##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2007
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number: 333-107569-03
 Arch Western Resources, LLC
  Delaware
    
    43-1811130(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)One CityPlace Drive, Suite 300, St. Louis, Missouri
    
    63141(Address of principal executive offices)
    
    (Zip code)
  þ o
  o o þ
 o þ




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##### 



Table of Contents
 PagePart I Financial Information
    
    
    1Item 1. Financial Statements.
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    22Item 4. Controls and Procedures.
    
    
    22Part II Other Information
    
    
    22Item 1. Legal Proceedings.
    
    
    22Item 1A. Risk Factors.
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    22Item 3. Defaults Upon Senior Securities.
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    23Item 5. Other Information.
    
    
    23Item 6. Exhibits
    
    
    23CertificationCertificationSection 1350 CertificationSection 1350 Certification
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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands)
 Three Months Ended September 30
    
    
    Nine Months Ended September 302007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)REVENUESCoal sales
    
    $
    405,055
    
    
    $
    369,730
    
    
    $
    1,161,610
    
    
    $
    1,118,331COSTS, EXPENSES AND OTHERCost of coal sales
    
    
    317,541
    
    
    
    270,178
    
    
    
    908,879
    
    
    
    773,584Depreciation, depletion and amortization
    
    
    35,200
    
    
    
    27,860
    
    
    
    100,658
    
    
    
    78,289Selling, general and administrative expenses
    
    
    6,258
    
    
    
    5,087
    
    
    
    19,196
    
    
    
    17,105Other operating income, net
    
    
    (808
    )
    
    
    (1,437
    )
    
    
    (8,794
    )
    
    
    (3,303
    )358,191
    
    
    
    301,688
    
    
    
    1,019,939
    
    
    
    865,675Income from operations
    
    
    46,864
    
    
    
    68,042
    
    
    
    141,671
    
    
    
    252,656Interest income (expense), net:Interest expense
    
    
    (18,119
    )
    
    
    (18,197
    )
    
    
    (53,818
    )
    
    
    (54,449
    )Interest income, primarily from Arch Coal, Inc.
    
    
    26,429
    
    
    
    22,108
    
    
    
    73,640
    
    
    
    59,0728,310
    
    
    
    3,911
    
    
    
    19,822
    
    
    
    4,623Other non-operating expense:Expenses resulting from early debt
extinguishment and termination of hedge
accounting for interest rate swaps
    
    
    (607
    )
    
    
    (1,635
    )
    
    
    (3,146
    )
    
    
    (6,658
    )Income before minority interest
    
    
    54,567
    
    
    
    70,318
    
    
    
    158,347
    
    
    
    250,621Minority interest
    
    
    (4,460
    )
    
    
    (2,410
    )
    
    
    (14,024
    )
    
    
    (23,165
    )Net income
    
    $
    50,107
    
    
    $
    67,908
    
    
    $
    144,323
    
    
    $
    227,456Net income attributable to redeemable
membership interest
    
    $
    251
    
    
    $
    340
    
    
    $
    722
    
    
    $
    1,138Net income attributable to non-redeemable
membership interest
    
    $
    49,856
    
    
    $
    67,568
    
    
    $
    143,601
    
    
    $
    226,318
  1




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##### Table of Contents



Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    245
    
    
    $
    186Trade accounts receivable
    
    
    416
    
    
    
    985Other receivables
    
    
    2,629
    
    
    
    14,733Inventories
    
    
    104,679
    
    
    
    94,828Prepaid royalties
    
    
    805
    
    
    
    2,945Other
    
    
    21,228
    
    
    
    24,458Total current assets
    
    
    130,002
    
    
    
    138,135Property, plant and equipment, net
    
    
    1,213,439
    
    
    
    1,233,846Other assets:Receivable from Arch Coal, Inc.
    
    
    1,389,976
    
    
    
    1,152,102Other
    
    
    26,738
    
    
    
    33,689Total other assets
    
    
    1,416,714
    
    
    
    1,185,791Total assets
    
    $
    2,760,155
    
    
    $
    2,557,772LIABILITIES AND MEMBERSHIP INTERESTSCurrent liabilities:Accounts payable
    
    $
    88,098
    
    
    $
    110,725Accrued expenses
    
    
    117,018
    
    
    
    129,495Short-term borrowings
    
    
    49,992
    
    
    
    Total current liabilities
    
    
    255,108
    
    
    
    240,220Long-term debt
    
    
    957,856
    
    
    
    958,881Accrued postretirement benefits other than pension
    
    
    33,419
    
    
    
    31,036Asset retirement obligations
    
    
    186,609
    
    
    
    174,902Accrued workers compensation
    
    
    10,501
    
    
    
    10,027Other noncurrent liabilities
    
    
    50,090
    
    
    
    38,705Total liabilities
    
    
    1,493,583
    
    
    
    1,453,771Redeemable membership interest
    
    
    7,651
    
    
    
    6,934Minority interest
    
    
    176,546
    
    
    
    162,522Non-redeemable membership interest
    
    
    1,082,375
    
    
    
    934,545Total liabilities and membership interests
    
    $
    2,760,155
    
    
    $
    2,557,772
  2




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Arch Western Resources, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
 Nine Months Ended September 302007
    
    
    2006(unaudited)OPERATING ACTIVITIESNet income
    
    $
    144,323
    
    
    $
    227,456Adjustments to reconcile net income to cash provided by operating activities:Depreciation, depletion and amortization
    
    
    100,658
    
    
    
    78,289Minority interest
    
    
    14,024
    
    
    
    23,165Prepaid royalties expensed
    
    
    3,440
    
    
    
    3,320Net gain on disposition of assets
    
    
    (5,923
    )
    
    
    (89
    )Other non-operating expense
    
    
    3,146
    
    
    
    6,658Changes in:Receivables
    
    
    12,673
    
    
    
    103,442Inventories
    
    
    (9,851
    )
    
    
    (29,111
    )Accounts payable and accrued expenses
    
    
    (35,176
    )
    
    
    7,977Other
    
    
    36,556
    
    
    
    4,040Cash provided by operating activities
    
    
    263,870
    
    
    
    425,147INVESTING ACTIVITIESCapital expenditures
    
    
    (99,830
    )
    
    
    (170,678
    )Increase in receivable from Arch Coal, Inc.
    
    
    (238,297
    )
    
    
    (254,640
    )Proceeds from dispositions of property, plant and equipment
    
    
    6,338
    
    
    
    185Additions to prepaid royalties
    
    
    (200
    )
    
    
    Reimbursement of deposits on equipment
    
    
    18,325
    
    
    
    Cash used in investing activities
    
    
    (313,664
    )
    
    
    (425,133
    )FINANCING ACTIVITIESProceeds from commercial paper
    
    
    49,992
    
    
    
    Debt financing costs
    
    
    (139
    )
    
    
    (15
    )Cash provided by (used in) financing activities
    
    
    49,853
    
    
    
    (15
    )Increase (decrease) in cash and cash equivalents
    
    
    59
    
    
    
    (1
    )Cash and cash equivalents, beginning of period
    
    
    186
    
    
    
    152Cash and cash equivalents, end of period
    
    $
    245
    
    
    $
    151
  3




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Arch Western Resources, LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Basis of Presentation
   2. Accounting Policies
 Accounting Standards Issued and Not Yet Adopted
 The Fair Value Option for Financial Liabilities  Including
an amendment of FASB Statement No. 115
 3. Commercial Paper Placement Program
  4. Inventories
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Coal
    
    $
    15,706
    
    
    $
    31,350Repair parts and supplies
    
    
    88,973
    
    
    
    63,478$
    104,679
    
    
    $
    94,828
 5. Comprehensive Income
 Reporting
Comprehensive Income
 4




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Three Months Ended September 30
    
    
    Nine Months Ended September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income
    
    $
    50,107
    
    
    $
    67,908
    
    
    $
    144,323
    
    
    $
    227,456Other comprehensive income:Pension, postretirement and
other post-employment benefits
adjustment
    
    
    371
    
    
    
    
    
    
    
    1,243
    
    
    
    14,531Unrealized gains on derivatives
    
    
    607
    
    
    
    1,635
    
    
    
    3,146
    
    
    
    6,658Total comprehensive income
    
    $
    51,085
    
    
    $
    69,543
    
    
    $
    148,712
    
    
    $
    248,645
 6. Related Party Transactions
      7. Contingencies
  5




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8. Segment Information
   Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Three months ended September 30, 2007Coal sales
    
    $
    261,150
    
    
    $
    143,905
    
    
    $
    
    
    
    $
    405,055Income (loss) from operations
    
    
    29,226
    
    
    
    23,228
    
    
    
    (5,590
    )
    
    
    46,864Total assets
    
    
    1,686,897
    
    
    
    1,892,733
    
    
    
    (819,475
    )
    
    
    2,760,155Depreciation, depletion and amortization
    
    
    18,276
    
    
    
    16,924
    
    
    
    
    
    
    
    35,200Capital expenditures
    
    
    7,397
    
    
    
    17,737
    
    
    
    
    
    
    
    25,134
 Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Three months ended September 30, 2006Coal sales
    
    $
    256,759
    
    
    $
    112,971
    
    
    $
    
    
    
    $
    369,730Income (loss) from operations
    
    
    46,830
    
    
    
    28,314
    
    
    
    (7,102
    )
    
    
    68,042Total assets
    
    
    1,522,347
    
    
    
    1,789,082
    
    
    
    (857,594
    )
    
    
    2,453,835Depreciation, depletion and amortization
    
    
    15,628
    
    
    
    12,232
    
    
    
    
    
    
    
    27,860Capital expenditures
    
    
    6,852
    
    
    
    30,640
    
    
    
    
    
    
    
    37,492
 Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Nine months ended September 30, 2007Coal sales
    
    $
    750,566
    
    
    $
    411,044
    
    
    $
    
    
    
    $
    1,161,610Income (loss) from operations
    
    
    85,078
    
    
    
    68,836
    
    
    
    (12,243
    )
    
    
    141,671Depreciation, depletion and amortization
    
    
    52,029
    
    
    
    48,629
    
    
    
    
    
    
    
    100,658Capital expenditures
    
    
    21,483
    
    
    
    78,347
    
    
    
    
    
    
    
    99,830
 Corporate,Other andPRB
    
    WBIT
    
    Eliminations
    
    Consolidated(In thousands)Nine months ended September 30, 2006Coal sales
    
    $
    785,202
    
    
    $
    333,129
    
    
    $
    
    
    
    $
    1,118,331Income (loss) from operations
    
    
    179,542
    
    
    
    94,536
    
    
    
    (21,422
    )
    
    
    252,656Depreciation, depletion and amortization
    
    
    45,892
    
    
    
    32,397
    
    
    
    
    
    
    
    78,289Capital expenditures
    
    
    76,059
    
    
    
    94,619
    
    
    
    
    
    
    
    170,678
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Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Income from operations
    
    $
    46,864
    
    
    $
    68,042
    
    
    $
    141,671
    
    
    $
    252,656Interest expense
    
    
    (18,119
    )
    
    
    (18,197
    )
    
    
    (53,818
    )
    
    
    (54,449
    )Interest income
    
    
    26,429
    
    
    
    22,108
    
    
    
    73,640
    
    
    
    59,072Other non-operating expense
    
    
    (607
    )
    
    
    (1,635
    )
    
    
    (3,146
    )
    
    
    (6,658
    )Income before minority interest
    
    $
    54,567
    
    
    $
    70,318
    
    
    $
    158,347
    
    
    $
    250,621
 9. Supplemental Condensed Consolidating Financial Information
  7




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Statements of Operations
Three Months Ended September 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    299,503
    
    
    $
    105,552
    
    
    $
    
    
    
    $
    405,055Cost of coal sales
    
    
    (618
    )
    
    
    
    
    
    
    238,234
    
    
    
    80,558
    
    
    
    (633
    )
    
    
    317,541Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    23,534
    
    
    
    11,666
    
    
    
    
    
    
    
    35,200Selling, general and administrative
expenses allocated from Arch Coal
    
    
    6,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,258Other operating income
    
    
    (50
    )
    
    
    
    
    
    
    (565
    )
    
    
    (826
    )
    
    
    633
    
    
    
    (808
    )5,590
    
    
    
    
    
    
    
    261,203
    
    
    
    91,398
    
    
    
    
    
    
    
    358,191Income from investment in subsidiaries
    
    
    53,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,022
    )
    
    
    Income from operations
    
    
    47,432
    
    
    
    
    
    
    
    38,300
    
    
    
    14,154
    
    
    
    (53,022
    )
    
    
    46,864Interest expense
    
    
    (18,144
    )
    
    
    (15,311
    )
    
    
    (107
    )
    
    
    (587
    )
    
    
    16,030
    
    
    
    (18,119
    )Interest income, primarily from Arch Coal
    
    
    25,886
    
    
    
    16,030
    
    
    
    115
    
    
    
    428
    
    
    
    (16,030
    )
    
    
    26,4297,742
    
    
    
    719
    
    
    
    8
    
    
    
    (159
    )
    
    
    
    
    
    
    8,310Other non-operating expense
    
    
    (607
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (607
    )Minority interest
    
    
    (4,460
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,460
    )Net income
    
    $
    50,107
    
    
    $
    719
    
    
    $
    38,308
    
    
    $
    13,995
    
    
    $
    (53,022
    )
    
    $
    50,107
 8




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Statements of Operations
Three Months Ended September 30, 2006
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    299,278
    
    
    $
    70,452
    
    
    $
    
    
    
    $
    369,730Cost of coal sales
    
    
    
    
    
    
    
    
    
    
    211,449
    
    
    
    58,729
    
    
    
    
    
    
    
    270,178Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    20,624
    
    
    
    7,236
    
    
    
    
    
    
    
    27,860Selling, general and administrative
expenses allocated from Arch Coal
    
    
    5,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,087Other operating income
    
    
    
    
    
    
    
    
    
    
    (1,165
    )
    
    
    (272
    )
    
    
    
    
    
    
    (1,437
    )5,087
    
    
    
    
    
    
    
    230,908
    
    
    
    65,693
    
    
    
    
    
    
    
    301,688Income from investment in subsidiaries
    
    
    73,708
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,708
    )
    
    
    Income from operations
    
    
    68,621
    
    
    
    
    
    
    
    68,370
    
    
    
    4,759
    
    
    
    (73,708
    )
    
    
    68,042Interest expense
    
    
    (18,395
    )
    
    
    (15,366
    )
    
    
    (57
    )
    
    
    (388
    )
    
    
    16,009
    
    
    
    (18,197
    )Interest income, primarily from Arch Coal
    
    
    21,727
    
    
    
    16,009
    
    
    
    147
    
    
    
    234
    
    
    
    (16,009
    )
    
    
    22,1083,332
    
    
    
    643
    
    
    
    90
    
    
    
    (154
    )
    
    
    
    
    
    
    3,911Other non-operating expense
    
    
    (1,635
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,635
    )Minority interest
    
    
    (2,410
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,410
    )Net income
    
    $
    67,908
    
    
    $
    643
    
    
    $
    68,460
    
    
    $
    4,605
    
    
    $
    (73,708
    )
    
    $
    67,908
 9




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##### Table of Contents



Statements of Operations
Nine Months Ended September 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    870,193
    
    
    $
    291,417
    
    
    $
    
    
    
    $
    1,161,610Cost of coal sales
    
    
    (838
    )
    
    
    
    
    
    
    692,866
    
    
    
    218,746
    
    
    
    (1,895
    )
    
    
    908,879Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    67,362
    
    
    
    33,296
    
    
    
    
    
    
    
    100,658Selling, general and administrative
expenses allocated from Arch Coal
    
    
    19,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,196Other operating (income) expense
    
    
    (6,115
    )
    
    
    
    
    
    
    (1,912
    )
    
    
    (2,662
    )
    
    
    1,895
    
    
    
    (8,794
    )12,243
    
    
    
    
    
    
    
    758,316
    
    
    
    249,380
    
    
    
    
    
    
    
    1,019,939Income from investment in subsidiaries
    
    
    155,721
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (155,721
    )
    
    
    Income from operations
    
    
    143,478
    
    
    
    
    
    
    
    111,877
    
    
    
    42,037
    
    
    
    (155,721
    )
    
    
    141,671Interest expense
    
    
    (54,065
    )
    
    
    (45,747
    )
    
    
    (311
    )
    
    
    (1,776
    )
    
    
    48,081
    
    
    
    (53,818
    )Interest income, primarily from Arch Coal
    
    
    72,080
    
    
    
    48,081
    
    
    
    351
    
    
    
    1,209
    
    
    
    (48,081
    )
    
    
    73,64018,015
    
    
    
    2,334
    
    
    
    40
    
    
    
    (567
    )
    
    
    
    
    
    
    19,822Other non-operating expense
    
    
    (3,146
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,146
    )Minority interest
    
    
    (14,024
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,024
    )Net income (loss)
    
    $
    144,323
    
    
    $
    2,334
    
    
    $
    111,917
    
    
    $
    41,470
    
    
    $
    (155,721
    )
    
    $
    144,323
 10




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##### Table of Contents



Statements of Operations
Nine Months Ended September 30, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCoal sales
    
    $
    
    
    
    $
    
    
    
    $
    878,171
    
    
    $
    240,160
    
    
    $
    
    
    
    $
    1,118,331Cost of coal sales
    
    
    2,370
    
    
    
    
    
    
    
    606,252
    
    
    
    164,962
    
    
    
    
    
    
    
    773,584Depreciation, depletion and amortization
    
    
    
    
    
    
    
    
    
    
    59,150
    
    
    
    19,139
    
    
    
    
    
    
    
    78,289Selling, general and administrative
expenses allocated from Arch Coal
    
    
    17,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,105Other operating income
    
    
    (68
    )
    
    
    
    
    
    
    (2,175
    )
    
    
    (1,060
    )
    
    
    
    
    
    
    (3,303
    )19,407
    
    
    
    
    
    
    
    663,227
    
    
    
    183,041
    
    
    
    
    
    
    
    865,675Income from investment in subsidiaries
    
    
    273,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (273,393
    )
    
    
    Income from operations
    
    
    253,986
    
    
    
    
    
    
    
    214,944
    
    
    
    57,119
    
    
    
    (273,393
    )
    
    
    252,656Interest expense
    
    
    (54,544
    )
    
    
    (46,138
    )
    
    
    (406
    )
    
    
    (1,399
    )
    
    
    48,038
    
    
    
    (54,449
    )Interest income, primarily from Arch Coal
    
    
    57,837
    
    
    
    48,038
    
    
    
    405
    
    
    
    830
    
    
    
    (48,038
    )
    
    
    59,0723,293
    
    
    
    1,900
    
    
    
    (1
    )
    
    
    (569
    )
    
    
    
    
    
    
    4,623Other non-operating expense
    
    
    (6,658
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,658
    )Minority interest
    
    
    (23,165
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,165
    )Net income (loss)
    
    $
    227,456
    
    
    $
    1,900
    
    
    $
    214,943
    
    
    $
    56,550
    
    
    $
    (273,393
    )
    
    $
    227,456
 11




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##### Table of Contents



Balance Sheets
September 30, 2007
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    138
    
    
    $
    
    
    
    $
    34
    
    
    $
    73
    
    
    $
    
    
    
    $
    245Trade accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    416
    
    
    
    
    
    
    
    416Other receivables
    
    
    811
    
    
    
    
    
    
    
    1,405
    
    
    
    413
    
    
    
    
    
    
    
    2,629Inventories
    
    
    
    
    
    
    
    
    
    
    83,499
    
    
    
    21,180
    
    
    
    
    
    
    
    104,679Prepaid royalties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    805
    
    
    
    
    
    
    
    805Other
    
    
    3,442
    
    
    
    2,157
    
    
    
    6,562
    
    
    
    9,067
    
    
    
    
    
    
    
    21,228Total current assets
    
    
    4,391
    
    
    
    2,157
    
    
    
    91,500
    
    
    
    31,954
    
    
    
    
    
    
    
    130,002Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    843,922
    
    
    
    369,517
    
    
    
    
    
    
    
    1,213,439Investment in subsidiaries
    
    
    2,076,149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,076,149
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,362,585
    
    
    
    
    
    
    
    (112
    )
    
    
    27,503
    
    
    
    
    
    
    
    1,389,976Intercompanies
    
    
    (2,087,702
    )
    
    
    963,982
    
    
    
    1,068,292
    
    
    
    55,428
    
    
    
    
    
    
    
    Other
    
    
    792
    
    
    
    10,154
    
    
    
    11,991
    
    
    
    3,801
    
    
    
    
    
    
    
    26,738Total other assets
    
    
    1,351,824
    
    
    
    974,136
    
    
    
    1,080,171
    
    
    
    86,732
    
    
    
    (2,076,149
    )
    
    
    1,416,714Total assets
    
    $
    1,356,215
    
    
    $
    976,293
    
    
    $
    2,015,593
    
    
    $
    488,203
    
    
    $
    (2,076,149
    )
    
    $
    2,760,155Accounts payable
    
    
    2,783
    
    
    
    
    
    
    
    68,361
    
    
    
    16,954
    
    
    
    
    
    
    
    88,098Accrued expenses
    
    
    2,231
    
    
    
    16,032
    
    
    
    88,119
    
    
    
    10,636
    
    
    
    
    
    
    
    117,018Short-term borrowings
    
    
    49,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,992Total current liabilities
    
    
    55,006
    
    
    
    16,032
    
    
    
    156,480
    
    
    
    27,590
    
    
    
    
    
    
    
    255,108Long-term debt
    
    
    
    
    
    
    957,856
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    957,856Accrued postretirement benefits
other than pension
    
    
    20,935
    
    
    
    
    
    
    
    2,485
    
    
    
    9,999
    
    
    
    
    
    
    
    33,419Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    174,775
    
    
    
    11,834
    
    
    
    
    
    
    
    186,609Accrued workers compensation
    
    
    5,832
    
    
    
    
    
    
    
    1,138
    
    
    
    3,531
    
    
    
    
    
    
    
    10,501Other noncurrent liabilities
    
    
    7,870
    
    
    
    
    
    
    
    36,656
    
    
    
    5,564
    
    
    
    
    
    
    
    50,090Total liabilities
    
    
    89,643
    
    
    
    973,888
    
    
    
    371,534
    
    
    
    58,518
    
    
    
    
    
    
    
    1,493,583Redeemable
membership interest
    
    
    7,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,651Minority interest
    
    
    176,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176,546Non-redeemable membership interest
    
    
    1,082,375
    
    
    
    2,405
    
    
    
    1,644,059
    
    
    
    429,685
    
    
    
    (2,076,149
    )
    
    
    1,082,375Total
liabilities and membership
interests
    
    $
    1,356,215
    
    
    $
    976,293
    
    
    $
    2,015,593
    
    
    $
    488,203
    
    
    $
    (2,076,149
    )
    
    $
    2,760,155
 12




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##### Table of Contents



Balance Sheets
December 31, 2006
(in thousands)
 Guarantor
    
    
    Non-GuarantorParent Company
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    161
    
    
    $
    25
    
    
    $
    
    
    
    $
    186Trade accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    985Other receivables
    
    
    1,007
    
    
    
    
    
    
    
    13,453
    
    
    
    273
    
    
    
    
    
    
    
    14,733Inventories
    
    
    
    
    
    
    
    
    
    
    58,796
    
    
    
    36,032
    
    
    
    
    
    
    
    94,828Prepaid royalties
    
    
    
    
    
    
    
    
    
    
    2,648
    
    
    
    297
    
    
    
    
    
    
    
    2,945Other current assets
    
    
    11,439
    
    
    
    2,154
    
    
    
    6,235
    
    
    
    4,630
    
    
    
    
    
    
    
    24,458Total current assets
    
    
    12,446
    
    
    
    2,154
    
    
    
    81,293
    
    
    
    42,242
    
    
    
    
    
    
    
    138,135Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    879,211
    
    
    
    354,635
    
    
    
    
    
    
    
    1,233,846Investment in subsidiaries
    
    
    1,917,292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,917,292
    )
    
    
    Receivable from Arch Coal, Inc.
    
    
    1,124,910
    
    
    
    
    
    
    
    (2
    )
    
    
    27,194
    
    
    
    
    
    
    
    1,152,102Intercompanies
    
    
    (1,903,278
    )
    
    
    977,096
    
    
    
    910,676
    
    
    
    15,506
    
    
    
    
    
    
    
    Other
    
    
    639
    
    
    
    11,764
    
    
    
    15,829
    
    
    
    5,457
    
    
    
    
    
    
    
    33,689Total other assets
    
    
    1,139,563
    
    
    
    988,860
    
    
    
    926,503
    
    
    
    48,157
    
    
    
    (1,917,292
    )
    
    
    1,185,791Total assets
    
    $
    1,152,009
    
    
    $
    991,014
    
    
    $
    1,887,007
    
    
    $
    445,034
    
    
    $
    (1,917,292
    )
    
    $
    2,557,772Accounts payable
    
    
    15,151
    
    
    
    
    
    
    
    77,347
    
    
    
    18,227
    
    
    
    
    
    
    
    110,725Accrued expenses
    
    
    3,360
    
    
    
    32,063
    
    
    
    85,202
    
    
    
    8,870
    
    
    
    
    
    
    
    129,495Total current liabilities
    
    
    18,511
    
    
    
    32,063
    
    
    
    162,549
    
    
    
    27,097
    
    
    
    
    
    
    
    240,220Long-term debt
    
    
    
    
    
    
    958,881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    958,881Accrued postretirement benefits
other than pension
    
    
    18,981
    
    
    
    
    
    
    
    2,485
    
    
    
    9,570
    
    
    
    
    
    
    
    31,036Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    163,832
    
    
    
    11,070
    
    
    
    
    
    
    
    174,902Accrued workers compensation
    
    
    5,262
    
    
    
    
    
    
    
    1,236
    
    
    
    3,529
    
    
    
    
    
    
    
    10,027Other noncurrent liabilities
    
    
    5,254
    
    
    
    
    
    
    
    27,757
    
    
    
    5,694
    
    
    
    
    
    
    
    38,705Total liabilities
    
    
    48,008
    
    
    
    990,944
    
    
    
    357,859
    
    
    
    56,960
    
    
    
    
    
    
    
    1,453,771Redeemable
membership interest
    
    
    6,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,934Minority interest
    
    
    162,522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,522Non-redeemable membership interest
    
    
    934,545
    
    
    
    70
    
    
    
    1,529,148
    
    
    
    388,074
    
    
    
    (1,917,292
    )
    
    
    934,545Total
liabilities and membership
interests
    
    $
    1,152,009
    
    
    $
    991,014
    
    
    $
    1,887,007
    
    
    $
    445,034
    
    
    $
    (1,917,292
    )
    
    $
    2,557,772
 13




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##### Table of Contents



Statements of Cash Flows
Nine Months Ended September 30, 2007
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOPERATING ACTIVITIESCash provided by (used in) operating
activities
    
    $
    (2,464
    )
    
    $
    (13,114
    )
    
    $
    189,338
    
    
    $
    90,110
    
    
    $
    263,870INVESTING ACTIVITIESCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (50,431
    )
    
    
    (49,399
    )
    
    
    (99,830
    )Increase in receivable from Arch Coal
    
    
    (237,675
    )
    
    
    
    
    
    
    (2
    )
    
    
    (620
    )
    
    
    (238,297
    )Proceeds
from dispositions of property, plant 
and equipment
    
    
    6,000
    
    
    
    
    
    
    
    259
    
    
    
    79
    
    
    
    6,338Additions to prepaid royalties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200
    )
    
    
    (200
    )Reimbursement of deposits on equipment
    
    
    
    
    
    
    
    
    
    
    18,325
    
    
    
    
    
    
    
    18,325Cash used in investing activities
    
    
    (231,675
    )
    
    
    
    
    
    
    (31,849
    )
    
    
    (50,140
    )
    
    
    (313,664
    )FINANCING ACTIVITIESProceeds from commercial paper
    
    
    49,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,992Debt financing costs
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )Transactions with affiliates, net
    
    
    184,424
    
    
    
    13,114
    
    
    
    (157,616
    )
    
    
    (39,922
    )
    
    
    Cash provided by (used in) financing
activities
    
    
    234,277
    
    
    
    13,114
    
    
    
    (157,616
    )
    
    
    (39,922
    )
    
    
    49,853Increase (decrease) in cash and cash equivalents
    
    
    138
    
    
    
    
    
    
    
    (127
    )
    
    
    48
    
    
    
    59Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    25
    
    
    
    186Cash and cash equivalents, end of period
    
    $
    138
    
    
    $
    
    
    
    $
    34
    
    
    $
    73
    
    
    $
    245
 14




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##### Table of Contents



Statements of Cash Flows
Nine Months Ended September 30, 2006
(in thousands)
 Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedOPERATING ACTIVITIESCash provided by (used in) operating
activities
    
    $
    67,658
    
    
    $
    (13,537
    )
    
    $
    290,047
    
    
    $
    80,979
    
    
    $
    425,147INVESTING ACTIVITIESCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (92,555
    )
    
    
    (78,123
    )
    
    
    (170,678
    )Increase in receivable from Arch Coal
    
    
    (236,677
    )
    
    
    
    
    
    
    (469
    )
    
    
    (17,494
    )
    
    
    (254,640
    )Proceeds
from dispositions of property, plant
and equipment
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    93
    
    
    
    185Cash used in investing activities
    
    
    (236,677
    )
    
    
    
    
    
    
    (92,932
    )
    
    
    (95,524
    )
    
    
    (425,133
    )FINANCING ACTIVITIESDebt financing costs
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Transactions with affiliates, net
    
    
    169,019
    
    
    
    13,552
    
    
    
    (197,143
    )
    
    
    14,572
    
    
    
    Cash provided by (used in) financing
activities
    
    
    169,019
    
    
    
    13,537
    
    
    
    (197,143
    )
    
    
    14,572
    
    
    
    (15
    )Increase
(decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    27
    
    
    
    (1
    )Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    26
    
    
    
    152Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    98
    
    
    $
    53
    
    
    $
    151
 15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This document contains forward-looking statements  that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as expects, anticipates,
intends, plans, believes, seeks, or will. Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
operational, geological, permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired businesses; and from
numerous other matters of national, regional and global scale, including those of a political,
economic, business, competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our forward-looking statements.
We do not undertake to update our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, see Risk Factors under
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006 and the Quarterly
Reports on form 10-Q that we filed during the interim period.
 Executive Overview
    Results of Operations
 Items Affecting Comparability of Reported Results
  Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
  Revenues.
 16




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##### Table of Contents



Three Months Ended September 30
    
    Increase2007
    
    2006
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    405,055
    
    
    $
    369,730
    
    
    $
    35,325
    
    
    
    9.6
    %Tons sold
    
    
    30,128
    
    
    
    28,729
    
    
    
    1,399
    
    
    
    4.9Coal sales realization per ton sold
    
    $
    13.44
    
    
    $
    12.87
    
    
    $
    0.57
    
    
    
    4.4
   Three Months Ended September 30
    
    Increase2007
    
    2006
    
    Tons
    
    %(Amounts in thousands)Powder River Basin
    
    
    25,071
    
    
    
    24,533
    
    
    
    538
    
    
    
    2.2
    %Western Bituminous
    
    
    5,057
    
    
    
    4,196
    
    
    
    861
    
    
    
    20.5Total
    
    
    30,128
    
    
    
    28,729
    
    
    
    1,399
    
    
    
    4.9
    Three Months Ended September 30
    
    Increase (Decrease)2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    10.40
    
    
    $
    10.46
    
    
    $
    (0.06
    )
    
    
    (0.6
    )%Western Bituminous
    
    
    25.16
    
    
    
    24.21
    
    
    
    0.95
    
    
    
    3.9
  Expenses, costs and other.
 17




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##### Table of Contents



DecreaseThree Months Ended September 30
    
    
    in Net Income2007
    
    
    2006
    
    
    $
    
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    317,541
    
    
    $
    270,178
    
    
    $
    (47,363
    )
    
    
    (17.5
    )%Depreciation, depletion and amortization
    
    
    35,200
    
    
    
    27,860
    
    
    
    (7,340
    )
    
    
    (26.3
    )Selling, general and administrative expenses
    
    
    6,258
    
    
    
    5,087
    
    
    
    (1,171
    )
    
    
    (23.0
    )Other operating income, net
    
    
    (808
    )
    
    
    (1,437
    )
    
    
    (629
    )
    
    
    (43.8
    )$
    358,191
    
    
    $
    301,688
    
    
    $
    (56,503
    )
    
    
    (18.7
    )%
 Cost of coal sales
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses
 Operating margins.
 Three Months Ended September 30
    
    Decrease2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    1.15
    
    
    $
    1.86
    
    
    $
    (0.71
    )
    
    
    (38.2
    )%Western Bituminous Region
    
    
    4.42
    
    
    
    6.21
    
    
    
    (1.79
    )
    
    
    (28.8
    )
   Net interest income
 IncreaseThree Months Ended September 30
    
    
    in Net Income2007
    
    
    2006
    
    
    $
    
    
    %(Amounts in thousands)Interest expense
    
    $
    (18,119
    )
    
    $
    (18,197
    )
    
    $
    78
    
    
    
    0.4
    %Interest income
    
    
    26,429
    
    
    
    22,108
    
    
    
    4,321
    
    
    
    19.5$
    8,310
    
    
    $
    3,911
    
    
    $
    4,399
    
    
    
    112.5
    %
  Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
  Revenues.
 18




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##### Table of Contents



Nine Months Ended September 30
    
    Increase (Decrease)2007
    
    2006
    
    $
    
    %(Amounts in thousands, except per ton data)Coal sales
    
    $
    1,161,610
    
    
    $
    1,118,331
    
    
    $
    43,279
    
    
    
    3.9
    %Tons sold
    
    
    87,027
    
    
    
    83,571
    
    
    
    3,456
    
    
    
    4.1Coal sales realization per ton sold
    
    $
    13.35
    
    
    $
    13.38
    
    
    $
    (0.03
    )
    
    
    (0.2
    )
   Nine Months Ended September 30
    
    Increase2007
    
    2006
    
    Tons
    
    %(Amounts in thousands)Powder River Basin
    
    
    72,250
    
    
    
    70,814
    
    
    
    1,436
    
    
    
    2.0
    %Western Bituminous Region
    
    
    14,777
    
    
    
    12,757
    
    
    
    2,020
    
    
    
    15.8Total
    
    
    87,027
    
    
    
    83,571
    
    
    
    3,456
    
    
    
    4.1
    %
    Nine Months Ended September 30
    
    Increase (Decrease)2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    10.35
    
    
    $
    11.07
    
    
    $
    (0.72
    )
    
    
    (6.5
    )%Western Bituminous Region
    
    
    24.69
    
    
    
    23.17
    
    
    
    1.52
    
    
    
    6.6
  Expenses, costs and other.
 19




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##### Table of Contents



Increase (Decrease)Nine Months Ended September 30
    
    
    in Net Income2007
    
    
    2006
    
    
    $
    
    
    %(Amounts in thousands)Cost of coal sales
    
    $
    908,879
    
    
    $
    773,584
    
    
    $
    (135,295
    )
    
    
    (17.5
    )%Depreciation, depletion and amortization
    
    
    100,658
    
    
    
    78,289
    
    
    
    (22,369
    )
    
    
    (28.6
    )Selling, general and administrative expenses
    
    
    19,196
    
    
    
    17,105
    
    
    
    (2,091
    )
    
    
    (12.2
    )Other operating income, net
    
    
    (8,794
    )
    
    
    (3,303
    )
    
    
    5,491
    
    
    
    166.2$
    1,019,939
    
    
    $
    865,675
    
    
    $
    (154,264
    )
    
    
    (17.8
    )%
 Cost of coal sales
 Depreciation, depletion and amortization.
 Selling, general and administrative expenses
 Other operating income, net.
 Operating margins.
 Nine Months Ended September 30
    
    Decrease2007
    
    2006
    
    $
    
    %Powder River Basin
    
    $
    1.15
    
    
    $
    2.51
    
    
    $
    (1.36
    )
    
    
    (54.2
    )%Western Bituminous Region
    
    
    4.46
    
    
    
    7.17
    
    
    
    (2.71
    )
    
    
    (37.8
    )
   Net interest income
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IncreaseNine Months Ended September 30
    
    
    in Net Income2007
    
    
    2006
    
    
    $
    
    
    %(Amounts in thousands)Interest expense
    
    $
    (53,818
    )
    
    $
    (54,449
    )
    
    $
    631
    
    
    
    1.2
    %Interest income
    
    
    73,640
    
    
    
    59,072
    
    
    
    14,568
    
    
    
    24.7$
    19,822
    
    
    $
    4,623
    
    
    $
    15,199
    
    
    
    328.8
    %
  Liquidity and Capital Resources
   Nine Months EndedSeptember 302007
    
    2006(in thousands)Cash provided by (used in):Operating activities
    
    $
    263,870
    
    
    $
    425,147Investing activities
    
    
    (313,664
    )
    
    
    (425,133
    )Financing activities
    
    
    49,853
    
    
    
    (15
    )
    21




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##### Table of Contents



Contingencies
 Reclamation. Accounting for Asset Retirement
Obligations
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
 22




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  Exhibit
    
    Description3.1
    
    Certificate of Formation (incorporated herein by reference to
Exhibit 3.3 to the Form S-4 (File No. 333-107569) filed on August
1, 2003 by Arch Western Finance, LLC, Arch Western Resources, LLC,
Arch of Wyoming, LLC, Mountain Coal Company, L.L.C., and Thunder
Basin Coal Company, L.L.C.).3.2
    
    Limited Liability Company Agreement (incorporated herein by
reference to Exhibit 3.4 to the Form S-4 (File No. 333-107569)
filed on August 1, 2003 by Arch Western Finance, LLC, Arch Western
Resources, LLC, Arch of Wyoming, LLC, Mountain Coal Company,
L.L.C., and Thunder Basin Coal Company, L.L.C.).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Paul A. Lang.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Robert J. Messey.32.1
    
    Section 1350 Certification of Paul A. Lang.32.2
    
    Section 1350 Certification of Robert J. Messey.
 23




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##### Table of Contents



Signatures
  Arch Western Resources, LLCBy:
    /s/ Robert J. MesseyRobert J. MesseyVice PresidentNovember 13, 2007 24