on

assumptions regarding disability incidence, medical costs, mortality, death

benefits, dependents and interest rates. The Company records expense related to

this obligation using the service cost method. The discount rate is determined

each year at the measurement date. At December 31, 2002, the discount rate was

determined to be 6.75% compared to the discount rate at October 31, 2001, of

7.25%. Significant changes to these interest rates introduce substantial

volatility to our costs. In January 2001, the United States Department of Labor

amended the regulations implementing the federal black lung laws to give greater

weight to the opinion of a claimant's treating physician, expand the definition

of black lung disease and limit the amount of medical evidence that can be

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submitted by claimants and respondents. The amendments also alter administrative

procedures for the adjudication of claims, which according to the Department of

Labor, results in streamlined procedures that are less formal, less adversarial

and easier for participants to understand. These and other changes to the

federal black lung regulations could result in changes in assumptions used in

our actuarial determination of the liability, including interest, disability and

mortality assumptions. These changes could potentially increase our exposure to

black lung benefits liabilities.

Workers' Compensation

Workers' Compensation is a system by which individuals who sustain physical

or mental injuries due to their jobs are compensated for their disabilities,

medical costs, and on some occasions, for the costs of their rehabilitation, and

by which the survivors of workers who suffer work related deaths receive

compensation for lost financial support. The workers' compensation laws are

administered by state agencies with each state having its own set of rules and

regulations regarding compensation that is owed to an employee that is injured

in the course of employment. Our operations are covered by a combination of

either a self-insurance program, as a participant in a state run program, or by

an

37

insurance policy. We accrue for the self-insured liability by recognizing cost

when it is probable that the liability has been incurred and the cost can be

reasonably estimated. To assist in the determination of this estimated liability

we utilize the services of third party administrators. These third parties

provide information to independent actuaries, who after review and consultation

with us with regards to actuarial rate assumptions, including discount rate,

prepare an evaluation of the self-insured program liabilities. Actual losses

could differ from these estimates, which could increase our costs.

Other Post Employment Benefits

Our sponsored defined benefit health care plans provide retiree health

benefits to eligible union and non-union retirees who have met certain age and

service requirements. Depending on year of retirement, benefits may be subject

to annual deductibles, coinsurance requirements, lifetime limits, and retiree

contributions. These plans are not funded. Costs are paid as incurred by

participants. The estimated cost and benefits of our retiree health care plans

are determined by independent actuaries, who, with our input, use various

actuarial assumptions, including discount rate, expected trend in health care

costs and per capita costs. The discount rate is determined each year at the

measurement date. The discount rate is an estimate of the current interest rate

at which the other post employment benefit liabilities could be effectively

settled at the measurement date. In estimating this rate, we look to rates of

return on high-quality, fixed-income investments that receive one of the two

highest ratings given by a recognized ratings agency. At December 31, 2002, the

discount rate was determined to be 6.75% compared to the discount rate at

October 31, 2001 of 7.25%. Significant changes to these interest rates introduce

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substantial volatility to our costs. At December 31, 2002 our assumptions of our

company health care cost trend were projected at an annual rate of 11.0% ranging

down to 5.0% by 2009, and remaining level thereafter, compared to the health

care cost trend rate of 8.0% ranging down to 5.0% by 2007 used at December 31,

2001. If the actual increase in the cost of medical services or other post

retirements benefits are significantly greater or less than the projected trend

rates, the cost assumptions would need to be adjusted which could have a

significant effect on the costs and liabilities recognized in the financial

statements. As a result of the reduction in discount rate discussed above and

the increase in health care cost trend rate, absent any plan changes, costs for

the retiree health benefits plans are expected to increase in 2003 compared to

2002 related expense.

Reclamation and Mine Closure Obligations

The Surface Mining Control and Reclamation Act establishes operational,

reclamation and closure standards for all aspects of surface mining as well as

most aspects of deep mining. Estimates of our total reclamation and mine-closing

liabilities are based upon permit requirements and our engineering expertise

related to these requirements. We accrue for the costs of current mine

disturbance and final mine closure, including the cost of treating mine water

discharge as coal is mined, on a unit-of-production basis over the proven and

probable reserves as defined in Industry Guide 7. The estimate of ultimate

reclamation liability is reviewed annually by our management and engineers. The

estimated liability can change significantly if actual costs vary from

assumptions or if governmental regulations change significantly. Accounting

pronouncement, SFAS No. 143 requires that retirement obligations be recorded as

a liability based on the present value of the estimated cash flows. Further

discussion of the implementation of this new accounting pronouncement can be

found in the previous section "New Accounting Pronouncements."

Contingencies

We are the subject of, or a party to, various suits and pending or

threatened litigation involving governmental agencies or private interests. We

have accrued the probable and reasonably estimable costs for the resolution of

these claims based upon management's best estimate of potential results,

assuming a combination of litigation and settlement strategies. Unless otherwise

noted, management does not believe that the outcome or timing of current legal

or environmental matters will have a material impact to its results of

operations, financial position or cash flows. Also, our operations are affected

by federal, state and local laws and regulations regarding environmental matters

and other aspects of our business. The impact, if any, of pending legislation or

regulatory developments on future operations is not currently estimable.

Deferred Taxes

We account for income taxes in accordance with Statement of Financial

Accounting Standard No. 109, "Accounting for Income Taxes" which requires that

deferred tax assets and liabilities be recognized using enacted tax rates for

the effect of temporary differences between the book and tax bases of recorded

assets and liabilities. SFAS No. 109 also requires that deferred tax assets be

reduced by a valuation allowance if it is more likely than not that some portion

of the deferred tax asset will not be realized. At December 31, 2002, we had

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deferred tax liabilities in excess of deferred tax assets of approximately $231

million. The deferred tax assets are evaluated annually to determine if a

valuation allowance is necessary. As of December 31, 2002, we had recorded a

valuation allowance of approximately $86 million, primarily related to

alternative minimum tax credits. At December 31, 2002 the Company believes that

it is more likely than not that the net balance of deferred tax assets will be

realized.

38

Coal Reserve Values

There are numerous uncertainties inherent in estimating quantities and

values of economically recoverable coal reserves. Many of these uncertainties

are beyond our control. As a result, estimates of economically recoverable coal

reserves are by their nature uncertain. Information about our reserves consists

of estimates based on engineering, economic and geological data assembled and

analyzed by our staff. Some of the factors and assumptions that impact

economically recoverable reserve estimates include:

- geological conditions;

- historical production from the area compared with production from

other producing areas;

- the assumed effects of regulations and taxes by governmental agencies;

- assumptions governing future prices; and

- future operating costs.

Each of these factors may in fact vary considerably from the assumptions

used in estimating reserves. For these reasons, estimates of the economically

recoverable quantities of coal attributable to a particular group of properties,

and classifications of these reserves based on risk of recovery and estimates of

future net cash flows, may vary substantially. Actual production, revenue and

expenditures with respect to reserves will likely vary from estimates, and these

variances may be material.

Capitalized Development Costs

Development costs applicable to the opening of new coal mines and certain

mine expansion projects are capitalized and reported in property, plant and

equipment. Pursuant to SFAS No. 144 "Accounting for the Impairment or Disposal

of Long-Lived Assets," the continuing economic viability of capitalized

development costs are assessed when the indicators of impairment exist. This

assessment includes a consideration of the future operating cashflows as

measured using various potential operating plans and market assumptions of

future coal demand and prices.

Item 7A. Quantitative and Qualitative Discussions about Market Risk

Our interest expense is sensitive to changes in the general level of

interest rates in the United States. At December 31, 2002, we had outstanding

$286.0 million aggregate principal amount of long-term debt under fixed-rate

instruments; however, our primary exposure to market risk for changes in

interest rates relates to our short-term financing. At December 31, 2002, we had

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$264.0 million outstanding under the revolving credit facilities. At December

31, 2002, the weighted average interest rate of borrowings under the credit

facilities was 3.92 percent. Based on the short-term debt balance outstanding at

December 31, 2002, a 100 basis point increase in the average interest rate for

our borrowings would increase our annual interest expense by approximately $2.6

million.

Almost all of Massey's transactions are denominated in U.S. dollars, and,

as a result, it does not have material exposure to currency exchange-rate risks.

We manage our commodity price risk through the use of long-term coal supply

agreements, which are contracts with a term of greater than 12 months, rather

than through the use of derivative instruments. For our fiscal year ended

December 31, 2002, approximately 94% of our coal sales volume was pursuant to

long-term contracts. The Company anticipates that in 2003, the percentage of

sales pursuant to long-term arrangements will be comparable with the percentage

of sales for 2002. The prices for coal shipped under long-term contracts may be

below the current market price for similar types of coal at any given time. As a

consequence of the substantial volume of its sales which are subject to these

long-term agreements, the Company has less coal available with which to

capitalize on stronger coal prices if and when they arise. In addition, because

long-term contracts typically allow the customer to elect volume flexibility,

the Company's ability to realize the higher prices that may be available in the

spot market may be restricted when customers elect to purchase higher volumes

under such contracts, or the Company's exposure to market-based pricing may be

increased should customers elect to purchase fewer tons.

39

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of Massey Energy Company

We have audited the accompanying consolidated balance sheets of Massey

Energy Company as of December 31, 2002 and October 31, 2001, and the related

consolidated statements of income, cash flows, and shareholders' equity for the

year ended December 31, 2002, the two months ended December 31, 2001, and each

of the two years in the period ended October 31, 2001. Our audit also included

the financial statement schedule listed in Item 15(a). These financial

statements and schedule are the responsibility of the Company's management. Our

responsibility is to express an opinion on these financial statements and

schedule based on our audits.

We conducted our audits in accordance with auditing standards generally

accepted in the United States. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial statements. An

audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audits provide a reasonable basis

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for our opinion.

In our opinion, the financial statements referred to above present fairly,

in all material respects, the consolidated financial position of Massey Energy

Company at December 31, 2002 and October 31, 2001, and the consolidated results

of its operations and its cash flows for the year ended December 31, 2002, the

two months ended December 31, 2001, and each of the two years in the period

ended October 31, 2001, in conformity with accounting principles generally

accepted in the United States. Also, in our opinion, the financial statement

schedule, when considered in relation to the basic financial statements taken as

a whole, presents fairly, in all material respects, the information set forth

therein.

/s/ Ernst & Young LLP

Richmond, Virginia

March 26, 2003

40

MASSEY ENERGY COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

Year Ended Two Months Ended

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

December 31, October 31, October 31, December 31, December 31,

2002 2001 2000 2001 2000

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

(Unaudited)

Revenues

Produced coal revenue $ 1,318,935 $ 1,203,285 $ 1,081,027 $ 204,753 $ 168,809

Freight and handling revenue 112,017 129,894 131,334 18,912 21,893

Purchased coal revenue 117,049 49,485 39,585 16,999 6,301

Other revenue 78,804 49,197 60,752 5,779 3,774

Senior notes repurchase income 3,290 -- -- -- --

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

Total revenues 1,630,095 1,431,861 1,312,698 246,443 200,777

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

Costs and Expenses

Cost of produced coal revenue 1,177,363 1,032,420 839,359 191,957 147,283

Freight and handling costs 112,017 129,894 131,334 18,912 21,893

Cost of purchased coal revenue 119,562 47,030 38,853 16,081 6,301

Depreciation, depletion and amortization

applicable to:

Cost of produced coal revenue 203,921 177,384 169,467 30,293 28,538

Selling, general and administrative 3,809 3,885 1,869 899 293

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Selling, general and administrative 40,111 31,702 35,364 7,510 5,888

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

Total costs and expenses 1,656,783 1,422,315 1,216,246 265,652 210,196

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

(Loss) Income from operations (26,688) 9,546 96,452 (19,209) (9,419)

Interest income 4,470 8,747 25,661 987 2,123

Interest expense (35,302) (34,214) (347) (5,302) (3,719)

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

(Loss) Income before taxes (57,520) (15,921) 121,766 (23,524) (11,015)

Income tax (benefit) expense (24,946) (10,501) 43,235 (8,723) (4,296)

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

Net (loss) income $ (32,574) $ (5,420) $ 78,531 $ (14,801) $ (6,719)

=============== ============= ============== ============== ==============

(Loss) Income per share

Basic $ (0.44) $ (0.07) $ 1.07 $ (0.20) $ (0.09)

=============== ============= ============== ============== ==============

Diluted $ (0.44) $ (0.07) $ 1.07 $ (0.20) $ (0.09)

=============== ============= ============== ============== ==============

Shares used to calculate (loss) income per share

Basic 74,442 73,858 73,469 74,131 74,098

=============== ============= ============== ============== ==============

Diluted 74,442 73,858 73,472 74,131 74,098

=============== ============= ============== ============== ==============

See Notes to Consolidated Financial Statements.

41

MASSEY ENERGY COMPANY

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

December 31, October 31,

2002 2001

---- ----

ASSETS

Current Assets

Cash and cash equivalents $ 2,725 $ 5,664

Trade and other accounts receivable, less allowance

of $8,775 and $9,848, respectively 175,795 198,885

Inventories 193,669 141,483

Deferred taxes 13,889 13,572

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Income taxes receivable 6,437 1,880

Other current assets 117,326 96,034

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

Total current assets 509,841 457,518

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

1,534,488 1,613,133

Net Property, Plant and Equipment

Other Noncurrent Assets

Pension assets 77,356 80,400

Other 119,747 120,029

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

Total other noncurrent assets 197,103 200,429

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

Total assets $ 2,241,432 $ 2,271,080

=================== ==================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

Accounts payable, principally trade and bank overdrafts $ 124,933 $ 185,903

Short-term debt 264,045 248,231

Payroll and employee benefits 44,389 37,878

Other current liabilities 139,896 70,223

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

Total current liabilities 573,263 542,235

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

Noncurrent Liabilities

Long-term debt 286,000 300,000

Deferred taxes 244,676 250,444

Other 329,281 317,796

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

Total noncurrent liabilities 859,957 868,240

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

Shareholders' Equity

Capital Stock

Preferred stock - authorized 20,000,000 shares; no par; none issued -- --

Common stock - authorized 150,000,000 shares; $0.625 par; issued and

outstanding - 75,317,732 and 74,543,670 shares, respectively 47,074 46,590

Additional Capital 21,659 15,541

Unamortized executive stock plan expense (6,407) (6,706)

Retained earnings 745,886 805,180

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

Total shareholders' equity 808,212 860,605

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

Total liabilities and shareholders' equity $ 2,241,432 $ 2,271,080

=================== ==================

See Notes to Consolidated Financial Statements.

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42

MASSEY ENERGY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars)

Year Ended Two Months Ended

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

December 31, October 31, October 31, December 31, December 31,

2002 2001 2000 2001 2000

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

(Unaudited)

Cash Flows From Operating Activities

Net (loss) income $ (32,574) $ (5,420) $ 78,531 $ (14,801) $ (6,719)

Adjustments to reconcile net (loss) income to cash

provided by operating activities:

Depreciation, depletion and amortization 207,730 181,269 171,336 31,192 28,831

Deferred taxes 3,511 (4,260) 28,053 (8,748) (4,296)

Loss (Gain) on disposal of assets 803 517 (28,169) 111 4,296

Gain on repurchase of senior notes (3,290) -- -- -- --

Changes in operating assets and liabilities:

Decrease (Increase) in accounts receivable 2,068 4,603 (42,801) 11,079 9,864

(Increase) Decrease in inventories (37,876) (40,350) (12,349) (14,310) 1,965

Increase in other current assets (17,657) (25,461) (13,983) (3,579) (22,733)

Decrease (Increase) in pension and other assets 4,961 25,237 (30,013) 11,938 (6,698)

(Decrease) Increase in accounts payable and bank

overdrafts (61,877) 32,446 (6,729) 907 (34,990)

(Decrease) Increase in accrued income taxes (4,557) (7,002) 2,197 -- (2,427)

Increase (Decrease) in other accrued liabilities 76,950 (2,004) (5,204) (906) (20,442)

(Decrease)Increase in other non-current

liabilities (15,717) 13,217 12,818 6,553 9,398

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

Cash provided (utilized) by operating activities 122,475 172,792 153,687 19,436 (46,682)

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

Cash Flows From Investing Activities

Capital expenditures (135,099) (247,517) (204,835) (37,698) (23,386)

Proceeds from sale of assets 13,127 34,870 32,072 416 --

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

Cash utilized by investing activities (121,972) (212,647) (172,763) (37,282) (23,386)

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

Cash Flows From Financing Activities

Increase (Decrease) in short-term debt, net 944 (29,998) -- 14,870 (3,568)

Proceeds from sale and leaseback of equipment 16,955 -- -- -- --

Repurchase of senior notes (10,710) -- -- -- --

Decrease in amount due from Fluor Corporation -- 67,554 1,352 -- 67,554

Equity contributions from Fluor Corporation -- 2,476 17,069 -- 2,476

Cash dividends paid (11,919) (11,811) -- -- --

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Stock options exercised 1,408 9,369 -- 2,856 --

Other, net -- 1,000 (467) -- 1,058

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

Cash (utilized) provided by financing activities (3,322) 38,590 17,954 17,726 67,520

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

Decrease in cash and cash equivalents (2,819) (1,265) (1,122) (120) (2,548)

Cash and cash equivalents at beginning of period 5,544 6,929 8,051 5,664 6,929

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

Cash and cash equivalents at end of period $ 2,725 $ 5,664 $ 6,929 $ 5,544 $ 4,381

============= =============== ============== ============== ==============

Supplemental Cash Flow Information

Cash paid during the period for income taxes $ 1,156 $ 1,656 $ 12,834 $ 46 $ 107

============= =============== ============== ============== ==============

See Notes to Consolidated Financial Statements.

43

MASSEY ENERGY COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In Thousands of Dollars except share amounts)

Common Stock Unamortized Net

------------------------- Executive Investment Due From

Additional Stock Plan by Fluor Fluor

Shares Amount Capital Expense Corporation Corporation

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

Balance at October 31, 1999 73,469 $ 45,918 $ -- $ -- $ 1,510,789 $ (280,416)

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

Net income 78,531

Other comprehensive loss, net of

deferred tax benefit of $30:

Unrealized loss on investment

Reclassification of unrealized

gain to net income

Comprehensive income

Capital contributions 17,069

Net change in amount due from Fluor 1,352

Corporation

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

Balance at October 31, 2000 73,469 $ 45,918 $ -- $ -- $ 1,606,389 $ (279,064)

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

Net loss

Other comprehensive income, net of

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deferred tax of $488:

Reclassification of unrealized

gain to net income

Comprehensive loss

Capital contributions 2,476

Net change in amount due from Fluor 67,554

Corporation

Spin-Off transaction (3,840) (1,608,865) 211,510

Dividends declared ($0.20 per share)

Exercise of stock options, net 817 511 8,858

Stock option tax benefit 2,611

Amortization of executive stock plan 1,367

expense

Issuance of restricted stock, net 258 161 4,072 (4,233)

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

Balance at October 31, 2001 74,544 $ 46,590 $ 15,541 $ (6,706) $ -- $ --

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

Net loss

Exercise of stock options, net 253 158 2,698

Stock option tax benefit 640

Amortization of executive stock plan 239

expense

Issuance of restricted stock, net (23) (14) (320) 334

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

Balance at December 31, 2001 74,774 $ 46,734 $ 18,559 $ (6,133) $ -- $ --

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

Net loss

Dividends declared ($0.16 per share)

Exercise of stock options, net 126 78 1,330

Stock option tax benefit 208

Amortization of executive stock plan 1,550

expense

Issuance of restricted stock, net 418 262 1,562 (1,824)

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

Balance at December 31, 2002 75,318 $ 47,074 $ 21,659 $ (6,407) $ -- $ --

=================================================================================

Accumulated

Other Total

Retained Comprehensive Shareholders'

Earnings Loss Equity

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

Balance at October 31, 1999 $ -- $ (716) $ 1,275,575

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

Net income 78,531

Other comprehensive loss, net of

deferred tax benefit of $30:

Unrealized loss on investment 1,075 1,075

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Reclassification of unrealized

gain to net income (1,122) (1,122)

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

Comprehensive income 78,484

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

Capital contributions 17,069

Net change in amount due from Fluor 1,352

Corporation

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

Balance at October 31, 2000 $ -- $ (763) $ 1,372,480

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

Net loss (5,420) (5,420)

Other comprehensive income, net of

deferred tax of $488:

Reclassification of unrealized 763 763

gain to net income

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

Comprehensive loss (4,657)

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

Capital contributions 2,476

Net change in amount due from Fluor 67,554

Corporation

Spin-Off transaction 825,373 (575,822)

Dividends declared ($0.20 per share) (14,773) (14,773)

Exercise of stock options, net 9,369

Stock option tax benefit 2,611

Amortization of executive stock plan 1,367

expense

Issuance of restricted stock, net --

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

Balance at October 31, 2001 $ 805,180 $ -- $ 860,605

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

Net loss (14,801) (14,801)

Exercise of stock options, net 2,856

Stock option tax benefit 640

Amortization of executive stock plan 239

expense

Issuance of restricted stock, net --

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

Balance at December 31, 2001 $ 790,379 $ -- $ 849,539

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

Net loss (32,574) (32,574)

Dividends declared ($0.16 per share) (11,919) (11,919)

Exercise of stock options, net 1,408

Stock option tax benefit 208

Amortization of executive stock plan 1,550

expense

Issuance of restricted stock, net --

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

Balance at December 31, 2002 $ 745,886 $ -- $ 808,212

==========================================

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See Notes to Consolidated Financial Statements.

44

MASSEY ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying consolidated financial statements include the accounts of

Massey Energy Company ("Massey" or the "Company"), its wholly owned subsidiary

A. T. Massey Coal Company, Inc. ("A. T. Massey") and its subsidiaries. A. T.

Massey now represents the sole operating subsidiary of Massey, as Massey has no

separate independent operations. Until the spin-off transaction on November 30,

2000 (the "Spin-Off") (See Note 12), A. T. Massey was 100% controlled by Fluor

Corporation ("Fluor"). Therefore, these financial statements for all periods

prior to 2001 may not necessarily be indicative of the results of operations,

financial position and cash flows of Massey in the future or had it operated as

a separate independent company during all periods reported. All significant

intercompany transactions and accounts have been eliminated.

Change in Fiscal Year-end

The Company changed to a calendar-year basis of reporting financial results

effective January 1, 2002. For comparative purposes, the reported audited

consolidated results of operations and cash flows for 2001 and 2000 annual

periods are for the twelve months ended October 31. As a requirement of the

change in fiscal year, the Company is reporting consolidated results of

operations and cash flows for a special transition period, the two months ended

December 31, 2001 (audited) compared with the two-months ended December 31, 2000

(unaudited). The comparative audited consolidated balance sheets are as of

December 31, 2002 and October 31, 2001.

2. Significant Accounting Policies

Use of Estimates

The preparation of the financial statements of the Company in conformity

with accounting principles generally accepted in the United States requires

management to make estimates and assumptions that affect reported amounts. These

estimates are based on information available as of the date of the financial

statements. Therefore, actual results could differ from those estimates.

Cash and Cash Equivalents

Securities with maturities of 90 days or less at the date of purchase are

classified as cash equivalents.

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Inventories

Produced coal and supplies inventories generally are stated at the lower of

average cost or net realizable value. Coal inventory costs include labor,

supplies, equipment costs, operating overhead, and other related costs.

Purchased coal inventories are stated at the lower of cost, computed on the

first-in, first-out method, or net realizable value.

Inventories consisted of the following:

(in thousands) At December 31, 2002 At October 31, 2001

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

Saleable coal $ 69,823 $ 46,872

Raw coal 47,898 45,254

Work in process 52,817 25,789

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

Subtotal coal inventory $ 170,538 $ 117,915

Supplies inventories 23,131 23,568

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

Total inventory $ 193,669 $ 141,483

=========== ===========

Saleable coal includes coal ready for sale. This category includes

inventories located at customer facilities under consignment arrangements. Raw

coal represents coal that may be further processed prior to shipment to customer

or may be sold in current condition. Work in process consists of the costs

incurred to remove overburden above an unmined coal seam as part of the surface

mining process.

Income Taxes

Deferred income taxes result from temporary differences between the tax

bases of assets and liabilities and their financial reporting amounts.

45

Other Current Assets

Other current assets are comprised of the following:

(In thousands) December 31, October 31,

2002 2001

---- ----

Longwall panel costs $ 39,155 $ 51,971

Deposits 42,319 4,079

Other 35,852 39,984

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

Total other current assets $ 117,326 $ 96,034

=========== ==========

Longwall panel costs consist of deferred costs related to the development

of longwall panels within a deep mine. These costs are amortized over the life

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of the panel once it is placed in service. Longwall panel lives range from

approximately eight to twelve months.

Deposits consist of funds placed in restricted accounts with financial

institutions to collateralize letters of credit that support workers'

compensation requirements and other insurance obligations, as well as collateral

required from customers as credit enhancement, with a corresponding liability

recorded within Other current liabilities.

Property, Plant and Equipment

Property, plant and equipment is carried at cost and comprises:

December 31, October 31,

(In thousands) 2002 2001

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

Land, buildings and equipment $ 1,692,587 $ 1,652,017

Mining properties and mineral rights 602,303 596,280

Mine development 522,255 466,777

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

Total property, plant and equipment 2,817,145 2,715,074

Less accumulated depreciation, depletion and amortization (1,282,657) (1,101,941)

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

Net property, plant and equipment $ 1,534,488 $ 1,613,133

=============== ===============

Expenditures that extend the useful lives of existing buildings and

equipment are capitalized. Maintenance and repairs are expensed as incurred.

Coal exploration costs are expensed as incurred. Development costs applicable to

the opening of new coal mines and certain mine expansion projects are

capitalized. When properties are retired or otherwise disposed, the related cost

and accumulated depreciation are removed from the respective accounts and any

profit or loss on disposition is credited or charged to income.

Depreciation of buildings, plant and equipment is calculated on the

straight-line method over their estimated useful lives, which generally range

from 15 to 30 years for building and plant, and 3 to 20 years for equipment.

Depletion of mining properties and mineral rights and amortization of mine

development costs are computed using the units-of-production method over the

estimated recoverable tons. As of December 31, 2002, approximately $53.0 million

of costs associated with mining properties and mineral rights is not currently

subject to amortization as mining has not begun or production has been

temporarily idled on the associated coal reserves.

During the third quarter of 2002, the Company purchased the Holston mining

assets from Pittston Coal Company. These assets, valued at approximately

$11.0 million, included the Holston room and pillar mine and the preparation

plant, among other assets. Total consideration paid by the Company was $6.2

million in cash, plus assumed liabilities of approximately $4.8 million.

Internal Use Software

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The Company capitalizes certain costs incurred in the development of

internal-use software, including external direct material and service costs, and

employee payroll and payroll-related costs in accordance with the American

Institute of Certified Public Accountants' Statement of Position (SOP) 98-1,

"Accounting for the Costs of Computer Software Developed for or Obtained for

Internal Use." All costs capitalized are amortized using the straight-line

method over the estimate useful life not to exceed 7 years.

Impairment of Long-Lived Assets

Impairment of long-lived assets is recorded when indicators of impairment

are present and the undiscounted cash flows estimated to be generated by those

assets are less than the assets' carrying value. The carrying value of the

assets is then reduced to their estimated fair value, which is usually measured

based on an estimate of future discounted cash flows. See Note 4 for a

description of impairment charges that were recorded in the consolidated

statement of earnings.

46

Advance Mining Royalties

Leases, which require minimum annual or advance payments and are

recoverable from future production are generally deferred and charged to expense

as the coal is subsequently produced. At December 31, 2002 and October 31, 2001,

advance mining royalties included in other noncurrent assets totaled $29.5 and

$29.8 million, respectively.

Reclamation

The Federal Surface Mining Control and Reclamation Act establishes

operational, reclamation and closure standards for all aspects of surface mining

as well as most aspects of deep mining. Estimates of the Company's total

reclamation and mine-closing liabilities are based upon permit requirements and

the Company's engineering expertise related to these requirements. For each

permit, the Company accrues for the costs of current mine disturbance and final

mine closure, including the cost of treating mine water discharge as coal is

mined, on a unit-of-production basis over the proven and probable reserves as

defined in Industry Guide 7. The Company's reclamation costs estimates are

regularly reviewed by the Company's management and engineers and are revised for

changes in future estimated costs and regulatory requirements. Additionally, the

Company performs a certain amount of required reclamation of disturbed acreage

as an integral part of its normal mining process. These costs are expensed as

incurred. As indicated in Accounting Pronouncements within this Note, SFAS No.

143, effective for the Company on January 1, 2003, will change the Company's

method of accounting for reclamation liabilities.

Shareholders' Equity

The Statement of Shareholders' Equity for periods prior to the Spin-Off

(see Note 12) reflects the outstanding shares of Massey Energy Company

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immediately following the Spin-Off. The Company believes this presentation to be

preferable to reporting earnings per share utilizing the distribution ratio at

the time of the Spin-Off and the capital structure of the combined Fluor

Corporation entity prior to the Spin-Off. Please refer to the "Earnings per

Share" section below for further discussion of the impact of this presentation

on earnings per share.

Revenue Recognition

Coal sales are recognized when title passes to customers. For domestic

sales, this generally occurs when coal is loaded at the mine or at off-site

storage locations. For export sales, this generally occurs when coal is loaded

onto marine vessels at terminal locations. In certain instances, the Company

maintains ownership of the coal inventory on customers' sites and sells tonnage

to such customers as it is consumed. For these customers, revenue is recognized

when title and risk of loss passes to the customers at the point of consumption.

Produced coal revenue represents revenue recognized from the sale of coal

produced by the Company.

Freight and handling costs paid to third-party carriers and invoiced to

coal customers are recorded as Freight and handling costs and Freight and

handling revenue, respectively.

Purchased coal revenue represents revenue recognized from the sale of coal

purchased from external production sources. In these instances, the Company

takes title to the coal that is purchased from external production sources,

which is then sold to the Company's customer. Tons of purchased coal shipped

were 3.3 million tons for the year ended December 31, 2002 and 1.3 million tons

for the years ended October 31, 2001 and 2000.

Other revenue generally consists of royalties, rentals, contract buyout

payments, coal handling services, miscellaneous income and gains on the sale of

non-strategic assets. For the years ended October 31, 2001 and 2000, the Company

recorded gains on the sale of non-strategic reserves of $1.1 million, and $26.5

million, respectively. The gains and losses on reserve sales for the year ended

December 31, 2002 were not material. Contract buyout payments were $23.5

million, including $5.1 million from one large customer, for the year ended

December 31, 2002, and were not material for the years ended October 31, 2001

and 2000.

Earnings per Share

Shares used to calculate basic earnings per share for the period ended

October 31, 2000 are the number of shares outstanding immediately following the

Spin-Off (see Note 12). The calculation of historical earnings per share for the

periods reported prior to the Spin-Off does not use a pro rata portion of the

shares previously reported by Fluor Corporation prior to the Spin-Off. We have

assumed no relation to Fluor's previously existing capital structure in

47

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calculating earnings per share for these periods. This is considered preferable

as the operations that comprise Massey Energy had no separate capital structure

prior to the Spin-Off and New Fluor was treated for reporting purposes as the

accounting successor to Fluor (see Note 12). A pro rata portion of Fluor's

historic shares would not have been a good representation of Massey Energy's

capital structure as Fluor had share transactions that were unrelated to the

operations that became Massey Energy. The most significant such share

transaction was the maturity and settlement by Fluor of a forward purchase

contract on November 30, 2000 for 1,850,000 shares of Fluor Corporation common

stock.

The number of shares used to calculate basic loss per share for periods

subsequent to the Spin Off is based on the weighted number of average

outstanding shares of Massey Energy during the period. Shares used to calculate

diluted earnings per share for the period ended October 31, 2000 is based on the

number of shares outstanding immediately following the Spin-Off and the dilutive

effect of stock options and other stock-based instruments of Fluor Corporation,

held by Massey employees, that were converted to equivalent instruments in

Massey Energy Company in connection with the Spin-Off. In accordance with

accounting principles generally accepted in the United States, the effect of

dilutive securities was excluded from the calculation of the diluted loss per

common share for the periods subsequent to the Spin Off as such inclusion would

result in antidilution.

The computations for basic and diluted (loss) earnings per share are based

on the following per share information:

Year Ended Two months Ended

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

December 31, October 31, October 31, December 31, December 31,

(In thousands) 2002 2001 2000 2001 2000

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

(Unaudited)

Weighted number of average shares of

common stock outstanding:

Basic 74,442 73,858 73,469 74,131 74,098

Effect of stock options/restricted stock - - 3 - -

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

Diluted 74,442 73,858 73,472 74,131 74,098

============= ============ ============ ============= =============

Stock Plans

The Company accounts for stock-based compensation using the intrinsic value

method prescribed by Accounting Principles Board (APB) Opinion No. 25,

"Accounting for Stock Issued to Employees," and related Interpretations.

Accordingly, compensation cost for stock options granted to employees is

measured as the excess, if any, of the quoted market price of the stock at the

date of grant over the amount an employee must pay to acquire the stock.

Compensation cost for stock appreciation rights and performance equity units is

recorded based on the quoted market price of the Company's stock at the end of

the period. The Company has implemented the disclosure-only provisions of

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Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based

Compensation" (SFAS No. 123). The Company has recognized no stock-based

compensation expense related to stock options in the years ended October 31,

2000, October 31, 2001, December 31, 2002 and the two months ended December 31,

2001, as all options granted had an exercise price equal to market value of the

underlying common stock on the date of the grant. See Note 13 for additional

information. If the Company had followed the fair value method under SFAS 123 to

account for stock based compensation for stock options, the amount of stock

based compensation cost for stock options, net of related tax, which would have

been recognized for each period and pro-forma net income for each period would

have been as follows:

Two Months

Year ended Ended

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

December 31, October 31, October 31,December 31,

2002 2001 2000 2001

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

(in thousands, except per share amounts)

Net (loss) income, as reported ($ 32,574) ($ 5,420) $ 78,531 ($ 14,801)

Deduct: Total stock-based employee compensation expense ($ 2,135) ($ 1,375) ($ 1,600) ($ 361)

for stock options determined under Black-Scholes

option pricing model

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

Pro forma net (loss) income ($ 34,709) ($ 6,795) $ 76,931 ($ 15,162)

===================================================

Earnings (loss) per share:

Basic - as reported ($0.44) ($0.07) $ 1.07 ($0.20)

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

Basic - pro forma ($0.47) ($0.09) $ 1.05 ($0.20)

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

Diluted - as reported ($0.44) ($0.07) $ 1.07 ($0.20)

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

Diluted - pro forma ($0.47) ($0.09) $ 1.05 ($0.20)

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

Derivatives

Effective November 1, 2000, the Company adopted Statement of Accounting

Standards No. 133, "Accounting for Derivative Instruments and Hedging

Activities" ("SFAS No. 133") as amended by SFAS No. 138, "Accounting for Certain

Derivative Instruments and Hedging Activities." The Statements require that an

entity recognize all derivatives as either assets or liabilities in the

statement of financial position and measure those instruments at fair value. The

adoption of these accounting standards and subsequent implementation guidance

did not have a significant impact on the Company's financial position, results

of operations, or liquidity.

Accounting Pronouncements

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Effective January 1, 2002, the Company adopted Statement of Financial

Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or

Disposal of Long-Lived Assets." The provisions of this statement provide for a

single accounting model for measuring impairment of long-lived assets. The

adoption of SFAS No. 144 did not have a material effect on the Company's

financial condition or results of operations.

In April 2002, the Financial Accounting Standards Board ("FASB") issued

SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of

FASB Statement No. 13, and Technical Corrections," which is effective for fiscal

years beginning after May 2002. The standard requires that gains or losses on

debt extinguishment, previously reported as extraordinary items, be presented as

a component of results from continuing operations unless the extinguishment

meets the criteria for classification as an extraordinary item in Accounting

Principles Board Opinion No. 30. During the fourth quarter of 2002, the Company

purchased in open market transactions, an aggregate of $14.0 million of its 6.95

percent Senior Notes at an aggregate purchase price of $10.7 million. The

Company has chosen early adoption of SFAS No. 145, and accordingly, recorded a

gain of $3.3 million on the transactions in Senior notes repurchase income, a

component of Total revenue.

On August 15, 2001, FASB issued SFAS No. 143, "Accounting for Asset

Retirement Obligations." The standard requires the fair value of a liability for

an asset retirement obligation to be recognized in the period in which it is

incurred. When the liability is initially recorded, the offset is capitalized by

increasing the carrying amount of the related long-lived asset. Over time, the

liability is accreted to its present value each period, and the capitalized cost

is depreciated over the useful life of the related asset. To settle the

liability, the obligation is paid, and to the extent there is a difference

between the liability and the amount of cash paid, a gain or loss upon

settlement is incurred. This statement is effective for the Company beginning

January 1, 2003, and transition is by cumulative catch-up adjustment. The

adoption changes the Company's current accounting for reclamation. The Company

is continuing to calculate its transition adjustment.

48

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors'

Accounting and Disclosure Requirements for Guarantees, Including Indirect

Guarantees of Indebtedness of Others ("FIN 45"). This Interpretation describes

the disclosure requirements of a guarantor's issuance of certain guarantees, and

clarifies that a guarantor is required to recognize a liability, at the date of

issuance, for the fair value of the obligation assumed in issuing the guarantee.

The disclosure requirements of FIN 45 are effective for the Company for the year

ended December 31, 2002, and the initial recognition and measurement provisions

are applicable on a prospective basis to guarantees issued or modified after

December 31, 2002. This Interpretation is not expected to have a material effect

on the Company's financial position, results of operations, or liquidity.

3. Concentrations of Credit Risk and Major Customers

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The Company is engaged in the production of high-quality low sulfur steam

coal for the electric generating industry, as well as industrial customers and

metallurgical coal for the steel industry. Steam coal sales accounted for

approximately 60%, 54%, and 50% of produced coal revenue for the years ended

December 31, 2002, and October 31, 2001, and 2000, respectively. Metallurgical

coal sales accounted for approximately 30%, 34%, and 40% of produced coal

revenue for the years ended December 31, 2002, and October 31, 2001, and 2000,

respectively. Industrial coal sales for the years ended December 31, 2002, and

October 31, 2001, and 2000 were 10%, 12%, and 10% of produced coal revenue,

respectively.

Massey's mining operations are conducted in eastern Kentucky, West Virginia

and Virginia and the coal is marketed primarily in the United States.

For the year ended December 31, 2002, approximately 11% and 12% of produced

coal revenue was attributable to two utility customers, Duke Energy Corporation

and its affiliate, Duke Energy Merchants, LLC, and affiliates of DTE Energy

Company, respectively. For the years ended October 31, 2001 and 2000,

approximately 11%, and 14%, respectively, of produced coal revenue was

attributable to Duke Energy Corporation and its affiliate, Duke Energy

Merchants, LLC. At December 31, 2002, approximately 20%, 59% and 21% of

consolidated trade receivables represent amounts due from metallurgical

customers, utility customers and industrial customers, respectively, compared

with 25%, 63% and 12%, respectively, as of October 31, 2001. Credit is extended

based on an evaluation of the customer's financial condition. To mitigate

credit-related risks in all customer classifications, the Company maintains a

credit policy that requires scheduled reviews of customer creditworthiness and

continuous monitoring of customer news events which might have an impact on

their financial condition. Negative credit performance or events may trigger the

application of tighter terms of sale, requirements for collateral or,

ultimately, a suspension of credit privileges.

The Company's trade accounts receivable are subject to potential default by

customers. Specifically, the Company has exposure to the U.S. steel industry and

energy trading and brokering companies which have faced economic difficulty in

recent years. Certain of the Company's customers have filed for bankruptcy

resulting in bad debt charges to the Company. The Company establishes its

doubtful account reserve to consider specifically customers in financial

difficulty and other potential receivable losses. In establishing its reserve,

the Company considers the financial condition of its individual customers, and

probability of recovery in the event of default. The Company charges off

uncollectible trade receivables once legal pontential for recovery is exhausted.

4. Impairment of Long-Lived Assets

The following impairment charges were recorded in the consolidated

statement of earnings:

During the third quarter of 2002, the Company recorded a charge in the

amount of $13.2 million (pre-tax) related to the write off of capitalized

development costs at certain idled mines, which included the Pegs Branch mine,

the Spring Branch mine, and the Ruby Energy mine. This charge is included in

depreciation, depletion and amortization for the year ended December 31, 2002.

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During the third quarter of 2002, the Pegs Branch mine of the Sidney

resource group was closed. Based on operating conditions experienced in the Pegs

Branch mine a decision was made to forego mining the final section of reserves.

The mining equipment was moved to another mine location with more favorable coal

reserve conditions. Unamortized development costs of approximately $1.7 million

were written off during the third quarter of 2002 as a result of the Pegs Branch

mine closure.

The Spring Branch mine of the Stirrat resource group temporarily ceased

mining in January of 2001 due in part to a lack of experienced mine personnel.

As part of the budget process for 2003, the mine, its coal reserves and its

mining conditions were reassessed for future operating potential. Management

made the decision to permanently abandon this mine during the third quarter of

2002. Unamortized development costs of approximately $2.3 million were written

off in the third quarter as a result of the Spring Branch mine closure.

The Ruby Energy mine of the Delbarton resource group temporarily ceased

operations in February of 2002 in reaction to market demand for steam coal by

utilities. During the third quarter of 2002, as part of the 2003 budget process,

Company management decided that a section of the mine that crossed under a creek

would not be utilized in future mining plans. Unamortized development costs

related to this section of the mine of approximately $9.2 million were written

off in the third quarter related to the Ruby Energy mine closure. Other areas of

the mine are expected to be mined in accordance with the mine plans as approved

by management.

During the third quarter of 2001, management decided to move a longwall at

the Jerry Fork mine of the Nicholas Energy resource group to better mining

conditions in another mining location. As a result, unamortized longwall panel

development costs of $7.6 million were considered to be impaired and were

written off. This charge is reflected in cost of produced coal revenue for the

year ended October 31, 2001.

During the fourth quarter of 2000, due to significant rock falls and

continual poor and unsafe mining conditions at the Upper Cedar Grove mine of the

Independence resource group, the Company abandoned certain longwall mining

49

equipment and wrote off related longwall panel development costs. This write-off

of approximately $9 million is included in cost of produced coal revenue for the

year ended October 31, 2000.

5. Appalachian Synfuel, LLC

Appalachian Synfuel, LLC (the "LLC") was formed in 1997 as a wholly owned

subsidiary of Fluor Corporation to manufacture and market synthetic fuel. The

LLC became a wholly owned subsidiary of Massey in November 2000 when the

Spin-Off occurred. As a provider of synthetic fuel, the LLC generates tax

credits for its owners; however, because of the Company's tax position it is

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unable to utilize the tax credits generated by the LLC. In order to monitize the

value of the Company's investment, the Company sought to sell an interest in the

LLC to an entity that could benefit currently from the tax credits generated. In

order to facilitate such a transaction, the LLC agreement was amended to divide

the ownership interest into three traunches, Series A, Series B and Series C.

Under the amended LLC agreement, the Series A owner generally is entitled

to the risks and rewards of the first 475,000 tons of production, including the

right to the related tax credits. The Series B owner is generally entitled to

the risks and rewards of all excess production up to the rated capacity of 1.2

million tons. The Series C owner is entitled to the amount of working capital on

the day of the sales transaction. The Series C owner is responsible for

providing recourse working capital loans to the LLC going forward at a specified

indexed interest rate. As a result, the Series C owner will fund the daily

operations of the LLC. The Series C owner also has the responsibility at the end

of the term of the LLC agreement to wind up the affairs of the LLC, disposing of

all assets and settling liabilities.

On March 15, 2001, and May 9, 2002, the Company, in a two-part transaction,

sold 99% of its Series A and Series B interests, respectively, in the LLC,

contingent upon favorable Internal Revenue Service rulings, which were received

in September 2001 and in June 2002, respectively. The Company received cash of

$7.2 million, a recourse promissory note for $34.6 million that will be paid in

quarterly installments of $1.9 million including interest, and a contingent

promissory note that is paid on a cents per Section 29 credit dollar earned

based on synfuel tonnage shipped. Deferred gains of $23.8 million and $11.9

million as of December 31, 2002 and October 31, 2001, respectively, are included

in other noncurrent liabilities to be recognized ratably though 2007. Massey's

subsidiary, Marfork Coal Company, Inc., will continue to manage the facility

under an operating agreement.

6. Income Taxes

Income tax (benefit) expense included in the consolidated statement of

earnings is as follows:

Year Ended Two Months Ended

December 31, October 31, October 31, December 31, December 31,

(In thousands) 2002 2001 2000 2001 2000

(Unaudited)

Current:

Federal $ (24,694) $ (6,389) $ 13,735 $ - $ -

State and local (3,763) 148 1,447 25 -

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

Total current (28,457) (6,241) 15,182 25 -

Deferred:

Federal 1,050 (3,639) 24,562 (8,707) (3,855)

State and local 2,461 (621) 3,491 (41) (441)

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

Total deferred 3,511 (4,260) 28,053 (8,748) (4,296)

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

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Total income tax (benefit)

expense $ (24,946) $ (10,501) $ 43,235 $ (8,723) $ (4,296)

============ ============ ============ ============ =============

For the tax year ended October 31, 2001, Massey's consolidated federal

income tax return includes the operations of A.T. Massey and Fluor until the

date of the Spin-Off.

50

A reconciliation of income tax (benefit) expense calculated at the federal

statutory rate of 35% to the Company's income tax (benefit) expense on (loss)

earnings is as follows:

Year Ended Two Months Ended

December 31,

December 31, October 31, October 31, December 31, 2000

(In thousands) 2002 2001 2000 2001 (Unaudited)

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

U.S. statutory federal tax expense $ (20,132) $ (5,572) $ 42,618 $ (8,233) $ (3,855)

Increase (Decrease) resulting from:

State taxes (4,558) (170) 3,781 (25) (441)

Items without tax effect 1,526 700 5,235 86 -

Depletion (7,350) (4,496) (7,657) (551) -

FSC exempt income (1,050) (963) (952) - -

Other, net 6,618 -- 210 - -

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

Total income tax (benefit)

expense $ (24,946) $ (10,501) $ 43,235 $ (8,723) $ (4,296)

============ ============ ============ ============ ============

Deferred taxes reflect the tax effects of differences between the amounts

recorded as assets and liabilities for financial reporting purposes and the

amounts recorded for income tax purposes. The tax effects of significant

temporary differences giving rise to deferred tax assets and liabilities are as

follows:

December 31, October 31,

(In thousands) 2002 2001

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

Deferred tax assets:

Postretirement benefit obligations $ 28,608 $ 28,428

Worker's compensation 14,648 15,975

Reclamation and mine closure 41,167 32,416

Alternative minimum tax credit carryforwards 80,948 59,549

State NOL 14,204 6,959

Other 42,791 28,287

222,366 171,614

Valuation allowance for deferred tax assets (85,889) (66,508)

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

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Deferred tax assets, net 136,477 105,106

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

Deferred tax liabilities:

Plant, equipment and mine development (231,782) (187,136)

Mining property and mineral rights (107,648) (110,748)

Other (27,834) (44,094)

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

Total deferred tax liabilities (367,264) (341,978)

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

Net deferred tax liabilities $ (230,787) $ (236,872)

============== ===============

The Company's deferred tax assets include alternative minimum tax ("AMT")

credits of $80.9 and $59.5 million each at December 31, 2002 and October 31,

2001. The AMT credits have no expiration date. Subsequent to the Spin-Off, the

Company completed an assessment of its deferred tax balances and the likelihood

of realizing AMT credit carryforwards as a stand-alone company. Management

determined, more likely than not, that these credits will not be realized. State

net operating loss carryforwards begin to expire in 2016.

The Company has a reserve for taxes that may become payable as a result of

audits in future periods with respect to previously filed tax returns included

in deferred tax liabilities (separate disclosure has not been made because the

amount is not considered material). It is the Company's policy to establish

reserves for taxes that may become payable in future years as a result of an

examination by tax authorities. The Company establishes the reserves based upon

management's assessment of exposure associated with permanent tax differences

(i.e., tax depletion expense, etc.), tax credits and interest expense applied to

temporary difference adjustments. The tax reserves are analyzed periodically (at

least annually) and adjustments are made as events occur to warrant adjustment

to the reserve. For example, if the statutory period for assessing tax on a

given tax return or period lapses, the reserve associated with that period will

be reduced. In addition, the adjustment to the reserve will reflect additional

exposure based on current calculations. Similarly, if tax authorities provide

administrative guidance or a decision is rendered in the courts, appropriate

adjustments will be made to the tax reserve. The tax reserve was lowered in the

years ending December 31, 2002, and October 31, 2001, by $4.1 million and $0.6

million, respectively, reflecting the reduction in exposure due to the lapsing

of the statutory periods for assessing tax on tax periods ending in 1998 and

1997, partially offset by additional exposures identified for tax years that

remained open. The tax reserve was increased in the fiscal year ending October

31, 2000 by $0.7 million for increased state and federal tax exposure in open

years, partially offset by the lapsing of the statutory period for assessing tax

on the tax period ending in 1996. In addition, payments were applied against the

reserve for federal taxes and state taxes $1,045,000, $172,000, and $821,000 as

a result of audits conducted during the years ended October 31, 2000 and 2001,

and December 31, 2002, respectively.

51

Massey's federal income tax returns have been examined by the Internal

Revenue Service, or Statutes of Limitations have expired through 1998.

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Management believes that the Company has adequately provided for any income

taxes and interest that may ultimately be paid with respect to all open tax

years.

7. Debt

The Company's short-term debt at December 31, 2002, consists of $264.0

million of borrowings outstanding under its credit facilities. The weighted

average effective interest rate of the outstanding borrowings was 3.92 percent

at December 31, 2002 and 3.03 percent at October 31, 2001. In early May 2002,

Moody's and S&P downgraded the Company's credit ratings. These ratings actions

effectively prevented the Company from accessing the commercial paper market due

to the restrictive investment policy credit guidelines of potential commercial

paper investors and caused the Company to draw on the credit facilities for

short-term financing needs. The Company had no commercial paper obligations

outstanding at December 31, 2002, and $240.4 million at October 31, 2001. At

October 31, 2001, the Company also had outstanding a note payable in the amount

of $7.8 million, which was due and paid on November 1, 2001. At December 31,

2002, the Company's available liquidity was $134.5 million, including cash and

cash equivalents of $2.7 million and $131.8 million remaining on the Company's

revolving credit facilities.

On November 26, 2002, Massey and its lenders concluded the extension and

amendment of the $150 million 364-day and $250 million multi-year revolving

credit facilities, which have been guaranteed by A. T. Massey, that serve as the

primary source of the Company's short-term liquidity. The credit facilities now

provide the lenders with selected assets as collateral for borrowings under the

facilities. The selected assets that are collateral for the credit facilities

include all capital stock of the Company's subsidiaries and substantially all of

the Company's assets, now owned or at any time hereafter acquired by the

Company, excluding among other things, all coal, oil and gas reserves and mining

permits, certain properties (e.g., the Eastman Chemical Company Coal Handling

System and Westvaco Coal Handling Facility, and the value of properties that

might exceed the lien threshold established in the indenture related to the

Senior Notes (discussed below)) and certain other assets associated with the

Company's accounts receivable securitization program discussed below. Both

facilities have been renewed through November 25, 2003. The Company intends to

replace these credit facilities prior to their expiration on November 25, 2003.

Borrowings under these facilities bear interest based on (i) the London

Interbank Offer Rate (LIBOR) or (ii) the Base Rate (as defined in the facility

agreements) plus a margin, which is based on the Company's senior secured debt

credit rating as determined by Moody's and Standard & Poor's. At December 31,

2002, and currently, Massey's senior secured debt ratings are Ba1 and BB+,

respectively.

The revolving credit facilities contain financial covenants requiring the

Company to maintain various financial ratios. Failure by the Company to comply

with these covenants could result in an event of default, which if not cured or

waived could have a material adverse effect on the Company. The financial

covenants consist of a maximum leverage ratio, a minimum interest coverage

ratio, and a minimum net worth test. The leverage ratio requires that the

Company not permit the ratio of total indebtedness at the end of any quarter to

adjusted EBITDA for the four quarters then ended to exceed a specific amount.

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The interest coverage ratio requires that the Company not permit the ratio of

the Company's adjusted EBITDA to interest expense for the four quarters then

ended to be less than a specified amount. The net worth test requires that the

Company not permit its net worth to be less than a specified amount. The Company

was in compliance with all material covenants at December 31, 2002 and during

other periods reflected except for the covenant related to the maximum leverage

ratio, with which we were not in compliance at December 31, 2001. However, the

participant banks granted a waiver of this financial covenant for the period

ended December 31, 2001. In the event we violate any of the debt covenants and

do not affect a timely cure or receive a waiver from the lenders in our credit

facilities, the debt agreements provide that the Administrative Agent shall, if

requested by at least four lenders holding at least 50% of the aggregate amount

of the loans, declare the loans immediately due and payable.

In determining EBITDA as defined in the credit facility agreements for use

in computing the leverage ratio, the Company has excluded certain items,

including the $25.6 million charge relative to the Harman litigation described

in Note 15. The Company believes that the exclusion of such items is appropriate

and has notified the lenders' Administrative Agent of this exclusion. If the

accrual for the Harman litigation were to be included in the EBITDA calculation

and no further adjustments were made, the Company would still be in compliance

with the covenant at December 31, 2002.

The Company had $286.0 million of long-term debt as of December 31, 2002,

which consisted entirely of 6.95 percent Senior Notes (the "Notes") due March 1,

2007. Initially, $300 million of the Notes were issued in March 1997 at a

discount, for aggregate proceeds of $296.7 million. During the fourth quarter of

2002, the Company made several open-market purchases, retiring a total principal

amount of $14.0 million of the Notes at a cost of $10.7 million plus accrued

interest. A gain of $3.3 million was recognized in the fourth quarter of 2002

and is shown in the Consolidated Financial Statements of Income in Senior notes

repurchase income. Interest is payable semiannually on March 1 and September 1

of each year, commencing September 1, 1997. The Notes are redeemable in whole or

in part, at the option of the Company at any time at a redemption price equal to

the greater of (i) 100 percent of the principal amount of the Notes or (ii) as

determined by a Quotation Agent as defined in the offering prospectus. On

November 27, 2002, Moody's and S&P reduced the credit ratings on the Senior

Notes to Ba3 and B+, respectively, citing the structural subordination caused by

the secured status of the amended bank credit facilities.

Additionally, the Company has available a $500 million debt shelf

registration filed with the Securities and Exchange Commission (the "SEC") in

March 1999, all of which remains unused. Prior to the Spin-Off, Fluor

Corporation filed this debt shelf registration. An updated filing with the SEC

would be required to issue debt under this shelf registration.

52

Total interest paid for the year ended December 31, 2002 and October 31,

2001, was $35.4 million and $34.8 million, respectively, and was not material

for the year ended October 31, 2000.

Off-Balance sheet arrangements

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In the normal course of business, the Company is a party to certain

off-balance sheet arrangements including guarantees, indemnifications, and

financial instruments with off-balance sheet risk, such as bank letters of

credit and performance or surety bonds. Liabilities related to these

arrangements are not reflected in our consolidated balance sheets, and we do not

expect any material adverse effects on our financial condition, results of

operations or cash flows to result from these off-balance sheet arrangements.

The Company uses surety bonds to secure reclamation, workers' compensation,

wage payments, and other miscellaneous obligations. As of December 31, 2002, the

Company had $261 million of outstanding surety bonds with third parties. These

bonds were in place to secure obligations as follows: post-mining reclamation

bonds of $217 million, workers' compensation bonds of $10 million, wage payment

and collection bonds of $9 million, and other miscellaneous obligation bonds of

$25 million. Recently, surety bond costs have increased, while the market terms

of surety bonds have generally become less favorable. To the extent that surety

bonds become unavailable, the Company would seek to secure obligations with

letters of credit, cash deposits, or other suitable forms of collateral.

From time to time the Company uses bank letters of credit to secure its

obligations for worker's compensation programs, various insurance contracts and

other obligations. Issuing banks currently require that such letters of credit

be secured by funds deposited into restricted accounts pledged to the banks

under reimbursement agreements. At December 31, 2002, the Company had $32.5

million of letters of credit outstanding, collateralized by $31.5 million of

cash deposited in restricted, interest bearing accounts, and no claims were

outstanding against those letters of credit.

8. Fair Value of Financial Instruments

Certain Company subsidiaries prior to 2002 provided loans to West Virginia

businesses at prevailing interest rates as part of an economic development

program that provides tax credits as incentives. Outstanding loans at December

31, 2002 and October 31, 2001 amounted to $4.8 million and $10.5 million,

respectively, of which $1.9 million and $2.4 million, respectively, are

unsecured. These loans are estimated to be at fair value, after recording an

allowance for loan losses of $1.4 million at December 31, 2002 and $2.1 million

at October 31, 2001, based on future cash flows and related credit risk. The

current portion of these notes is included in trade and other accounts

receivable. The noncurrent portion is included in other noncurrent assets.

Prior to the Spin-Off (see Note 12), the Company loaned funds in excess of

its operating and capital needs to Fluor and received interest on the average

daily balance at 130% of the federal short-term rate determined in accordance

with the Internal Revenue Code of 1986. Fluor repaid these loans to the Company

as the need arose. The Company believed these financial practices to be a fair

arrangement with its prior parent and concluded that any further assessment to

determine fair market value of amounts due from Fluor would not be cost

beneficial. Interest income for 2001 and 2000 related to these loans amounted to

$1.5 million and $16.6 million, respectively. These loans were classified as a

reduction to shareholders' equity prior to the Spin-Off and were settled as part

of the Spin-Off transaction.

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In addition, the Company had outstanding $264.0 million and $248.2 million

of short-term debt at December 31, 2002 and October 31, 2001, respectively (see

Note 7). The carrying amount of this debt approximates its fair value.

The Company's long-term debt consists entirely of 6.95 percent Senior Notes

due March 1, 2007 (see Note 7). The fair value of the Senior Notes at December

31, 2002, based on currently available market information, was $270.9 million.

The Senior Notes are not traded frequently and there were no trades reported as

a benchmark.

9. Pension Plans

Defined Benefit Pension

Prior to October 1, 2001, Massey sponsored two non-contributory defined

benefit pension plans which covered substantially all administrative and

non-union employees hired prior to September 1, 1994. As of October 1, 2001,

these plans were merged together with each participant group retaining its

benefit formula. These formulas provide pension benefits based on the employee's

years of service and average annual compensation during the highest five

consecutive years of service. In addition, the new merged plan covers

substantially all administrative and non-union employees of the Company who were

previously covered under a non-contributory defined contributory pension plan.

These participants will accrue benefits under a cash balance formula with

contribution credits based on hours worked. Funding for the plan is generally at

the minimum annual contribution level required by applicable regulations.

The plan assets are held by an independent trustee and, in certain

circumstances, by insurance carriers. The plans assets include cash and cash

equivalents, corporate and government bonds, preferred and common stocks,

investments in mutual funds and annuity contracts. The fair market value of the

plans assets was $174 million at December 31, 2002.

53

Net periodic pension expense (income) for the defined benefit pension plan

includes the following components:

Year Ended Two Months

Ended

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

December 31, October 31, October 31, December 31,

(In thousands) 2002 2001 2000 2001

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

Service cost $ 10,649 $ 2,657 $ 2,509 $ 1,769

Interest cost 10,256 9,498 9,114 1,693

Expected return on plan assets (18,069) (22,245) (20,732) (2,886)

Amortization of unrecognized net

liability / (asset) -- (1,800) (2,116) 74

Amortization of prior service cost 133 57 56 10

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

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Net periodic pension expense / (income) $ 2,969 $ (11,833) $ (11,169) $ 660

=============== ============== ============== ===============

The weighted average assumptions used in determining pension benefit

obligations are as follows:

December 31, October 31, December 31,

2002 2001 2001

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

Discount rates 6.75% 7.25% 7.25%

Rates of increase in compensation levels 4.00% 4.00% 4.00%

Expected long-term rate of return on plan assets used

in determining expense in each of the periods 9.00% 9.50% 9.00%

The following table sets forth the change in benefit obligation, plan

assets and funded status of the Company's defined benefit pension plan:

Two Months

Year Ended Year Ended Ended

December 31, October 31, December 31,

(In thousands) 2002 2001 2001

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

Change in benefit obligation

Benefit obligation at the beginning of the

period $ 147,724 $ 126,687 $ 140,194

Service cost 10,649 2,657 1,769

Interest cost 10,256 9,498 1,693

Actuarial loss 6,103 7,626 5,120

Plan amendment 859 -- --

Benefits paid (6,880) (6,274) (1,052)

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

Benefit obligation at end of period $ 168,711 $ 140,194 $ 147,724

================= ================ ================

Change in plan assets

Fair value at the beginning of the period $ 204,473 $ 237,551 $ 196,131

Actual (loss) return on assets (23,626) (35,156) 9,390

Company contributions 29 10 4

Benefits paid (6,880) (6,274) (1,052)

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

Fair value at end of period $ 173,996 $ 196,131 $ 204,473

================= ================ ================

Funded status $ 5,285 $ 55,937 $ 56,749

Unrecognized net actuarial loss 67,153 20,743 19,423

Unrecognized prior service cost 1,187 461 451

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

Pension assets 73,625 77,141 76,623

Amount included in current liabilities 3,731 3,259 3,124

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

Noncurrent asset $ 77,356 $ 80,400 $ 79,747

================= ================ ================

54

Multi-Employer Pension

Under labor contracts with the United Mine Workers of America, certain

operations make payments into two multi-employer defined benefit pension plan

trusts established for the benefit of certain union employees. The contributions

are based on tons of coal produced and hours worked. Such payments aggregated

approximately $0.1 million each in the years ended December 31, 2002, October

31, 2001 and October 31, 2000. Payments into the two multi-employer plan trusts

were less than $0.1 million during the two months ended December 31, 2001.

Defined Contribution and Salary Deferral Pension

Certain union employees are covered by a non-contributory defined

contribution pension plan. Contributions to the defined contribution retirement

plan are based on hours worked.

Prior to October 1, 2001, the Company sponsored a separate non-contributory

defined contribution pension plan for substantially all administrative and

non-union employees. On September 30, 2001, the plan was frozen and assets were

merged into an existing salary deferral and profit sharing plan. Employees

covered under the frozen plan now participate in the defined benefit pension

plan under the cash balance formula discussed in the first paragraph of this

Note.

For certain eligible employees, the Company sponsors a contributory defined

contribution pension plan with Company contributions based on hours worked.

Effective October 1, 2001, the maximum salary deferral rate was increased from

10% to 15% of eligible compensation and the Company matches 30% on the first 10%

of employee deferrals. The Company may make additional discretionary

contributions to the plan.

For the years ended December 31, 2002 and October 31, 2001 and 2000,

Company contributions to these three plans aggregated approximately $0.2

million, $7.5 million, and $5.6 million, respectively. Contributions to these

plans during the two months ended December 31, 2001 were less than $0.1 million.

The Company also sponsors a salary deferral and profit sharing plan

covering substantially all administrative and non-union employees. Effective

October 1, 2001, the maximum salary deferral rate was increased from 10% to 15%

of eligible compensation and the Company matches 30% on the first 10% of

employee deferrals. The Company may make additional discretionary contributions

to the plan. Total Company contributions aggregated approximately $4.6 million,

$2.5 million, and $2.2 million for the years ended December 31, 2002, October

31, 2001 and October 31, 2000, respectively, and approximately $0.6 million for

the two-month period ended December 31, 2001.

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10. Other Noncurrent Liabilities

Other noncurrent liabilities comprise the following:

December 31, October 31,

(In thousands) 2002 2001

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

Reclamation $ 104,895 $ 107,448

Other post-employment benefits (Note 11) 79,578 72,061

Workers' compensation and black lung 78,322 75,810

Other 66,486 62,477

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

Total other noncurrent liabilities $ 329,281 $ 317,796

========== ==========

Reclamation

The Company accrues for the costs of current mine disturbance and final

mine closure, as coal is mined, on a unit-of-production basis over the proven

and probable reserves as defined in Industry Guide 7. For the years ended

December 31, 2002, October 31, 2001 and 2000, and the two-months ended December

31, 2001, the Company accrued approximately $9.8 million, $6.4 million, $6.5

million and $1.6 million, respectively, towards final mine closure reclamation,

excluding re-costing adjustments identified below. The Company regularly reviews

its estimated and accrued liabilities on a permit-by-permit basis and makes

necessary adjustments, including permit changes and revisions to costs and

productivities to reflect current experience. When changes in cost estimates or

regulatory requirements cause the Company's accrued liability for a permit to

exceed its total estimated reclamation liability, the difference is credited to

income. These "re-costing" adjustments are recorded as a decrease in cost of

produced coal revenue and totaled $1.7 million, $6.6 million, $7.2 million and

$0.2 million for the years ended December 31, 2002, October 31, 2001 and 2000,

and the two-months ended December 31, 2001, respectively. The Company's

management believes it is making adequate provision for all expected future

reclamation costs. Final reclamation costs for all operations as of December 31,

2002 are estimated to be approximately $163 million. As indicated in Note 2,

SFAS No. 143, effective for the Company on January 1, 2003, will change the

Company's method of accounting for reclamation liabilities.

55

Workers' Compensation and Black Lung

The Company is responsible under the Federal Coal Mine Health and Safety

Act of 1969, as amended, and various states' statutes for the payment of medical

and disability benefits to employees and their dependents resulting from

occurrences of coal worker's pneumoconiosis disease (black lung). In addition,

the Company is liable for workers' compensation benefits for traumatic injuries

under the workers' compensation laws in the states in which it has operations.

The Company provides for federal and state black lung claims principally

through a self-insurance program. The Company uses the service cost method to

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account for its self-insured black lung obligation. The liability measured under

the service cost method represents the discounted future estimated cost for

terminated employees either receiving or are projected to receive benefits, and

the portion of the projected liability relative to prior service for active

employees who are projected to receive benefits. An annual actuarial study is

prepared by independent actuaries using certain assumptions to determine the

liability. The calculation is based on assumptions regarding disability

incidence, medical costs, mortality, death benefits, dependents and interest

rates. These assumptions are derived from actual Company experience and

credible outside sources.

The Company uses a combination of three methods for coverage of traumatic

injury liability pursuant to workers' compensation laws including self-insurance

programs, insurance coverage of claims, and participation in state workers'

compensation fund. The Company accrues for traumatic injury claims as incurred

under its self-insurance program. Additionally, for self-insured claims, a

provision for incurred but not reported claims is recorded.

Expense for black lung under the service cost method represents the service

cost, which is the portion of the present value of benefits allocated to the

current year, interest on the accumulated benefit obligation, and amortization

of unrecognized actuarial gains and losses. The Company amortizes unrecognized

actuarial gains and losses over a five-year period. If the remaining service

period of active participants were less than five years, the amortization period

would be reduced to the remaining service period.

Expenses for black lung benefits and workers' compensation related benefits

include the following components:

Year Ended Two Months

Ended

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

December 31, October 31, October 31, December 31,

(In thousands) 2002 2001 2000 2001

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

Self-insured black lung benefits

Service cost $ 3,461 $ 1,792 $ 1,558 $ 598

Interest cost 3,478 3,054 3,418 626

Amortization of actuarial gain (2,068) (4,080) (3,174) (192)

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

$ 4,871 $ 766 $ 1,802 $ 1,032

Other workers' compensation benefits 31,727 27,106 16,383 4,308

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

$ 36,598 $ 27,872 $ 18,185 $ 5,340

=============== ============== ============== ===============

The actuarial assumptions used in the determination of black lung benefits

included a discount rate of 6.75% as of December 31, 2002, (7.25% as of October

31, 2001 and December 31, 2001, and 7.75% as of October 31, 2000) and a black

lung benefit cost escalation rate of 3% in each year. Payments for benefits,

premiums and other costs related to workers' compensation and black lung

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liabilities were $30.0 million, $25.0 million, and $20.8 million in 2002, 2001,

and 2000, respectively, and $2.6 million in the two months ended December 31,

2001.

Workers' compensation and black lung consisted of the following:

At December 31, At October 31,

(In thousands) 2002 2001

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

Accrued self-insured black lung obligation $ 62,886 $ 59,578

Workers' compensation (traumatic injury) 37,432 31,535

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

Total accrued workers' compensation and black lung $ 100,318 $ 91,113

Less amount included in other current liabilities 21,996 15,303

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

Workers' compensation & black lung in other noncurrent

liabilities $ 78,322 $ 75,810

====== ======

56

The reconciliation of changes in the benefit obligation of the black lung

obligation is as follows:

At December At October 31, At December

(In thousands) 31, 2002 2001 31, 2001

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

Beginning of year accumulated black lung obligation $ 49,238 $ 40,414 $ 48,502

Service cost 3,461 1,792 598

Interest cost 3,478 3,054 626

Actuarial loss (gain) 2,749 5,768 -

Benefit payments (2,107) (2,526) (488)

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

End of year accumulated black lung obligation $ 56,819 $ 48,502 $ 49,238

Unamortized net gain 6,067 11,076 10,884

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

Accrued self-insured black lung obligation $ 62,886 $ 59,578 $ 60,122

====== ====== ======

11. Post-Employment Benefits

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The Company also sponsors defined benefit health care plans that provide

post-retirement medical benefits to eligible union and non-union members. To be

eligible, retirees must meet certain age and service requirements. Depending on

year of retirement, benefits may be subject to annual deductibles, coinsurance

requirements, lifetime limits, and retiree contributions. Service costs are

accrued currently. The postretirement benefit obligation at December 31, 2002

was determined in accordance with the current terms of the Company's health care

plans, together with relevant actuarial assumptions and health care cost trend

rates projected at an annual rates of 11.0% ranging down to 5.0% in 2009 (8.0%

ranging down to 5.0% in 2007 at October 31, 2001) and remaining level

thereafter.

Assumed health care cost trend rates have a significant effect on the

amounts reported for the medical plans. A one-percentage point change in assumed

health care cost trend rates would have the following effects:

1-Percentage 1-Percentage

Point Increase Point Decrease

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

(in thousands)

Effect on total of service and interest costs components $ 1,887 $ (1,534)

Effect on accumulated postretirement benefit obligation $ 18,976 $ (15,570)

Net periodic postretirement benefit cost includes the following components:

Year Ended Two Months

Ended

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

December 31, October 31, October 31, December 31,

(In thousands) 2002 2001 2000 2001

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

Service cost $ 4,636 $ 3,426 $ 3,543 $ 749

Interest cost 6,062 5,333 4,611 1,064

Recognized loss -- -- -- 45

Amortization of prior service cost 140 140 140 23

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

Net periodic postretirement benefit cost $ 10,838 $ 8,899 $ 8,294 $ 1,881

=============== ============== ============== ===============

57

The following table sets forth the change in benefit obligation of the

Company's postretirement benefit plans:

Two Months

Year Ended Year Ended Ended

December 31, October 31, December 31,

(In thousands) 2002 2001 2001

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

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Change in benefit obligation

Benefit obligation at the beginning of the

period $ 90,780 $ 66,355 $ 89,566

Service cost 4,616 3,426 749

Interest cost 6,062 5,333 1,064

Actuarial loss 23,483 16,857 --

Benefits paid (3,830) (2,405) (599)

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

Benefit obligation at end of period $ 121,111 $ 89,566 $ 90,780

================= ================ ================

Funded status $ (121,111) $ (89,566) $ (90,780)

Unrecognized net actuarial loss 36,382 12,965 12,920

Unrecognized prior service cost 1,333 1,496 1,473

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

Accrued postretirement benefit obligation (83,396) (75,105) (76,387)

Amount included in current liabilities 3,818 3,044 3,044

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

Noncurrent liability $ (79,578) $ (72,061) $ (73,343)

================= ================ ================

The discount rate used in determining the postretirement benefit

obligation was 6.75 percent at December 31, 2002 and 7.25 percent at October 31,

2001 and at December 31, 2001.

Multi-Employer Benefits

Under the Coal Industry Retiree Health Benefits Act of 1992, coal producers

are required to fund medical and death benefits of certain retired union coal

workers based on premiums assessed by the United Mine Workers of America Benefit

Funds. Based on available information at December 31, 2002, the Company's

obligation (discounted at 6.75%) under the Act is estimated at approximately

$60.6 million. The Company's obligation at October 31, 2001 was $52.3 million.

The $8.3 million increase in obligation is primarily a result of a change in

discount rate from 7.25% at October 31, 2001 to 6.75% at December 31, 2002, and

an increase in per beneficiary premiums as determined by the funds. The Company

treats its obligation under the Benefit Act as a participation in a

multi-employer plan and records the cost of the Company's obligation as expense

as payments are assessed. The Company expense related to this obligation for the

years ended December 31, 2002 and October 31, 2001 and 2000, totaled $4.1

million, $5.0 million, and $3.6 million, respectively. For the two-month period

ended December 31, 2001 the Company expensed $0.7 million related to this

obligation.

12. Spin-Off Transaction

On November 30, 2000, Fluor Corporation ("Fluor") completed a reverse

spin-off, which divided it into two separate publicly-traded corporations. As a

result of the reverse spin-off (the "Spin-Off"), Fluor separated into (i) the

spun-off corporation, "new" Fluor Corporation ("New Fluor"), which owns all of

Fluor's then existing businesses except for the coal-related business conducted

by A. T. Massey Coal Company, Inc. ("A.T. Massey"), and (ii) Fluor Corporation,

subsequently renamed Massey Energy Company, which owns the coal-related

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business. Further discussion of the Spin-Off may be found in Massey's Annual

Report on Form 10-K for the fiscal year ended October 31, 2000 as filed with the

Securities and Exchange Commission.

Immediately after the Spin-Off, Massey had 73,468,707 shares of $0.625 par

value common stock outstanding. In connection with the Spin-Off, A. T. Massey

became the sole direct and wholly owned subsidiary of Massey.

Due to the relative significance of the businesses transferred to New Fluor

following the Spin-Off, New Fluor has been treated as the "accounting successor"

for financial reporting purposes, and the Company has been treated by New Fluor

as a discontinued operation despite the legal form of separation resulting from

the Spin-Off.

Massey's equity structure was also impacted as a result of the Spin-Off. As

noted above, Massey assumed from Fluor $300 million of 6.95 percent Senior

Notes, $278.5 million of Fluor commercial paper, other equity contributions from

Fluor, and assumed Fluor's common stock equity structure.

13. Equity Compensation Plans

Massey's executive stock plans provide for grants of non-qualified stock

options, incentive stock options, stock appreciation rights ("SARS") and

restricted stock awards. All executive stock plans are administered by the

Compensation Committee of the Board of Directors (the "Committee") comprised of

58

independent outside directors. Option exercise prices, determined by the

Committee, are equal to the average of the high and low of the quoted market

price of the Company's common stock on the date of grant. Options and SARS

normally extend for 10 years and become exercisable over a vesting period

determined by the Committee, which can include accelerated vesting for

achievement of performance or stock price objectives. Additionally, two

restricted stock plans exist for the purpose of providing non-employee directors

with grants of restricted stock upon initial election or appointment to the

Board of Directors and with annual grants of restricted stock. The restricted

stock shares and compensation expense related to these shares are included in

the "employee" totals discussed in this Note.

Stock based grants (restricted shares, stock options and SARS as discussed

herein) awarded to employees of the Company prior to the Spin-Off, were

generally converted to equivalent instruments in Massey following its separation

from Fluor. In this regard, the outstanding number of grants were increased by

multiplying the applicable amount by 4.056 (the "Conversion Ratio"), except for

the grants held by Mr. Blankenship, as discussed below. Similarly, where

applicable, the exercise price was reduced by dividing the exercise price prior

to the Spin-Off by the Conversion Ratio. The Conversion Ratio applied to the

outstanding awards held by Company employees was utilized to preserve the

intrinsic value of such awards. It was determined by dividing the closing price

of Fluor Corporation common stock on the date of the Spin-Off ($36.50) by the

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opening price for Massey Energy common stock the first trading day after the

Spin-Off ($9.00). There were no accounting implications of having reduced the

exercise price since the aggregate intrinsic value of the awards immediately

after the change was not greater than the aggregate intrinsic value of the

awards immediately before the change and the ratio of the exercise price per

share to the market value per share was not reduced.

Stock based grants existing on the date of the Spin-Off specific to Mr.

Blankenship were administered pursuant to an agreement between Mr. Blankenship,

Fluor Corporation, A. T. Massey Coal Company, Inc. and New Fluor. Mr.

Blankenship's restricted stock and SARS after the spin-off were converted on a

basis of one share or unit of Massey for each share or unit of Fluor.

Additionally, Mr. Blankenship's outstanding stock options were converted at a

predetermined rate of 3.4 Massey options for each Fluor option. Similarly, the

exercise price of Mr. Blankenship's outstanding stock options were reduced by

the 3.4 ratio.

During the year ended December 31, 2002 the Company issued 519,873

non-qualified stock options with annual vesting of 25% and 163,400 non-qualified

stock options that cliff vest after four years all of which expire in ten years.

During the year ended October 31, 2001 the Company issued 875,961 non-qualified

stock options with annual vesting of 25% and that expire in ten years. During

the year ended October 31, 2000, prior to the Spin-Off, 290,080 options (in

Fluor stock), were awarded to Massey employees. The 2000 awards cliff vest after

four years and expire in ten years, with accelerated vesting provisions based on

the price of Massey's stock. The accelerated vesting provisions were achieved

during the first quarter of 2001.

On November 1, 2001, 787,500 SARS were granted to Mr. Blankenship pursuant

to the Amended and Restated Employment Agreement between Massey Energy Company,

A.T. Massey Coal Company, Inc. and Don L. Blankenship dated as of November 1,

2001 (amended and restated as of July 16, 2002). These SARS have an exercise

price of $19.45 and vest as follows: 225,000 vested on October 31, 2002, while

225,000, 225,000 and 112,500 will vest on October 31, 2003, October 31, 2004,

and April 30, 2005, respectively. These SARS expire in ten years. No grants of

SARS were made to Massey employees during the fiscal years ended October 31,

2001 and 2000.

Restricted stock awards issued under the plans provide that shares awarded

may not be sold or otherwise transferred until restrictions have lapsed or

performance objectives have been attained. Upon termination of employment,

shares upon which restrictions have not lapsed must be returned to the Company.

Restricted stock awards issued to employees under the plans totaled 477,987

shares and 266,411 shares for the years ended December 31, 2002 and October 31,

2001, respectively. Prior to the Spin-Off, Fluor Corporation restricted stock

issued to Massey employees totaled 31,390 shares for the year ended October 31,

2000 (117,618 shares when applying the Spin-Off conversion ratios at date of

grant). Vested restricted stock is included in the weighted average shares

outstanding calculation for basic earnings per share. Unvested restricted stock

is included in the weighted average shares outstanding calculation for diluted

earnings per share. See the Earnings Per Share section of Note 2 for further

discussion.

As permitted by Statement of Financial Accounting Standards No. 123

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"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has

elected to continue following the guidance of APB Opinion No. 25, "Accounting

for Stock Issued to Employees," for measurement and recognition of stock-based

transactions with employees. For the years ended December 31, 2002, and October

31, 2001, and 2000, expenses related to Massey's various stock compensation

plans (with the exception of stock options) totaled $2.7 million, $5.8 million,

and $3.8 million, respectively, and $1.9 million for the two months ended

December 31, 2001. Under APB Opinion No. 25, no compensation cost is recognized

for the Company's stock option plans because vesting provisions are based only

on the passage of time and because the Company granted the options at an

exercise price equal to the average of the high and low of the quoted market

price of the Company's stock on the date of grant. Had the Company recorded

compensation expense using the accounting method recommended by SFAS No. 123,

net earnings and diluted earnings per share would have been reduced to the pro

forma amounts as follows:

59

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

Year ended Two Months

Ended

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

December 31, October 31, October 31, December 31,

2002 2001 2000 2001

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

(in thousands, except

per share amounts)

Net (loss) earnings

As reported ($ 32,574) ($ 5,420) $ 78,531 ($ 14,801)

Pro forma ($ 34,709) ($ 6,795) $ 76,931 ($ 15,162)

Diluted net (loss)

earnings per share

As reported ($0.44) ($0.07) $ 1.07 ($0.20)

Pro forma ($0.47) ($0.09) $ 1.05 ($0.20)

The estimated fair value as of the date of grant for options granted to

Massey employees during the years ended December 31, 2002, and October 31, 2001

and 2000 was determined using the Black-Scholes option-pricing model based on

the following weighted average assumptions (assumptions applied in 2000 were

determined by Fluor):

2002 2001 2000

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

Expected option lives (years) 5 5 6

Risk-free interest rates 3.08% 4.29% 6.03%

Expected dividend yield 2.84% 0.81% 1.74%

Expected volatility 49.4% 37.1% 39.8%

The weighted average fair value of options granted by the Company during

the years ended December 31, 2002 and October 31, 2001 using the Black-Scholes

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option-pricing model was $2.23 and $7.22, respectively. The weighted average

fair value of options granted by Fluor to Massey employees during 2000

determined using the Black-Scholes option-pricing model was $18.00 (prior to

conversion at the time of the Spin-Off).

The following table summarizes stock option activity:

Weighted Average

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

Exercise Price

Stock Options Per Share

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

Outstanding at October 31, 1999 441,746 $ 47.51

Granted 290,080 $ 44.31

Expired or Cancelled (52,010) $ 48.61

Exercised (6,755) $ 35.09

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

Outstanding at October 31, 2000 673,061 $ 47.16

Conversion adjustment to shares at

Spin-Off 1,960,581

Granted 875,961 $ 19.78

Expired or Cancelled (375,486) $ 12.12

Exercised (817,110) $ 11.47

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

Outstanding at October 31, 2001 2,317,007 $ 14.89

Expired or Cancelled (42,061) $ 19.14

Exercised (253,243) $ 11.28

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

Outstanding at December 31, 2001 2,021,703 $ 15.25

Granted 683,273 $ 5.79

Expired or Cancelled (264,772) $ 13.64

Exercised (125,689) $ 11.17

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

Outstanding at December 31, 2002 2,314,515 $ 12.86

60

Exercisable at:

October 31, 2000 (pre-conversion

shares) 257,850

October 31, 2001 1,243,903

December 31, 2001 1,083,704

December 31, 2002 1,075,763

Characteristics of outstanding stock options at December 31, 2002 are as

follows:

Outstanding Options Exercisable Options

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

Weighted Average

Remaining

Range of Exercise Contractual Life Weighted Average Weighted Average

Price Number of Options (years) Exercise Price Number of Options Exercise Price

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

$ 5.21 - 7.63 679,473 9.8 $ 5.78 --- ---

$10.57 - 10.93 528,721 6.7 $ 10.84 528,721 $ 10.84

$12.50 - 13.03 156,285 4.9 $ 12.79 142,464 $ 12.76

$14.56 - 18.86 208,812 3.1 $ 16.51 208,812 $ 16.51

$19.42 - 20.11 741,224 8.7 $ 19.78 195,766 $ 19.78

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

$ 5.21 - 20.11 2,314,515 7.8 $ 12.86 1,075,763 $ 13.82

================= ================ ================ ================= ================

At December 31, 2002, there are 4,878,326 shares available for future grant

under the Company's stock plans. Available for grant includes shares which may

be granted as either stock options or restricted stock, as determined by the

Committee under the Company's various stock plans.

14. Future Minimum Obligations

Certain mining and other equipment is leased under operating leases.

Certain of these leases provide options for the purchase of the property at the

end of the initial lease term, generally at its then fair market value, or to

extend the terms at its then fair rental value. Rental expense for the years

ended December 31, 2002, and October 31, 2001 and 2000, was $53.4 million, $54.3

million and $28.4 million, respectively, and $8.5 million for the two-month

period ended December 31, 2001.

In December 2002, the Company entered into a sale-leaseback transaction

involving certain mining equipment. The Company received proceeds of $17

million, with no resulting gain or loss on the transaction. The assets were

leased back from the purchaser over a period of 4 years. The lease contains a

renewal option at lease termination and a purchase option at an amount

approximating fair value at lease termination. The lease is being accounted for

as an operating lease. Future payments required under the lease are included

within the table below.

The following presents future minimum rental payments, by year, required

under operating leases with initial terms greater than one year, in effect at

December 31, 2002:

Minimum Rentals

Year (in thousands)

2003 $ 61,486

2004 55,671

2005 51,135

2006 32,947

2007 8,040

Thereafter 3,063

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

$ 212,342

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==============

15. Contingencies and Commitments

Force Majeure Litigation

Massey's operations experienced various events of force majeure in 2000 and

2001, including:

61

o The impoundment failure at Martin County on October 11, 2000 causing

the destruction of the raw coal beltline feeding the preparation plant

and leading to the immediate closure of the slurry impoundment by

order of regulatory authorities. As a result, over 1 million shippable

tons of coal could not be processed through the Martin County

preparation plant for the six months that it was shut down as a result

of the spill;

o Adverse geological conditions in several of the Company's longwall

mines, including severe roof falls that forced the closure of the

Upper Cedar Grove mine of the Independence resource group, flooding

conditions in the Marfork resource group's Ellis Eagle mine, adverse

sandstone intrusions in both the Ellis Eagle and Performance resource

group's Upper Big Branch longwall mines, and a significant roof fall

on the mainline belt and other adverse conditions at the Nicholas

Energy resource group's Jerry Fork longwall;

o Various weather related problems in May, June and July, 2001 which

caused power outages and flooding at several Massey operations;

o Various underground disruptions such as a roof fall that curtailed

transportation of coal from the Independence resource group's Hernshaw

mine to the Elk Run resource group's Chess Processing preparation

plant for approximately six weeks, and subsidence at the Twilight

surface mine of the Progress resource group that covered a highwall

miner for more than three weeks; and

o Labor shortages, especially in trained and qualified underground

workers, particularly electricians.

As a result, Massey declared events of force majeure under a number of its

contracts and sent reduced shipments to affected customers. The Company was able

to resolve most shortfalls with its customers without dispute. However, the

following dispute occurred and is not yet resolved:

On April 16, 2002, Appalachian Power Company, a subsidiary of American

Electric Power, filed suit against Massey's subsidiaries Central West

Virginia Energy Company, Massey Coal Sales Company, Inc. and A.T. Massey

Coal Company, Inc. in the Franklin County, Ohio Court of Common Pleas. The

suit alleges that the Company improperly claimed force majeure with respect

to a tonnage shortfall under its agreements with Appalachian Power in 2000

and 2001. The complaint further alleges that the Company's claim of force

majeure constitutes fraud, and seeks to recover profits made by it on sales

to other customers of the coal Appalachian Power claims should have been

delivered to it. By order entered July 25, 2002, the court dismissed the

fraud claim, however, on December 20, 2002, the court granted Appalachian

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Power leave to file a second amended complaint to reassert the fraud claim.

The trial for this matter is currently scheduled for April 28, 2003.

Discovery is ongoing and Appalachian Power has indicated on a preliminary

basis that it intends to seek approximately $20.3 Million in damages.

Shareholder Derivative Suit

On August 5, 2002, a shareholder derivative complaint was filed in the

Boone County, West Virginia, Circuit Court naming as defendants the Company,

each of the Company's directors (including Don L. Blankenship, Chairman,

President and Chief Executive Officer), James L. Gardner, Executive Vice

President and Chief Administrative Officer, Jeffrey M. Jarosinski, Vice

President -Finance and Chief Financial Officer, Madeleine M. Curle, Vice

President - Human Resources, and Bennett K. Hatfield, former Executive Vice

President and Chief Operating Officer. The complaint alleges (i) breach of

fiduciary duties against all of the defendants for refusing to cause the Company

to comply with environmental, labor and securities laws, and (ii) improper

insider trading by Don L. Blankenship, Jeffrey M. Jarosinski, Madeleine M. Curle

and Bennett K. Hatfield. The Company and the other defendants removed the case

to Federal District Court in Charleston, West Virginia, but the case has now

been remanded to the Boone County Circuit Court. The case is still in very early

procedural stages. The Company intends to vigorously pursue defense of this

case.

Harman Case

On July 31, 1997, the Company acquired United Coal Company and its

subsidiary, Wellmore Coal Corporation ("Wellmore"). Wellmore was party to a coal

supply agreement (the "CSA") with Harman Mining Corporation and certain of its

affiliates ("Harman"), pursuant to which Harman sold coal to Wellmore. In

December 1997, Wellmore declared force majeure under the CSA and reduced the

amount of coal to be purchased from Harman as a result thereof. Wellmore

declared force majeure because its major customer for the coal purchased under

the CSA was forced to close its Pittsburgh, Pennsylvania coke plant due to

regulatory action. The Company subsequently sold Wellmore, but retained

responsibility for any claims relating to this declaration of force majeure. In

June 1998, Harman filed a breach of contract action against Wellmore in Buchanan

County, Virginia, Circuit Court. Harman claimed that Wellmore breached the CSA

by declaring a force majeure event and reducing the amount of coal to be

purchased from Harman. On August 24, 2000, a jury found that Wellmore had

breached its contract and awarded Harman $6 million in damages. After

unsuccessfully pursuing an appeal, on November 12, 2002, Massey paid Harman $6.0

million plus post-judgment interest of approximately $1.2 million, in full

satisfaction of the judgment.

On October 29, 1998, Harman and its sole shareholder, Hugh Caperton, filed

a separate action against Massey and certain of its subsidiaries in Boone

County, West Virginia, Circuit Court, alleging that Massey and its subsidiaries

tortiously interfered with Harman's contract with Wellmore and, as a result,

caused Harman to go out of business. On August 1, 2002, the jury in the case

awarded the plaintiffs $50 million in compensatory and punitive damages. Massey

is vigorously pursuing post-judgment remedies, and various motions filed in the

trial court have been fully briefed and argued. Massey will appeal to the West

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Virginia Supreme Court of Appeals, if necessary. The Company accrued a liability

with respect to these cases of $31.0 million, excluding interest, which the

Company believes is a fair estimate of the eventual total payout relating to

both the Virginia and West Virginia actions. After the payment of the Virginia

verdict, the remaining accrual is $25.0 million. as of December 31, 2002, which

is included in Other current liabilities.

Elk Run Dust Case

On February 2, 2001, approximately 160 residents of the Town of Sylvester,

West Virginia, filed suit in the Circuit Court of Boone County, West Virginia

against the Company and its subsidiary, Elk Run Coal Company, Inc., alleging

that Elk Run's operations create noise, light and dust constituting a nuisance

and causing damage to the community and seeking to recover compensatory and

punitive damages. On February 7, 2003, a jury awarded approximately $475,000 in

compensatory damages to the plaintiffs but rejected the plaintiffs' request for

punitive damages. The plaintiffs' claim for attorneys' fees is pending. Upon

entry of a final order, either party has four months to appeal the case to the

West Virginia Supreme Court of Appeals. At December 31, 2002, the Company had

recorded reserves for the verdict and the Company's best estimate of the

plaintiffs' claim for attorneys' fees.

62

West Virginia Flooding Cases

Five of the Company's subsidiaries have been named, among others, in 17

separate complaints filed in Boone, Fayette, Kanawha, McDowell, Mercer, Raleigh

and Wyoming Counties, West Virginia. These cases collectively include numerous

plaintiffs who filed suit on behalf of themselves and others similarly situated,

seeking damages for property damage and personal injuries arising out of

flooding that occurred in southern West Virginia in July of 2001. The plaintiffs

have sued coal, timber, railroad and land companies under the theory that

mining, construction of haul roads and removal of timber caused natural surface

waters to be diverted and interrupted in an unnatural way, thereby causing

damage to the plaintiffs. The West Virginia Supreme Court has ruled that these

cases, including several additional flood damage cases not involving the

Company's subsidiaries, be handled pursuant to the Court's Mass Litigation

rules. As a result of this ruling, the cases have been transferred to the

Circuit Court of Raleigh County in West Virginia to be handled by a panel

consisting of three circuit court judges. The panel will, among other things,

determine whether the individual cases should be consolidated or returned to

their original circuit courts. While the outcome of this litigation is subject

to uncertainties, based on our preliminary evaluation of the issues and the

potential impact on us, we believe this matter will be resolved without a

material adverse effect on our cash flows, financial condition or results of

operations.

Water Claims Litigation

Two cases were filed in the Mingo County, West Virginia Circuit Court

alleging that Massey's Delbarton Mining Company subsidiary's mining activities

destroyed nearby resident plaintiffs' water supplies. One case was filed on

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behalf of 54 plaintiffs on July 26, 2002, and the other was filed on behalf of

134 plaintiffs on July 1, 2002. Delbarton has already provided many of the

plaintiffs with a replacement water source. The case is in the very early

procedural stages and the trial is scheduled for October 2003.

Trucking Litigation

On January 7, 2003, Coal River Mountain Watch, an advocacy group

representing local residents in the Counties of Boone, Raleigh and Kanawha, West

Virginia, and other plaintiffs, filed suit in the Circuit Court of Kanawha

County, West Virginia against various coal and transportation companies

(including various Massey subsidiaries) alleging that the defendants illegally

transport coal in overloaded trucks causing damage to state roads and

interfering with the plaintiffs' use and enjoyment of their properties and their

right to use the public roads, and seeking injunctive relief and damages

(including punitive damages).

Martin County Impoundment Discharge

On October 11, 2000, a partial failure of Massey's Martin County Coal

Corporation subsidiary's coal refuse impoundment released approximately 230

million gallons of coal slurry into adjacent underground mine workings. The

slurry then discharged into two tributary streams of the Big Sandy River in

eastern Kentucky. No one was injured in the discharge. Clean up efforts began

immediately and are complete. As of December 31, 2002, Massey incurred to date a

total of approximately $58.3 million of cleanup costs in connection with the

spill, $52.2 million of which have been paid directly or reimbursed by insurance

companies. In the consolidated balance sheet as of December 31, 2002 and October

31, 2001, the accruals related to this matter of $9.9 million and $11.5 million,

respectively, are included in Other current liabilities, and probable insurance

recoveries of $15.1 million and $20.5 million, respectively, are included in

Trade and other accounts receivable. Massey continues to seek insurance

reimbursement of any and all covered costs. Most of the claims, fines, penalties

and lawsuits from the impoundment failure have been satisfied or settled. The

remaining issues (none of which is considered material) are:

(1) there are two remaining suits with 8 plaintiffs (one seeking class

certification) seeking various unquantified damages allegedly

resulting from the October 11, 2000 incident.

(2) On June 26, 2001, the WVDEP filed a civil action against Martin County

Coal in the Wayne County, West Virginia, Circuit Court alleging

natural resources damages in West Virginia and alleged violations of

law resulting from the impoundment discharge. The court ruled that

WVDEP cannot collect statutory penalties, but has not yet ruled

whether WVDEP can continue to assert its claims for punitive damages.

Massey is continuing to defend this action vigorously and believes

that it has numerous valid defenses to the claims.

(3) The Federal Mine Safety and Health Administration ("MSHA") issued

various citations following the impoundment discharge, and assessed

penalties totaling approximately $110,000. The Company has contested

the violations and penalty amount.

(4) On October 11, 2002, the Town of Fort Gay, West Virginia filed suit

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against the Company and Martin County Coal Corporation, alleging that

it's water treatment and distribution plant was damaged when water,

allegedly damaged by the discharge from the Martin County impoundment,

was pumped into the facility. Massey denies the allegations and is

defending the action vigorously.

The Company believes it has insurance coverage applicable to these items,

at least with respect to costs other than governmental penalties, such as those

assessed by MSHA, and punitive damages, if any. One of our carriers has stated

that it believes its policy does not provide coverage for governmental penalties

or punitive damages.

Valley Fill Litigation

On May 8, 2002, the United States District Court for the Southern District

of West Virginia issued an order in Kentuckians for the Commonwealth v.

Rivenburgh enjoining the Huntington, West Virginia office of the U.S. Army Corps

of Engineers from issuing permits under Section 404 of the Clean Water Act for

the construction of valley fills for the disposal of overburden from mountaintop

mining operations solely for the purpose of waste disposal. The court held that

the filling of these waters solely for waste disposal is a violation of the

Clean Water Act. The court's injunction also prohibits the issuance of permits

authorizing fill activities associated with types of mining activities other

than mountaintop mining where the primary purpose or use of those fill

activities is the disposal of waste. Such activities might include those

associated with slurry impoundments and coal refuse disposal areas.

On January 29, 2003, the Fourth Circuit Federal Court of Appeals reversed

the district court's decision and lifted the injunction. The time for filing a

possible appeal has not yet expired. If the decision of the Court of Appeals

were reversed and the injunction reinstated, the effect would be to make

mountaintop mining uneconomical in those areas subject to the injunction and

call into question the ability of the Company to obtain permits with respect to

other mining activities that use valley fills.

63

* * * * * * * *

The Company is involved in various other legal actions incident to the

conduct of its businesses. Management does not expect a material impact to its

results of operations, financial position or cash flows by reason of these

actions.

Coal Purchase Commitments

As of December 31, 2002, the Company had commitments to purchase from

external production sources 2.0 million, 0.7 million, and 0.7 million tons of

coal in 2003, 2004, and 2005, respectively.

16. Quarterly Information (Unaudited)

The Company recently resolved certain accounting and disclosure issues

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resulting from a review by the Securities and Exchange Commission ("SEC") of its

October 31, 2001 Annual Report on Form 10-K and subsequently filed periodic

reports on Forms 10-Q. The issues which are explained more fully below involve

corrections to the timing of recognition of certain charges related to claims

against the Company and its accounting method for black lung liabilities and

related expense recognition. The adjustments mentioned below have been fully

reflected in the Company's financial statements presented herein. The quarterly

financial information for 2002 and two-month transition period ended December

31, 2001 is, by means of this filing, being restated, except for the fourth

quarter of 2002, to reflect these adjustments.

The adjustments are as follows:

The Consolidated Financial Statements for the two-month transition period

ended December 31, 2001 are restated to remove a $6.9 million pre-tax charge

related to the January 2002 settlement of claims for workers' compensation

liabilities incurred by independent contractors. This charge is now reflected in

the fourth quarter of the Company's fiscal year ended October 31, 2001.

The Consolidated Financial Statements for the two-month transition period

ended December 31, 2001 are restated to remove a $2.5 million pre-tax charge in

connection with a wrongful employee discharge lawsuit. This charge is now

reflected in the fourth quarter of the Company's fiscal year ended October 31,

2001.

The Consolidated Financial Statements for the two-month transition period

ended December 31, 2001 and the first quarter 2002 are restated to record in the

two-month transition period ended December 31, 2001, a reduction in the

Company's bad debt reserves of $3 million pre-tax with respect to Enron

Corporation, previously recorded in the first quarter 2002.

64

The Consolidated Financial Statements for each quarter of 2002 and the

two-month transition period ended December 31, 2001 have also been restated to

apply the service period approach described in SFAS No. 106 as allowed under

SFAS No. 112 "Employers' Accounting for Postemployment Benefits" to the

Company's obligations with respect to coal worker's pneumoconiosis (black lung).

Previously, the Company utilized a different actuarial approach. Trust assets

previously offset against the Company's black lung liability have been

reclassified to other current assets and accounted for under SFAS No. 115

"Accounting for Certain Investments in Debt and Equity Securities." The

restatement reduced pre-tax income in each quarter of 2002 by $0.4 million. The

adjustment was not material for the two-month transition period ended December

31, 2001.

Set forth below is the Company's quarterly financial information for the

previous two fiscal years and two-month transition period ended December 31,

2001. Included below are the previously reported as well as restated amounts for

each of the following periods: three-months ended September 30, 2002, June 30,

2002 and March 31, 2002; and two-month transition period ended December 31,

2001.

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Three months ended

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

(In thousands, except per March 31, June 30, September 30, December 31,

share amounts) 2002 (1) 2002 (2) 2002 (3) 2002 (4)

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

Previously Previously Previously Previously

Reported Restated Reported Restated Reported Restated Reported (9) Restated

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

Total revenue $ 341,833 $ 392,551 $ 347,732 $ 402,507 $ 363,039 $ 424,441 $ 410,192 $ 410,596

Income (loss) from

operations (229) (3,623) (17,047) (17,398) 6,993 6,642 (12,217) (12,309)

Loss before taxes (7,047) (10,441) (24,990) (25,341) (1,698) (2,049) (19,597) (19,689)

Net loss (2,143) (4,213) (16,242) (16,456) (1,103) (1,317) (10,531) (10,587)

Loss per share:

Basic and diluted $ (0.03) $ (0.06) $ (0.22) $ (0.22) $ (0.01) $ (0.02) $ (0.14) $ (0.14)

65

Two months ended

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

(In thousands, except per December 31,

share amounts) 2001 (8)

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

Previously

Reported Restated

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

Total revenue $ 211,422 $ 246,443

Loss from operations (31,652) (19,209)

Loss before taxes (35,967) (23,524)

Net loss (22,391) (14,801)

Loss per share:

Basic and diluted $ (0.30) $ (0.20)

Three months ended

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

(In thousands, except per January 31, April 30, July 31, October 31,

share amounts) 2001 2001 (5) 2001 (6) 2001 (7)

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

Total revenue $ 324,728 $ 359,644 $ 354,990 $ 392,499

Income (loss) from operations 4,248 9,025 (5,081) 1,354

Earnings (loss) before taxes (1,558) 3,907 (12,965) (5,305)

Net earnings (loss) (951) 2,482 (8,993) 2,042

Earnings (loss) per share:

Basic and diluted $ (0.01) $ 0.03 $ (0.12) $ 0.03

(1) Loss for the first quarter 2002 includes income in the amount of $5.1

million pre-tax received from one large customer for a contract

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buyout; a reduction in the Company's bad debt reserves of $2.5 million

pre-tax for a receivable from a large bankrupt customer,

Wheeling-Pittsburgh Steel Corporation, due to a long-term repayment

agreement; and a tax refund for the settlement of a state tax dispute in

the amount of $2.4 million, net of federal tax.

(2) Loss for the second quarter 2002 include a charge of $25.6 million

pre-tax related to an adverse jury verdict in the West Virginia Harman

Mining Corporation action. See Note 15 for further information.

Additionally, in June 2002, the Company sold an additional interest in

its synfuel-producing subsidiary, Appalachian Synfuel, LLC. See Note 5

for further information.

(3) Loss for the third quarter of 2002 include a charge in the amount of

$13.2 million pre-tax related to the write off of capitalized

development costs at certain idled mines. See Note 2 for further

information.

(4) Earnings for the fourth quarter of 2002 include a charge in the amount

of $10.6 million pre-tax related to an arbitration award in a contract

dispute. See Note 17 for further information.

(5) On March 15, 2001, the Company sold a substantial interest in its

synfuel producing subsidiary, Appalachian Synfuel, LLC. See Note 5 for

further information. Additionally, earnings for the second quarter 2001

include a reduction in cost of produced coal revenue of $6.5 million

pre-tax and interest income of $3.2 million pre-tax related to the

refund of black lung excise taxes.

(6) Loss for the third quarter 2001 includes a $7.5 million pre-tax

adjustment related to the write-off of unamortized longwall panel

development costs. The Company decided in the third quarter to move the

longwall unit to another mine to take advantage of better mining

conditions. Additionally, the loss includes a reduction of cost of

produced coal revenue of $3.0 million pre-tax related to the refund of

black lung excise taxes.

(7) Earnings for the fourth quarter 2001 include a charge of $6.9 million

pre-tax related to the settlement with the State of West Virginia

regarding Worker's Compensation liabilities incurred by independent

contractors, and $2.5 million pre-tax related to an increase in

reserves for a wrongful employee discharge suit.

(8) Earnings for the two-month transition period ended December 31, 2001

include a charge of $3.9 million pre-tax related to the bankruptcy of a

substantial customer, Enron Corporation.

(9) As reported within the Company's Press Release filed on Form 8-K on

February 5, 2003.

66

17. Subsequent Events

Receivables Securitization

On January 31, 2003, the Company entered into a borrowing program, secured

by its accounts receivable. The amount eligible to be borrowed under the program

is up to $80 million depending on the level of eligible receivables and

restrictions on concentrations of receivables. At February 28, 2003, the

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borrowings outstanding under the program totaled $54.0 million. The program

expires in July 2004. The receivables outstanding under these programs and the

corresponding debt will be included as "Trade accounts receivables" and

"Long-term debt," respectively, on the Company's consolidated balance sheets in

subsequent accounting periods. As collections reduce previously pledged

interests, new receivables will be pledged. A portion of the cost of the

accounts receivable secured borrowing programs is based on the creditors' level

of investment and borrowing costs. The total cost of the programs will be

included in interest expense on future statements of income.

Duke Arbitration

On December 14, 2001, Duke Energy made a demand for arbitration, disputing

the Company's claim that an event of force majeure had occurred and claiming

$20.5 million in damages resulting from coal tonnage shortfalls. In December

2002, the dispute went to arbitration. On January 23, 2003, the arbitrators

awarded Duke Energy $10.6 million on its claim, which Massey has paid. Charges

for such payment were recorded in the fourth quarter of 2002.

67

Item 9. Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure.

There have been no changes in, or disagreements with, accountants on

accounting and financial disclosure.

Part III

Item 10. Directors and Executive Officers of the Registrant.

Biographical information of Executive Officers is included in Item 4 of

this Form 10-K. Other information required by this item is included in the

Biographical section of the Election of Directors portion of the definitive

proxy statement pursuant to Regulation 14A, involving the election of directors,

which is incorporated herein by reference and will be filed with the Securities

and Exchange Commission (the "Commission") not later than 120 days after the

close of Massey's fiscal year ended December 31, 2002.

Item 11. Executive Compensation.

Information required by this item is included in the Organization and

Compensation Committee Report on Executive Compensation and Executive

Compensation and Other Information sections of the definitive proxy statement

pursuant to Regulation 14A, involving the election of directors, which is

incorporated herein by reference and will be filed not later than 120 days after

the close of Massey's fiscal year ended December 31, 2002.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Information required by this item is included in the Stock Ownership

section of the Election of Directors portion of the definitive proxy statement

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pursuant to Regulation 14A, involving the election of directors, which is

incorporated herein by reference and will be filed not later than 120 days after

the close of Massey's fiscal year ended December 31, 2002.

Item 13. Certain Relationships and Related Transactions.

Information required by this item is included in the Other Matters section

of the Election of Directors portion of the definitive proxy statement pursuant

to Regulation 14A, involving the election of directors, which is incorporated

herein by reference and will be filed not later than 120 days after the close of

Massey's fiscal year ended December 31, 2002.

Item 14. Controls and Procedures.

We have established disclosure controls and procedures to ensure that

material information relating to the Company, including its consolidated

subsidiaries, is made known to the officers who certify the Company's financial

reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of a date within 90 days of the filing date

of this Annual Report on Form 10-K, the principal executive officer and

principal financial officer of Massey Energy Company have concluded that Massey

Energy Company's disclosure controls and procedures (as defined in Rules

13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) are effective

to ensure that the information required to be disclosed by Massey Energy Company

in reports that it files or submits under the Securities Exchange Act of 1934 is

recorded, processed, summarized and reported within the time periods specified

in SEC rules and forms.

There were no significant changes in Massey Energy Company's internal

controls or in other factors that could significantly affect those controls

subsequent to the date of their most recent evaluation.

Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) Documents filed as part of this report:

1. Financial Reports:

Consolidated Statements of Earnings for the Fiscal Years Ended December

31, 2002, October 31, 2001 and 2000, and the two month periods ended December

31, 2001 and 2000 (unaudited)

68

Consolidated Balance Sheets at December 31, 2002 and October 31, 2001

Consolidated Statements of Cash Flows for the Fiscal Years Ended December

31, 2002, October 31, 2001 and 2000, and the two month periods ended December

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31, 2001 and 2000 (unaudited)

Consolidated Statements of Shareholders' Equity for the Fiscal Years

Ended December 31, 2002, October 31, 2001 and 2000,and the two month periods

ended December 31, 2001 and 2000 (unaudited)

Notes to Consolidated Financial Statements

2. Financial Statement Schedules: Except as set forth below, all schedules

have been omitted since the required information is not present or not

present in amounts sufficient to require submission of the schedule, or

because the information required is included in the consolidated financial

statements and notes thereto.

Schedule II - Valuation and Qualifying Accounts

3. Exhibits:

Exhibit No. Description

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

3.1 Restated Certificate of Incorporation of Massey, as amended [filed

as Exhibit 3.1 to Massey's annual report on Form 10-K for the fiscal

year ended October 31, 2000 and incorporated by reference]

3.2 Restated Bylaws (as amended effective August 1, 2002) of Massey

Energy Company [filed as Exhibit 3.1 to Massey's quarterly report on

Form 10-Q for the period ended June 30, 2002 and incorporated by

reference]

4.1 Fluor Corporation Dividend Reinvestment Plan (as amended and

restated June 30, 1995) [filed as Exhibit 4.2 to Fluor's annual

report on Form 10-K for the fiscal year ended October 31, 1995 and

incorporated by reference]

4.2 Indenture dated as of February 18, 1997 between Fluor Corporation

and Banker's Trust Company, trustee [filed as Exhibit 4.1 to Form

8-K filed March 7, 1997 and incorporated by this reference]

4.3 First Supplemental Indenture, dated as of the 9th day of February,

2001, between Massey Energy Company (successor by name change to

Fluor Corporation) and Bankers Trust Company, supplementing that

certain Indenture dated as of February 18, 1997 [filed as Exhibit

10.2 to Massey's quarterly report on Form 10-Q for the period ended

March 31, 2002 and incorporated by reference]

10.1 Amended and Restated Credit Agreement dated as of November 26, 2002,

among Massey Energy Company, as Borrower, each domestic Subsidiary

of Massey, as Guarantors, CitiCorp USA, Inc., as Administrative

Agent and Collateral Agent, PNC Bank, National Association, as

Syndication Agent, Wachovia Bank, National Association, as

Documentation Agent, and the lenders party thereto, for a maximum

principal amount at any one time outstanding not to exceed

$250,000,000

10.2 First Amendment to Amended and Restated Credit Agreement dated as of

January 30, 2003, among Massey Energy Company, as Borrower, each

domestic Subsidiary of Massey, as Guarantors, CitiCorp USA, Inc., as

Administrative Agent and Collateral Agent, PNC Bank, National

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Association, as Syndication Agent, Wachovia Bank, National

Association, as Documentation Agent, and the lenders party thereto,

for a maximum principal amount at any one time outstanding not to

exceed $250,000,000

10.3 Credit and Security Agreement dated as of January 31, 2003, among

Massey Receivables Corporation, as Borrower, A. T. Massey Coal

Company, Inc., as Servicer, Blue Ridge Asset Funding Corporation,

the Liquidity Banks from time to time party hereto and Wachovia

Bank, National Association, as Agent

10.4 Massey Energy Company 1999 Executive Performance Incentive Plan (as

amended and restated effective November 30, 2000) [filed as Exhibit

10.1 to Massey's annual report on Form 10-K for the fiscal year

ended October 31, 2000 and incorporated by reference]

10.5 Massey Executive Deferred Compensation Program (as amended and

restated effective November 30, 2000) [filed as Exhibit 10.2 to

Massey's annual report on Form 10-K for the fiscal year ended

October 31, 2000 and incorporated by reference]

10.6 Massey Energy Company Executive Physical Program [filed as Exhibit

10.3 to Massey's annual report on Form 10-K for the fiscal year

ended October 31, 2000 and incorporated by reference]

69

10.7 Massey Energy Company Directors' Life Insurance Summary [filed as

Exhibit 10.4 to Massey's annual report on Form 10-K for the fiscal

year ended October 31, 2000 and incorporated by reference]

10.8 Massey Energy Split Dollar Life Insurance Program Summary [filed as

Exhibit 10.5 to Massey's annual report on Form 10-K for the fiscal

year ended October 31, 2000 and incorporated by reference]

10.9 Massey Energy Company 1988 Executive Stock Plan (as amended and

restated effective November 30, 2000) [filed as Exhibit 10.6 to

Massey's annual report on Form 10-K for the fiscal year ended

October 31, 2000 and incorporated by reference]

10.10 Massey Energy Company Change of Control Compensation Plan (as

amended and restated effective November 30, 2000) [filed as Exhibit

10.7 to Massey's annual report on Form 10-K for the fiscal year

ended October 31, 2000 and incorporated by reference]

10.11 Massey Energy Company 1982 Shadow Stock Plan [filed as Exhibit 10.8

to Massey's annual report on Form 10-K for the fiscal year ended

October 31, 2000 and incorporated by reference]

10.12 Massey Energy Company 1997 Stock Appreciation Rights Plan [filed as

Exhibit 10.9 to Massey's annual report on Form 10-K for the fiscal

year ended October 31, 2000 and incorporated by reference]

10.13 A. T. Massey Coal Company, Inc. Supplemental Benefit Plan [filed as

Exhibit 10.10 to Massey's annual report on Form 10-K for the fiscal

year ended October 31, 2000 and incorporated by reference]

10.14 A. T. Massey Coal Company, Inc. Executive Deferred Compensation Plan

[filed as Exhibit 10.11 to Massey's annual report on Form 10-K for

the fiscal year ended October 31, 2000 and incorporated by

reference]

10.15 Massey Energy Company 1997 Restricted Stock Plan for Non-Employee

Directors (as amended and restated effective November 30, 2000)

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[filed as Exhibit 10.12 to Massey's annual report on Form 10-K for

the fiscal year ended October 31, 2000 and incorporated by

reference]

10.16 Massey Energy Company 1996 Executive Stock Plan (as amended and

restated effective November 30, 2000) [filed as Exhibit 10.13 to

Massey's annual report on Form 10-K for the fiscal year ended

October 31, 2000 and incorporated by reference]

10.17 Massey Energy Company Stock Plan for Non-Employee Directors (as

amended and restated effective November 30, 2000) [filed as Exhibit

10.14 to Massey's annual report on Form 10-K for the fiscal year

ended October 31, 2000 and incorporated by reference]

10.18 Massey Energy Company Deferred Directors' Fees Program [filed as

Exhibit 10.15 to Massey's annual report on Form 10-K for the fiscal

year ended October 31, 2000 and incorporated by reference]

10.19 Amended and Restated Employment Agreement between Massey Energy

Company, A. T. Massey Coal Company, Inc. and Don L. Blankenship

dated as of November 1, 2001(amending and restating on July 16,

2002, the Employment Agreement between Massey Energy Company, A. T.

Massey Coal Company, Inc. and Don L. Blankenship dated as of

November 1, 2001) [filed as Exhibit 3.1 to Massey's quarterly report

on Form 10-Q for the period ended June 30, 2002 and incorporated by

reference]

10.20 Special Successor and Development Retention Program between Fluor

Corporation and Don L. Blankenship dated as of September 1998 [filed

as Exhibit 10.21 to Fluor's annual report on Form 10-K for the

fiscal year ended October 31, 1998 and incorporated by this

reference]

10.21 Distribution Agreement between Fluor Corporation and Massey Energy

Company dated as of November 30, 2000 [filed as Exhibit 10.1 to

Massey's current report on Form 8-K filed December 15, 2000 and

incorporated by this reference]

10.22 Tax Sharing Agreement between Fluor Corporation, Massey Energy

Company and A. T. Massey Coal Company, Inc. dated as of November 30,

2000 [filed as Exhibit 10.2 to Massey's current report on Form 8-K

filed December 15, 2000 and incorporated by this reference]

10.23 First Amendment to the A.T. Massey Coal Company, Inc. Executive

Deferred Compensation Plan [filed as Exhibit 10.23 to Massey's

annual report on Form 10-K for the fiscal year ended October 31,

2000 and incorporated by reference]

21 Massey Energy Company Subsidiaries

23 Consent of Independent Auditors

24 Manually signed Powers of Attorney executed by Massey directors

70

99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.,

Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.,

Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

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(b) Reports on Form 8-K:

Current Report on Form 8-K filed February 5, 2003 announcing

Massey's financial results for the fiscal year ended December 31,

2002.

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.

MASSEY ENERGY COMPANY

March 31, 2003

By: /s/ K. J. Stockel

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

K. J. Stockel,

Senior Vice President

and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this

report has been signed below by the following persons on behalf of the

registrant and in the capacities and on the dates indicated.

Signature Title Date

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

Principal Executive Officer and Director:

/s/ D. L. Blankenship Chairman, Chief Executive Officer and March 31, 2003

- -------------------------------------- President

D. L. Blankenship

Principal Financial Officer:

/s/ K. J. Stockel Senior Vice President and Chief March 31, 2003

- -------------------------------------- Financial Officer

K. J. Stockel

Principal Accounting Officer

/s/ E. B. Tolbert Controller March 31, 2003

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

E. B. Tolbert

Other Directors:

* Director March 31, 2003

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

E. G. Gee

* Director March 31, 2003

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

W. R. Grant

* Director March 31, 2003

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

J. H. Harless

* Director March 31, 2003

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

B. R. Inman

* Director March 31, 2003

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

D. R. Moore

* Director March 31, 2003

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

M. R. Seger

By: March 31, 2003

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

R. E. Davis

Attorney-in-fact

* Manually signed Powers of Attorney authorizing R. Eberley Davis, James L.

Gardner and Kenneth J. Stockel, and each of them, to sign the annual report on

Form 10-K for the fiscal year ended December 31, 2002 and any amendments thereto

as attorneys-in-fact for certain directors and officers of the registrant are

included herein as Exhibits 24.

71

CERTIFICATIONS

I, Kenneth J. Stockel, certify that:

1. I have reviewed this annual report on Form 10-K of Massey Energy Company;

2. Based on my knowledge, this annual report does not contain any untrue

statement of a material fact or omit to state a material fact necessary to

make the statements made, in light of the circumstances under which such

statements were made, not misleading with respect to the period covered by

this annual report;

3. Based on my knowledge, the financial statements, and other financial

information included in this annual report, fairly present in all material

respects the financial condition, results of operations and cash flows of

the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined

in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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a) designed such disclosure controls and procedures to ensure that

material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those

entities, particularly during the period in which this annual report

is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls

and procedures as of a date within 90 days prior to the filing date of

this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the

effectiveness of the disclosure controls and procedures based on our

evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on

our most recent evaluation, to the registrant's auditors and the audit

committee of registrant's board of directors (or persons performing the

equivalent functions):

a) all significant deficiencies in the design or operation of internal

controls which could adversely affect the registrant's ability to

record, process, summarize and report financial data and have

identified for the registrant's auditors any material weaknesses in

internal controls; and

b) any fraud, whether or not material, that involves management or other

employees who have a significant role in the registrant's internal

controls; and

6. The registrant's other certifying officers and I have indicated in this

annual report whether there were significant changes in internal controls

or in other factors that could significantly affect internal controls

subsequent to the date of our most recent evaluation, including any

corrective actions with regard to significant deficiencies and material

weaknesses.

Date: March 31, 2003

/s/ K. J. Stockel

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

K. J. Stockel

Senior Vice President and Chief

Financial Officer

72

CERTIFICATIONS

I, Don L. Blankenship, certify that:

1. I have reviewed this annual report on Form 10-K of Massey Energy Company;

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2. Based on my knowledge, this annual report does not contain any untrue

statement of a material fact or omit to state a material fact necessary to

make the statements made, in light of the circumstances under which such

statements were made, not misleading with respect to the period covered by

this annual report;

3. Based on my knowledge, the financial statements, and other financial

information included in this annual report, fairly present in all material

respects the financial condition, results of operations and cash flows of

the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined

in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that

material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those

entities, particularly during the period in which this annual report

is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls

and procedures as of a date within 90 days prior to the filing date of

this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the

effectiveness of the disclosure controls and procedures based on our

evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on

our most recent evaluation, to the registrant's auditors and the audit

committee of registrant's board of directors (or persons performing the

equivalent functions):

a) all significant deficiencies in the design or operation of internal

controls which could adversely affect the registrant's ability to

record, process, summarize and report financial data and have

identified for the registrant's auditors any material weaknesses in

internal controls; and

b) any fraud, whether or not material, that involves management or other

employees who have a significant role in the registrant's internal

controls; and

6. The registrant's other certifying officers and I have indicated in this

annual report whether there were significant changes in internal controls

or in other factors that could significantly affect internal controls

subsequent to the date of our most recent evaluation, including any

corrective actions with regard to significant deficiencies and material

weaknesses.

Date: March 31, 2003

/s/ D. L. Blankenship

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

D. L. Blankenship

President, Chairman and Chief

Executive Officer

73

MASSEY ENERGY COMPANY

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

(In Thousands of Dollars)

Amounts

Balance Charged

at to Costs Balance at

Beginning and Deductions Other End of

Description of Period Expenses (1) (2) Period

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

YEAR ENDED DECEMBER 31, 2002

Reserves deducted from asset accounts:

Allowance for accounts and notes receivable $ 11,281 $ (2,706) $ - $ 200 $ 8,775

TWO MONTHS ENDED DECEMBER 31, 2001

Reserves deducted from asset accounts:

Allowance for accounts and notes receivable 9,848 1,433 - 11,281

-

YEAR ENDED OCTOBER 31, 2001

Reserves deducted from asset accounts:

Allowance for accounts and notes receivable 12,899 (1,527) (24) (1,500) 9,848

YEAR ENDED OCTOBER 31, 2000

Reserves deducted from asset accounts:

Allowance for accounts and notes receivable 6,587 6,333 - (21) 12,899

(1) Reserves utilized, unless otherwise indicated.

(2) Reclassifications, unless otherwise indicated.

74

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